Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

 

 

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31 2022, 2023

 

 

 

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                    

Commission File Number: 001-34703

 

 

 

Alimera Sciences, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-0028718

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6310 Town Square, Suite 400

Alpharetta, GA

 

30005

(Address of principal executive offices)

 

(Zip Code)

(678) 990-5740

(Registrant’s telephone number, including area code)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

ALIM

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

o

 

Accelerated filer

o

 

 

 

 

 

Non-accelerated filer

x

 

Smaller reporting company

x

 

 

 

 

 

 

 

 

Emerging growth company

o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o  No  x

As of May 10, 2022,9, 2023, there were 7,002,9617,404,826 shares of the registrant’s Common Stock issued and outstanding.

 

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ALIMERA SCIENCES, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

64

Condensed Consolidated Balance Sheets as of March 31, 20222023 and December 31, 20212022

64

Condensed Consolidated Statements of Operations for the three months ended March 31, 20222023 and 20212022

75

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 20222023 and 20212022

86

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 20222023 and 20212022

97

Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 32, 2023 and 2022

108

Notes to Condensed Consolidated Financial Statements

119

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

2926

Item 3. Quantitative and Qualitative Disclosures about Market Risk

4139

Item 4. Controls and Procedures

4139

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

4240

Item 1A. Risk Factors

4240

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

4240

Item 3. Defaults Upon Senior Securities

4240

Item 4. Mine Safety Disclosures

4240

Item 5. Other Information

4240

Item 6. Exhibits

4341

Signatures

4442


 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS

Various statements in this report of Alimera Sciences, Inc. (we, our, Alimera or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties (some of which are beyond our control) and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements.

All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf.behalf as predictions of future events. We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that weotherwise, except as may file with the Securities and Exchange Commission (SEC).be required under applicable securities laws.

We encourage you to read themanagement’s discussion and analysis of our financial condition and theresults of operations and our accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) contained in this Quarterly Report on Form 10-Q and our audited financial statements included in our Annual Report onthe 2022 Form 10-K for the year ended December 31, 2021, which we filed with the SEC on March 23, 2022 (the 2021 Form 10-K). We also encourage you to read Item 1A of Part 1 entitled “Risk Factors” of the 2021 Form 10-K, which contains a more detailed discussion of some of the risks and uncertainties associated with our business. In addition to the risks summarized below and in “Risk Factors” in the 2021 Form 10-K, other unknown or unpredictable factors also could affect our results.10-K. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements, projections and estimates. Meaningful factors that could cause actual results to differ include:

Operational Risks

our dependence on the commercial success of our only product, ILUVIEN;

the competition we face, given that the number of competitive products is growing and our competitors include larger, more established, fully integrated pharmaceutical companies and biotechnology companies that have substantially greater capital resources, existing competitive products, larger research and development staffs and facilities, greater marketing capabilities, and greater experience in drug development and in obtaining regulatory approvals than we do;

uncertainty associated with our ability to retain our current employees and to recruit and retain the new employees we need in the future, in particular a productive sales force;

the possibility that the NEW DAY Study may (a) fail to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early diabetic macular edema (DME) or to generate data demonstrating the benefits of ILUVIEN when compared to the current leading therapy for DME, and (b) take longer or be more costly to complete than we currently anticipate;

our possible inability to expand our portfolio of ophthalmic products;

the negative effects of inflation, which may increase the compensation we must pay to retain and attract a high-quality workforce and is likely to increase our operational costs;

Manufacturing Risks

our dependence on third-party manufacturers to manufacture ILUVIEN or any future products or product candidates in sufficient quantities and quality, in a timely manner (particularly during the COVID-19 pandemic), and at an acceptable price;

the possibility that we may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a greater amount of cash in inventory than we need;

the possibility that the issues affecting global supply chains may negatively impact our ability to source materials and components to make ILUVIEN or to deliver ILUVIEN into our current markets;

uncertainty associated with manufacturing components and materials being superseded or becoming obsolete;

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Financial Risks

the possibility that we may again fail to comply with the financial covenants in our $45.0 million Loan and Security Agreement with SLR Investment Corp. (SLR, f/k/a Solar Capital Ltd.) as Collateral Agent (Agent), and certain other lenders, including SLR in its capacity as a lender, dated December 31, 2019, as amended (the 2019 Loan Agreement), and in that event be unable to obtain a waiver from SLR for any resulting default;

the possibility that we may not be able to refinance the 2019 Loan Agreement, which may lead to a greater amount of cash being required to support its amortization on a monthly basis beginning on January 1, 2023;

our possible need to raise additional financing, the terms of which may restrict our operations and, if the capital we raise is equity or a debt security that is convertible into equity, could dilute our stockholders’ investment;

uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of ILUVIEN in the U.S., the European Economic Area (EEA) and other regions of the world where we sell ILUVIEN;

a slowdown or reduction in our sales due to, among other things, a reduction in end user demand, unexpected competition, regulatory issues or other unexpected circumstances, including COVID-19;

the risk that the planned discontinuation of LIBOR and the replacement of LIBOR with another reference rate may lead to increased interest costs;

the effects of inflation on the floating interest rate we pay under the 2019 Loan Agreement, which could cause our financing costs to increase materially and thus adversely affect our financial results;

Risks Related to the COVID-19 Pandemic

the adverse effects of the COVID-19 pandemic, and its unpredictable duration and severity, in the regions where we have customers, employees and distributors;

the adverse effects of the COVID-19 pandemic on sales of ILUVIEN resulting from (a) limitations on in-person access to physicians for treatment imposed by governments or healthcare facilities and (b) the unwillingness of patients, many of whom suffer from diabetic macular edema or, in Europe and the U.K., non-infectious uveitis, to visit their physicians in person for fear of contracting the COVID-19 coronavirus;

the financial uncertainty associated with the adverse effects of the COVID-19 pandemic and the duration and severity of those effects, which had an adverse effect on our revenue beginning late in the first quarter of 2020 and continuing to the date of this report to some degree, and if these adverse effects were to strengthen again in the future, they may (a) adversely affect our revenue, financial condition and cash flows, and (b) affect certain estimates we use to prepare our quarterly financial results, including impairment of intangible assets, the income tax provision and recoverability of certain receivables;

the possibility that the manufacture or distribution of the ILUVIEN insert or applicator may be disrupted by government action related to COVID-19 or by the effect of the COVID-19 pandemic on our manufacturers’ or distributors’ workforces;

the possibility that the restrictions placed on regulatory and pricing bodies will delay or defer market access for ILUVIEN as we seek to secure reimbursement;

the possibility that the economic impact of the COVID-19 pandemic will lead to changes in reimbursement policies and reduce market access for ILUVIEN in countries where we sell ILUVIEN;

the possibility that we may fail to maintain or modify as necessary our internal controls over financial reporting in the current environment in which we or our distributors are required to modify our standard business processes to take into account the current environment in light of the COVID-19 pandemic;

the possibility that staffing shortages resulting from the COVID-19 pandemic will recur at the third-party manufacturers where the ILUVIEN implant is made and the ILUVIEN applicator is assembled and packaged that may lead to product shortages;

the possibility of reduced efficiency and potential distractions of our employees resulting from the prolonged impact of the COVID-19 pandemic, and the resulting loss of productivity;

the possibility that enrollment of patients in our NEW DAY Study may not occur as quickly as we anticipate;

the possible delay in enrollment of patients in our pediatric study for non-infectious uveitis affecting the posterior segment of the eye (NIU-PS);

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Regulatory Risks

uncertainty associated with our pursuit of reimbursement from local health authorities in certain countries for the recently obtained additional indication for ILUVIEN (for NIU-PS);

delay in or failure to obtain regulatory approval and reimbursement of ILUVIEN or any future products or product candidates in additional markets where we do not currently sell ILUVIEN;

uncertainty associated with our ability to meet any post market requirements for NIU-PS in the EEA;

the possibility that we may fail to secure regulatory approval in the greater China market, which would have an adverse effect on our ability to receive our milestone payments under the Ocumension license agreement;

uncertainty associated with our ability to successfully commercialize ILUVIEN following regulatory approval in additional markets; and

Intellectual Property Risks

the possibility that we may be adversely affected by the expiration of patents that protect key aspects of ILUVIEN in the near-to medium-term.

 

 

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

March 31,

December 31,

March 31,

December 31,

2022

2021

2023

2022

(In thousands, except share and per share data)

(In thousands, except share and per share data)

CURRENT ASSETS:

Cash and cash equivalents

$

9,946

$

16,510

$

13,086

$

5,274

Restricted cash

33

34

31

30

Accounts receivable, net

18,776

19,128

18,433

19,612

Prepaid expenses and other current assets

3,546

3,809

2,910

2,892

Inventory

2,452

2,679

1,215

1,605

Total current assets

34,753

42,160

35,675

29,413

NON-CURRENT ASSETS:

Property and equipment, net

2,719

2,783

2,419

2,525

Right of use assets, net

1,624

1,710

1,338

1,395

Intangible asset, net

10,419

10,897

8,479

8,957

Deferred tax asset

134

137

131

129

Warrant asset

282

833

197

183

TOTAL ASSETS

$

49,931

$

58,520

$

48,239

$

42,602

CURRENT LIABILITIES:

Accounts payable

$

6,604

$

8,706

$

9,669

$

10,088

Accrued expenses

3,046

3,617

4,241

3,998

Notes payable

7,105

25,313

Finance lease obligations

251

269

263

333

Total current liabilities

17,006

12,592

14,173

39,732

NON-CURRENT LIABILITIES:

Notes payable, net of discount

36,245

43,080

44,152

18,683

Common Warrants

3,788

Other non-current liabilities

5,283

5,453

5,042

4,995

COMMITMENTS AND CONTINGENCIES

 

 

 

 

STOCKHOLDERS’ DEFICIT:

Preferred stock, $.01 par value — 10,000,000 shares authorized at March 31, 2022 and December 31, 2021:

Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at March 31, 2022 and December 31, 2021; liquidation preference of $24,000 at March 31, 2022 and December 31, 2021

19,227

19,227

Common stock, $.01 par value — 150,000,000 shares authorized, 6,992,654 shares issued and outstanding at March 31, 2022 and 6,935,154 shares issued and outstanding at December 31, 2021

70

69

Preferred stock, $.01 par value — 10,000,000 shares authorized at March 31, 2023 and December 31, 2022:

Series A Convertible Preferred Stock, none authorized, issued and outstanding at March 31, 2023; 1,300,000 authorized and 600,000 issued and outstanding at December 31, 2022; liquidation preference of $24,000 at December 31, 2022

19,227

Series B Convertible Preferred Stock, 27,000 authorized and 12,000 issued and outstanding at March 31, 2023; liquidation preference of $12,000 at March 31, 2023; none authorized, issued and outstanding at December 31, 2022

7,728

Common stock, $.01 par value — 150,000,000 shares authorized, 7,391,594 shares issued and outstanding at March 31, 2023 and 6,995,513 shares issued and outstanding at December 31, 2022

74

70

Additional paid-in capital

377,541

377,229

378,146

378,238

Accumulated deficit

(403,236)

(397,281)

(402,081)

(415,388)

Accumulated other comprehensive loss

(2,205)

(1,849)

(2,783)

(2,955)

TOTAL STOCKHOLDERS’ DEFICIT

(8,603)

(2,605)

(18,916)

(20,808)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$

49,931

$

58,520

$

48,239

$

42,602

See Notes to Unaudited Interim Condensed Consolidated Financial Statements (Interim Financial Statements).


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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

March 31,

2023

2022

(In thousands, except share and per share data)

REVENUE:

PRODUCT REVENUE, NET

$

13,546

$

11,898

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(2,028)

(1,680)

GROSS PROFIT

11,518

10,218

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

4,164

3,583

GENERAL AND ADMINISTRATIVE EXPENSES

4,171

3,240

SALES AND MARKETING EXPENSES

5,804

6,853

DEPRECIATION AND AMORTIZATION

681

689

OPERATING EXPENSES

14,820

14,365

LOSS FROM OPERATIONS

(3,302)

(4,147)

INTEREST EXPENSE AND OTHER

(1,667)

(1,364)

UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET

(13)

108

CHANGE IN FAIR VALUE OF WARRANT ASSET

14

(552)

NET LOSS

(4,968)

(5,955)

PREFERRED STOCK DIVIDENDS

(14)

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS

$

(4,982)

$

(5,955)

NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS — Basic and Diluted

$

(0.71)

$

(0.85)

WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted

7,032,231

6,990,737

See Notes to Interim Financial Statements.


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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

March 31,

2023

2022

(In thousands)

NET LOSS

$

(4,968)

$

(5,955)

OTHER COMPREHENSIVE INCOME (LOSS)

Foreign currency translation adjustments

172

(356)

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

172

(356)

COMPREHENSIVE LOSS

$

(4,796)

$

(6,311)

See Notes to Interim Financial Statements.


 

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

March 31,

2022

2021

(In thousands, except share and per share data)

REVENUE:

PRODUCT REVENUE, NET

$

11,898

$

11,214

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(1,680)

(1,562)

GROSS PROFIT

10,218

9,652

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

3,583

3,213

GENERAL AND ADMINISTRATIVE EXPENSES

3,240

3,413

SALES AND MARKETING EXPENSES

6,853

4,818

DEPRECIATION AND AMORTIZATION

689

638

OPERATING EXPENSES

14,365

12,082

LOSS FROM OPERATIONS

(4,147)

(2,430)

INTEREST EXPENSE AND OTHER

(1,364)

(1,343)

UNREALIZED FOREIGN CURRENCY GAIN, NET

108

125

CHANGE IN FAIR VALUE OF WARRANT ASSET

(552)

NET LOSS

$

(5,955)

$

(3,648)

NET LOSS PER SHARE — Basic and Diluted

$

(0.85)

$

(0.63)

WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted

6,990,737

5,755,424

See Notes to Interim Financial Statements.


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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

March 31,

2022

2021

(In thousands)

NET LOSS

$

(5,955)

$

(3,648)

OTHER COMPREHENSIVE LOSS

Foreign currency translation adjustments

(356)

(597)

TOTAL OTHER COMPREHENSIVE LOSS

(356)

(597)

COMPREHENSIVE LOSS

$

(6,311)

$

(4,245)

See Notes to Interim Financial Statements.


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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Three Months Ended

March 31,

March 31,

2022

2021

2023

2022

(In thousands)

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(5,955)

$

(3,648)

$

(4,968)

$

(5,955)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

689

638

681

689

Unrealized foreign currency transaction gain, net

(108)

(125)

13

(108)

Amortization of debt discount and deferred financing costs

271

240

282

271

Stock-based compensation expense

312

262

226

312

Change in fair value of warrant asset

552

(14)

552

Changes in assets and liabilities:

Accounts receivable

184

1,335

1,301

184

Prepaid expenses and other current assets

265

(35)

70

265

Inventory

203

106

397

203

Accounts payable

(1,992)

(1,003)

(434)

(1,992)

Accrued expenses and other current liabilities

(541)

(259)

215

(541)

Other long-term liabilities

(93)

(12)

22

(93)

Net cash used in operating activities

(6,213)

(2,501)

(2,209)

(6,213)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(149)

(84)

(9)

(149)

Net cash used in investing activities

(149)

(84)

Net cash provided by used in investing activities

(9)

(149)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of Series B Convertible Preferred Stock

12,000

Series B Convertible Preferred Stock issuance costs

(498)

Issuance of debt

2,500

Payment of debt costs

(2,625)

Payment of finance lease obligations

(62)

(57)

(127)

(62)

Net cash used in financing activities

(62)

(57)

Repurchase of Series A Preferred Stock

(938)

Repurchase of common stock

(314)

Net cash provided by (used in) financing activities

9,998

(62)

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

(141)

(299)

33

(141)

NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

(6,565)

(2,941)

7,813

(6,565)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period

16,544

11,242

5,304

16,544

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period

$

9,979

$

8,301

$

13,117

$

9,979

SUPPLEMENTAL DISCLOSURES:

Cash paid for interest

$

1,061

$

1,061

$

1,354

$

1,061

Cash paid for income taxes

$

18

$

4

$

$

18

Supplemental schedule of non-cash investing and financing activities:

Note payable end of term payment accrued but unpaid

$

2,250

$

2,250

$

2,375

$

2,250

See Notes to Interim Financial Statements.

