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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§~~229.405~~232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

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

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

As of ~~November 3, 2017,~~August 10, 2020, the ~~issuer~~registrant had ~~56,806,352~~23,118,233 shares of common stock, ~~issued~~no par value per share and 7,682,244 warrants, outstanding.

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017 (Unaudited)~~2020 (unaudited) and December 31, ~~2016~~2019		3
	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 (Unaudited)~~2019 (unaudited)		4
	Condensed Consolidated Statements of Comprehensive Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 (Unaudited)~~2019 (unaudited)		5
	Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) for each of the ~~nine~~three-month periods ended during the six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 (Unaudited)~~2019 (unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 (Unaudited)~~2019 (unaudited)		7

	~~Notes to Condensed Consolidated Financial Statements~~		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17 20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25 28

Item 4.	Controls and Procedures		26 28

~~Part~~ PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		27 29

Item 1A.	Risk Factors		27 29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27 34

Item 3.	Defaults Upon Senior Securities		27 34

Item 4.	Mine Safety Disclosures		27 34

Item 5.	Other Information		28 34
~~Item 6.~~	~~Exhibits~~		28
Item 6.	~~Signatures~~Exhibits	35
	29

SIGNATURES

~~SECOND SIGHT MEDICAL PRODUCTS, INC.~~

~~AND SUBSIDIARY~~Part I. Financial Statements

~~Condensed Consolidated Balance Sheets~~

~~(In thousands)~~

September 30, December 31,
2017 2016
(Unaudited)
ASSETS
Current assets:
Cash $ 639 $ 539
Money market funds 12,705 10,336
Accounts receivable, net 668 274
Inventories, net 3,245 3,416
Prepaid expenses and other current assets 462 717

Total current assets 17,719 15,282

Property and equipment, net 1,327 1,489
Deposits and other assets 35 39

Total assets $ 19,081 $ 16,810

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 826 $ 1,156
Accrued expenses 2,330 2,088
Accrued compensation expense 2,266 1,600
Accrued clinical trial expenses 623 629
Deferred revenue 64 85
Deferred grant revenue — 104

Total current liabilities 6,109 5,662

Commitments and contingencies

Stockholders’ equity:
Preferred stock, no par value, 10,000 shares authorized; none outstanding — —
Common stock, no par value; 200,000 shares authorized; shares issued and outstanding: 56,806 and 42,701 at September 30, 2017 and December 31, 2016, respectively 200,867 186,769
Common stock to be issued 86 153
Additional paid-in capital 39,559 30,697
Notes receivable to finance stock option exercises — (2 )
Accumulated other comprehensive loss (572 ) (608 )
Accumulated deficit (226,968 ) (205,861 )

Total stockholders’ equity 12,972 11,148

Total liabilities and stockholders’ equity $ 19,081 $ 16,810

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

Item 1. Financial Statements

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(in thousands)

June 30,

December 31,

2020

2019

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$
3,505

$
11,327

Accounts receivable, net

—

455

Inventories, net

—

1,029

Assets held-for-sale

400

—

Prepaid expenses and other current assets

676

299

Total current assets

4,581

13,110

Property and equipment, net

212

1,122

Right-of-use assets

—

2,342

Deposits and other assets

12

25

Total assets

$
4,805

$
16,599

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
517

$
1,093

Accrued expenses

1,023

1,889

Accrued compensation expense

330

2,698

Accrued clinical trial expenses

517

707

Current operating lease liabilities

—

237

Contract liabilities

335

335

Total current liabilities

2,722

6,959

Long term operating lease liabilities

—

2,365

Total liabilities

2,722

9,324

Commitments and contingencies

Stockholders’ equity:

Preferred stock, no par value, 10,000 shares authorized; none outstanding

—

—

Common stock, no par value; 300,000 shares authorized; shares issued and
outstanding: 23,118 and 15,643 as of June 30, 2020 and December 31,
2019, respectively

270,126

264,008

Additional paid-in capital

49,260

48,613

Accumulated other comprehensive loss

(533
)

(562
)
Accumulated deficit

(316,770
)

(304,784
)
Total stockholders’ equity

2,083

7,275

Total liabilities and stockholders’ equity

$
4,805

$
16,599

See accompanying notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Operations ~~(Unaudited)~~(unaudited)

(Inin thousands, except per share data)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016

Net sales $ 1,610 $ 1,180 $ 4,855 $ 3,270
Cost of sales 1,001 2,615 3,255 6,768
Gross profit (loss) 609 (1,435 ) 1,600 (3,498 )

Operating expenses:
Research and development, net of grants 1,826 1,588 5,622 3,266
Clinical and regulatory 629 609 1,927 1,955
Selling and marketing 2,375 2,262 7,057 6,473
General and administrative 2,528 2,605 8,170 7,635
Total operating expenses 7,358 7,064 22,776 19,329

Loss from operations (6,749 ) (8,499 ) (21,176 ) (22,827 )
Interest income 33 10 69 18

Net loss $ (6,716 ) $ (8,489 ) $ (21,107 ) $ (22,809 )

Net loss per common share – basic and diluted $ (0.12 ) $ (0.20 ) $ (0.40 ) $ (0.57 )

Weighted average common shares outstanding – basic and diluted 56,799 42,220 53,206 39,929

~~The accompanying notes are an integral part of these condensed consolidated financial statements~~

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net sales	$	—		$	1,282		$	—		$	2,410
Cost of sales		—			933			—			1,664
Gross profit		—			349			—			746

Operating expenses:
Research and development, net of grants		323			3,436			4,210			5,619
Clinical and regulatory, net of grants		429			536			1,343			1,542
Selling and marketing		—			1,689			701			3,792
General and administrative		1,516			2,256			3,537			4,705
Restructuring charges		848			873			2,229			3,297
Total operating expenses		3,116			8,790			12,020			18,955

