IRIX 10-K & 10-Q changes, risk factors and insider trading

General economic factors general macroeconomic conditions, including those resulting from ongoing geopolitical uncertainty and tensions, uncertainty in tax law or policy, tariffs, trade wars, inflationary pressures and changing interest rates, a reduction in business confidence and activity, global pandemics and responsive measures and the Russia-Ukraine conflict and Israel-Hamasthe conflicts.conflicts in the Middle East.

dependence on international sales and third-party manufacturers;

compliance with government regulations, including the FDA’s quality management system regulation and laser performance standards;

The Initial Novel Note is convertible at Novel’s option into shares of our Series B Preferred Stock at an initial conversion price of $10.00, subject to any adjustments set forth in the Initial Novel Note, In addition, any Novel Growth Notes issued in the future will be convertible at Novel’s option into shares of our common stock at a conversion price equal to the lesser of (x) a maximum conversion price as set forth in the Novel Note Purchase Agreement and (y) the greater of (A) the average closing price of the our common stock for each trading day after the applicable closing date in the calendar quarter immediately preceding the date of such conversion date and (B) a price floor of $0.21. The Novel Growth Notes will be issuable in three installments, with one-third of the aggregate principal amount being issuable on each of the first, second and third anniversaries of March 19, 2025 and ending 90 days following such anniversary, subject to the terms and conditions in the Novel Note Purchase Agreement. We have not issued any Growth Notes, but may do so in the future.

We are subject to macroeconomic fluctuations in the U.S. and worldwide economy including inflationary pressures that may cause the cost of manufacturing our products or servicing our products to increase. Concerns about consumer and investor confidence, trade wars, tariffs, volatile corporate profits and reduced capital spending, geopolitical tensions and conflicts, terrorist and military activity, civil unrest, pandemic-related illness and other factors could reduce customer orders or cause customer order cancellations. For example, political and social turmoil related to international conflicts, such as that occurring in Russia-Ukraine and Israel-Hamas,conflicts within the Middle East, and terrorist acts may put further pressure on economic conditions in the United States and abroad.

Certain of our materials may be subject to the effects of various trade agreements, treaties and tariffs. In fiscal year 2025, the United States imposed tariffs on various goods from various countries,countries throughout the world, including China, Canada, Mexico and the EU. As a result, Canada, the EU, China and other countriestrade partners responded with retaliatory tariffs on certain United States exports. In February 2025, President Trump issued executive orders directing the United States to impose new or additional tariffs on certain imports from Canada, Mexico and China... It is uncertain whether such tariffs will remain in effect or if additional tariffs, including retaliatory tariffs, will be imposed. On February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Power Act and immediately after, the U.S. Administration initiated new tariffs at different rates under alternative legislative powers, which increases the uncertainty around tariffs.

general macroeconomic conditions, including inflationary pressures and changing interest rates, global supply chain interruptions, government shutdowns, changes in tax law or policy, tariffs, geopolitical tensions and conflicts, and global pandemics and related responsive measures;

Our principal ophthalmic laser competitors are Alcon Inc., Bausch Health Companies Inc., Carl Zeiss Meditec AG, Lumenis Ltd., Nidek Co. Ltd., Lumibird, ARC GmbH, Meridian, OD-OS GmbH and Norlase. We also compete withOur alternative glaucoma surgical device companiescompetitors such asare Alcon, Inc., Novartis AG, Allergan, Inc., Glaukos Corporation, Sight SciencesSciences, and New World Medical, Inc. Pharmaceuticals represent alternative treatments to our laser procedures. Some of our principal pharmaceutical competitors are Alcon, Inc., Allergan, Inc., Astellas Pharma Inc., Pfizer Inc., Regeneron Pharmaceuticals, Inc., and Roche Holding Ltd. (Genentech). Some of our competitors have substantially greater financial, engineering, product development, manufacturing, marketing and technical resources than we do. Some companies also have greater name recognition than us and long-standing customer relationships. In addition, other medical device companies, academic and research institutions, or others, may develop new technologies or therapies, including medical devices, surgical procedures or pharmacological treatments and obtain regulatory approval for products utilizing such techniques that are more effective in treating the conditions targeted by us, or are less expensive than our current or future products. Our technologies and products could be rendered obsolete by such developments. Any such developments could have a material adverse effect on our business, financial condition and results of operations.