 

 

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

Series A

Series A

Series B

Convertible

Accumulated

Convertible

Accumulated

Common Stock

Preferred Stock

Additional

Common

Other

Common Stock

Preferred Stock

Additional

Other

Paid-In

Stock

Accumulated

Comprehensive

Paid-In

Accumulated

Comprehensive

Shares

Amount

Shares

Amount

Capital

Warrants

Deficit

Loss

Total

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Deficit

Loss

Total

2021

(In thousands, except share data)

Balance, December 31, 2020

5,719,367 

$

57 

600,000 

$

19,227 

$

365,830 

$

370 

$

(392,909)

$

(553)

$

(7,978)

2022

(In thousands, except share data)

Balance, December 31, 2021

6,935,154 

$

69 

600,000 

$

19,227 

$

$

377,229 

$

(397,281)

$

(1,849)

$

(2,605)

Issuance of common stock, net of issuance costs

45,000 

57,500 

Stock option exercises

58 

Forfeitures of restricted stock

(10,933)

Stock-based compensation expense

262 

262 

312 

312 

Net loss

(3,648)

(3,648)

(5,955)

(5,955)

Foreign currency translation adjustments

(597)

(597)

(356)

(356)

Balance, March 31, 2021

5,753,492 

$

58 

600,000 

$

19,227 

$

366,092 

$

370 

$

(396,557)

$

(1,150)

$

(11,960)

Balance, March 31, 2022

6,992,654 

$

70 

600,000 

$

19,227 

$

$

377,541 

$

(403,236)

$

(2,205)

$

(8,603)

2022

Balance, December 31, 2021

6,935,154 

$

69 

600,000 

$

19,227 

$

377,229 

$

$

(397,281)

$

(1,849)

$

(2,605)

2023

Balance, December 31, 2022

6,995,513 

$

70 

600,000 

$

19,227 

$

$

378,238 

$

(415,388)

$

(2,955)

$

(20,808)

Issuance of common stock, net of issuance costs

57,500 

597,000 

(6)

Repurchase of common stock

(200,919)

(2)

(312)

(314)

Repurchase of Preferred stock - Series A

(600,000)

(19,227)

18,289 

(938)

Issuance of Preferred stock - Series B

12,000 

7,714

7,714

Preferred stock dividends

14 

(14)

Stock-based compensation expense

312 

312 

226 

226 

Net loss

(5,955)

(5,955)

(4,968)

(4,968)

Foreign currency translation adjustments

(356)

(356)

172 

172 

Balance, March 31, 2022

6,992,654 

$

70 

600,000 

$

19,227 

$

377,541 

$

$

(403,236)

$

(2,205)

$

(8,603)

Balance, March 31, 2023

7,391,594 

$

74 

$

12,000 

$

7,728

$

378,146 

$

(402,081)

$

(2,783)

$

(18,916)

See Notes to Interim Financial Statements.

 

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

Alimera Sciences, Inc., together with its wholly owned subsidiaries (the Company), is a pharmaceutical company that specializes in the commercialization and development of ophthalmic pharmaceuticals. The Company was formed on June 4, 2003 under the laws of the State of Delaware.

The Company presently focuses on diseases affecting the retina, because the Company believes these diseases are not well treated with current therapies and affect millions of people globally. The Company’s only product is ILUVIEN® (fluocinolone acetonide intravitreal implant) 0.19 mg, which has received marketing authorization and reimbursement in 24 countries for the treatment of diabetic macular edema (DME). In the U.S. and certain other countries outside Europe, ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. In addition, ILUVIEN has received marketing authorization in 17 European countries and reimbursement in 5ten countries for the prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment (NIU-PS).

The Company markets ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Irelandand has made ILUVIEN available in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler.. In addition, the Company has entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, Denmark, Finland, France, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, Australia, New Zealand and several countries in the Middle East. In addition, the Company has granted an exclusive license to Ocumension Therapeutics for the development and commercialization of the Company’s 0.19mg fluocinolone acetonide intravitreal injection in China, East Asia and the Western Pacific. As of March 31, 2023, the Company has recognized sales of ILUVIEN to its international distributors in the Middle East, China, Austria, Belgium, Czech Republic, France, Italy, Luxembourg, Spain, the Netherlands, and the Nordic Region.

Effects of the COVID-19 Pandemic

The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and the Company expects will continue to have to some degree, certain negative effects on, and present certain risks to, the Company’s business. These limitations and other effects of the COVID-19 pandemic have had an adverse impact on the Company’s revenues beginning late in the first quarter of 2020, and continuingthis adverse impact has continued to a lesser degree through the date of this report.report in some of the Company’s key markets in Europe that have now begun to recover. As the COVID-19 pandemic continued, the Company’s liquidity and financial condition were adversely affected as well. These COVID-19 pandemic-related factors may continue to adversely impactaffect the Company’s revenue, liquidity and financial condition, and the extent and duration of that impacteffect is uncertain, particularly in light of the emergence of COVID-19if SARS-CoV-2 variants emerge that may increase the transmissibility of the coronavirus or be more deadly, or both. Depending on the duration of these limitations and the severity and duration of other effects of the COVID-19 pandemic, the Company’s liquidity and financial condition may be adversely affectedThis uncertainty could in the future as well. This uncertainty could have an impact in future periods onaffect certain estimates used in the preparation of the Company’sCompany uses to prepare its quarterly financial results, including impairment of intangible assets, the income tax provision and realizability of certain receivables and the prospective compliance with the Company’s covenants in its loan agreement.

In response to the COVID-19 pandemic, the Company has implemented measures to mitigate the impact of the pandemic on its financial position and operations. These measures include the following:

The Company is continuing to monitor the effects of the SARS-CoV-2 variants and to increase its engagement with its customers to mitigate any anticipated loss of revenue in those markets that may be affected.

The Company is investing in e-marketing and in enhancing its capabilities to conduct meetings virtually as well as in person.the affected markets.

2. BASIS OF PRESENTATION

The Company has prepared the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these Interim Financial Statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying Interim Financial Statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The accompanying Interim Financial Statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 20212022, and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, which was filed with the SEC on March 23,31, 2023 (the 2022 (the 2021 Form 10-K). The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Financial Statements included in the 20212022 Form 10-K.

Adoption of New Accounting Standard

In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in ASC 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. The standard became effective for the Company on January 1, 2022. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Accounting Standards Issued but Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The standard becomesbecame effective for the Company on January 1, 2023. The Company does not anticipate the adoption of this ASU willdid not have a material impact on its financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is available until December 31, 2022. The Company does not anticipate the adoption of this ASU will have a material impact on the Company’s financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (ASC)ASC Topic 606, Revenue from Contracts with Customers (ASC 606). The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.

Accounting Standards Issued but Not Yet Effective

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard was available until December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company does not anticipate the adoption of this ASU will have a material impact on its financial statements.

 

4. REVENUE RECOGNITION

Overview

The Company recognizes revenue when a customer obtains control of the related good or service. The amount recognized reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606 Revenue from Contracts with Customers, the Company performs the following steps as outlined in the guidance: (1) identify the contract with the customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the entity satisfies a performance obligation. At the inception of a contract, the contract is evaluated to determine if it falls within the scope of ASC 606, followed by the Company’s assessment of the goods or services promised within each contract, assessment of whether the promised good or service is distinct and determination of the performance obligations. The Company then recognizes revenue based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions related to the performance obligations.

Net Product Sales

The Company sells its products to major pharmaceutical distributors, pharmacies, hospitals and wholesalers (collectively, its Customers). In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. The Company recognizes revenues from product sales at a point in time when the Customer obtains control,

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typically upon delivery. The Company accrues for fulfillment costs when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Estimates of Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; commercial rebates and fees to Managed Care Organizations (MCOs), Group Purchasing Organizations (GPOs), distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distributor costs; wholesaler chargebacks; and allowances for patient assistance programs relating to the Company’s sales of its products.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.

With respect to the Company’s international contracts with third-party distributors, certain contracts have elements of variable consideration, and management reviews those contracts on a regular basis and makes estimates of revenue based on historical ordering patterns and known market trendsevents and data. The amount of variable consideration included in net sales in each period could vary depending on the terms of these contracts and the probability of reversal in future periods.

Consideration Payable to Customers

Distribution service fees are payments issued to distributors for compliance with various contractually-defined inventory management practices or services provided to support patient access to a product. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses and are recorded as a reduction of revenue.

Product Returns

The Company’s policies provide for product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Customer’s possession; and (c) following product recalls. Generally, returns for expired product are accepted three months before and up to one year after the expiration date of the related product, and the related product is destroyed after it is returned. The Company may, at its option, either refund the sales price paid by the Customer by issuing a credit or exchangeexchanging the returned product for replacement inventory. The Company typically does not provide cash refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including historical returns experience, the estimated level of inventory in the distribution channel, the shelf life of products and product recalls, if any.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimation process for product returns involves, in each case, several interrelating assumptions, which vary for each Customer. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue from product sales in the period the related revenue is recognized, and because this returned product cannot be resold, there is no corresponding asset for product returns. ToThrough the date of this report, product returns have been minimal.

License Revenue

The Company enters into agreements in which it licenses certain rights to its products to partner companies that act as distributors. The terms of the license agreementthese agreements may include payment to the Company of one or more of the following: non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.

Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions related to the performance obligations.

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The Company will recognize sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606. For those milestone payments which are contingent on the occurrence of particular future events, the Company determines that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the expected value method. As such, the Company assesses each milestone to determine the probability of and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, the Company will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.

Customer Payment Obligations

The Company receives payments from its Customers based on billing schedules established in each contract, which vary across the Company’s markets,locations, but generally range between 30 to 120 days. Occasionally, the Company extends the timing of its receipt ofoffers extended payment from the Company’s internationalterms or payment term discounts to certain Customers. Amounts are recorded as accounts receivable when the Company’sCompany's right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation is that the Customer will pay for the product or services inwithin one year or less of receiving those products or services.

 

5. LEASES

The Company evaluates all of its contracts to determine whether it is or contains a lease at inception. The Company reviews its contracts for options to extend, terminate or purchase any right of use assets and accounts for these, as applicable, at inception of the contract. Upon adoption of ASC 842, the Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease classification or whether its contracts contain or are leases. The Company made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of 12 months or less, or those that do not meet the Company’s capitalization threshold, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. Lease costs associated with those leases are recognized as incurred. The Company has also chosen the practical expedient that allows it to combine lease and non-lease components as a single lease component.

Lease renewal options are not recognized as part of the lease liability until the Company determines it is reasonably certain it will exercise any applicable renewal options. The Company has determined it is not reasonably certain it will exercise any applicable renewal options. The Company has not recorded any liability for renewal options in these consolidated financial statements.Interim Financial Statements. The useful lives of leased assets as well as leasehold improvements, if any, are limited by the expected lease term.

Operating Leases

The Company’s operating lease activities primarily consist of leases for office space in the U.S., the U.K., Ireland, Portugal and Germany. Most of these leases include options to renew, with renewal terms generally ranging from one to eight years. The exercise of lease renewal options is at the Company’s sole discretion. Certain of the Company’s operating lease agreements include variable lease costs that are based on common area maintenance and property taxes. The Company expenses these payments as incurred. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Supplemental balance sheet information as of March 31, 20222023 and December 31, 20212022 for the Company’s operating leases is as follows:

March 31,

December 31,

March 31,

December 31,

2022

2021

2023

2022

(In thousands)

(In thousands)

NON-CURRENT ASSETS:

Right of use assets, net

$

1,624

$

1,710

$

1,338

$

1,395

Total lease assets

$

1,624

$

1,710

$

1,338

$

1,395

CURRENT LIABILITIES:

Accrued expenses

$

323

$

220

$

701

$

768

NON-CURRENT LIABILITIES:

Other non-current liabilities

2,618

2,735

2,154

2,267

Total lease liabilities

$

2,941

$

2,955

$

2,855

$

3,035

The Company’s operating lease cost for the three months ended March 31, 20222023 was $138,000$149,000, and is included in general and administrative expenses in its condensed consolidated statement of operations. The Company’s operating lease cost for the three months

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ended March 31, 20212022 was $118,000$138,000 and is included in general and administrative expenses in its condensed consolidated statement of operations.

As of March 31, 2022,2023, a schedule of maturity of lease liabilities under all of the Company’s operating leases is as follows:

Years Ending December 31

(In thousands)

(In thousands)

2022 (remaining)

$

201

2023

716

2023 (remaining)

$

528

2024

687

676

2025

474

474

2026

488

488

2027

503

Thereafter

1,555

1,052

Total

4,121

3,721

Less amount representing interest

(1,180)

(866)

Present value of minimum lease payments

2,941

2,855

Less current portion (as a portion of accrued expenses)

(323)

(701)

Non-current portion (as a portion of other non-current liabilities)

$

2,618

$

2,154

Cash paid for operating leases was $68,000$175,000 during the three months ended March 31, 2022. NaN2023. No right-of-use assets were obtained in connection with operating leases for the three months ended March 31, 2022.2023. Cash paid for operating leases was $149,000$68,000 during the three months ended March 31, 2021. NaN2022. No right-of-use assets were obtained in connection with operating leases for the three months ended March 31, 2021.2022.

As of March 31, 2022,2023, the weighted average remaining lease terms of the Company’s operating leases was 6.96.2 years. The weighted average discount rate used to determine the lease liabilities was 9.5%.

Finance Leases

The Company’s finance lease activities primarily consist of leases for office equipment and automobiles. Property and equipment leases are capitalized at the lesser of fair market value or the present value of the minimum lease payments at the inception of the leases using the Company’s incremental borrowing rate. The Company’s finance lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Supplemental balance sheet information as of March 31, 20222023 and December 31, 20212022 for the Company’s finance leases is as follows:

March 31,

December 31,

March 31,

December 31,

2022

2021

2023

2022

(In thousands)

(In thousands)

NON-CURRENT ASSETS:

Property and equipment, net

$

302

$

392

$

374

$

366

Total lease assets

$

302

$

392

$

374

$

366

CURRENT LIABILITIES:

Finance lease obligations

$

251

$

269

$

263

$

333

NON-CURRENT LIABILITIES:

Finance lease obligations — less current portion

181

225

Other non-current liabilities

160

131

Total lease liabilities

$

432

$

494

$

423

$

464

Depreciation expense associated with property and equipment under finance leases was approximately $94,000$52,000 and $101,000$94,000 for the three months ended March 31, 20222023 and 2021,2022, respectively. Interest expense associated with finance leases was $14,000$10,000 for each of the three months ended March 31, 20222023 and 2021.2022.

As of March 31, 2022,2023, a schedule of maturity of lease liabilities under finance leases, together with the present value of minimum lease payments, is as follows:

Years Ending December 31

(In thousands)

2022 (remaining)

$

279

2023

236

Total

515

Less amount representing interest

(83)

Present value of minimum lease payments

432

Less current portion

(251)

Non-current portion

$

181

Years Ending December 31

(In thousands)

2023 (remaining)

$

273

2024

144

2025

87

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2026

4

Total

508

Less amount representing interest

(85)

Present value of minimum lease payments

423

Less current portion

(263)

Non-current portion

$

160

Cash paid for finance leases was $127,000 during the three months ended March 31, 2023. The Company acquired $90,000 of property and equipment in exchange for finance leases during the three months ended March 31, 2023. Cash paid for finance leases was $98,000 during the three months ended March 31, 2022. NaNNo property or equipment was obtained in exchange for finance leases during the three months ended March 31, 2022.

As of March 31, 2022,2023, the weighted average remaining lease terms of the Company’s finance leases was 0.90.3 years. The weighted average discount rate used to determine the finance lease liabilities was 9.4%9.5%.

 

6. GOING CONCERN

The accompanying Interim Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.

To date, theThe Company has incurred recurring losses, negative cash flow from operations and has accumulated a deficit of $403,236,000$402,081,000 from the Company’s inception through March 31, 2022.2023. As of March 31, 2022,2023, the Company had approximately $9,946,000$13,086,000 in cash and cash equivalents. The Company’s ability to achieve profitability and positive cash flow depends on its ability to increase revenue and contain its expenses.

Further, the Company must maintain compliance with the debt covenants of its $45,000,000 Loan and Security Agreement dated December 31, 2019 with SLR Investment Corp., asand certain other lenders (as amended, (thethe 2019 Loan Agreement; seeAgreement). (See Note 10). In management’s opinion, the uncertainty regarding future revenues raises substantial doubt about the Company’s ability to continue as a going concern without access to additional debt and/or equity financing, over the course of the next twelve months.

The Company’s operations and thus its net product revenues have continued to be adversely affected by the COVID-19 pandemic. During the six months ended December 31, 2021 and September 30, 2021, Additionally, if the Company did not generate sufficient revenue to meet the trailing six-month revenue covenant included in the 2019 Loan Agreement. The lenders provided a consent that permitted the Company not

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to maintain the revenue covenant as of December 31, 2021 and September 30, 2021 and waived any event of default that has occurred or may be deemed to have occurred.