Loss from operations		(3,116	)		(8,441	)		(12,020	)		(18,209)
Interest income		16			1			34			69

Net loss	$	(3,100	)	$	(8,440	)	$	(11,986	)	$	(18,140)

Net loss per common share – basic and diluted	$	(0.15	)	$	(0.56	)	$	(0.67	)	$	(1.28)

Weighted average common shares outstanding – basic and diluted		20,337			15,542			17,993			13,816

See accompanying notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Loss ~~(Unaudited)~~(unaudited)

(Inin thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016

Net loss $ (6,716 ) $ (8,489 ) $ (21,107 ) $ (22,809 )

Other comprehensive income (loss):
Foreign currency translation adjustments (86 ) 34 36 57
Comprehensive loss $ (6,802 ) $ (8,455 ) $ (21,071 ) $ (22,752 )

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(3,100	)	$	(8,440	)	$	(11,986	)	$	(18,140	)

Other comprehensive income (loss):
Foreign currency translation adjustments		10			9			29			1
Comprehensive loss	$	(3,090	)	$	(8,431	)	$	(11,957	)	$	(18,139	)

See accompanying notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity ~~(Unaudited)~~(Deficiency) (unaudited)

(Inin thousands)

~~Nine months ended September 30, 2017 and 2016~~

Common Stock Common Stock
Issuable Additional
Paid-in Notes
Receivable
for Stock
Option Accumulated
Other
Comprehensive Accumulated Total
Stockholders’
Shares Amount Shares Amount Capital Exercises Loss Deficit Equity
Balance, December 31, 2015 35,942 $ 166,049 33 $ 205 $ 27,277 $ (5 ) $ (581 ) $ (172,682 ) $ 20,263
Issuance of common stock in connection with rights offering, net of expenses 5,978 19,430 — — — — — — 19,430
Exercise of stock options 95 478 — — — 3 — — 481
Stock-based compensation expense — — — — 2,581 — — — 2,581
Fair value of stock options issued for services in connection with rights offering — — — — 53 — — — 53
Stock issued or issuable for professional services 82 324 (7 ) (118 ) — — — — 206
Issuance of common stock in connection with Employee Stock Purchase Plan 102 337 — — — — — — 337
Issuance of RSUs 48 — — — — — — — —
Comprehensive loss:
Net loss — — — — — — — (22,809 ) (22,809 )
Foreign currency translation adjustment — — — — — — 57 — 57
Comprehensive loss — — — — — — 57 (22,809 ) (22,752 )
Balance, September 30, 2016 42,247 $ 186,618 26 $ 87 $ 29,911 $ (2 ) $ (524 ) $ (195,491 ) $ 20,599

Balance, December 31, 2016 42,701 $ 186,769 77 $ 153 $ 30,697 $ (2 ) $ (608 ) $ (205,861 ) $ 11,148
Issuance of common stock and warrants in connection with rights offering, net of offering costs 13,653 13,647 — — 6,021 — — — 19,668
Issuance of common stock in connection with Employee Stock Purchase Plan 193 189 — — — — — — 189
Fair value of stock options issued for services in connection with rights offering — — — — 20 — — — 20
Common stock issued or issuable for services 223 262 (2 ) (67 ) — — — — 195
Issuance of RSUs 36 — — — — — — — —
Stock-based compensation expense — — — — 2,821 — — — 2,821
Repayment of notes receivable for stock option exercises — — — — — 2 — — 2
Comprehensive loss:
Net loss — — — — — — — (21,107 ) (21,107 )
Foreign currency translation adjustment — — — — — — 36 — 36
Comprehensive loss — — — — — — 36 (21,107 ) (21,071 )
Balance, September 30, 2017 56,806 $ 200,867 75 $ 86 $ 39,559 $ — $ (572 ) $ (226,968 ) $ 12,972

		Common Stock												Additional Paid-in				Accumulated Other Comprehensive				Accumulated										Total Stockholders’
		Shares				Amount								Capital				Loss				Deficit										Equity
Balance, December 31, 2018	9,542						$	229,019				$		44,111			$	(575			)			$		(269,471			)	$		3,084
Adoption of ASC Topic 842-Leases	—							—						—				—								(144			)			(144			)
Issuance of shares of common stock and warrants in connection with rights offering, net of issuance costs	5,976							34,399						—				—								—						34,399
Release of restricted stock units	6							—						—				—								—						—
Warrants modification (see note 7)	—							—						1,577				—								(1,577			)			—
Stock-based compensation expense	—							—						898				—								—						898
Net loss	—							—						—				—								(9,700			)	(9,700					)
Foreign currency translation adjustment	—							—						—				(8			)					—						(8			)
Balance, March 31, 2019	15,524							263,418						46,586				(583			)					(280,892			)			28,529

Issuance of common stock in connection with employee stock purchase plan	47							238						—				—								—						238
Release of restricted stock units	2							—						—				—								—						—
Stock-based compensation expense	—							—						859				—								—						859
Net loss	—							—						—				—								(8,440			)	(8,440)
Foreign currency translation adjustment	—							—						—				9								—						9
Balance, June 30, 2019	15,573						$	263,656				$		47,445			$	(574			)			$		(289,332			)	$		21,195
		Common Stock												Additional Paid-in				Accumulated Other Comprehensive				Accumulated										Total Stockholders’
		Shares						Amount						Capital				Loss				Deficit										Equity(Deficiency)
Balance, December 31, 2019	15,643						$	264,008				$		48,613			$	(562			)		$			(304,784			)	$		7,275
Repurchase of fractional shares in connection with reverse stock split	(2			)				(11			)			—				—								—						(11			)
Issuance of shares of common stock	1							6						—				—								—						6
Release of restricted stock units	15							—						—				—								—						—
Stock-based compensation expense	—							—						279				—								—						279
Net loss	—							—						—				—								(8,886			)	(8,886					)
Foreign currency translation adjustment	—							—						—				19								—						19
Balance, March 31, 2020	15,657							264,003						48,892				(543			)					(313,670			)			(1,318			)