While we do not bill directly to Medicare, Medicaid or other third-party payors, because payment is in many cases available for our products from such payors, many healthcare laws place limitations and requirements on the manner in which we conduct our business (including our sales and promotional activities and interactions with healthcare professionals and facilities) and could result in liability and exposure for us. The laws that may affect our ability to operate include (i) the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as Medicare or Medicaid, (ii) federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us if we provide coding and billing advice to customers, or under theories of “implied certification” where the government and qui tam relators may allege that device companies are liable where a product that was paid for by the government in whole or in part was promoted “off-label,” lacked necessary clearance or approval, or failed to comply with good manufacturing practices or other laws; (iii) transparency laws and related reporting and disclosures requirements such as the federal Sunshine Act, now known as Open Payments; and/or (iv) state law equivalents of each of the above federal laws, including, without limitation anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, many of which differ from their federal counterparts in significant ways, thus complicating compliance efforts. There is significant uncertainty in the life sciences industry due to potential government shutdowns, layoffs and staff departures at the federal agencies, like the FDA, tariffs, and funding cuts for research, which can have a material effect on the operations of our customers and their demand for our products. Such laws include, without limitation, state and federal anti-kickback or anti-referral laws, healthcare fraud and abuse laws, false claims laws, privacy and security laws, Physician Payments Sunshine Act and related transparency and manufacturer reporting laws, and other laws and regulations applicable to medical device manufacturers.

Our success and ability to compete is dependent, in part, upon our proprietary information. We rely on a combination of patents, trade secrets, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our intellectual property rights. We file patent applications to protect technology, inventions and improvements that are significant to the development of our business. As of DecemberJanuary 28,3, 2024,2026, our patent portfolio includes 6867 active United States patents and 94 active international patents on the technologies related to our products and processes. In addition, as of DecemberJanuary 28,3, 2024,2026, we have 12 patent applications pending in the United States and 2019 international patent applications pending. Our patent applications may not be approved. Any patents granted now or in the future may offer only limited protection against potential infringement and development by our competitors of competing products. Moreover, our competitors, many of which have substantial resources and have made substantial investments in competing technologies, may seek to apply for and obtain patents that will prevent, limit or interfere with our ability to make, use or sell our products either in the United States or in international markets. Patents have a limited lifetime and once a patent expires competition may increase.

the impact of macroeconomic conditions, including geopolitical conflict and instability, any future global pandemic and inflationary pressures on global supply chains and market stability;

The FDA imposes a broad range of additional requirements on medical device companies. Our products must be produced in compliance with the applicable requirements of QSR,the orQuality Management System Regulation (QMSR), whenwhich itincorporates goesby reference the quality management system requirements of ISO 13485:2016, replaced the former Quality System Regulation (QSR), and went into effect in February 2026, and our manufacturing facilities are subject to establishment registration and device listing requirements from the FDA, and similar requirements from certain state authorities, and ongoing periodic inspections by the FDA, including unannounced inspections for compliance with applicable requirements. We are subject to monitoring, recordkeeping, and reporting obligations for medical device adverse events and malfunctions; notification of our products’ defects or failure to comply with the FDA’s laser regulations; and reporting of recalls, corrections, or removals of our products. The FDA also imposes requirements for the labeling of our products, and places limitations on claims we are permitted to make about our products in promotional labeling. The Federal Trade Commission has jurisdiction over the advertising of all of our products, which are non-restricted devices, and exercises oversight in coordination with the FDA.

We are currently required to demonstrate and maintain compliance with the FDA’s QSR,QMSR, orwhich QMSR when it goeswent into effect.effect in February 2026. The QSRQSMR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. Because our products involve the use of lasers, our products also are covered by a performance standard for lasers set forth in FDA regulations. The laser performance standard imposes specific recordkeeping, reporting, product testing and product labeling requirements. These requirements include affixing warning labels to laser products, as well as incorporating certain safety features in the design of laser products. The FDA enforces the QSRQSMR and laser performance standards through periodic unannounced inspections. We have been, and anticipate in the future being, subject to such inspections. Our failure to take satisfactory corrective action in response to an adverse QSRQSMR inspection or our failure to comply with applicable laser performance standards could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our products, civil or criminal penalties, or other sanctions, which would cause our sales and business to suffer. If we or any of our suppliers or contractors fail to meet the regulatory requirements or a regulatory inspection, our operations could be disrupted and our manufacturing interrupted.