The Company met the trailing six-month revenue covenant included in the 2019 Loan Agreement for the six-month period ended March 31, 2022 and expectswere unable to comply with the revenue covenantRevenue Covenant (as defined in Note 10) at any time over the course of the next reportable date, which is June 30, 2022, and through one year, after the filing date of this Quarterly Report on Form 10-Q, although the Company can give no assurances in that regard. Due to the remaining uncertainty surrounding the COVID-19 pandemic, it is possible that the Company will fail to comply with the revenue covenant. If the Company fails to comply with the revenue covenant and the lenders do not provide a consent and waiver, acceleration ofhave the maturity of the loan is one of the remedies availableright to the lenders. If the lenders accelerate the maturity of the loan which would raise substantial doubt about the Company would be forcedCompany’s ability to findcontinue as a going concern without access to alternative debt and/or equity financing, or enter into an alternative agreement withover the lenders. The Company cannot be sure that alternative financing will be available when needed or that, if available,course of the alternative financing could be obtained on terms that are not significantly detrimental to the Company or its stockholders.next twelve months.

To meet the Company’s anticipated future working capital needs, in March 2023, the Company consummated an equity financing and amended the 2019 Loan Agreement (See Note 10). However, the Company may need to raise additional debt and/or equity financing. While the Company from time to time has historically been able to raise additional capital through issuance of equity and/or debt financing and has implemented a plan to control its expenses to satisfy its obligations due within one year from the date of issuance of these financial statements, the Company cannot guarantee that it will be able to maintain debt compliance, raise additional debt or equity, contain or reduce expenses, or increase revenue. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these Interim Financial Statementsfinancial statements are issued.

 

7. INVENTORY

Inventory consisted of the following:

March 31,

December 31,

March 31,

December 31,

2022

2021

2023

2022

(In thousands)

(In thousands)

Component parts (1)

$

157

$

200

$

236

$

152

Work-in-process (2)

684

1,416

546

560

Finished goods

1,611

1,063

433

893

Total Inventory

$

2,452

$

2,679

$

1,215

$

1,605

(1)    Component parts inventory consists of manufactured components of the ILUVIEN applicator.

(2)    Work-in-process consists of completed units of ILUVIEN that are undergoing, but have not completed, quality assurance testing or stability testing as required by U.S. or EEA regulatory authorities.

 

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8. INTANGIBLE ASSET

As a result of the approval of ILUVIEN by the U.S. Food and Drug AdministrationAdministration’s (FDA) approval of ILUVIEN in September 2014, the Company was required to pay EyePoint Pharmaceuticals, Inc. (EyePoint)in October 2014 a milestone payment of $25,000,000 (the EyePoint Milestone Payment) to EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc. (see Note 9).

The gross carrying amount of the intangible asset is $25,000,000, which is being amortized over approximately 13 years from the payment date. The amortization expense related to the intangible asset was approximately $489,000$478,000 for both the three months ended March 31, 20222023 and 2021,2022, respectively. The net book value of the intangible asset was $10,419,000$8,479,000 and $10,897,000$8,957,000 as of March 31, 20222023 and December 31, 2021,2022, respectively.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated futureremaining amortization expense as of March 31, 2022 for the remaining periods in the next five years and thereafter2023 is as follows:follows (in thousands):

Years Ending December 31

(In thousands)

(In thousands)

2022 (remaining)

$

1,462

2023

1,940

2023 (remaining)

$

1,462

2024

1,946

1,946

2025

1,940

1,940

2026

1,940

1,940

Thereafter

1,191

2027

1,191

Total

$

10,419

$

8,479

 

9. LICENSE AGREEMENTS

EyePoint Agreement

In February 2005, the Company entered into an agreement with EyePoint (formerly known as pSivida US, Inc.) for the use of fluocinolone acetonide (FAc) in EyePoint’s proprietary insert technology. This agreement was subsequently amended a number of times (as amended, the EyePoint Agreement). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.

In July 2017, the Company amended and restated its EyePoint license agreement, which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, the Company has the right to the technology underlying ILUVIEN for the treatment of (a) human eye diseases, including uveitis, in Europe, the Middle East, and Africa, and (b) human eye diseases other than uveitis worldwide. The New Collaboration Agreement converted the Company’s previous profit share obligation to a royalty payable on global net revenues of ILUVIEN.

Following the signing of the New Collaboration Agreement, the Company retained a right to recover up to $15,000,000 of commercialization costs that were incurred prior to profitability of ILUVIEN and to offset a portion of future payments owed to EyePoint with these accumulated commercialization costs, referred to as the Future Offset. Due to the uncertainty of future net profits, the Company has fully reserved the Future Offset in the accompanying Interim Financial Statements. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIU-PS in the U.K. As of March 31, 2022,2023, the balance of the Future Offset was approximately $7,324,000.$6,879,000, which is fully reserved.

During each of the three months ended March 31, 20222023 and 2021,2022, the Company’s net royalty expense payable to EyePoint was 5.2%, which was reduced from 6% due to the recoverable balance of the Future Offset. The Company iswill be required to pay an additional 2% royalty on future global net revenues and other related consideration in excess of $75,000,000 in any year. During the three months ended March 31, 2022,2023, the Company recognized approximately $617,000$703,000 of royalty expense, which is included in cost of goods sold, excluding depreciation and amortization. As of March 31, 2022,2023, approximately $617,000$703,000 of this royalty expense was included in the Company’s accounts payable. During the three months ended March 31, 2021,2022, the Company recognized approximately $584,000$617,000 of royalty expense which is included in cost of goods sold, excluding depreciation and amortization.

Ocumension License Agreement

On April 14, 2021, the Company entered into an exclusive license agreement (the License Agreement) with Ocumension (Hong Kong) Limited (“Ocumension HK”)(Ocumension HK), a wholly owned subsidiary of Ocumension Therapeutics, for the development and commercialization under Ocumension HK’s own brand name(s), either directly or through its affiliates or approved third-party sublicensees, of the Company’s 190 microgram0.19 mg fluocinolone acetonide intravitreal implant in applicator (the “Product”;Product; currently marketed in the United States, Europe, and the Middle

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East as “ILUVIEN®”ILUVIEN®) for the treatment and prevention of eye diseases in humans, other than uveitis, in a specified territory. The “Territory”Territory is defined as the People’s Republic of China, including Hong Kong SAR and Macau SAR, region of Taiwan, South Korea, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company received a nonrefundable upfront payment of $10,000,000 from Ocumension HK and may in the future receive additional sales-based milestone payments totaling up to $89,000,000 upon the achievement by Ocumension HK of certain specified sales milestones during the term of the License Agreement. The Company’s receipt of future milestone payments depends upon whether Ocumension HK is able to successfully complete product development and commercialization in the Territory, which requires, among other things, obtaining necessary regulatory approvals and appropriate reimbursement pricing in the various countries and jurisdictions in the Territory, a process that may take several years. During the year ended December 31,In 2021 the Company recognized $11,048,000 in license revenue from the Ocumension transaction (including the value of a warrant subscription agreement, which Alimera received as consideration, for Alimera to purchase 1,000,000 shares of Ocumension Therapeutics during a period of four years), in accordance with ASC 606, Revenue from Contracts with Customers, with the remaining approximate $300,000 in consideration classified as deferred revenue that will be recognized over the remaining term of the license agreement once Ocumension begins to sell products.

The term of the License will continue (a) until the 10th anniversary of the latest first commercial sale of the Product in any country or jurisdiction in the Territory or (b) for as long as Ocumension HK is commercializing the Product in any part of the Territory, whichever is later. The term is subject to the Company’s right to partially terminate the Agreement beginning on the 10th anniversary of the effective date with respect to any country or jurisdiction in the Territory in which Ocumension has not achieved at the time of termination first commercial sale and is not continuing to commercialize the Product. Ocumension will purchase Product from the Company at a fixed transfer price without royalty obligation on future sale (other than milestone payments as described above). Ocumension HK is responsible for all costs of development and commercialization in the Territory.Territory.

When the Company entered into the license agreement, it also entered into a share purchase agreement and a warrant subscription agreement, (warrant agreement), which are discussed in Note 16.

 

10. LOAN AGREEMENTS

Loan Agreements with SLR Investment Corp. (formerly named Solar Capital Ltd.)

As ofOn January 5, 2018, the Company entered into a $40,000,000 loan and security agreement with Solar Capital Ltd., as Collateral Agent, and the parties signatory thereto from time to time as Lenders, including Solar Capital Ltd. in its capacity as a Lender (the 2018 Loan Agreement). On December 31, 2019, the Company refinanced the 2018 Loan Agreement by entering into a $45,000,000 loan and security agreement (as amended, the(the 2019 Loan Agreement) with SLR Investment Corp. (SLR, f/k/a Solar Capital Ltd.), as Collateral Agent, and the parties signing the Loan Agreement from time to time as Lenders, including Solar Capital Ltd.SLR in its capacity as a Lender (collectively, the Lenders). UnderThe Company amended the 2019 Loan Agreement on March 24, 2023 (the Fifth Amendment) and entered into a related exit fee agreement with the Company borrowed $42,500,000Lenders. (See Note 21) Pursuant to the Fifth Amendment, the Lenders agreed to, among other things, (i) an additional tranche of $2,500,000 to increase the Company’s existing term loan facility to $47,500,000, subject to certain closing conditions, and (ii) extend a $15,000,000 additional term loan available to be funded at the Lender’s sole discretion.

Interest on December 31, 2019 and borrowed the remaining $2,500,000 on February 21, 2020. The two borrowings under the 2019 Loan Agreement totaled $45,000,000 and are referredprior to as the SLR Loan, given that Solar Capital Ltd. changed its name to SLR Investment Corp. (SLR) in February 2021. The SLR Loan maturesFifth Amendment was payable at an annual rate the greater of (i) one-month LIBOR or (ii) 1.78%, plus 7.65% per annum. Interest on July 1, 2024. The Company used the initial proceeds of the SLR Loan to pay off the outstanding loan under the 20182019 Loan Agreement along with related prepayment, legalfollowing the Fifth Amendment is payable at an annual rate equal to 5.15% plus the greater of (i) 4.60% and other fees(ii) one-month SOFR, which will reset monthly. As of March 31, 2023, the interest rate on the 2019 Loan Agreement was approximately 9.75%. The 2019 Loan Agreement provides for interest only payments until April 30, 2025, which may be extended an additional 12 months if the Company meets certain financial targets by March 31, 2025, followed by monthly payments of principal and expensesinterest through the loan maturity date of approximately $2,300,000, which included $2,200,000 in fees to SLR.April 30, 2028.

2018 Exit Fee Agreement

Notwithstanding the repayment of the outstanding loan under the 2018 Loan Agreement, with part of the SLR Loan, the Company remains obligated to pay additional fees under the Exit Fee Agreement (2018 Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, SLR, as Agent, and the Lenders. The 2018 Exit Fee Agreement survived the termination of the 2018 Loan Agreement upon the repayment of the outstanding loan under the 2018 Loan Agreement and has a term of 10 years. The Company is obligated to pay up to, but no more than, $2,000,000 in fees under the 2018 Exit Fee Agreement.

Specifically, the Company is obligated to pay an exit fee of $2,000,000 on a “change in control” (as defined in the 2018 Exit Fee Agreement). To the extent that the Company has not already paid the $2,000,000 fee, the Company is also obligated to pay a fee of $1,000,000 on achieving each of the following milestones:

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first, if the Company achieves revenues of $80,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month; and

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

second, if the Company achieves revenues of $100,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured in the same manner.

2019 Exit Fee Agreement

The Company is also obligated to pay additional fees under the Exit Fee Agreement dated as of December 31, 2019 by and among the Company, SLR as Agent, and the Lenders (2019 Exit Fee Agreement). The 2019 Exit Fee Agreement will survive the termination of the 2019 Loan Agreement and has a term of 10 years. The Company will be obligated to pay a $675,000 exit fee upon the occurrence of an exit event, which generally means a change in control, as defined in the 2019 Exit Fee Agreement.

First Amendment to 2019 Loan Agreement

On May 1, 2020, the Company entered into a First Amendment (the First Amendment) to the 2019 Loan Agreement. The First Amendment also included revised covenants that applied to the Company’s financial performance during 2020, all of which were met. The First Amendment, among other things, required that a revenue covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with a plan the Company submitted to the Collateral Agent in February 2021, and with such plan to be approved by the Company’s board of directors (the Board) and SLR in its sole discretion.

Second Amendment to 2019 Loan2023 Exit Fee Agreement

On March 30, 2021,24, 2023, the Company entered into the Fifth Amendment Exit Fee Agreement (the New Exit Fee Agreement), which will survive the termination of the Amended Loan Agreement and has a Second Amendment (the Second Amendment)term of 10 years. The Company will be obligated to pay an exit fee of 1.5% of the 2019original principal amount funded under the Amended Loan Agreement upon the occurrence of an exit event, which generally means a change in control, as defined in the New Exit Fee Agreement. The Second Amendment, among other things:

(a)reflected the Collateral Agent’s consent to the Company’s delivery of Board-approved annual financial projections for 2021 by April 1, 2021 (whichIf the Company deliveredhas not already paid the exit fee under the New Exit Fee Agreement, the Company is also obligated to pay an equivalent fee upon achieving revenues of $82,500,000 or more from the sale of ILUVIEN in a timely manner);

(b)specified the minimum revenue amount, calculatedordinary course of business to third party customers, measured on a trailing six-month12-month basis andduring the term of the New Exit Fee Agreement, tested at the end of each calendar quartermonth. The Company’s existing exit fee agreements remain in 2021, that the Company must achieve for each such period (the Revenue Covenant);

(c)required that the Revenue Covenant be tested at March 31, 2022 and at the last day of each quarter thereafter, with the minimum revenue amount equaleffect. The fees payable pursuant to a percentage of the Company’s projected revenues in accordance with an annual plan that the Company must submit to the Collateral Agent by January 15th of such year, such plan to be approved by the Boardexisting exit fee agreements and the Collateral AgentNew Exit Fee Agreement will not exceed $3,387,500 in its sole discretion; and

(d)provided that in future years the Company must deliver to the Collateral Agent and the Lenders as soon as available after approval thereof by the Board, but no later than the earlier of (x) 15 days after such approval and (y) February 28 of such year, the Company’s annual financial projections for the entire current fiscal year as approved by the Board; provided that any revisions to such projections approved by the Board shall be delivered to the Collateral Agent and the Lenders no later than seven days after such approval.total.

Third Amendment to 2019 Loan Agreement

On February 22, 2022, the Company entered into a Third Amendment to the 2019 Loan Agreement (the Third Amendment), which, among other things:

(a)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2022, that the Company must achieve for each such period (the Revenue Covenant);

(b)consented to the Company maintaining a lower minimum revenue amount under the Revenue Covenant for the trailing six-month period ended December 31, 2021 than previously required under the 2019 Loan Agreement (and waived any event of default that may have occurred or may be deemed to have occurred as a result of the Company’s lower revenue amount for that period); and

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(c)required that the Revenue Covenant be tested at March 31, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with an annual plan thatsubmitted by the Company must submit to the Collateral Agent by January 15 of such year, such plan to be thereafter approved by the BoardCompany’s board of directors and the Collateral Agent in its sole discretion no later than February 28 of such year.

Interest onFourth Amendment to 2019 Loan Agreement

On December 7, 2022, the Company entered into a Fourth Amendment to the 2019 Loan Agreement is payable(the Fourth Amendment), which, among other things:

(a)extends the amortization date from January 1, 2023 to April 1, 2023, provided that such date may be further extended to July 1, 2023 upon the Company’s request and in consultation with the Lenders, in each of the Lenders’ sole discretion;

(b)specifies the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2023, that the Company must achieve for each such period (the Revenue Covenant); and

(c)requires that the Revenue Covenant be tested at March 31, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of Alimera’s projected revenues in accordance with an annual plan submitted by the Company to the Collateral Agent by January 15th of such year, such plan to be thereafter approved by Alimera’s board of directors and the Collateral Agent in its sole discretion no later than February 28 of such year.