Issuance of shares of common stock and warrants in connection with share offering, net of issuance costs			7,500							6,393						280				—								—						6,673
Repurchase of ESPP shares as part of a rescission offer			(39		)					(270			)			—				—								—						(270)
Stock-based compensation expense			—							—						88				—								—						88
Net loss			—							—						—				—								(3,100			)		(3,100)
Foreign currency translation adjustment			—							—						—				10								—						10
Balance, June 30, 2020			23,118						$	270,126					$	49,260			$	(533					)		$	(316,770			)		$	2,083

~~The~~See accompanying ~~notes are an integral part of these condensed consolidated financial statements.~~

notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows ~~(Unaudited)~~

(Inin thousands)

Nine Months Ended September 30,
2017 2016

Cash flows from operating activities:
Net loss $ (21,107 ) $ (22,809 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment 345 311
Stock-based compensation 2,821 2,581
Bad debt (recovery) expense (128 ) 191
Excess inventory (recovery) reserve (1,731 ) 2,611
Common stock issuable for services 195 206
Changes in operating assets and liabilities:
Accounts receivable (311 ) 874
Inventories 1,955 (166 )
Prepaid expenses and other assets 261 492
Accounts payable (299 ) (16 )
Accrued expenses 233 (377 )
Accrued compensation expenses 668 (15 )
Accrued clinical trial expenses (6 ) (61 )
Deferred revenue (25 ) (135 )
Deferred grant revenue (104 ) (1,741 )
Net cash used in operating activities (17,233 ) (18,054 )

Cash flows from investing activities:
Purchases of property and equipment (181 ) (406 )
Investment in money market funds (2,362 ) (1,820 )
Net cash used in investing activities (2,543 ) (2,226 )

Cash flows from financing activities:
Net proceeds from rights offering 19,688 19,483
Proceeds from repayment of note receivable 2 —
Proceeds from exercise of options and employee stock plan purchases 189 816
Net cash provided by financing activities 19,879 20,299

Effect of exchange rate changes on cash (3 ) 19

Cash:
Net increase 100 38
Balance at beginning of period 539 239
Balance at end of period $ 639 $ 277

Supplemental cash flow information:
Non-cash financing and investing activities:
Fair value of stock options issued for services rendered in connection with rights offering $ 20 $ 53

	Six Months Ended June 30,
	2020			2019
	(unaudited)
Cash flows from operating activities:
Net loss	$	(11,986	)	$	(18,140	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		126			196
Stock-based compensation		367			1,757
Non-cash lease expense		3			10
Inventory reserve		—			(446	)
Restructuring charges-inventory and fixed asset impairment		1,115			2,587
Changes in operating assets and liabilities:
Accounts receivable		461			(122	)
Inventories		(144	)		(364	)
Prepaid expenses and other assets		(364	)		585
Accounts payable		(1,019	)		(49	)
Accrued expenses		108			192
Accrued compensation expenses		(2,369	)		(483	)
Accrued clinical trial expenses		(189	)		105
Contract liabilities		—			387
Net cash used in operating activities		(13,891	)		(13,785	)
Cash flows from investing activities:
Purchases of property and equipment		(331	)		(164	)
Net cash used in investing activities		(331	)		(164	)
Cash flows from financing activities:
Net proceeds from sale of common stock and/or warrants		6,679			34,399
Proceeds from employee stock purchase plan		—			238
Repurchase of ESPP shares and fractional shares in connection with reverse stock split		(281	)		—
Net cash provided by financing activities		6,398			34,637
Effect of exchange rate changes on cash and cash equivalents		2			2
Cash and cash equivalents:
Net increase (decrease)		(7,822	)		20,690
Balance at beginning of period		11,327			4,471
Balance at end of period	$	3,505		$	25,161

~~The accompanying notes are integral part~~Non-cash financing activities:

Fair value of ~~these condensed consolidated financial statements.~~warrants issued in connection with issuance of common stock $280 $—

See accompanying notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~

~~Three and Nine Months Ended September 30, 2017 and 2016~~(unaudited)

1. Organization and Business Operations

Second Sight Medical Products, Inc. (“Second ~~Sight”~~Sight,” “we,” “us,” or “the Company”)~~, formerly Second Sight LLC,~~ was ~~founded in 1998 as a limited liability company and was subsequently~~ incorporated in the State of California in 2003. Second Sight develops ~~manufactures and markets~~ implantable ~~prosthetic devices that can restore some functional vision~~visual prosthetics to ~~patients blinded by outer retinal degenerations, such as Retinitis Pigmentosa.~~

potentially enable blind individuals to achieve greater independence.

In 2007, Second Sight formed Second Sight Medical Products (Switzerland) ~~Sarl,~~Sàrl, initially to manage clinical trials ~~for its products in Europe,~~ and ~~later to manage~~ sales and marketing in Europe, the Middle East and ~~Asia.~~Asia-Pacific, and more recently for the research of future technologies. As the laws of Switzerland require at least two corporate stockholders, Second Sight Medical Products (Switzerland) ~~Sarl~~Sàrl is 99.5% owned directly by ~~the Company~~us and 0.5% is owned by an executive of Second Sight ~~who is acting~~ as ~~a nominee~~ of ~~the Company.~~June 30, 2020. Accordingly, Second Sight Medical Products (Switzerland) ~~Sarl~~Sàrl is considered 100% owned for financial statement purposes and is consolidated with Second Sight for all periods presented. In June 2020, we commenced a process to dissolve our Swiss subsidiary which is expected to take approximately one year.