Subsequent legislation, guidance, regulations or audits that differ from our prior assumptions and interpretations, or other factors which were not anticipated at the time we estimated our tax provision could have a material adverse effect on our business, cash flow, results of operations or financial condition. For example, recently enacted California legislation limits the use of state net operating loss carryforwards (“NOLs”) for tax years beginning on or after January 1, 2024 and before January 1, 2027. As a result of this legislation or other unforeseen reasons, we may not be able to utilize some or all of our NOLs, even if we attain profitability.

The trading price of our common stock has been subject to wide fluctuations in response to a variety of factors, some of which are beyond our control, including changes in foreign currency exchange rates, quarterly variations in our operating results, announcements by us or our competitors of new products or of significant clinical achievements, changes in our capital structure, including future issuances of securities or the incurrence of debt and the exercise or conversion of our outstanding convertible promissory notes and shares of Series B Preferred Stock, changes in market valuations of other similar companies in our industry and general market conditions, including market volatility due to investor concerns regarding inflation and geopolitical conflicts and tensions, such as the Russia-Ukraine and Israel-HamasMiddle East conflicts. During the fourth quarter of fiscal year 2024,2025, the closing trading price of our common stock fluctuated from a low of $1.36$0.89 per share to a high of $1.90$1.23 per share. During the fiscal year 2024,2025, the closing trading price of our common stock fluctuated from a low of $1.36$0.79 per share to a high of $3.53$1.83 per share. There can be no assurance that our common stock trading price will not suffer declines. Our common stock may experience an imbalance between supply and demand resulting from low trading volumes and therefore broad market fluctuations could have a significant impact on the market price of our common stock regardless of our performance.

Specifically, pursuant to the Novel Securities Purchase Agreement, we issued an aggregate of 1,000,000 shares of Series B Preferred Stock. With respect to any matter submitted to the vote of the holders of common stock, the holders of the Series B Preferred Stock are entitled to vote the whole number of votes equal to the number of shares of common stock into which such holder’s Series B Preferred Stock would be convertible into a number of shares of common stock on the record date for the vote or consent of stockholders atdetermined aby dividing the purchase price of $10.00 per share of Series B Preferred Stock by an initial conversion price of $10$2.00 per shareshare, which may be revised through amendment and/or restatement of commonour stockAmended roundedand toRestated theCertificate nearestof wholeIncorporation sharethat together,is subjectapproved toby certainour limitations.stockholders. The Series B Preferred Stock also ranks senior to the Common Stock and any other pari passu capital stock of the Company with respect to dividends,a distributionsbankruptcy or Change of Control Event (as defined in the Designations, Powers, Preferences and paymentsRelative uponand aOther liquidationSpecial event.Rights and the Qualifications, Limitations and Restrictions of Such Series of the Series B Preferred Stock).

Our amended and restated certificate of incorporation empowers the board of directors to establish and issue a class of preferred stock, and to determine the rights, preferences and privileges of the preferred stock. These provisions give the board of directors the ability to deter, discourage or make more difficult a change in control of our company, even if such a change in control could be deemed in the interest of our stockholders or if such a change in control would provide our stockholders with a substantial premium for their shares over the then-prevailing market price for the common stock. OurSubject to the rights of holders of Preferred Stock under specified circumstances, our amended and restated certificate of incorporation and bylaws contain other provisions that could have an anti-takeover effect, including the following:

Ophthalmologists typically use our laser systems in hospital operating rooms and ambulatory surgical centers, as well as their offices and clinics. In operating rooms and ambulatory surgical centers, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a single-use consumable probe, including MicroPulse P3®, G-Probe® and G-Probe Illuminate® delivery devices, and EndoProbe handpieces. In the offices and clinics, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a slit-lamp adapter. Our proprietary MicroPulse® and Continuous Wave laser therapies for glaucoma have been adopted by physicians around the globe as effective tools for managing and slowing the progression of glaucoma.