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Fifth Amendment to 2019 Loan Agreement

On March 24, 2023, the Company entered into a Fifth Amendment to the 2019 Loan Agreement (the Fifth Amendment and the 2019 Loan Agreement as so amended, the Amended Loan Agreement), under which the Lenders agreed to, among other things:

(a)an additional tranche of $2,500,000 to increase the Company’s existing term loan facility to $47,500,000, subject to certain closing conditions (the New Term Loan);

(b)extend a $15,000,000 additional term loan available to be funded at the Lender’s sole discretion;

(c)annual interest rate equal to 5.15% plus the greater of (i) 4.60%, and (ii) one-month LIBOR or (ii) 1.78%, in either case plus 7.65% per annum. As of March 31, 2022,SOFR, which will reset monthly, on the interest rate underNew Term Loan;

(d)extend the 2019 Loan Agreement was 9.43%. The 2019 Loan Agreement provides for interest only payments until January 1, 2023. Ifmaturity date to April 30, 2028 and the interest-only period to April 30, 2025, which may be extended an additional 12 months if the Company meets certain revenue thresholdsfinancial targets by March 31, 2025; and no event of default shall have occurred and is continuing, the Company can extend the interest only period an additional six months, ending on June 30, 2023, followed by one year of monthly payments of principal and interest

(e)The Company’s operations and thus its net product revenues have continued to be adversely affected byspecify the COVID-19 pandemic. During each ofminimum revenue amount, calculated on a trailing six-month basis beginning with the six monthsmonth period ended September 30, 2021March 31, 2023, and December 31, 2021,tested at the end of each calendar quarter, that the Company did not generate sufficient revenue to meet the trailing six-month Revenue Covenant included in the 2019 Loan Agreement. Formust achieve for each such six-month period the Lenders provided a consent that permitted the Company not to maintain the(the Revenue Covenant as of September 30, 2021 and December 31, 2021, respectively, and waived any event of default that may have occurred or may have been deemed to have occurred. Covenant.

The Company was in compliance with the Revenue Covenant as of March 31, 2022 and expects to comply with the Revenue Covenant at the next reportable date, which is June 30, 2022,2023, and throughout 2022, although the Company can give no assurances in that regard. See Note 6.remainder of the Revenue Covenants through one year after these financial statements are issued.

Modification of Debt

In accordance with the guidance in ASC 470-50, Debt, the Company entered into and accounted for the FirstThird Amendment, the SecondFourth Amendment, and the ThirdFifth Amendment as modifications and expensed, as they were incurred, legal costs associated with third parties as costs of the modifications. The Company capitalized $113,000 of costs in connection with the Fourth Amendment. The Company did not capitalize any additional costs associated with the Amendments.

Paycheck Protection Program Loan

On April 22, 2020,Third Amendment. The Company capitalized $2,625,000 of costs in connection with the Company received a $1,778,000 loan (the PPP Loan) under the Paycheck Protection Program established by the U.S. Small Business Administration as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP Loan was unsecured and was evidenced by a note in favor of HSBC Bank USA, National Association (HSBC) as the lender. On July 21, 2020, the Company submitted an application to HSBC for forgiveness of the PPP Loan. The PPP Loan was forgiven in its entirety, including interest, on April 16, 2021. As a result of forgiveness, the Company recognized a gain on extinguishment of debt of $1,792,000 during the year ended December 31, 2021.Fifth Amendment.

Fair Value of Debt

The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the notes approximated their fair value at March 31, 20222023 and December 31, 2021.2022.

Hercules Loan Agreement and Related Warrant

In connection with the previous loan with Hercules Capital, Inc. (Hercules), on October 20, 2016, the Company issued a warrant to Hercules Capital, Inc. that granted Hercules the right to purchase up to 30,582 shares of the Company’s common stock at an exercise price of $16.35 per share. The right to exercise this warrant expired on October 20, 2021.

11. EARNINGS (LOSS)LOSS PER SHARE (EPS)

The Company follows ASC 260, Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because the Company’s preferred stockholders participate in dividends equally with common stockholders (if the Company were to declare and pay dividends), the Company uses the two-class method to calculate EPS. However, the Company’s preferred stockholders are not contractually obligated to share in losses.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Basic EPS is computed by dividing net income or loss available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options restricted stock units and warrants.warrants the Company has issued. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.

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Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either not classified as participating or would have been anti-dilutive, were as follows:

March 31,

2023

2022

Series A convertible preferred stock

601,504

Series B convertible preferred stock

5,714,286

Common stock warrants

5,714,286

Stock options

1,216,953

1,315,161

Total

12,645,525

1,916,665

March 31,

2022

2021

Series A convertible preferred stock

601,504

601,504

Common stock warrants

30,582

Stock options

1,315,161

1,083,124

Total

1,916,665

1,715,210

12. PREFERRED STOCK

Securities Purchase Agreement

On March 24, 2023, the Company entered into a Securities Purchase Agreement (the Purchase Agreement) with certain investors for the sale of up to 27,000 shares of the Company’s newly designated Series B Convertible Preferred Stock, par value $0.01 per share (the Series B Preferred Stock) and warrants (the Warrants) to purchase up to 5,714,286 shares of the Company’s common stock, for an aggregate purchase price of up to $27,000,000 in two tranches. On March 24, 2023 (the Tranche 1 Closing Date), the Company issued and sold an aggregate of 12,000 shares of Series B Preferred Stock at a per-share purchase price of $1,000 (the Stated Value) and the Warrants for aggregate gross proceeds of $12,000,000 (the Tranche 1 Closing). The proceeds from the Tranche 1 Closing will be used to fund development and commercialization of the Company’s existing and potential future pipeline drugs, maintenance of the Company’s credit facility and corporate purposes substantially related to the commercialization of the Company’s existing and pipeline drugs, as well as the Repurchase (as defined below).

At the closing of the second tranche (the Tranche 2 Closing), the Company will issue and sell an aggregate of 15,000 shares of Series B Preferred at a per-share purchase price equal to the Stated Value for aggregate gross proceeds of $15,000,000. The number of shares to be issued at the Tranche 2 Closing is subject to increase by mutual agreement of the Company and investors. The Tranche 2 Closing will only occur upon the mutual agreement of the Company and the holders of a majority of the outstanding Series B Preferred Stock (the Preferred Majority); provided that the closing shall occur no later than December 31, 2023, if at all. The proceeds from the Tranche 2 Closing, if any, will be used to fund potential in-licenses or acquisitions of new technologies, products or businesses in ophthalmology, subject to applicable Nasdaq listing rules.

The initial conversion price of the shares of Series B Preferred Stock issued at the Tranche 1 Closing is $2.10 (the Tranche 1 Conversion Price). The shares of Series B Preferred Stock issued at the Tranche 2 Closing, if any, will have an initial conversion price equal to the 30-day preceding volume-weighted average price of the common stock on Nasdaq, but in any event (i) no less than eighty percent (80%) of the Tranche 1 Conversion Price per share nor (ii) greater than two-times the Tranche 1 Conversion Price per share. In each case, the conversion price of the Series B Preferred Stock is subject to certain customary adjustments, including a weighted average anti-dilution adjustment.

Unless and until stockholder approval to issue the common stock underlying the Series B Preferred Stock is obtained, the Series B Preferred Stock will not be convertible into common stock to the extent that such conversion would cause (i) the aggregate number of shares of common stock that would be issued pursuant to the Purchase Agreement and the transactions contemplated thereby to exceed 1,401,901 (19.99% of the voting power or number of shares of common stock, issued and outstanding immediately prior to the execution of the Purchase Agreement), which number will be reduced, on a share-for-share basis, by the number of shares of common stock issued or issuable pursuant to any transactions that may be aggregated with the transactions contemplated by the Purchase Agreement under applicable Nasdaq rules (the Exchange Cap); or (ii) the aggregate number of shares of common stock that would be issued pursuant to such conversion, when aggregated with any shares of common stock then beneficially owned by the holder (or group of holders required to be aggregated) of such shares, would result in (a) a “change of control” under applicable Nasdaq listing rules (the Change of Control Cap) or (b) such holder or a “person” or “group” to beneficially own in excess of 9.99% of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon such conversion (the Ownership Limitation).

The Series B Preferred Stock will be entitled to receive dividends and other distributions pro rata with the common stock. In addition, prior to conversion, dividends will accrue on the Series B Preferred Stock at an annual rate of 6% of the Stated Value, accruing daily. The Series B Preferred Stock is not redeemable. At March 31, 2023, the Series B Preferred Stock had $14,000 of cumulative dividends in arrears ($1.17 per share).

The Warrants have an exercise price equal to the Tranche 1 Conversion Price (as adjusted pursuant to the Certificate of Designation of the Series B Preferred Stock through the date of Stockholder Approval) and expire seven years from the date of the Tranche 1 Closing. The Warrants are exercisable upon the earlier of (a) a change of control and (b) March 24, 2024; provided that prior to Stockholder Approval, exercise of the Warrants is subject to the Ownership Limitation, the Change of Control Cap and the Exchange Cap. If the

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Company consummates the Tranche 2 Closing or a qualified financing transaction of at least $15,000,000 prior to December 31, 2023, the number of shares underlying the Warrants will automatically be reduced to an aggregate of 1,000,000 shares of common stock.

Series A Convertible Preferred Stock

In October 2012, the Company closed its preferred stock financing in which it sold units consisting of 1,000,000 shares of Series A Convertible Preferred Stock (Series A Preferred Stock) and warrants (which expired on October 1, 2017) to purchase 300,000 shares of Series A Preferred Stock for gross proceeds of $40,000,000, prior to the payment of approximately $560,000 of related issuance costs. The powers, preferences and rights of the Series A Preferred Stock are set forth in the certificate of designation for the Series A Preferred Stock filed by the Company with the Delaware Secretary of State as part of the Company’s certificate of incorporation. As of MarchDecember 31, 2022, there were 600,000 shares of Series A Convertible Preferred Stock issued and outstanding.

As a condition to entering into the Purchase Agreement, the Company repurchased 200,919 shares of common stock and 600,000 shares of its Series A Preferred Stock held by the holders thereof (the Repurchase), for an aggregate purchase price of approximately $1,252,000. The holders of the Series A Preferred Stock were entitled to a liquidation preference before the holders of common stock would be entitled to receive any consideration in the event of the Company’s liquidation. As of December 31, 2022, the Series A Preferred Stock aggregate liquidation preference was $24,000,000. As a result of the Repurchase, no shares of the Series A Preferred Stock remain outstanding and the liquidation preference is no longer in effect. Following the Repurchase, the Company filed a certificate of elimination of the Series A Preferred Stock with the Secretary of State of the State of Delaware.

13. EQUITY INCENTIVE PLANS

Under the Company’s 2019 Omnibus Incentive Plan (the 2019 Plan), the Compensation Committee of the Board is authorized to grant equity-based incentive awards that include stock options, restricted stock units (RSUs) and shares of restricted stock to officers, directors, employees and contractors. Equity-based awards are also outstanding under the Company’s 2010 Equity Incentive Plan, although no new awards can be granted under that plan. The Company also has an employee stock purchase plan.

Stock Options

During the three months ended March 31, 20222023 and 2021,2022, the Company recorded compensation expense related to stock options of approximately $258,000$167,000 and $235,000,$258,000, respectively. As of March 31, 2022,2023, the total unrecognized compensation cost related to non-vested stock options granted was $1,723,000$1,028,000 and is expected to be recognized over a weighted average period of 2.882.46 years. The following table presents a summary of stock option activity for the three months ended March 31, 20222023 and 2021:2022:

Three Months Ended

Three Months Ended

March 31,

March 31,

2022

2021

2023

2022

Weighted

Weighted

Weighted

Weighted

Average

Average

Average

Average

Exercise

Exercise

Exercise

Exercise

Options

Price ($)

Options

Price ($)

Options

Price ($)

Options

Price ($)

Options outstanding at beginning of period

1,075,795

23.35

939,379

26.72

1,175,339

19.03

1,075,795

23.35

Grants

283,550

4.84

187,150

5.02

100,402

2.73

283,550

4.84

Forfeitures and expirations

(44,184)

22.36

(43,347)

7.80

(58,788)

11.85

(44,184)

22.36

Exercises

(58)

6.75

Options outstanding at period end

1,315,161

19.39

1,083,124

23.73

1,216,953

18.03

1,315,161

19.39

Options exercisable at period end

810,201

27.92

739,466

31.30

867,650

23.38

810,201

27.92

Weighted average per share fair value of options granted during the period

$

3.32

$

3.22

$

1.88

$

3.32

 

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides additional information related to outstanding stock options as of March 31, 2022:2023:

Weighted

Weighted

Weighted

Average

Weighted

Average

Average

Remaining

Aggregate

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Exercise

Contractual

Intrinsic

Shares

Price ($)

Term

Value ($)

Shares

Price ($)

Term

Value ($)

(In thousands)

(In thousands)

Outstanding

1,315,161

19.39

6.42 years

312

1,216,953

18.03

5.79 years

1

Exercisable

810,201

27.92

4.74 years

36

867,650

23.38

4.61 years

Outstanding, vested and expected to vest

1,247,294

20.15

6.26 years

277

1,184,035

18.39

5.70 years

1

The following table provides additional information related to outstanding stock options as of December 31, 2021:2022:

Weighted

Weighted

Weighted

Average

Weighted

Average

Average

Remaining

Aggregate

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Exercise

Contractual

Intrinsic

Shares

Price ($)

Term

Value ($)

Shares

Price ($)

Term

Value ($)

(In thousands)

(In thousands)

Outstanding

1,075,795

23.35

5.56 years

21

1,175,339

19.03

5.68

Exercisable

809,837

28.76

4.57 years

5

878,115

23.62

4.72

Outstanding, vested and expected to vest

1,043,347

23.88

5.46 years

19

1,139,482

19.46

5.58

As of March 31, 2022, 686,6032023, 54,918 shares remain available for grant under the 2019 Plan.

Restricted Stock and Restricted Stock Units (RSUs)

AThe following table presents a summary of restricted stock and restricted stock units (RSU) transactions underRSU activity for the plans are as follows:three months ended March 31, 2023 and 2022:

Three Months Ended

Three Months Ended

March 31,

March 31,

2022

2021

2023

2022

Weighted

Weighted

Weighted

Weighted

Average

Average

Average

Average

Restricted

Grant Date

Restricted

Grant Date

Grant Date

Grant Date

Stock & RSUs

Fair Value ($)

Stock & RSUs

Fair Value ($)

Shares

Fair Value ($)

Shares

Fair Value ($)

Restricted stock & RSUs outstanding at beginning of period

46,250

5.65

30,086

3.12

Restricted stock and RSUs outstanding at beginning of period

73,594

4.98

46,250

5.65

Grants

57,500

4.96

45,000

5.01

632,050

1.39

57,500

4.96

Vested units

(9,687)

5.01

(25,403)

3.12

(20,468)

4.98

(9,687)

5.01

Forfeitures

(10,933)

4.20

Restricted stock & RSUs outstanding at period end

94,063

5.29

38,750

5.01

Restricted stock and RSUs outstanding at period end

685,176

1.67

94,063

5.29

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employee stock-based compensation expense related to restricted stock and RSUs recognized in accordance with ASC 718, Compensation - Stock Compensation (ASC 718) was $46,000$47,000 and $19,000$46,000 for the three months ended March 31, 20222023 and 2021,2022, respectively.

As of March 31, 2022,2023, the total unrecognized compensation cost related to restricted stock and RSUs was $429,000$887,000 and is expected to be recognized over a weighted average period of 3.293.62 years.

Employee Stock Purchase Plan

During the three months ended March 31, 20222023 and 2021,2022, the Company recorded compensation expense related to its employee stock purchase plan of approximately $8,000$11,000, and $8,000, respectively.

 

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14. INCOME TAXES

In accordance with ASC 740, Income Taxes, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities at the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a valuation allowance against its net deferred tax asset to reduce the net carrying value to an amount that is more likely than not to be realized. At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, the Company’s best estimate of operating results and foreign currency exchange rates.

The Company also applies the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements. There has been no change to the Company’s policy that recognizes potential interest and penalties related to uncertain tax positions. The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world.

For the three months ended March 31, 2022,2023, the Company has not recorded income tax expense or benefit. The Company has incurred losses in all material jurisdictions for the current quarter. No tax benefit is expected to be realized for the losses in the United States and the United Kingdom due to the ongoing losses and valuation allowances in these jurisdictions. Tax expense or benefit for income and losses in other jurisdictions (Ireland, Germany, and Portugal) are immaterial for the quarter.

At December 31, 2021,2022, the Company had U.S. federal NOL carry-forwards of approximately $143,200,000$147,200,000 and state NOL carry-forwards of approximately $106,700,000$107,700,000 available to reduce future taxable income.income, subject to limitation based upon the results of the Company’s analyses under Internal Revenue Code Sections 382 and 383. The Company’s U.S. federal NOL carry-forwards remain fully reserved as of March 31, 2022. Except for2023. If not utilized, the NOLs generated after 2017, the U.S. federal NOLs not fully utilizedNOL carry-forwards will expire at various dates between 2029 and 2038; most2037, the Company’s federal NOL created in 2018 and onward will carry forward indefinitely and the state NOL carry-forwards will expire at various dates between 20212023 and 2041. Under2042.