We are currently developing the Orion^® Visual Cortical Prosthesis System (“Orion”), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due to a wide range of causes including retinitis pigmentosa (RP), glaucoma, diabetic retinopathy, optic nerve injury or disease, or forms of cancer and trauma. The FDA granted Breakthrough Devices Program designation for Orion. A feasibility study of the Orion device is currently underway at the Ronald Reagan UCLA Medical Center in Los Angeles (“UCLA”) and Baylor College of Medicine in Houston (“Baylor”).

~~Since~~Our first commercially approved product, the Argus^® II retinal prosthesis system (“Argus II”), entered clinical trials in 2006, received CE Mark approval for marketing and sales in the European Union (“EU”) in 2011, and received approval by the United States Food and Drug Administration (“FDA”) for marketing and sales in the United States in 2013. We began selling the Argus II in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we no longer market the Argus II and have focused all of our resources on the development of Orion.

In March 2020, we were severely adversely impacted by the COVID-19 pandemic and its related effects on our ability to finance our planned activities. As a result, we significantly reduced our staff and expenses and conserved liquidity as we continue operations and explore strategic options. These options include securing additional funding and exploring business alternatives that may include partnering, acquiring, investing in or combining with businesses that may or may not be in a related industry. No assurances can be given that any of these initiatives will occur.

Liquidity and Going Concern

From inception, our operations have been funded primarily through the ~~Company has~~sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated ~~limited revenues~~ from the sale of ~~products and~~our Argus II product. Funding of our business since 2017 has ~~financed its operations~~been primarily ~~through the issuance~~provided by:

•

Issuance of shares of common stock on May 5, 2020 which provided net proceeds of approximately $6.7 million.

Issuance of common stock ~~convertible debt (which has been converted into common stock),~~ and ~~grants primarily from government agencies.~~

~~On March 6, 2017, the Company successfully completed~~warrants in a ~~registered~~ Rights Offering ~~to existing stockholders raising~~in February 2019 which provided $34.4 million of net cash proceeds

Issuances of common stock through our At Market Issuance Sales Agreement during the fourth quarter of 2019 which provided $0.1 million of net cash proceeds

Issuances of common stock through our At Market Issuance Sales Agreement during the first quarter of 2018, which provided $4.0 million of net cash proceeds

Issuances of common stock via stock purchase agreements in May, August, October and December 2018, which provided net cash proceeds of $22.0 million

Revenue of $3.4 million and $6.9 million, for the years ended December 31, 2019 and 2018, respectively, generated by sales of our Argus II product

On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately ~~$19.7~~$6.7 million.

We received an award for $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and approval) from the National Institutes of Health (NIH) to fund the “Early Feasibility Clinical Trial of a Visual Cortical Prosthesis” that commenced in January 2018. Our second year grant was recently approved under this grant. As of June 30, 2020 we recorded $0.3 million of deferred grant costs which ~~it sold 13.7~~will be offset with the related grant funds when received. During the six months ended June 30, 2020, we received a total of $0.4 million ~~Units at $1.47 per Unit, which was~~of grant funds primarily from this grant.

On September 17, 2019, we received a $2.4 million, four-year grant from the ~~closing price~~National Institutes of Health (NIH) to develop spatial localization and mapping technology (“SLAM”). This grant involves a joint collaboration with the Johns Hopkins University Applied Physics Laboratory (APL), and is intended to speed the integration of SLAM into future generations of Orion. The goal is to give Orion users the ability to localize objects and navigate landmarks in unfamiliar surroundings in real time. APL is the primary recipient of the ~~Company’s common stock~~grant. We have suspended our activities on ~~that date.~~the project until we clarify our future plans.

In a rights offering completed on February 22, 2019, we sold approximately 5,976,000 million units, each priced at $5.792 for net proceeds of approximately $34.4 million. Each ~~Unit~~unit consisted of a share of the Company’s common stock and a warrant to purchase an additional share of the Company’s stock for $1.47. The warrants have a five-year life and trade on Nasdaq under the symbol EYESW. At the Company’s discretion, the warrants are redeemable on 30 days’ notice (i) at any time 24 months after the date of issuance, (ii) if the shares of its common stock are trading at 200% or higher than the Subscription Price for 15 consecutive trading days and (iii) if all of the independent directors vote in favor of redeeming the warrants. Holders may be able to sell or exercise warrants prior to any announced redemption date and the Company will redeem outstanding warrants not exercised by the announced redemption date for a nominal amount of $0.01 per Warrant. The Company deemed it appropriate not to record the liability for this warrant redemption amount as the probability of any redemptions was deemed remote based upon its terms. For purposes of recording this transaction, the Company allocated the proceeds from the offering between the common stock and warrants issued based on their relative fair values on the date of issuance. The fair value used for the common stock was the closing price of the stock of $1.47 on March 6, 2017. The fair value used for the warrants was their Black-Scholes value of $0.64 per warrant, calculated as of March 6, 2017. Accordingly, the relative fair value assigned to the common stock was $1.02 perone share and the relative fair value assigned to the warrants was $0.45 per warrant. The Company is using these proceeds to invest in its business to expand sales and marketing efforts, enhance current products, gain regulatory approvals for additional indications, and continue research and development into next generation technology.

~~The Company evaluated the financial impact of FASB ASC 260, “Earnings per Share,” which states, among other things, that if a rights issue is offered to all existing stockholders at~~one immediately exercisable warrant having an exercise price ~~that is less than the fair value~~of $11.76 per share. Entities controlled by Gregg Williams, our Chairman of the ~~stock, then~~Board of Directors, acquired approximately 5,180,000 million units in the ~~weighted average shares outstanding~~offering for an aggregate investment of approximately $30 million.