In 2024fiscal years 2025 and 2023,2024, our products were sold in the United States and Germany predominantly through a direct sales force and internationally (aside from Germany) primarily through independent distributors. Total revenues in 2024fiscal years 2025 and 20232024 were $48.7$52.7 million and $51.9$48.7 million, respectively. We generated net losses of $8.9$4.4 million and $9.6$8.9 million in 2024fiscal years 2025 and 2023,2024, respectively.

Our overall manufacturing strategy is to continuously develop and refine our processes to achieve our objectives of continuity of supply, quality of supply and margin enhancement. Over time, this may lead to in-sourcing or outsourcing certain functions, including manufacturing, in various geographic locations in order to achieve our objectives. Cost of revenues consists primarily of our direct manufacturing costs which include the cost of components and sub-systems, assembling, packaging, shipping and testing components at our facility, direct labor and associated overhead, warranty, royalty and amortization of intangible assets and depot service costs. For certain of our products, we are responsible for the cost of the fully assembled product that is manufactured by a third-party.

Impact of the newrecent Local Coverage Determination on our Business

DuringIn 20242024, Local Coverage Determination ("LCD") L37531, relatingwhich relates to Micro-Invasive Glaucoma Surgery (MIGS), was adopted as scheduledand became effective for services performed on or after November 17, 2024. We believe the reimbursement limitations created by the new LCD has potential to significantly increaseincreased physician interest in and use of Iridex’sour advanced laser-based treatments for glaucoma.

The new LCD clarifies that treatments performed using Iridex’sour laser consoles and probes are not MIGS procedures, and thus, Iridex’sour Cyclo G6® product family is unaffected by the new reimbursement limitations. Iridex’s proprietary MicroPulse® and Continuous Wave laser therapies for glaucoma have been adopted by physicians around the globe as effective tools for managing and slowing the progression of glaucoma. Currently, Iridex sells more than 50,000 Cyclo G6 probes per year.

In addition to creating some reimbursement advantages for Iridex’sour glaucoma treatments in the United States, the LCD creates opportunity to capture more physician attention to the significant clinical benefits of our products, particularly MicroPulse Transscleral Laser Therapy (MPTLT). Our laser procedures are noninvasive, repeatable, and can be utilized to treat patients across a far broader range of glaucoma’s progression, whether before, after, or even coincident to MIGS procedures.

TheMoreover, finalthe LCD, L37531, which went into effect on November 17, 2024,LCD provides the following reimbursement limitations:

Current macroeconomic conditions exhibit challenges that can affect capital equipment purchasing demand and timing, including recessionary fears, tariffs, trade wars, unexpected changes in taxes or policies, inflation concerns, changing interest rates, as well as other geopolitical uncertainties,uncertainties and conflicts, have impacted and may continue to impact business spending and the economy as a whole. As a result, we have seen customers extend purchase decision cycles. We have also experienced some demand softness due to pricing effects from the strength of the U.S. dollar that have impacted and may continue to impact our operations.

Results of Operations - 2024Fiscal Years 2025 and 20232024

Our fiscal year ends on the Saturday closest to December 31. Fiscal year 2025 ended on January 3, 2026 and fiscal year 2024 ended on December 28, 20242024. Fiscal year 2025 included 53 weeks of operations and fiscal year 2023 ended on December 30, 2023. Fiscal years 2024 and 2023 each included 52 weeks of operations.weeks.

Comparison of 2024Fiscal Years 2025 and 20232024

Our total revenues decreasedincreased by $3.2$4.0 millionmillion, or 6.2%8.2%, from $51.9 million in 2023 to $48.7 million in 2024.2024 to $52.7 million in fiscal year 2025. The decreaseincrease in revenue was primarily driven by softerhigher demandretina system sales, including Pascal sales, glaucoma probe sales and an extra selling week in our Glaucoma and Retina product lines, and by lower royalties due to the expirationfiscal of licensed patents.year.

While we believe that the market for our products remains strong, the overall capital expenditure landscape within hospitals, surgical centers and physician offices may continue to be negatively impacted by the persistent macroeconomic concerns discussed above.

Gross profit decreased by $2.3$0.3 millionmillion, or 10.6%1.4%, from $21.8 million in 2023 to $19.5 million in 2024.2024 to $19.2 million in fiscal year 2025. Gross margin decreased by 1.9%3.6% from 42.0% in 2023 to 40.1% in 2024.2024 Theto decrease36.5% in grossfiscal year 2025. Gross margin wasdecreased drivenprimarily bydue to inventory write‑downs, increased product costs associated with recent tariff developments, and lower revenuescapitalization and higherof manufacturing overhead absorbedas byinventory lesslevels revenue.declined.