NOL carry-forwards may be subject to annual limitations under Internal Revenue Code Sections 382 and 383 in the Tax Cutsevent that certain changes in ownership of the Company were to occur. The Company has not yet completed a formal evaluation of the impact of the issuance of the Company’s Series B Preferred Stock on March 24, 2023 on the Company’s NOL carry-forwards and Jobs Actwhether certain changes in ownership have occurred that would limit the Company’s ability to utilize a portion of 2017, U.S. federal NOLs and some state NOLs generated after 2017 will carryforward indefinitely.its NOL carry-forwards.

As of December 31, 2021,2022, the Company’s U.K. subsidiary is in a net deferred tax asset position primarily due to the step up in tax basis for intangible assets created by the transfer of intellectual property from the Netherlands to the U.K. Based upon the expected pattern of reversal of deferred taxes, it is not more likely than not that these deferred tax assets will be realized. As such, a full valuation allowance is placed against the net deferred tax assets of the U.K. subsidiary. The Company’s Irish subsidiary has a deferred tax asset for net operating loss carryforwards. The Company expects this net operating loss carryforward to be fully realizable in the future based upon the Company’s control of the transfer pricing arrangements. A valuation allowance is not recorded on the deferred tax assets of the Ireland subsidiary. Deferred tax considerations for all other foreign entities are immaterial to the financial statements.

Effective January 1, 2022, for U.S. tax purposes research and development costs, including software development costs, are required to be capitalized and will be deductible over five years for costs incurred domestically and over fifteen years for costs incurred in a foreign country. Additionally, the first year of amortization requires that amortization begin with the midpoint of the taxable year. As of December 31, 2022, the Company recorded a deferred tax asset of approximately $969,000 related to capitalized research and development costs. This deferred tax asset is fully reserved with a valuation allowance.

On August 16, 2022, the president signed the Inflation Reduction Act ( IRA ) into law. The IRA enacted a 15% corporate minimum tax effective in 2024, a 1% tax on share repurchases after December 31, 2022, and created and extended certain tax-related energy incentives. The Company does not currently expect the tax-related provisions of the IRA to have a material effect on its financial results.

The Company anticipates that its foreign subsidiaries will be profitable and have earnings in the future. Once the foreign subsidiaries have earnings, the Company intends to indefinitely reinvest in its foreign subsidiaries all undistributed earnings and original investments in such subsidiaries. As a result, the Company does not expect to record deferred tax liabilities in the future related to excesses of book over tax basis in the stock of its foreign subsidiaries in accordance with ASC 740-30-25.

Tax years from 2018 to 2020 remain subject to examination in California, Georgia, Kentucky, Tennessee, Texas and on the federal level, with the exception of the assessment of NOL carry-forwards available for utilization, which can be examined for all years since 2009.

 

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The statute of limitations on these years will close when the NOLs expire or when the statute closes on the years in which the NOLs are utilized.

15. SEGMENT INFORMATION

During the three months ended March 31, 2023 and 2022, and 2021, 2two customers within the U.S. segment that are large pharmaceutical distributors accounted for 58%56% and 50%, respectively,58% of the Company’s consolidated product revenues.revenues, respectively. These same 2two customers within the U.S. segment accounted for approximately 58%63% and 68%71% of the Company’s consolidated accounts receivable at March 31, 20222023 and at December 31, 2021,2022, respectively.

During the first quarter of 2021, theThe Chief Executive Officer (CEO), who is the chief operating decision maker, (CODM), changedhas determined that the manner in which the CODM monitors performance, aligns strategies and allocates resources, which resulted in a change in the operating segments. The Company’s operations are now managed as three operating segments: U.S., International and Operating Cost. The Company determined that each of these operating segments represented a reportable segment. Previously, the Company was managed as two operating segments: U.S. and International. In monitoring performance, aligning strategies and allocating resources, the CODMchief operating decision maker manages and evaluates the Company’s U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, the Company classifies within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.

The Company’s U.S. and International segments represent the sales and marketing, general and administrative and research and development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development.

Each of the Company’s U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to the Company’s consolidated totals. The Company does not report balance sheet information by segment because the CODMchief operating decision maker does not review that information. The Company allocates certain operating expenses among its reporting segments based on activity-based costing methods. These activity-based costing methods require the Company to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment.

The following tables present a summary of the Company’s reporting segments for the three months ended March 31, 20222023 and 2021:2022:

Three Months Ended

March 31, 2023

U.S.

International

Operating Cost

Other

Consolidated

(In thousands)

REVENUE:

PRODUCT REVENUE, NET

$

7,582

$

5,964

$

$

$

13,546

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(905)

(1,123)

(2,028)

GROSS PROFIT

6,677

4,841

11,518

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

1,162

756

2,224

22

4,164

GENERAL AND ADMINISTRATIVE EXPENSES

1,184

716

2,116

155

4,171

SALES AND MARKETING EXPENSES

4,274

1,415

66

49

5,804

DEPRECIATION AND AMORTIZATION

681

681

OPERATING EXPENSES

6,620

2,887

4,406

907

14,820

SEGMENT INCOME (LOSS) FROM OPERATIONS

57

1,954

(4,406)

(907)

(3,302)

OTHER INCOME AND EXPENSES, NET

(1,666)

(1,666)

NET LOSS BEFORE TAXES

$

(4,968)

Three Months Ended

March 31, 2022

U.S.

International

Operating Cost

Other

Consolidated

(In thousands)

REVENUE:

 

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Three Months Ended

March 31, 2022

U.S.

International

Operating Cost

Other

Consolidated

(In thousands)

REVENUE:

PRODUCT REVENUE, NET

$

6,919

$

4,979

$

$

$

11,898

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(815)

(865)

(1,680)

GROSS PROFIT

6,104

4,114

10,218

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

1,170

916

1,461

36

3,583

GENERAL AND ADMINISTRATIVE EXPENSES

317

422

2,283

218

3,240

SALES AND MARKETING EXPENSES

4,674

2,004

117

58

6,853

DEPRECIATION AND AMORTIZATION

689

689

OPERATING EXPENSES

6,161

3,342

3,861

1,001

14,365

SEGMENT INCOME (LOSS) FROM OPERATIONS

(57)

772

(3,861)

(1,001)

(4,147)

OTHER INCOME AND EXPENSES, NET

(1,808)

(1,808)

NET LOSS

$

(5,955)

Three Months Ended

March 31, 2021

U.S.

International

Operating Cost

Other

Consolidated

(In thousands)

REVENUE:

PRODUCT REVENUE, NET

$

5,647

$

5,567

$

$

$

11,214

$

6,919

$

4,979

$

$

$

11,898

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(751)

(811)

(1,562)

(815)

(865)

(1,680)

GROSS PROFIT

4,896

4,756

9,652

6,104

4,114

10,218

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

725

941

1,538

9

3,213

1,170

916

1,461

36

3,583

GENERAL AND ADMINISTRATIVE EXPENSES

241

587

2,396

189

3,413

317

422

2,283

218

3,240

SALES AND MARKETING EXPENSES

3,278

1,334

143

63

4,818

4,674

2,004

117

58

6,853

DEPRECIATION AND AMORTIZATION

638

638

689

689

OPERATING EXPENSES

4,244

2,862

4,077

899

12,082

6,161

3,342

3,861

1,001

14,365

SEGMENT INCOME (LOSS) FROM OPERATIONS

652

1,894

(4,077)

(899)

(2,430)

(57)

772

(3,861)

(1,001)

(4,147)

OTHER INCOME AND EXPENSES, NET

(1,218)

(1,218)

(1,808)

(1,808)

NET LOSS

$

(3,648)

NET LOSS BEFORE TAXES

$

(5,955)

26


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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. OTHER AGREEMENTS WITH OCUMENSION

Share Purchase Agreement

On April 14, 2021, the Company entered into a Share Purchase Agreement with Ocumension Therapeutics, pursuant to which the Company offered and sold to Ocumension 1,144,945 shares of common stock (the “Shares”), at a purchase price of $8.734044 per Share. The number of Shares sold was equal to 19.9% of the number of shares of common stock outstanding immediately before the closing.

The aggregate gross proceeds from the sale of the Shares were $10,000,000. The Company intends to usehas used the net proceeds from the sale of the Shares to continue to commercialize ILUVIEN® and for general corporate purposes, which may include working capital, capital expenditures, other clinical trial expenditures, acquisitions of new technologies, products or businesses in ophthalmology, and investments.

Pursuant to the Share Purchase Agreement and subject to certain limited exceptions, Ocumension is prohibited from selling, transferring, or otherwise disposing of the Shares for a year following the closing date.

Ocumension is entitled to certain purchase rights if the Company elects to offer or sell new securities in either a private or public offering.

Warrant Subscription Agreement

On April 14, 2021, the Company entered into the warrant agreement with Ocumension Therapeutics pursuant to which Ocumension agreed to issue to the Company 1,000,000 non-transferable warrants granting the Company the right for a period of four years to subscribe to up to an aggregate of 1,000,000 shares of Ocumension stock at the subscription price of HK$23.88 per warrant share (or US$3.07 per warrant share as converted to U.S. Dollars at the exchange rate on April 9, 2021 of 0.12853 U.S. Dollars per HK$), subject to adjustment. (The converted rate is for illustrative purposes only; if the Company exercises the warrants, it will pay the subscription price of HK$23.88 per warrant share in HK$.) The warrants were issued on August 13, 2021, pursuant to the terms of the warrant agreement. The warrants are not and will not be listed on any stock exchange.


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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. FAIR VALUE

The Company applies ASC 820, Fair Value Measurements, in determining the fair value of certain assets and liabilities. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:

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Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The following fair value tables presenttable presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:

March 31, 2022

March 31, 2023

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

(In thousands)

Assets:

Warrant asset (1)

$

$

282

$

$

282

$

$

197

$

$

197

Assets measured at fair value

$

$

282

$

$

282

$

$

197

$

$

197

Liabilities:

Common stock warrant liability (1)

$

$

3,788

$

$

3,788

Liabilities measured at fair value

$

$

3,788

$

$

3,788

December 31, 2022

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Warrant asset (1)

$

$

183

$

$

183

Assets measured at fair value

$

$

183

$

$

183

Liabilities:

Common stock warrant liability (1)

$

$

$

$

Liabilities measured at fair value

$

$

$

$

December 31, 2021

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Warrant asset (1)

$

$

833

$

$

833

Assets measured at fair value

$

$

833

$

$

833

(1) The Company uses the Black-Scholes pricing model and assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. Changes in this value each reporting period are reported in the condensed consolidated statement of operations.


 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes (Interim Financial Statements) that appear elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors.factors, including those described in Part I, Item 1A, “Risk Factors” and elsewhere in the 2022 Annual Report. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this report above.

Overview

Alimera Sciences, Inc., and its subsidiaries (we, our or us), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people globally. Our only product is ILUVIEN®, which has received marketing authorization and reimbursement in numerous countries for the treatment of DME.diabetic macular edema (DME). In the U.S. and certain other countries outside Europe, ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. ILUVIEN is also now indicated in 17 European countries and reimbursed in ten countries in Europe for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIU-PS).

We commercially market ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Ireland, and have made ILUVIEN available in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler.Ireland. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, Denmark, Finland, France, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, Australia, New Zealand, China and several countries in the Western Pacific and several countries in the Middle East. In addition,As of March 31, 2023, we have granted an exclusive license to Ocumension Therapeutics forrecognized net product revenue from our international distributors in the development and commercialization of our 0.19mg fluocinolone acetonide intravitreal implant inMiddle East, China, East AsiaAustria, Belgium, Czech Republic, France, Italy, Luxembourg, Spain, the Netherlands, and the Western Pacific.Nordic Region.

Where We Market ILUVIEN to Treat Diabetic Macular Edema (DME)

ILUVIEN has received marketing authorization for the use of ILUVIEN to treat DME for the indications and in the countriesis reimbursed and marketed as shown in the following table:

Indication for the

Treatment of DME

Countries

Where ILUVIEN Has

Received Marketing Authorization

to Treat DME

Countries

Where ILUVIEN Has

Received Reimbursement Approval to Treat DME

Countries Where

ILUVIEN is

Currently Available

to Treat DME

Treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure

U.S., Australia, Canada, Kuwait, Lebanon and the United Arab Emirates

U.S., Kuwait, Lebanon and the United Arab Emirates

U.S., Kuwait, Lebanon and the United Arab Emirates

Treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies

The United Kingdom (U.K.), Germany, France, Italy, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, the Czech Republic, the Netherlands and Luxembourg

The U.K., Belgium, Germany, France, Italy, Spain, Portugal, Ireland, Luxembourg and the Netherlands

The U.K., Belgium, the Czech Republic, Germany, France, Italy, Spain, Portugal, Ireland, Austria, Luxembourg, Denmark, Norway, Finland, Sweden and the Netherlands

 

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Where We Market ILUVIEN to Treat Recurrent Non-Infectious Uveitis Affecting the Posterior Segment of the Eye (NIU-PS)

ILUVIEN has received marketing authorization for the use of ILUVIEN to treat NIU-PS for the indications and in the countriesis reimbursed and marketed as shown in the following table:

Indication for the

Treatment of NIU-PS

Countries

Where ILUVIEN Has

Received Marketing Authorization

to Treat NIU-PS

Countries

Where ILUVIEN Has

Received Reimbursement Approval to Treat NIU-PS

Countries Where

ILUVIEN is

Currently Marketed

to Treat NIU-PS

The prevention of relapse in recurrent NIU-PS

The U.K., Germany, France, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, the Czech Republic, the Netherlands and Luxembourg

The U.K., Germany, Ireland (private sector), Italy, France, Portugal, Spain, the Czech Republic, Luxembourg and the Netherlands

The U.K., Germany, Ireland, Italy, France, Spain, the Czech Republic, Luxembourg, the Netherlands, Denmark, Norway, Portugal, Sweden, Finland, Austria and the NetherlandsBelgium

We launched ILUVIEN for the NIU-PS indication in Germany and the U.K. during the third quarter of 2019, the Netherlands during the fourth quarter of 2020 and Luxembourg in the first quarter of 2021. In addition, we secured reimbursement of ILUVIEN for NIU-PS with the major private insurers in Ireland in the first quarter of 2021.

ILUVIEN became commercially available in Finland and Denmark during the first quarter of 2021 and in Norway during the second quarter of 2021. ILUVIEN is commercialized in the Nordic Region through a direct commercial team and our contracted wholesaler partner.

We signed an agreement on August 4, 2021 with Tanner Pharma to make ILUVIEN accessible to doctors wishing to use it on a named-patient basis in territories where ILUVIEN is not licensed or commercialized while ensuring compliance with regulations.

The COVID-19 Pandemic and Our Steps to Address its Effects on Our Business

The unprecedented events of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues and may in the future have an adverse effect on our liquidity and financial condition. These adverse effects of the pandemic on us have resulted from the following, among other factors:

Limitations imposed by governments and private parties on in-person access to physicians have adversely affected us in certain countries where ILUVIEN is currently marketed and may again do so if reimposed where they have been lifted.

Patients’ concerns about their personal health during the COVID-19 pandemic have also negatively affected our business. Many DME patients have been hesitant or even unwilling to visit their physicians in person (even if otherwise permitted) for fear of contracting the COVID-19 coronavirus.

Limitations on travel curtailed our in-person marketing activities, and may again do so if reimposed.

As physicians gain increased access to patients as a result of the lifting of limitations in the U.K. and in Europe, they may give a higher priority to patients with acute illnesses before treating patients with chronic illnesses such as DME, thereby reducing or delaying the number of ILUVIEN treatments that might otherwise have been performed.

SARS-CoV-2 variants such as Delta and Omicron have emerged and may again emerge, with unpredictable effects on our business.

These limitations and other effects of the COVID-19 pandemic have had an adverse impact on our revenues beginning late in the first quarter of 2020 and continuing2020. These adverse effects have continued to the date of this report to some degree.a lesser degree in certain of our key markets in Europe that have now begun to recover. These factors may continue to adversely impact our revenue and capital resources, although the extent and duration of that impact is currently uncertain. (Please refer to “Special Note Regarding Forward-Looking Statements and Projections” above.)

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In response to these developments, we have implemented certain measures to mitigate the impact of the pandemic on our financial position and operations. These measures include the following:

We are continuing to monitor the effects of the SARS-CoV-2 variants and to increase our engagement with our customers to mitigate any anticipated loss of revenue in those markets that may be affected.