In November 2017, we entered into an At Market Issuance Sales Agreement (“Sales Agreement”) with B. Riley FBR Inc. and ~~basic~~H.C. Wainwright & Co., LLC, as agents (“Agents”) pursuant to which we offered and ~~diluted earnings per share shall be adjusted retroactively~~sold, from time to ~~reflect the bonus element~~time through either of the ~~rights~~Agents, shares of our common stock having an aggregate offering ~~for all periods presented. The Company determined that~~price as set forth in the ~~application~~Sales Agreement and a related prospectus supplement filed with the SEC. We agreed to pay the Agents a cash commission of ~~this specific provision~~3.0% of ~~ASC 260 was immaterial to previously issued financial statements~~the aggregate gross proceeds from each sale of shares under the Sales Agreement. During January and ~~therefore, did not retroactively adjust previously reported weighted average~~February 2018, we sold approximately 278,000 shares ~~outstanding and basic and diluted earnings per share.~~of common stock which provided net proceeds of $4.0 million under the Sales Agreement. During December 2019, we sold approximately 17,000 shares of common stock which provided net proceeds of $0.1 million under the Sales Agreement. In April 2020, we terminated the Sales Agreement with the Agents.

~~The Company’s~~Our financial statements have been presented on the basis that ~~its~~our business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. ~~The Company is~~We are subject to the risks and uncertainties associated with a business with ~~one product line and limited commercial product revenues,~~no revenue that is developing a novel medical device, including limitations on ~~its~~our operating capital ~~resources and uncertain demand for its products. The Company has~~resources. We have incurred recurring operating losses and negative operating cash flows since inception, and ~~expects~~we expect to continue to incur operating losses and negative operating cash flows for ~~at least~~the foreseeable future.

As more fully described in Note 11, we have been notified by the Nasdaq stock market regarding our non-compliance with the continued listing requirement on the Nasdaq capital market pursuant to its listing rules, and therefore we could be subject to delisting if we do not regain compliance within the compliance period (or the compliance period as may be extended).

Based upon our current plans we do not have sufficient funds to support our operations for the next ~~several years as a result~~12 months from the date of ~~which, management has concluded that there is~~issuance of these financial statements. Accordingly, these and other related factors raise substantial doubt about ~~the Company’s~~our ability to continue as a going concern. We anticipate that we will seek to additionally fund our operations through public or private equity or debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or any other approved product candidates, or we may be unable to maintain our current limited operations, maintain our current organization and reduced employee base or otherwise capitalize on our business opportunities, as desired, which could materially and adversely affect our business, financial condition and results of operations. The ~~Company’s~~accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Our independent registered public accounting firm, in its report on ~~the Company’s 2016~~our 2019 consolidated financial statements, has ~~also~~ raised substantial doubt about ~~the Company’s~~our ability to continue as a going concern.

The Company believes that it has sufficient funds to last through the first quarter of 2018. To continue business operations beyond that point, the Company will need to raise additional debt and/or equity capital. However, there can be no assurances that the Company will be able to secure any such additional financing on acceptable terms and conditions, or at all so as to be able to continue operating its business at current levels past the first quarter of 2018. If cash resources become insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its technology and product development programs and/or clinical trials, or obtain funds, if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights to its products, or to discontinue its operations entirely.

2. Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Presentation

~~The accompanying~~These unaudited ~~condensed consolidated~~interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and following the ~~rules and regulations~~requirements of the United States Securities and Exchange Commission (“SEC”) for ~~Form 10-Q. Accordingly,~~interim reporting. As permitted under those rules, certain footnotes or other financial information ~~and footnote disclosures~~that are normally ~~included in~~required by GAAP can be condensed or omitted. In our opinion, the unaudited interim financial statements ~~prepared in accordance with generally accepted accounting principles~~ have been ~~condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31, 2016 has been derived from~~prepared on the ~~Company’s~~same basis as the audited ~~consolidated financial statements.~~

~~In the opinion of management, these~~ financial statements ~~reflect~~and include all adjustments, which include only normal recurring ~~and other~~ adjustments, necessary for athe fair ~~presentation.~~presentation of our financial position and our results of operations and cash flows for periods presented. These ~~consolidated financial~~ statements do not include all disclosures required by GAAP and should be read in conjunction with ~~the audited consolidated~~our financial statements ~~included~~and accompanying notes for the fiscal year ended December 31, 2019, contained in ~~the Company’s~~our Annual Report on Form 10-K ~~for~~filed with the ~~year ended December 31, 2016. Operating~~SEC on March 19, 2020. The results ~~for~~of the interim periods are not necessarily indicative of ~~operating~~the results expected for ~~an entire~~the full fiscal year or any other interim period or any future ~~periods.~~year or period.

Reverse Stok Split

~~Significant Accounting Policies~~On December 31, 2019 we effected a reverse stock split of the outstanding shares of our no par value common stock and outstanding warrants to purchase our common stock by a ratio of 1-for-8 (1:8). The common stock and warrants began trading on the Nasdaq Capital Market on a split-adjusted basis on January 6, 2020.

The ~~Company’s~~accompanying consolidated financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock, restricted stock units, and per share amounts contained in our consolidated financial statements have been retrospectively adjusted.

Significant Accounting Policies

Segment Reporting. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. Our chief operating decision-maker reviews financial information presented on a consolidated basis. Accordingly, we consider ourselves to be in a single reporting segment, specifically the discovery, development and commercialization of visual prosthetics for profoundly blind individuals. We historically managed our Argus II and Orion programs on a consolidated basis within this single operating segment and do not assess the performance of our product lines or geographic regions on other measures of income or expense, such as program expense, operating income or net income. Our underlying technology consists of hardware components (implanted and wearable) and software. A vast majority of this underlying technology is shared between our Argus II and Orion branded systems. While we have ceased marketing the Argus II product indicated for individuals with retinitis pigmentosa, we are developing Orion as a next generation product with potential to treat a broader market of blind individuals, including the retinitis pigmentosa market.