Gross margins may fluctuate due to changes in the relative proportion of domestic and international sales, the product mix of sales, introduction of new products, manufacturing variances, total unit volume changeschanges, that leadresponses to greaterthe orevolving lessermacroeconomic productionand efficienciesgeopolitical uncertainty, including tariffs and trade wars, and other factors.

Sales and marketing expenses decreased by $3.6$2.2 millionmillion, or 22.5%,17.4%, from $16.2 million in 2023 to $12.6 million in 2024.2024 to $10.4 million in fiscal year 2025. The decrease in 2024fiscal year 2025 was related to our cost savings measures, including reductions in workforce that resulted in lower headcount expenses, lower consulting, travel expenses,expenses and lower tradeshows and public relations expenses, partially offset by increases in bonus and clinical studiespromotional expenses.

General and administrative expenses increaseddecreased by $1.1$2.0 millionmillion, or 11.8%20.9% from $8.7 million in 2023 to $9.8 million in 2024.2024 to $7.7 million in fiscal year 2025. The increasedecrease iswas a primarily due to highera decrease in consulting costs and deal related legal expenses, partially offset by lower ERP implementation expenses.

Comparison of 2024Fiscal Years 2025 and 20232024

As of DecemberJanuary 28,3, 2024,2026, we had cash and cash equivalents of $6.0 million and working capital of $12.0 million compared to cash and cash equivalents of $2.4 million and working capital of $7.0 million compared to cash and cash equivalents of $7.0 million and working capital of $14.5 million as of December 30,28, 2023.2024.

Net cash used in operating activities was $7.3$2.1 million in 20242025 compared to net cash used in operating activities of $6.7$7.3 million in 2023.2024. The increasedecrease in net cash used in operating activities, expressed in direct cash flow terms,activities was primarily due to cash usedreduction in inventory,net prepaids, deferred revenueloss and accrued expenses, partially offset by decreasesreduction in cash paid to accounts payable and increased cash collections from accounts receivable.inventory.

We have historically funded our operations primarily through sales of our products to customers, and through common stock and borrowing arrangements. As of DecemberJanuary 28,3, 2024,2026, our principal sources of liquidity consisted of cash and cash equivalents of $2.4$6.0 million. We have incurred net losses over the last several years, and as of DecemberJanuary 28,3, 2024,2026, have an accumulated deficit of approximately $88.0$92.4 million. We may continue to incur operating losses and negative cash flows from operations.

Exclusive Distribution Rights: On March 2, 2021, wethe Company and Topcon Corporation (“Topcon”) entered into a distribution agreement (“Distribution Agreement”) with Topcon,, pursuant to which wethe Company granted Topcon the exclusive right to distribute the ourCompany’s retina and glaucoma products in certain geographies outside the United States. The exclusivity arrangement with Topcon obligates usthe Company to provide training, customer support, and exclusive territorial rights to Topcon for certain international regions, for a period of 10 years, commencing upon regulatory approval to transfer existing (non-exclusive) distribution rights from the current distributors in those regions to Topcon. WeThe Company has the right to terminate the exclusive distribution rights granted to Topcon for any of the regions at any point in time during the 10 year exclusivity term for a termination fee that is based on a multiple of 1.2 times the revenue generated by usthe Company in 2019 for the respective region. WeManagement has determined that the exclusivity rights, training, and customer support represents a single combined performance obligation for each region, to be recognized as exclusivity fee revenue on a straight-line basis over the 10 year period for each region, commencing on the date that regulatory approval is obtained for each region, based on the standalone selling price for such combined performance obligation for each region. The estimated fair value of the exclusive distribution rights for all regions combined totaled approximately $14.8 million. Of this amount, wemanagement has fully-constrained and returned to Topcon the arrangement fee allocated to Belarus (approximately $0.2 million) because obtaining the necessary regulatory approvals and termination of existing distributor relationship was not feasible. During both the fiscal years ended 20242025 and 2023,2024, $1.5 million in revenue related to the exclusive distribution rights was recorded each year.recorded.