We are investing in e-marketing and in enhancing our capabilities to conduct meetings virtually as well as in person.affected

For more information aboutSources of Revenues

Our revenues for the effect ofthree months ended March 31, 2023 and 2022 were generated from product sales primarily in the COVID-19 pandemic on our businessU.S., Germany and the related risksU.K. In the U.S., two large pharmaceutical distributors accounted for 56% and 58% of our consolidated product revenues for the three months ended March 31, 2023 and 2022, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell on to physician offices, pharmacies and hospitals. Internationally, in countries where we face, please see Part I, Item 1A, “Risk Factors – Risks Relatedsell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to the Public Health Pandemic,” in the 2021 Form 10-K.physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors purchase ILUVIEN from us and maintain inventories of ILUVIEN that they sell to their customers.

Transactions with Ocumension Therapeutics

On April 14, 2021, we entered into a transaction with Ocumension Therapeutics incorporated in the Cayman Islands with limited liability (Ocumension), or one of its affiliates.. In the Ocumension transaction, we received a total of $20.0 million in cash under two agreements:

a Share Purchase Agreement with Ocumension, pursuant to which we offered and sold to Ocumension 1,144,945 shares of our common stock at a purchase price of $8.734044 per share, or $10.0 million in total; and

an an Exclusive License Agreement (the Ocumension License Agreement) with a wholly owned subsidiary of Ocumension, pursuant to which we granted an exclusive license for the development and commercialization of our 190 microgram0.19 mg fluocinolone acetonide intravitreal implant in applicator under Ocumension’s own branded label in China, East Asia, and the Western Pacific, in exchange for a nonrefundable upfront payment of $10.0 million and aggregated potential sales milestone payments of up to $89.0 million upon achievement by the Ocumension subsidiary of specified amounts of net sales of the licensed product in in the future. We recognized $11.0 million in license revenue from the Ocumension transaction (including the value of a warrant subscription agreement, which we received as consideration, to purchase 1,000,000 shares of Ocumension Therapeutics during a period of four years), in accordance with Accounting Standards Codification (ASC)ASC 606, Revenue from Contracts with Customers, with the remaining approximate $300,000 in consideration received classified as deferred revenue that will be recognized over the remaining term of the license agreement once Ocumension begins to sell products. Revenue from the Ocumension License Agreement is included within net revenue in the accompanying condensed consolidated statementsInterim Financial Statements; and

a Share Purchase Agreement with Ocumension, pursuant to which we offered and sold to Ocumension 1,144,945 shares of operations.our common stock at a purchase price of $8.734044 per share, or $10.0 million in total.

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For more information about the Ocumension transaction, see Notes 9 and 16 of our notes to the accompanying Interim Condensed Consolidated Financial Statements (Interim Financial Statements) and our Current Report on Form 8-K filed with the SEC on April 14, 2021.

Sources of Revenues

Our revenues for the three months ended March 31, 2022 and 2021 were generated from product sales primarily in the U.S., Germany and the U.K. In the U.S., two large pharmaceutical distributors accounted for 58% and 50% of our consolidated product revenues for the three months ended March 31, 2022 and 2021, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN for sale to their customers.Interim Financial Statements.

License Agreement with EyePoint Pharmaceuticals US, Inc.

Under theIn July 2017, New Collaboration Agreementwe amended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), (the New Collaboration Agreement). Under the New Collaboration Agreement, we have rights tohold a worldwide license from EyePoint for the use of steroids, including FAc, in EyePoint’s proprietary insert technology underlying ILUVIEN for the treatment of (a) human eyeall ocular diseases, includingother than uveitis, inoutside of Europe, the Middle East and Africa, and (b) human eye diseases other than uveitis worldwide. During eachAfrica. The New Collaboration Agreement converted our previous profit share obligation to a royalty payable on global net revenues of ILUVIEN. The New Collaboration Agreement included a right to offset $15.0 million of future royalty payments (the Future Offset). As of March 31, 2023, the balance of the three months ended March 31, 2022 and 2021, our net royalty expense payableFuture Offset was approximately $6.9 million, which is fully reserved. We will be able to recover the balance of the Future Offset as a reduction of future royalties that would otherwise be owed to EyePoint wasby reducing the royalty owed from 6% to 5.2%. We will pay an additional 2% royalty on future global for net revenues and other related consideration up to $75.0 million annually and from 8% to 6.8% for net revenues and other related consideration in excess of $75,000,000 in any year. (For$75.0 million on an annual basis.

For more information about our agreement with EyePoint, including how we calculate the royalty percentages we are required to pay, see Note 9 of our notes toin the accompanying Interim Financial Statements.)


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Consolidated Results of Operations

Three Months Ended

Three Months Ended

March 31,

March 31,

2022

2021

2023

2022

(In thousands, except share and per share data)

(In thousands, except share and per share data)

REVENUE:

PRODUCT REVENUE, NET

$

11,898

$

11,214

$

13,546

$

11,898

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(1,680)

(1,562)

(2,028)

(1,680)

GROSS PROFIT

10,218

9,652

11,518

10,218

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

3,583

3,213

4,164

3,583

GENERAL AND ADMINISTRATIVE EXPENSES

3,240

3,413

4,171

3,240

SALES AND MARKETING EXPENSES

6,853

4,818

5,804

6,853

DEPRECIATION AND AMORTIZATION

689

638

681

689

OPERATING EXPENSES

14,365

12,082

14,820

14,365

LOSS FROM OPERATIONS

(4,147)

(2,430)

(3,302)

(4,147)

INTEREST EXPENSE AND OTHER

(1,364)

(1,343)

(1,667)

(1,364)

UNREALIZED FOREIGN CURRENCY GAIN, NET

108

125

UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET

(13)

108

CHANGE IN FAIR VALUE OF WARRANT ASSET

(552)

14

(552)

NET LOSS

$

(5,955)

$

(3,648)

(4,968)

(5,955)

NET LOSS PER SHARE — Basic and diluted

$

(0.85)

$

(0.63)

PREFERRED STOCK DIVIDENDS

(14)

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS

$

(4,982)

$

(5,955)

NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS — Basic and Diluted

$

(0.71)

$

(0.85)

WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted

6,990,737

5,755,424

7,032,231

6,990,737

Net Revenue

We generate revenue from ILUVIEN, our only product. In addition to generating revenue from product sales, we seek to generate revenue from other sources such as upfront fees, milestone payments in connection with collaborative or strategic relationships, and royalties resulting from the licensing of ILUVIEN or any future product candidates and other intellectual property. Revenue from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.

NetProduct revenue, net increased by approximately $700,000,$1.6 million, or 6%14%, to approximately $13.5 million for the three months ended March 31, 2023, compared to approximately $11.9 million for the three months ended March 31, 2022, compared to approximately $11.2 million for the three months ended March 31, 2021. 2022. The increase was relatedprimarily due to increased demandunit sales volume in the U.S., along with increased salesboth segments of our business. Adjustments in net product revenue to our international distributors offset by decreases driven by continued COVID-19 lockdownsexclude fluctuations in certain international markets.foreign currency exchange rates result in a non-GAAP financial measure. Please refer to “Non-GAAP Financial Measure” on page 39 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.

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Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit

Gross profit is affected by costs of goods sold, which includes costs of manufactured goods sold and royalty payments to EyePoint under the New Collaboration Agreement. Additionally, cost of goods sold by our international distributors fluctuates depending on the revenue share attributable to the respective contract.

Cost of goods sold, excluding depreciation and amortization, increased by approximately $100,000,$350,000, or 6%21%, to approximately $2.0 million for the three months ended March 31, 2023, compared to approximately $1.7 million for the three months ended March 31, 2022, compared to approximately $1.6 million for the three months ended March 31, 2021.2022. The increase was primarily related to our increased product sales.

Gross profit increased by approximately $500,000,$1.3 million, or 5%13%, to approximately $11.5 million for the three months ended March 31, 2023, compared to approximately $10.2 million for the three months ended March 31, 2022, compared to approximately $9.7 million2022. Gross margin was 85% and 86% for the three months ended March 31, 2021. Gross margin was 86% for both the three months ended March 31,2023 and 2022, and 2021.respectively.

Research, Development and Medical Affairs Expenses

Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and include salaries and related expenses for research and development and medical affairs personnel, expenses related to clinical trials including our NEW DAY Study, and expenses tied to physician engagement by our medical science liaisons. Our research, development and medical affairs expenses also include costs related to clinical studies such as the NEW DAY Study and the provision of medical affairs support, including symposia development for physician education, and costs related to compliance with FDA, EEA or other regulatory requirements. We expense both internal and external research and development costs as they are incurred.

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Research, development and medical affairs expenses increased by approximately $400,000,$580,000, or 13%16%, to approximately $4.2 million for the three months ended March 31, 2023, compared to approximately $3.6 million for the three months ended March 31, 2022, compared to approximately $3.2 million for the three months ended March 31, 2021.2022. The increase was primarily attributable to increases of approximately $250,000 of scientific communication$670,000 in clinical study costs and $130,000$100,000 in consultantapplicator design costs, partially offset by a decrease of $150,000 in scientific communications costs.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, legal, information technology, training and employee development.human resources. Other significant costs include facilities costs and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents and managing license agreements. We expect to continue to incur significant costs to comply with the corporate governance, internal control and similar requirements applicable to public companies.

General and administrative expenses decreasedincreased by approximately $200,000,$930,000, or 6%29%, to approximately $4.2 million for the three months ended March 31, 2023, compared to approximately $3.2 million for the three months ended March 31, 2022, compared2022. The increase was primarily attributable to approximately $3.4 million forincreases of $870,000 of bad debt expense, and $130,000 in professional fees, partially offset by a decrease of $100,000 in personnel expenses during the three months ended March 31, 2021. The decrease was primarily attributable to a decrease in personnel costs.2023.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion of ILUVIEN, including the assessment of the commercial opportunity, of, the development of market awareness, for, the pursuit of reimbursement approval, for, and the commercialization of ILUVIEN,generally, including launch plans for ILUVIEN in new markets. Other costs include third party service fees, professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.

Sales and marketing expenses increaseddecreased by approximately $2.1$1.0 million, or 44%14%, to approximately $5.8 million for the three months ended March 31, 2023, compared to approximately $6.9 million for the three months ended March 31, 2022, compared to approximately $4.8 million for the three months ended March 31, 2021.2022. The increasedecrease was primarily attributable to increasesdecreases of (a) approximately $950,000$910,000 in marketing costs, including costs for targeted health care providersto attend conventions, costs related to our direct to patient marketing campaign and patient brand awareness campaigns; (b) approximately $770,000 of personnel costs including commissions, and travel expenses; and (c) approximately $140,000 in market access costs.associated with customer engagement.

Operating Expenses

As a result of the increases and decreases in various expenses described above, total operating expenses increased by approximately $2.3$460,000, or 3%, to approximately $14.8 million or 19%,for the three months ended March 31, 2023, compared to approximately $14.4 million for the three months ended March 31, 2022, compared to approximately $12.1 million for the three months ended March 31, 2021.2022. The increase was primarily attributable to increases of approximately $2.1$580,000 in research,

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development and medical affairs expenses and $930,000 in general and administrative expenses, partially offset by a decrease of $1.0 million in sales and marketing expenses and $200,000 in research, development and medical affairs expenses. These increases were offset by a decrease of approximately $200,000 in general and administrative expenses as described above.

Interest Expense and Other

Interest Expenseexpense and Otherother increased by approximately $100,000,$300,000, or 8%21%, to approximately $1.7 million for the three months ended March 31, 2023, compared to approximately $1.4 million for the three months ended March 31, 2022, compared2022. This increase is related to approximately $1.3 million for the three months ended March 31, 2021.additional borrowing under our credit facility.

Basic and Diluted Net Loss Applicable to Common Stockholders per Share of Common Stock

We follow FASB Accounting Standards Codification, Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because our preferred stockholders participate in dividends equally with common stockholders (if we were to declare and pay dividends), we use the two-class method to calculate EPS. However, our preferred stockholders are not contractually obligated to share in losses.

Basic EPS is computed by dividing net loss(loss) income available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options restricted stock units and warrants.warrants we have issued. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, because the effect would be anti-dilutive.

Common stock equivalent securities that would potentially dilute basic EPS in the future but were not included in the computation of diluted EPS because they were either classified as participating and do not share in losses or would have been anti-dilutive,anti-dilutive. Those securities were approximately 1,916,665 for the three months ended March 31, 2022, and 1,715,2106.9 million for the three months ended March 31, 2021.

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2023, and 1.9 million for the three months ended March 31, 2022.

Results of Operations - Segment Review

The following selected unaudited financial and operating data are derived from our Interim Financial Statements. The results and discussions that follow reflect how executive managementour Chief Executive Officer (CEO), who is the chief operating decision maker, monitors the performance of our reporting segments.

Our U.S. and International segments represent the sales and marketing, general and administrative and research and development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development. In monitoring performance, aligning strategies and allocating resources, our CODMchief operating decision maker manages and evaluates our U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, we classify within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.

Each of our U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to our consolidated totals. For that reconciliation, please see Note 19 of15 in the accompanying consolidated financial statements.Interim Financial Statements. We do not report balance sheet information by segment because our CODMchief operating decision maker does not review that information. We allocate certain operating expenses among our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment.

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U.S. Segment

Three Months Ended

Three Months Ended

March 31,

March 31,

2022

2021

2023

2022

(In thousands)

(In thousands)

REVENUE:

PRODUCT REVENUE, NET

$

6,919

$

5,647

$

7,582

$

6,919

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(815)

(751)

(905)

(815)

GROSS PROFIT

6,104

4,896

6,677

6,104

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

1,170

725

1,162

1,170

GENERAL AND ADMINISTRATIVE EXPENSES

317

241

1,184

317

SALES AND MARKETING EXPENSES

4,674

3,278

4,274

4,674

OPERATING EXPENSES

6,161

4,244

6,620

6,161

SEGMENT (LOSS) INCOME FROM OPERATIONS

$

(57)

$

652

SEGMENT INCOME (LOSS) FROM OPERATIONS

$

57

$

(57)

U.S. Segment - three months ended March 31, 20222023 compared to the three months ended March 31, 20212022

Net revenue.Product revenue, net. NetProduct revenue, net increased by approximately $1.3$660,000, or 10%, to approximately $7.6 million or 23%,for the three months ended March 31, 2023, compared to approximately $6.9 million for the three months ended March 31, 2022, compared2022. The increase was primarily due to approximately $5.6 million forincreased end user demand, which represents units purchased by physicians and pharmacies from distributors. The difference between GAAP revenue and end user demand is due to the three months ended March 31, 2021. The U.S. market saw continued growth driven by our targeted programs to support physician reengagement.timing of distributor purchases.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $70,000,$90,000, or 9%11%, to approximately $910,000 for the three months ended March 31, 2023, compared to approximately $820,000 for the three months ended March 31, 2022, compared to approximately $750,000 for the three months ended March 31, 2021.2022. The increase was primarily attributable to our increased product sales.

Research, development and medical affairs expenses. Research, development and medical affairs expenses increaseddecreased by approximately $470,000,$10,000, or 64%1%, to approximately $1.2 million for the three months ended March 31, 2022,2023, compared to approximately $730,000$1.2 million for the three months ended March 31, 2021. The increase was primarily attributable to increases of approximately $240,000 in scientific communication costs and $190,000 in personnel costs.2022.

General and administrative expenses. General and administrative expenses increased by approximately $80,000,$870,000, or 33%272%, to approximately $1.2 million for the three months ended March 31, 2023, comparedto approximately $320,000 for the three months ended March 31, 2022, compared2022. The increase was primarily attributable to an increase of approximately $690,000 in bad debt expense and $200,000 in insurance costs.

Sales and marketing expenses. Sales and marketing expenses decreased by approximately $400,000, or 9%, to approximately $240,000$4.3 million for the three months ended March 31, 2021.2023, compared to approximately $4.7 million for the three months ended March 31, 2022. The decrease was primarily attributable to a decrease of $650,000 in marketing costs, including costs to attend conventions and costs related to our direct to patient marketing campaign, which we did not continue in 2023, partially offset by an increase in travel costs of $280,000.

International Segment

Three Months Ended

March 31,

2023

2022

(In thousands)

REVENUE:

PRODUCT REVENUE, NET

$

5,964

$

4,979

LICENSE REVENUE

NET REVENUE

5,964

4,979

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(1,123)

(865)

GROSS PROFIT

4,841

4,114

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

756

916

GENERAL AND ADMINISTRATIVE EXPENSES

716

422

SALES AND MARKETING EXPENSES

1,415

2,004

OPERATING EXPENSES

2,887

3,342

SEGMENT INCOME FROM OPERATIONS

$

1,954

$

772

 

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Sales and marketing expenses. Sales and marketing expenses increased by approximately $1.3 million, or 39%, to approximately $4.6 million for the three months ended March 31, 2022, compared to approximately $3.3 million for the three months ended March 31, 2021. The increase was primarily attributable to increases of approximately $740,000 in marketing costs, including costs for targeted health care providers and patient brand awareness campaigns and $590,000 in personnel costs including increased commissions and travel expenses.