Based upon our decision on May 10, 2019 to accelerate our transition to the Orion platform and suspend production of Argus, we recorded impairment charges of $2.6 million related to inventory of Argus II in the six months ended June 30, 2019. As part of this transition we commenced a corporate restructuring plan to focus on development of Orion and other key research projects. On March 31, 2020, due to the COVID-19 pandemic and related inability to secure additional funding, we laid off the majority of our employees and reduced our operating expenses significantly to allow for our continuing business operations. Due to our focus on Orion and wind down of selling and marketing activities related to Argus II, we recorded further impairment charges to our inventory of $0.5 million and $0.7 million to our fixed assets used primarily for Argus activities. We also incurred $1.0 million in severance payments and other costs associated with the wind down, all of which were substantially paid by June 30, 2020. We continue to advance the development of our Orion technology and are exploring various strategic options, however we cannot assure that any of these endeavors will yield satisfactory results or that we will be able to maintain our operations.

Our significant accounting policies are set forth in Note 2 of the financial statements in ~~its~~our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

~~Net Operating Loss Carryforwards~~

As of December 31, 2016 pursuant to an analysis done under Section 382, Limitations on Net Operating Losses, of the Internal Revenue Code of 1986, as amended, the Company had $142.3 million and $93.8 million of federal and state operating loss carryforwards, respectively, with which to offset any future taxable income. The federal and state net operating loss carryforwards will begin to expire at various dates from 2016 through 2036. If these loss carryforwards are unavailable for use in future periods, the Company’s results of operations and financial position may be adversely affected.

The Company experienced an “ownership change” within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, during the second quarter of 2017. The ownership change will subject the Company’s net operating loss carryforwards to an annual limitation, which will significantly restrict the Company’s ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change multiplied by a tax-exempt interest rate specified by the Internal Revenue Service. The Company has analyzed the available information to determine the amount of the annual limitation. Based on information available to the Company, the limitation arising from this ownership change is estimated to range between $1.4 million and $3.7 million annually. In total, the Company estimates that the 2017 ownership change will result in approximately $102 million and $54 million of federal and state net operating loss carryforwards, respectively, expiring unused.

~~Recent~~Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09-Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which provides new guidance for revenue recognition. The Financial Accounting Standards Board (“FASB”) subsequently issued ASU No. 2015-14-Revenue from Contracts with Customers (Topic 606), which d~~eferred the effective date of ASU 2014-09, ASU No. 2016-08-Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),ASU No. 2016-10-Revenue from~~Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU No. 2016-12-Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20-Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The above subsequent ASUsdid not change the core principle of the guidance in ASU 2014-09. The ASUs referred to above collectively will supersede and replace the revenue recognition requirements in ASC Topic 605-Revenue Recognition, and most of the related industry specific guidance and replace them with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle in ASC 606 is that revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

~~Step 1: Identify the contract(s) with a customer~~

~~Step 2: Identify the performance obligations in the contract.~~

~~Step 3: Determine the transaction price.~~

~~Step 4: Allocate the transaction price to the performance obligations in the contract.~~

~~Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.~~

ASU 2014-09 also creates ASC Subtopic 340-40-Other Assets and Deferred Costs-Contracts with Customers (“ASC 340-40”), which requires an entity to recognize an asset for certain types of costs related to a contract with a customer within the scope of ASC 606 and amortize the asset over a period consistent with the transfer of the goods and services to which the asset relates. Specifically, the costs required to be capitalized are (a) incremental costs of obtaining a contract with a customer and (b) costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic.

ASC 606 and ASC 340-40 (the “new accounting standards”) require the Company to make significant judgments and estimates. The new accounting standards also require more extensive disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Company will adopt the new accounting standards as of January 1, 2018 using the modified retrospective transition method, in which the two new accounting standards are applied retrospectively with the cumulative effect of initially applying the new accounting standards as an adjustment to the opening balance of retained earnings at January 1, 2018, the date of initial adoption. In accordance with the modified retrospective transition method, the Company will apply the new guidance retrospectively only to contracts that are not completed contracts at January 1, 2018.

Also in accordance with the modified retrospective transition method, the Company will provide additional disclosures in its financial statements for each of the quarterly and annual reporting periods in 2018 of (a) the amount by which each financial statement line item is affected in the reporting period by the application of the new accounting standards as compared to the accounting guidance that was in effect before the change, and (b) an explanation of the reasons for significant changes identified.

The Company completed an initial assessment of adoption of ASC 606, and is currently in the process of updating that assessment to reflect changes in contractual terms and the Company’s customary business practices since completion of the initial assessment. The Company is also assessing the ASC 606 revenue recognition policy related to a new type of revenue arrangement the Company entered into subsequent to September 30, 2017 which is expected to generate revenue in the fourth quarter of 2017.

The Company has not yet estimated the financial statement impact of the expected changes due to the adoption of ASC 606. The Company expects to complete its assessment during the fourth quarter of 2017 and will adopt the new accounting standards effective January 1, 2018.

~~Management does~~We do not believe that any ~~other~~ recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on the financial statements.

3. Concentration of Risk

Credit Risk

Financial instruments that subject ~~the Company~~us to concentrations of credit risk consist primarily of cash, money market funds, and trade accounts receivable. ~~The Company maintains~~We maintain cash and money market funds with financial institutions that ~~management deems reputable, and at times, cash balances may be in excess of Federal Deposit Insurance Corporation and Securities Investor Protection Corporation insurance limits. The Company extends~~we deem reputable. We extended differing levels of credit to our customers, and typically ~~does~~did not require collateral.