WeThe Company recognized assets from certain costs incurred to obtain revenue contracts. These costs relate to sales commissions arising from the sale of our products. The costs are considered incremental and recoverable of obtaining revenue contracts with customers. These deferred costs are amortized on a straight-line basis over the estimated period of benefit, which typically ranges from 2 to 3 years. These deferred costs are amortized on a straight-line basis over the estimated period of benefit, which typically ranges from 2 to 3 years. As of DecemberJanuary 28,3, 20242026, andthe DecemberCompany 30,had 2023, wefully recognized deferred costs incurred to obtain revenue contracts with customers, netwhich ofamounts accumulatedwere amortization, of $0.2 million andpreviously included these amounts in Prepaid expenses and other current assets and Other long-term assets in ourthe Company’s consolidated balance sheets. Amortization expense was $146$23 thousand and $105$0.2 thousand,million, respectively, for the fiscal years ended DecemberJanuary 28,3, 20242026 and December 30,28, 2023.2024. There were no impairment expenses for both the fiscal years ended DecemberJanuary 28,3, 20242026 and December 30,28, 2023, respectively.2024.

Sales commissions that do not represent incremental and recoverable costs of obtaining a contract are expensed as incurred. As a practical expedient, wethe Company will not recognize such sales commission as a contract asset but rather recognize as an expense when incurred if the amortization period of the asset that wethe Company would have otherwise recognized is one year or less.

WeThe Company recognized an asset from the costs incurred to fulfill a contract. These costs relate directly and must be incurred to satisfy performance obligations on certain specific contract with a customer. These costs are expected to be recovered over time and are amortized on a systematic basis that is consistent with the recognition of revenue to which it relates. As of DecemberJanuary 28,3, 20242026 and December 30,28, 2023,2024, we recognized deferred costs incurred to fulfill a contract with a customer, net of accumulated amortization, of $0.6$0.5 million and $0.7$0.6 million, respectively, and included these amounts in Prepaid expenses and other current assets and Other long-term assets in ourthe Company’s consolidated balance sheets. Amortization expense was $83 thousand, for theboth fiscal years ended DecemberJanuary 28,3, 20242026 and December 30,28, 2023.2024. There were no impairment expenses for both the fiscal years ended DecemberJanuary 28,3, 20242026 and December 30,28, 2023.2024.

We account for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Under ASC 740, the liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We annually evaluate the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In 2024,2025, based on ourthe Company’s history of earnings and our forecasted losses, wemanagement believecontinued to conclude that, on thea moremore-likely-than-not likelybasis, thanits deferred tax assets were not basisrealizable. thatAccordingly, the Company maintained a full valuation allowance isagainst required.its Accordingly,federal and state deferred tax assets that was initially recorded in the fourth quarter of fiscal year 2024, we provided a full valuation allowance on our federal and state deferred tax assets.2024.

We account for uncertain tax positions in accordance with ASC 740. ASC 740 seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more-likely-than-not" threshold. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There was no accrued interest and penalties during the fiscal year ended DecemberJanuary 28,3, 2024.2026.

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use (“ROU”) assets, net and Operating lease liabilities in our consolidated balance sheets. As of DecemberJanuary 28,3, 2024,2026, we were not a party to finance lease arrangements.

In NovemberDecember 2023, the Financial Accounting Standards Accounting Board (“FASB”) issued AccountingASU Standards2023-09 Update“Income Taxes (ASU)Topics 2023-07 "Segment Reporting (Topic 280740): Improvements to ReportableIncome SegmentTax Disclosures"” whichto expandsexpand annual and interimthe disclosure requirements for reportableincome segments,taxes, primarilyspecifically throughrelated enhancedto disclosuresthe aboutrate significantreconciliation segmentand expenses.income Thetaxes amendmentpaid. ASU 2023-09 is effective for fiscalthe yearsCompany’s beginningannual periods after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.2024. The amendment should be applied retrospectively to all prior periods presented in the financial statements. WeCompany adopted this ASU onduring Decemberthe 31,fourth 2023fiscal withquarter of fiscal year 2025. The adopted ASU had no material impact on ourthe Company's consolidated financial statements.statements Theas requiredit segmentonly disclosuresimpacted are included above.disclosures.