International Segment

Three Months Ended

March 31,

2022

2021

(In thousands)

REVENUE:

PRODUCT REVENUE, NET

$

4,979

$

5,567

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(865)

(811)

GROSS PROFIT

4,114

4,756

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

916

941

GENERAL AND ADMINISTRATIVE EXPENSES

422

587

SALES AND MARKETING EXPENSES

2,004

1,334

OPERATING EXPENSES

3,342

2,862

SEGMENT INCOME FROM OPERATIONS

$

772

$

1,894

International Segment - three months ended March 31, 20222023 compared to the three months ended March 31, 20212022

Net revenue. Net revenue decreasedincreased by approximately $600,000,$990,000, or 11%20%, to approximately $5.9 million for the three months ended March 31, 2023, compared to approximately $5.0 million for the three months ended March 31, 2022, compared to approximately $5.6 million2022. The increase in international product revenue for the three months ended March 31, 2021. The decrease2023, as reported in U.S. dollars, was driven by continued COVID-19 lockdownsprimarily due to an increase in our international markets. The U.K. came out of lockdown in late January, while Germany came out of lockdown near the end of March.user demand.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization increased by approximately $60,000,$260,000, or 7%30%, to approximately $1.1 million for the three months ended March 31, 2023, compared to approximately $870,000 for the three months ended March 30, 2022, compared to approximately $810,000 for the three months ended March 31, 2021. The increase was mainly due to the mix of products sold to international distributors and to customers in our direct markets. Cost of goods sold is generally a higher percentage of net revenue for our international distributors than for our international direct customers.2022.

Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $20,000,$160,000, or 2%17%, to approximately $920,000$760,000 for the three months ended March 31, 2022,2023, compared to approximately $940,000$920,000 for the three months ended March 31, 2021.2022. The decrease was primarily attributable to a decrease of approximately $120,000 in consultant costs.

General and administrative expenses. General and administrative expenses increased by approximately $290,000, or 70%, to approximately $720,000 for the three months ended March 31, 2023 compared to approximately $420,000 for the three months ended March 31, 2022. The increase was primarily attributable to an increase in bad debt expense related to a former distributor of $190,000 during the three months ended March 31, 2023.

Sales and marketing expenses. Sales and marketing expenses decreased by approximately $590,000, or 29%, to approximately $1.4 million for the three months ended March 31, 2023, compared to approximately $2.0 million for the three months ended March 31, 2022. The decrease was primarily attributable to decreases of approximately $260,000 in marketing costs, including costs to attend conventions and $250,000 in personnel costs.

Operating Cost Segment

Three Months Ended

March 31,

2023

2022

(In thousands)

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

$

2,224

$

1,461

GENERAL AND ADMINISTRATIVE EXPENSES

2,116

2,283

SALES AND MARKETING EXPENSES

66

117

OPERATING EXPENSES

4,406

3,861

SEGMENT LOSS FROM OPERATIONS

$

(4,406)

$

(3,861)

Operating Cost Segment - three months ended March 31, 2023 compared to the three months ended March 31, 2022

Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $760,000, or 52%, to approximately $2.2 million for the three monthsended March 31, 2023, compared to approximately $1.5 million for the three months ended March 31, 2022. The increase was primarily attributable to increases of approximately $670,000 of clinical study costs, including costs associated with our NEW DAY Study, and $100,000 in inserter evaluation and improvement costs.

General and administrative expenses. General and administrative expenses decreased by approximately $170,000, or 29%7%, to approximately $420,000 for the three months ended March 31, 2022, compared toapproximately $590,000 for the three months ended March 31, 2021. The decrease was primarily attributable to a decrease in personnel costs.

Sales and marketing expenses. Sales and marketing expenses increased by approximately $700,000, or 54%, to approximately $2.0$2.1 million for the three months ended March 31, 2022, compared to approximately $1.3 million for the three months ended March 31, 2021. The increase was primarily attributable to increases of (a) approximately $230,000 in personnel costs; (b) approximately $210,000 in marketing costs; and (c) approximately $140,000 in market access costs.

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Operating Cost Segment

Three Months Ended

March 31,

2022

2021

(In thousands)

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

$

1,461

$

$

1,538

GENERAL AND ADMINISTRATIVE EXPENSES

2,283

2,396

SALES AND MARKETING EXPENSES

117

143

OPERATING EXPENSES

3,861

4,077

SEGMENT LOSS FROM OPERATIONS

$

(3,861)

$

(4,077)

Operating Cost Segment - three months ended March 31, 2022 compared to the three months ended March 31, 2021

Research, development and medical affairs expenses. Research, development and medical affairs expenses was approximately $1.5 million for each of the three months ended March 31, 2022 and 2021.

General and administrative expenses. General and administrative expenses increased by approximately $100,000, or 4%,2023, compared to approximately $2.3 million for the three months ended March 31, 2022, compared2022. The decrease was primarily attributable to decreases of approximately $2.4 million for the three months ended March 31, 2021.$200,000 of insurance costs and $170,000 of personnel costs, partially offset by an increase in professional fees of $130,000.

Sales and marketing expenses. Sales and marketing expenses decreased by approximately $20,000,$50,000 or 14%,44% to approximately $70,000 for the three months ended March 31, 2023, compared to approximately $120,000 for the three months ended March 31, 2022, compared to2022.

 

approximately $140,000 for the three months ended March 31, 2021.32


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Other

Three Months Ended

Three Months Ended

March 31,

March 31,

2022

2021

2023

2022

(In thousands)

(In thousands)

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

$

36

$

9

$

22

$

36

GENERAL AND ADMINISTRATIVE EXPENSES

218

189

155

218

SALES AND MARKETING EXPENSES

58

63

49

58

DEPRECIATION AND AMORTIZATION

689

638

681

689

OPERATING EXPENSES

1,001

899

907

1,001

OTHER LOSS FROM OPERATIONS

$

(1,001)

$

(899)

SEGMENT LOSS FROM OPERATIONS

$

(907)

$

(1,001)

Our CEO, who is our chief operating decision maker, manages and evaluates our U.S., International and Operating Cost segments based upon segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. We classify the non-cash expenses included in research, development and medical affairs expenses, general and administrative expenses, and sales and marketing expenses within Other in ourthe Interim Financial Statements.

Operating expenses. Operating expenses in Other increaseddecreased by approximately $100,000,$90,000, or 11%9%, to approximately $910,000 for the three months ended March 31, 2023, compared to approximately $1.0 million for the three months ended March 31, 2022, compared to approximately $900,000 for the three months ended March 31, 2021. This increase was primarily attributable to an increase in global stock-based compensation expenses.2022.

Depreciation and amortization. Depreciation and amortization was approximately $690,000$680,000 and $640,000$690,000 for the three months ended March 31, 20222023 and 2021,2022, respectively.

Liquidity and Capital Resources

Overview

Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit in stockholders’ equity of $403.2$402.1 million as of March 31, 2022.2023. As of March 31, 2022,2023, we had approximately $9.9$13.1 million in cash and cash equivalents. In mid-April 2021March 2023 we received a total$12.0 million in gross proceeds from the Tranche 1 closing of $20.0our Series B Preferred Stock financing and an additional $2.5 million in cash fromin connection with the Ocumension transaction described above.Fifth Amendment to the 2019 Loan Agreement. We have used and are using these funds to continue to commercialize ILUVIEN, to fund our NEW DAY clinical trial and for general corporate purposes, which may include working capital, capital expenditures, other clinical trial expenditures, acquisitions of new technologies, products or businesses in ophthalmology, and investments.

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As explained above in “Effects of the COVID-19 Pandemic,” the unprecedented events of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues, liquidity and capital resources. The extent and duration of that impact is uncertain at this time, particularly in light of the continued emergence of COVID-19SARS-CoV-2 variants that increase the transmissibility of the coronavirus.

Since January 2020, we have funded our operations through:

(a)cash received from our sales;

(b)net proceeds of the loans that we obtained in December 2019, and February 2020, and March 2023 from a group of lenders led by SLR Investment Corp. (formerly named Solar Capital Ltd.) under a $45.0$47.5 million loan and security agreement (the 2019 Loan Agreement);

(c)an approximately $1.8 million loan (the PPP Loan) we obtained in April 2020 under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, which was forgiven in its entirety, including interest, on April 16,in 2021; and

(d)the $20.0 million in funds we obtained in April 2021 as a result of the Ocumension transaction.transaction;

(e)the $12.0 million in funds we obtained in March 2023 in the Tranche 1 closing of our Series B preferred stock financing.

The 2019 Loan Agreement does not include a revolving loan feature and has been fully advanced by the lenders. Under the Fifth Amendment to the 2019 Loan Agreement, a $15,000,000 additional term loan was made available to be funded at the sole discretion of

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SLR. We currently have no additional borrowing capacity, and the 2019 Loan Agreement generally prohibits any additional debt unless we obtain the prior consent of the lenders.

Indebtedness

Loans from SLR Investment Corp. (SLR, formerly known as Solar Capital Ltd. until February 2021)). On January 5, 2018, we entered into a $40.0 million loan and security agreement with SLR, as Collateral Agent, and the parties signatory thereto from time to time as Lenders, including SLR in its capacity as a lender (the 2018 Loan Agreement). OnIn December 31, 2019, we refinanced the 2018 Loan Agreementour previously outstanding debt facility by entering into a $45.0 million loan and security agreement (the 2019 Loan Agreement) with SLR, as the Collateral Agent, and the parties signing the loan agreement from time to time as Lenders, including SLR in its capacity as a Lender (collectively, the Lenders). Under the 2019 Loan Agreement, we borrowed $42.5 million on December 31, 2019 and borrowed the remaining $2.5 million on February 21, 2020.2020, totaling $45.0 million. The two borrowings under the 2019 Loan Agreement totaled $45.0 million and are referred to as the SLR Loan. The SLR Loan matureshas been amended on July 1, 2024. We used the initial proceeds of the SLR Loan to pay off the outstanding loan under the 2018 Loan Agreement, along with related prepayment, legal and other fees and expenses totaling approximately $2.3 million, which included $2.2 million in fees to SLR. We used the remaining proceeds of the SLR Loan to provide additional working capital for general corporate purposes during 2020 and the first half of 2021.

On May 1, 2020, we entered into a First Amendment to the 2019 Loan Agreement (the First Amendment). The First Amendment included revised covenants that applied to our financial performance during 2020, all of which we met. The First Amendment, among other things, required that a minimum revenue covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with a plan we submitted to the Collateral Agent in February 2021, with such plan to be approved by our board of directors (the Board) and the Collateral Agent in its sole discretion.

On March 30, 2021, we entered into a Second Amendment to the 2019 Loan Agreement (the Second Amendment), which among other things:

(a)reflected the Collateral Agent’s consent to our delivery of Board-approved annual financial projections for 2021 by April 1, 2021 (which we delivered in a timely manner);

(b)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2021, that we must achieve for each such period (the Revenue Covenant);

(c)required that the Revenue Covenant be tested at March 31, 2022 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan we must submit to the Collateral Agent by January 15th of such year, such plan to be approved by our Board and the Collateral Agent in its sole discretion; and

(d)provided that in future years we must deliver to the Collateral Agent and the Lenders as soon as available after approval thereof by our Board, but no later than the earlier of (x) 15 days after such approval and (y) February 28 of such year, our annual financial

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projections for the entire current fiscal year as approved by our Board, provided that any revisions to such projections approved by our Board shall be delivered to the Collateral Agent and the Lenders no later than seven days after such approval.

multiple occasions.

On February 22, 2022, we entered into a Third Amendment to the 2019 Loan Agreement (the Third Amendment), which, among other things:

(a)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2022, that we must achieve for each such period (the Third Revenue Covenant);

(b)consented to maintaining a lower minimum revenue amount under the Third Revenue Covenant for the trailing six-month period ended December 31, 2021 than previously required under the 2019 Loan Agreement (and waived any event of default that may have occurred or may be deemed to have occurred as a result of our lower revenue amount for that period); and

(c)required that the Third Revenue Covenant be tested at March 31, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan we must submit to the Collateral Agent by January 15 of such year, such plan to be thereafter approved by our Board and the Collateral Agent in its sole discretion no later than February 28 of such year.

Interest onOn December 7, 2022, we entered into a Fourth Amendment to the 2019 Loan Agreement is payable(the Fourth Amendment), which, among other things:

(a)extended the amortization date from January 1, 2023 to April 1, 2023, provided that such date could be further extended to July 1, 2023 upon our request and in consultation with the Lenders, in each of the Lenders’ sole discretion;

(b)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2023, that we must achieve for each such period (the Fourth Revenue Covenant); and

(c)required that the Fourth Revenue Covenant be tested at March 31, 2024 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan submitted to the Collateral Agent by January 15th of such year, such plan to be thereafter approved by the Board and the Collateral Agent in its sole discretion no later than February 28 of such year.

On March 24, 2023, we entered into a Fifth Amendment to the 2019 Loan Agreement (the Fifth Amendment and the 2019 Loan Agreement as so amended, the Amended Loan Agreement), which among other things:

(a)added an additional tranche of $2,500,000 to increase the existing term loan facility to $47,500,000, subject to certain closing conditions (the New Term Loan);

(b)extended a $15,000,000 additional term loan available to be funded at the Lender’s sole discretion;

(c)specified an annual interest rate equal to 5.15% plus the greater of (i) 4.60% and (ii) one-month LIBOR or (ii) 1.78%, in either case plus 7.65% per annum. As ofSOFR, which will reset monthly, on the New Term Loan;

(d)extended the maturity date to April 30, 2028 and the interest-only period to April 30, 2025, which may be extended an additional 12 months if the Company meets certain financial targets by March 31, 2022,2025; and

(e)specified the interest rate underminimum revenue amount, calculated on a trailing six-month basis beginning with the 2019 Loan Agreement was 9.43%. The 2019 Loan Agreement providessix month period ended March 31, 2023, and tested at the end of each calendar quarter, that the Company must achieve for interest only payments until January 1, 2023. If we meet certain revenue thresholds and no eventeach such period (the Revenue Covenant).

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Table of default shall have occurred and is continuing, we can extend the interest only period an additional six months, ending on June 30, 2023, followed by one year of monthly payments of principal and interest.Contents

The Federal Reserve recently raised interest rates seven times in 2022, and has indicated it may continue to do so to combat the effects of inflation, andwhich is currently higher than it has announced that it expects to continue to do so inbeen since the future.early 1980s. An increase in LIBOR (or a successor interest rate)SOFR would increase our interest costs. For example, a 1.0% increaseSignificant increases in the interest rate under the 2019 Loan Agreement above the interest rate that applied to us as of March 31, 2022 (9.43%) would increase our interest expense by approximately $444,000 per year and reduce our liquidity and capital resources by that amount. A more significant increasecosts could materially and adversely affect our results of operations and our ability to pay amounts due under the 2019 Loan Agreement.Agreement, and any increase in the interest we pay would reduce our cash available for working capital, acquisitions, and other uses.

Our operationsDuring 2022 and thus our net product revenues have continued to be adversely affected by the COVID-19 pandemic. During each of the six months ended September 30, 2021 and Decemberat March 31, 2021,2023, we did not generate sufficient revenue to meet the trailing six-month Revenue Covenant included in the 2019 Loan Agreement. For each such six-month period, the Lenders provided a consent that permitted us not to maintain the Revenue Covenant as of September 30, 2021 and December 31, 2021, respectively, and waived any event of default that may have occurred or may have been deemed to have occurred. We were inmaintained compliance with the Revenue Covenant as of March 31, 2022 andour revenue covenant at each reportable date. We expect to comply with the Revenue Covenant at the next reportable date, which is June 30, 2022, and through one year after the filing date of this Quarterly Report on Form 10-Q, although we can give no assurances in that regard. However, due torevenue covenant for the remaining uncertainty surrounding the COVID-19 pandemic, it is possible that we will fail to comply with the Revenue Covenant.measurement dates in 2023. If we fail to comply with the Revenue Covenantrevenue covenant and the Lenderslenders do not provide a consent and waiver, acceleration of the maturity of the loan is one of the remedies available to the Lenders.lenders. If the Lenderslenders accelerate the maturity of the loan, we would be forced to find alternative financing or enter into an alternative agreement with the Lenders.lenders. We cannot be sure that alternative financing will be available when needed or that, if available, the alternative financing could be obtained on terms that are not significantly detrimental to us or our stockholders. See the risk factor related to the 2019 Loan Agreement in Part I, Item 1A of the 20212022 Form 10-K.