Customer Concentration

The ~~Company also maintains a cash balance at a bank in Switzerland, which is insured up to an amount specified~~following tables provide information about disaggregated revenue by service type, customer and geographical market.

The following table shows our revenues by customer type during the ~~deposit insurance agency of Switzerland.~~three and six months ended June 30, 2020 and 2019:

~~Customer Concentration~~

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Direct customers	$	—	$	1,006	$	—	$	1,952
Indirect customers (distributors)		—		276		—		458
Total	$	—	$	1,282	$	—	$	2,410

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, the following customers each comprised ~~more~~greater than 10% of our total revenues ~~(unaudited)~~:

	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			Three Months Ended June 30,						Six Months Ended June 30,
													2020			2019			2020			2019
Customer 1		18	%		0	%		8	%		0	%		—	%		26	%		—	%		14	%
Customer 2		18	%		0	%		6	%		4	%		—	%		21	%		—	%		11	%
Customer 3		18	%		0	%		6	%		0	%		—	%		13	%		—	%		14	%
Customer 4		10	%		0	%		3	%		0	%		—	%		13	%		—	%		7	%
Customer 5		9	%		0	%		11	%		0	%		—	%		10	%		—	%		16	%
Customer 6		0	%		21	%		0	%		8	%		—	%		10	%		—	%		10	%
Customer 7		0	%		12	%		3	%		3	%
Customer 8		0	%		11	%		0	%		16	%
Customer 9		0	%		0	%		0	%		10	%

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the following customers each comprised ~~more~~greater than 10% of our total accounts receivable:

September 30, December 31,
2017 2016
(unaudited)
Customer 1 24 % 0 %
Customer 2 22 % 0 %
Customer 3 20 % 0 %
Customer 4 19 % 0 %
Customer 5 14 % 34 %
Customer 6 0 % 34 %
Customer 7 0 % 28 %

10	June 30, 2020			December 31, 2019
Customer 1		—	%		35	%
Customer 2		—	%		33	%
Customer 3		—	%		32	%

Geographic Concentration

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, regional revenue based on customer locations which each comprised ~~more~~greater than 10% of our total revenues, consisted of the following ~~(unaudited)~~:

	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			Three Months Ended June 30,						Six Months Ended June 30,
													2020			2019			2020			2019
United States		72	%		47	%		59	%		47	%		—	%		68	%		—	%		65	%
China														—	%		13	%		—	%		7	%
Italy		9	%		11	%		11	%		21	%		—	%		10	%		—	%		16	%
Germany		5	%		35	%		3	%		15	%

~~Sources of Supply~~

Several of the components, materials and services used in the Company’s current Argus II product are available from only one supplier, and substitutes for these items cannot be obtained easily or would require substantial design or manufacturing modifications. Any significant problem experienced by one of the Company’s sole source suppliers could result in a delay or interruption in the supply of components to the Company until that supplier cures the problem or an alternative source of the component is located and qualified. Even where the Company could qualify alternative suppliers, the substitution of suppliers may be at a higher cost and create time delays that impede the commercial production of the Argus II and impact the Company’s abilities to deliver its products as may be timely required to meet demand.

Foreign Operations

The accompanying condensed consolidated financial statements as of ~~September~~June 30, ~~2017 (unaudited)~~2020 and December 31, ~~2016~~2019 include gross assets amounting to ~~$2.0~~$0.9 million and ~~$1.7~~$1.3 million, respectively, relating to operations of ~~the Company’s~~our subsidiary based in Switzerland. It is possible that unanticipated events in foreign countries could disrupt our operations. The assets of the ~~Company’s operations.~~

subsidiary, net of reserves and allowances amounted to approximately $0.1 million at June 30, 2020.

4. ~~Money Market Funds~~

Fair Value Measurements

The authoritative guidance with respect to fair value establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below.

Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.

Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that ~~the Company has~~we have the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.

Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.

Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

~~Money~~Cash equivalents, which includes money market funds, are the only financial instrument measured and recorded at fair value on ~~the Company’s~~our consolidated balance sheet, and they are ~~considered~~valued using Level 1 ~~valuation securities. The following table presents money market funds~~inputs.

Assets measured at ~~their level within the~~ fair value ~~hierarchy at September 30, 2017 and December 31, 2016~~on a recurring basis are as follows (in thousands):

	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

September 30, 2017 (unaudited):
June 30, 2020 (unaudited):
Money market funds	$	12,705	$	12,705	$		$	—	$	3,437	$	3,437	$	—	$	—

December 31, 2016:
December 31, 2019:
Money market funds	$	10,336	$	10,336	$	—	$	—	$	11,307	$	11,307	$	—	$	—

5. Selected Balance Sheet Detail

~~Accounts receivable, net~~

~~Accounts receivable consisted of the following at (in thousands):~~

September 30, December 31,
2017 2016
(Unaudited)
Accounts receivable $ 757 $ 487
Allowance for doubtful accounts (89 ) (213 )

Accounts receivable, net $ 668 $ 274

Inventories, net

Inventories consisted of the following at (in thousands):

	September 30,			December 31,
	2017			2016			June 30,			December 31,
	(Unaudited)						2020			2019
Raw materials	$	390		$	477		$	741		$	803
Work in process		3,378			5,032			1,461			1,716
Finished goods		3,123			3,284			1,290			2,069
								3,492			4,588
		6,891			8,793

Allowance for excess and obsolescence		(3,646	)		(5,377	)
Allowance for excess and obsolete inventory and impairment charge								(3,492	)		(3,559	)
Inventories, net	$	3,245		$	3,416		$	—		$	1,029

We recorded $2.6 million as an impairment charge during the six months ended June 30, 2019, related to our plans to suspend Argus II production. We recorded further impairment charges to our inventory of $0.5 million in the first six months of 2020. Additionally, finished goods inventory amounting to approximately $0.4 million that we expect to use for our future warranty claims has been offset with the warranty accrual which is included in accrued expenses.