In November 2024, the FASB issued ASU 2024-03 ''Income“Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses'',Expenses”, which requires disclosure of disaggregated information about certain income statement expense line items on an annual and interim basis. This update will be effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. As this accounting standard only impacts disclosures, it will not have a material impact on the Company’s consolidated financial statements.

An investment in our securities has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions and/or operating results. If any of these risks actually occur, our business, operating results and financial condition could be harmed, and the value of our stock could go down. This means you could lose all or a part of your investment. We have included in Part I, Item 1A in our Annual Report on Form 10-K for the year ended January 3, 2026, which was filed with the SEC on April 2, 2026, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors”). ThereExcept as indicated below, there have been no material changes from the disclosure provided in the Form 10-K with respect to the Risk Factors.

Ophthalmologists typically use our laser systems in hospital operating rooms and ambulatory surgical centers, as well as their offices and clinics. In operating rooms and ambulatory surgical centers, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a single-use consumable probe, including MicroPulse P3®, G-Probe® and G-Probe Illuminate® delivery devices, and EndoProbe handpieces. In the offices and clinics, ophthalmologists use our laser systems with either an indirect laser ophthalmoscope or a slit-lamp adapter. Our proprietary MicroPulse® and Continuous Wave laser therapies for glaucoma have been adopted by physicians around the globe as effective tools for managing and slowing the progression of glaucoma.

The following comparisons are between the three months ended AprilJuly 4, 2026 and MarchJune 29,28, 2025 (in thousands):

Our total revenues decreased by $0.1$1.0 million, or 0.8%,7.4%, from $11.9$13.6 million to $11.8$12.6 million. Revenue in our glaucomaretina and other revenue product groups increased,decreased, partially offset by aan decreaseincrease in our retinaglaucoma products.product group.

General and administrative expenses decreased by $0.3$0.4 million, or 16.0%16.9% from $1.9$2.2 million to $1.6$1.8 million. The decrease was primarily attributable to lower consulting costs, reduced deal related legal expenses, andreflects cost savings realized from the previously announced general and administrative function transfer initiative announcedand inlower severance expense compared to the prior periods.fiscal year.

Other expense, net, was $0.1$167 millionthousand and $33 thousand, respectively, for the three months ended AprilJuly 4, 2026,2026 and June 28, 2025, primarily consisting of interest and amortization of loan expenses. Other expense, net, was $1.5 million for the three months ended March 29, 2025, driven primarily by the costs associated with the Lind Note payable settlement.

We recorded an income tax provision of $58$70 thousand and $12$21 thousand for the three months ended AprilJuly 4, 2026 and MarchJune 29,28, 2025, respectively.

As of AprilJuly 4, 2026, we had cash and cash equivalents of $4.6$4.7 million and working capital of $11.8$10.8 million compared to cash and cash equivalents of $6.0 million and working capital of $12.0 million as of January 3, 2026.

Net cash used in operating activities was $1.3$1.2 million in the threesix months ended AprilJuly 4, 2026 compared to net cash used in operating activities of $1.1$1.5 million in the threesix months ended MarchJune 29,28, 2025. The increasedecrease inprimarily netreflects cash used inlower operating activitieslosses, waspartially primarilyoffset dueby toincreased increasepurchases inof losssafety fromstock operations.inventory.

For the threesix months ended AprilJuly 4, 2026, net cash used in investing activities was $0.1 million, which consisted of capital expenditures. For the threesix months ended MarchJune 29,28, 2025, net cash used in investing activities was $11$24 thousand, which consisted of capital expenditures.

For the threesix months ended AprilJuly 4, 2026, net cash used in financing activities was $1$39 thousand, primarily related to taxes paid related to net share settlement of equity awards. For the threesix months ended MarchJune 29,28, 2025, net cash from financing activities was $6.0 million. In the first fiscal quarter of 2025, we received $10 million in issuance of convertible preferred shares and convertible debt, offset by $4.0 million in early prepayment of convertible debt.

We have historically funded our operations primarily through sales of our products to customers, sales of our common stock and borrowing arrangements. As of AprilJuly 4, 2026, our principal sources of liquidity consisted of cash and cash equivalents of $4.6$4.7 million. We have incurred net losses over the last several years, and as of July 4, 2026, have an accumulated deficit of approximately $94.2 million.