Paycheck Protection Program Loan. On April 22, 2020, we received an approximately $1.8 million loan (the PPP Loan) under the Paycheck Protection Program established by the U.S. Small Business Administration as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP Loan was unsecured and was evidenced by a note in favor of HSBC Bank USA, National Association (HSBC) as the lender. On July 21, 2020, we submitted an application to HSBC for forgiveness of the PPP Loan. The PPP Loan was forgiven in its entirety, including interest, on April 16, 2021.

$20.0 million Capital Infusion from Ocumension Transaction

On April 14, 2021, we entered into a Share Purchase Agreement with Ocumension Therapeutics, pursuant to which we offered and sold to Ocumension 1,144,945 shares of our common stock, at a purchase price of $8.734044 per share.share, for aggregate gross proceeds of $10.0 million. The number of shares sold was equal to 19.9% of the number of shares of common stock outstanding immediately before the closing. The aggregate gross proceeds from the sale of the shares were $10.0 million. In addition, we received a nonrefundable upfront license payment of $10.0 million pursuant to the Ocumension License Agreement. For more information aboutUnder that agreement, we granted an exclusive license for the Ocumension transaction, see “Transactions with Ocumension

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Tabledevelopment and commercialization of Contentsour 0.19 mg fluocinolone acetonide intravitreal implant in applicator under Ocumension’s own branded label in China, East Asia and the Western Pacific.

Therapeutics” above, Notes 9Series B Preferred Stock Financing

In March 2023, we issued and 16sold an aggregate of our notes12,000 shares of Series B Preferred Stock at a per-share purchase price of $1,000 and warrants to the accompanying Interim Financial Statements, and our Current Report on Form 8-K filed with the SEC on April 14, 2021.purchase common stock for aggregate gross proceeds of $12.0 million.

Current Cash Position

As of March 31, 2022,2023, we had approximately $9.9$13.1 million in cash and cash equivalents, a decreasean increase of $6.6$7.8 million from the $16.5$5.3 million in cash and cash equivalents that we reported as of December 31, 2021.

2022. In April 2021,March 2023, we received gross proceeds of $20.0$12.0 million in cash from the Ocumension transaction described above.tranche 1 closing of our Series B preferred stock financing and drew down $2.5 million from the 2019 Loan Agreement. As we have previously disclosed, we have used some of these proceedsour cash and cash equivalents to invest in targeted spending programs in both the U.S. and international markets to drive reengagement with physicians and accelerate our growth. While we believe many of these investments have proven to be successful, we also realize that continuing to spend at those levels in certain marketscurrent market conditions is not sustainable without the offsetting higher revenues we hoped to achieve.sustainable. To conserve our cash, we are curtailing some of our spending in our international markets to address the slower than expected revenue growth in Europe coming out of the pandemic, and we expect to continue to monitor our ongoing spending programs closely.

We may need to raise alternative or additional capitalfinancing to fund our business strategy, including the continued commercialization of ILUVIENoperations and the retention and in certain areas, the expansion, of our current employees and staff. The actual amount of funds that we may need will depend on many factors, some of which are beyond our control. See Part I, Item 1, “Business - The COVID-19 Pandemic and Our Steps to Address its Effects on Our Business” of the 2021 Form 10-K for an explanation of how we are seeking to mitigate the impact of the pandemic on our financial position and operations.

support growth. We cannot be sure that additional financing will be available when needed or that, if available, the additional financing could be obtained on terms that are not significantly detrimental to us or our stockholders.In addition, our ability to access any existing or future capital is also dependent on market conditions. For example, in March 2023, the Federal Deposit Insurance Corporation (FDIC) took control and was appointed receiver for a number of banks, including Silicon Valley Bank and Signature Bank, and in May 2023 JP Morgan acquired First Republic Bank as part of a controlled FDIC takeover. As of the date of this report, we do not have direct exposure to SVB or Signature, but we cannot predict the broader impact or follow-on effects of these insolvencies. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. If we were to raise additional funds by issuing equity securities, substantial dilution to existing stockholders could result, and the terms of any new equity securities may have a preference over our common stock. If we were to attempt to raise additional funds through strategic collaboration agreements, we may not be successful in obtaining those agreements, or in receiving milestone or royalty payments under them. If we were to attempt to raise additional funds through debt financing, we would be required to obtain the permission or participation of SLR (and, in certain cases, the consent of the holders of our Series B Preferred Stock), which we might not be able to obtain. Our recurring losses and any potential needs to raise capital create substantial doubt about our ability to continue as a going concern for the next 12 months following the issuance of the financial statements for the filingInterim Financial Statements.

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Table of this Quarterly Report on Form 10-Q.Contents

Sources and Uses of Cash for the three months ended March 31, 20222023 compared to the three months ended March 31, 20212022

For the three months ended March 31, 2023, net cash used in our operations was approximately $2.2 million. The cash used in our operations was impacted by our net loss of approximately $5.0 million and a net decrease of $220,000 in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the three months ended March 31, 2023 was offset by a net decrease of $1.3 million in accounts receivable, $680,000 of non-cash depreciation and amortization, a decrease of $400,000 in inventory, $280,000 of non-cash interest expense associated with the amortization of our debt discount and deferred financing costs, and $230,000 of non-cash stock-based compensation expense

For the three months ended March 31, 2022, net cash used in our operations was approximately $6.2 million. The cash used in our operations was impacted by our net loss of approximately $6.0 million and a net decrease of $2.5 million in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the three months ended March 31, 2022 was offset by $690,000 of non-cash depreciation and amortization, a $550,000 decrease in fair value of our warrant asset, $310,000 of non-cash stock-based compensation expense, $270,000 of non-cash interest expense associated with the amortization of our debt discount and deferred financing costs, a decrease of $270,000 in prepaid expenses and other current assets, a decrease of $200,000 in inventory and a decrease of $180,000 in accounts receivable.

For the three months ended March 31, 2021,2023, net cash used in our operationsinvesting activities was approximately $2.5 million. The cash used in our operations was primarily due to our net loss of $3.6 million and a decrease of $1.3 million in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the three months ended March 31, 2021 was offset by a decrease in accounts receivable of $1.3 million, $640,000 of non-cash depreciation and amortization, $260,000 of non-cash stock-based compensation expense, $240,000 of non-cash interest expense associated with the amortization of our debt discount and a $110,000 decrease in inventory.$9,000.

For the three months ended March 31, 2022, net cash used in our investing activities was approximately $150,000, which was primarily due to purchases of furniture for our new U.S. headquarters.

For the three months ended March 31, 2021,2023, net cash used inprovided by our investingfinancing activities was approximately $80,000,$10.0 million, which was primarily due to capital expenditures associatedthe $12.0 million gross proceeds from the Tranche 1 closing of our Series B Preferred Stock financing and the $2.5 million received in connection with the transferFifth Amendment to the 2019 Loan Agreement, partially offset by $2.6 million of manufacturing to Cadence, Inc.debt issuance costs, the $940,000 repurchase of Series A Preferred Stock, and the $310,000 repurchase of common stock.

For the three months ended March 31, 2022, net cash used in our financing activities was approximately $60,000, which was primarily due to payments of finance lease obligations.

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For the three months ended March 31, 2021, net cash used in our financing activities was approximately $60,000, which was primarily due to payments of finance lease obligations.

Contractual Obligations and Commitments

2019 Loan Agreement. The outstanding loan under the 2019 Loan Agreement (the SLR Loan) provides for interest only payments until January 1, 2023, followed by 19 monthly payments of principal and interest until the SLR Loan matures on July 1, 2024. We estimate that we will be obligated to pay to the Lenders $45.0 million in loan principal and approximately $6.5 million in interest through July 1, 2024 at the current rate of 9.43% per annum (which may be higher as noted above).

The NEW DAY Study. In January 2020, we began entering into agreements with contract research organizations (CROs) and physician clinics in connection with a multicenter, single masked, randomized and controlled trial designed to generate prospective data evaluating ILUVIEN as a baseline therapy in the treatment of DME and demonstrate its advantages over the current standard of care of repeat anti-VEGF injections (the NEW DAY Study). The NEW DAY Study is planned to enroll approximately 300 treatment-naïve, or almost naïve, DME patients in approximately 4240 sites around the U.S. For the three months ended March 31, 20222023 and March 31, 2021,2022, we incurred approximately $960,000$1.52 million and $890,000,$960,000, respectively, of expense associated with the NEW DAY Study. In connection with the NEW DAY Study, we expect to incur additional expenses of approximately $5.1$4.8 million for the remainder of 2022, $5.5 million in 2023, and $1.0$2.0 million in 2024.

Manufacturing Services Agreement with Alliance. In February 2016, we and Alliance Medical Products Inc., a Siegfried Company (Alliance), a third-party manufacturer, amended and restated the parties’ existing agreement for the manufacture of the ILUVIEN implant, the assembly of the ILUVIEN applicator and the packaging of the completed ILUVIEN commercial product. Under the amended and restated Alliance agreement, its term was extended by five years, at which point the agreement became automatically renewable for successive one-year periods unless either party delivers notice of non-renewal to the other party at least 12 months before the end of the term or any renewal term. We are responsible for supplying the ILUVIEN applicator and the active pharmaceutical ingredient, and we must order at least 80% of the ILUVIEN units required in the U.S., Canada and the EEAcovered territories from Alliance.

Manufacturing Services Agreement with Cadence. On October 30, 2020, we entered into a Manufacturing Services Agreement (the Cadence Agreement) with Cadence, Inc., for the manufacture of certain component parts of the ILUVIEN applicator (the components) at its facility near Pittsburgh, Pennsylvania. Under the Cadence Agreement, we will pay certain per-unit prices based on regularly scheduled shipments of a minimum number of components. The initial term of the Cadence Agreement expires on October 30, 2025. After the expiration of the initial term, the Cadence Agreement will automatically renew for separate but successive one-year terms unless either party provides written notice to the other party that it does not intend to renew the Cadence Agreement at least 24 months before the end of the term. The Cadence Agreement may be terminated by either party under certain circumstances. To date, weWe have been in the process of transferringtransferred the manufacturing of component parts of the ILUVIEN inserter to Cadence and have spent cash resources to purchase new equipment, to update clean room

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facilities and to assist in the regulatory approval process. In connection with the Cadence Agreement, we expect to be invoiced approximately $650,000 in each of 2022 and 2023.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of SEC Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.

Impact of Recent Accounting Pronouncements

See Note 3 of our notes toin the Interim Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and expected effects on results of operations and financial condition, if known.


Foreign Exchange

Our international operations are subject to certain opportunities and risks, including currency fluctuations and governmental actions. The impact of fluctuations in foreign currency exchange rates decreased our net product revenue for the three months ended March 31, 2023 by approximately $270,000.

We expect foreign currency exchange rate fluctuations will have an unfavorable impact through the end of the year.

Non-GAAP Financial Measure

We are subject to variability of our reported U.S. dollar results due to changes in foreign currency exchange rates. Those changes have been volatile over the past several years. The adjustment of the effects of foreign currency exchange in our international segment as if foreign exchange rates had remained constant with the prior periods, or what we refer to as adjusted net product revenue, is a non-GAAP financial measure as defined in Regulation G promulgated under the Securities Exchange Act of 1934, as amended. We report our financial results in compliance with GAAP but believe that adjusting our net product revenue to exclude fluctuations in foreign currency exchange rates allows management to better understand our ongoing operations and analyze our financial performance from period to period. We also believe this non-GAAP financial measure provides additional information to investors that enables enhanced comparison to prior periods and additional insight into the underlying performance of our business outside of the U.S. Net product revenue for the three months ended March 31, 2023 has been adjusted in certain instances in this report to exclude the impact of fluctuations in foreign currency exchange rates in the comparisons to GAAP net product revenue for the three months ended March 31, 2022. See the table below entitled “Reconciliation of GAAP Net Product Revenue to Non-GAAP Adjusted Net Product Revenue.” GAAP net product revenue is the most directly comparable GAAP financial measure to adjusted net product revenue.

This non-GAAP financial measure, as presented, may not be comparable to a similarly titled measure reported by other companies, including companies in our industry, because not all companies adjust revenue for currency fluctuations in an identical manner or may use other financial measures to evaluate their performance. Therefore, this non-GAAP financial measure may be limited in its usefulness for comparison between companies.

The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for other financial performance measures prepared in accordance with GAAP and should be read only in conjunction with financial information presented on a GAAP basis. The principal limitation of this non-GAAP financial measure is that it excludes significant elements required by GAAP to be recorded in our financial statements. In addition, this non-GAAP financial measure is subject to inherent limitations because it reflects the exercise of judgment by management.

 

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RECONCILIATION OF GAAP NET PRODUCT REVENUE TO NON-GAAP ADJUSTED NET PRODUCT REVENUE

Amount presented for the period ended March 31, 2022 is our

reported amount we prepared in accordance with GAAP

Three Months Ended

March 31,

2023

2022

(unaudited)

GAAP NET PRODUCT REVENUE

$

13,546

$

11,898

Adjustment to net product revenue:

Foreign currency fluctuations, net

(273)

NON-GAAP ADJUSTED NET PRODUCT REVENUE

$

13,273

$

11,898


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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

NotBecause we are allowed to comply with the disclosure obligations applicable to a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, with respect to this Quarterly Report on Form 10-Q, we are not required for smaller reporting companies.to provide the information required by this Item.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022.2023.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.


 

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. We currently are not a party to any threatened or pending material pending legal proceedings,litigation and managementdo not have contingency reserves established for any litigation liabilities. However, third parties might allege that we are infringing their patent rights or that we are otherwise violating their intellectual property rights, including trade names and trademarks. Such third parties may resort to litigation. We accrue contingent liabilities when it is not aware of any contemplated proceedings by any governmental authority against us.probable that future expenditures will be made and such expenditures can be reasonably estimated.

ITEM 1A. Risk Factors

In the 20212022 Form 10-K, we identify under Item 1A of Part I important factors that could affect our business, financial condition, results of operations and future operations and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q. There have been no material changes in our risk factors since the filing of the 20212022 Form 10-K. However, the risks described in the 20212022 Form 10-K are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.(c) In March 2023, as previously disclosed, we repurchased all 200,919 shares of common stock and 600,000 shares of Series A Convertible Preferred Stock (the Series A Preferred) held by the holders thereof, for an aggregate purchase price of approximately $1.25 million. As a result of these transactions, no shares of the Series A Preferred remain outstanding. We filed a Certificate of Elimination for the Series A Preferred Stock with the Secretary of State of the State of Delaware on March 24, 2023.

 

ITEM 3. Defaults Upon Senior Securities

None.

 

ITEM 4. Mine Safety Disclosures

Not applicable.

 

ITEM 5. Other Information

None.

 

 

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ITEM 6. ExhibitsIT

EM 6. EXHIBITS

Exhibit

Number

Description

3.1

Restated Certificate of Incorporation of Registrant, as amended on various dates (filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, as filed on March 2, 2020, and incorporated herein by reference).

3.2

Certificate of Designation of Series B Convertible Preferred Stock (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, as filed on March 27, 2023, and incorporated herein by reference).

3.3

Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, as filed on March 2, 2020 and incorporated herein by reference).

10.11.G*#

10.1

ThirdSecurities Purchase Agreement, dated March 24, 2023, by and among Alimera Sciences, Inc. and the purchasers party thereto (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on March 27, 2023, and incorporated herein by reference).

10.2

Registration Rights Agreement, dated March 24, 2023, by and among Alimera Sciences, Inc. and the purchasers party thereto (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed on March 27, 2023, and incorporated herein by reference).

10.3*

Fifth Amendment to Loan and Security Agreement dated February 22, 2022,as of March 24, 2023, by and among Alimera Sciences, Inc., SLR Investment Corp.,Corp, as Collateral Agent, and the parties signatory thereto as Lenders, including SLR in its capacity as a Lender.Lender***

10.4*

Fifth Amendment Exit Fee Agreement dated as of March 24, 2023, by and among Alimera Sciences, Inc., SLR Investment Corp, as Collateral Agent, and the parties signatory thereto as Lenders, including SLR in its capacity as a Lender

31.1*

Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

*

Certification of the Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022,2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104

Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101).

*Filed herewith.herewith

#**Furnished herewith

***Certain confidential information contained in this agreement has been omitted because it is not(i) material and would be competitively harmful if publicly disclosed.(ii) something the company actually treats as confidential.

The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.


 

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Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALIMERA SCIENCES, INC.

May 12, 202215, 2023

By:

/s/ Richard S. Eiswirth, Jr.

Richard S. Eiswirth, Jr.

President and Chief Executive Officer

(Principal Executive Officer)

May 12, 2022

By:

/s/ J. Philip Jones

J. Philip Jones

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

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