Property and equipment ~~net of accumulated depreciation and amortization~~

Property and equipment consisted of the following at (in thousands):

	September 30,			December 31,
	2017			2016			June 30,			December 31,
	(Unaudited)						2020			2019
Laboratory equipment	$	2,398		$	2,300		$	584		$	2,724
Computer hardware and software		1,297			1,220			69			1,672
Leasehold improvements		299			288			—			304
Furniture, fixtures and equipment		46			45			—			78
								653			4,778
		4,040			3,853

Accumulated depreciation and amortization		(2,713	)		(2,364	)		(441	)		(3,656	)
Property and equipment, net	$	1,327		$	1,489		$	212		$	1,122

As a result of our decision to cease marketing of Argus II we recorded an impairment of $0.7 million related to our fixed assets used primarily for Argus activities. We have additionally reclassified $0.4 million as assets held-for-sale which represents the estimated fair value of fixed assets that we sold. Proceeds from the sales which were received in July 2020 approximated the estimated recorded fair value of assets held-for-sale at June 30, 2020.

Contract Liabilities

Contract liabilities consisted of the following (in thousands):

Beginning balance as of December 31, 2019	$	335
Consideration received in advance of revenue recognition		—
Revenue recognized		—
Ending balance as of June 30, 2020	$	335

Product Warranties

A summary of activity of our warranty liabilities, which are included in accrued expenses, for the period ended June 30, 2020 is presented below:

Beginning balance as of December 31, 2019	$	1,575
Additions		—
Settlements		(419)
Adjustments and other		—
Total		1,156
Less: Finished goods inventory expected to be used for future warranty claims		(399)
Ending balance as of June 30, 2020	$	757

Allowance for Doubtful Accounts

Allowance for doubtful accounts consisted of the following (in thousands):

Beginning balance as of December 31, 2019	$	117
Additions		—
Write-offs		(117)
Ending balance as of June 30, 2020	$	—

Right-of-use assets and operating lease liabilities

We lease certain office space and equipment for our use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease costs are recognized in the income statement over the lease term on a straight-line basis. Depreciation is computed using the straight-line method over the estimated useful life of the respective assets. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. As most of our leases do not provide an implicit rate, we used our estimated incremental borrowing rate of 10% based on the information available at commencement date in determining the present value of lease payments.

On May 18, 2020 we entered into a Letter Agreement with Sylmar Biomedical Park, LLC (the “Landlord”), pursuant to which the parties agreed to accelerate the expiration dates of our existing leases (the “Leases”), to a date not later than June 18, 2020 (“Accelerated Termination Date”). We agreed to pay the Landlord (i) $210,730 to bring the Leases current (the “Owed Rent”) and to remit (ii) a one-time early termination fee in the amount of $150,000 (the “Early Termination Amount”). Prior to the early termination agreed in this letter we were obligated to pay aggregate base rent of approximately $0.9 million and common area maintenance expenses for the term remaining under the Leases through the respective expiration dates in February 2022 and April 2023. The Landlord acknowledged that as of the date of the Letter Agreement the Owed Rent and the Early Termination Amount constituted all amounts owing to the Landlord under the Leases. As a result of the letter agreement, we wrote down the right-of-use assets and extinguished related lease liabilities in the amounts of $2.3 million and $2.4 million, respectively. We paid an early termination fee of $150,000 which was expensed in our restructuring charges for the six months ended June 30, 2020. Due to the termination of this lease there are no right-of-use assets or current or long term lease liabilities at June 30, 2020.

On July 7, 2020, we entered into a lease with Sylmar Biomedical Park, LLC, to lease a smaller portion of our present facility. The new lease allows us to significantly reduce our rent while maintaining operations and our current address. The term of the lease is from June 16, 2020 until December 31, 2020 and automatically renews monthly thereafter unless terminated by either party with 30 day notice. The monthly rent is $16,000 inclusive of a proportionate share of the building’s maintenance cost. The facility will support the Company’s current staff and operations, including continuation of its Orion early feasibility study, with six subjects at UCLA and Baylor College of Medicine, and other Orion research.

Assets	Classification	December 31, 2019
Non-current assets	Right-of-use assets		$	2,342
Liabilities
Current	Current operating lease liabilities		$	237
Long term	Long term operating lease liabilities		$	2,365

The components of lease expense for the three and six months ended June 30, 2020 and 2019 were as follows (unaudited):

	Three Months Ended June 30,				Six Months Ended June 30,
Lease expense:	2020		2019		2020		2019
Operating lease expense	$	106	$	123	$	229	$	246
Short-term expense		—		—		—		—
Total lease expense	$	106	$	123	$	229	$	246

Cash paid for lease amounts included in the measurement of lease liabilities amounted to $227,000 and $237,000, respectively, during the six months ended June 30, 2020 and 2019.

6. Equity Securities

Increase in Authorized Shares of Common Stock ~~Issuable~~

~~Non-employee members~~On June 4, 2019, our shareholders approved an amendment to our restated articles of ~~the Board~~incorporation increasing our authorized no par value shares of ~~Directors are paid for their services in~~ common stock ~~on June 1 of each year based on the average closing prices for the immediately preceding twenty trading days. As of September 30, 2017, the Company accrued $86,000 for these services, which equates~~from 200 million to ~~75,000~~300 million shares. ~~These shares have not yet been issued and are excluded from the calculation of weighted average common shares outstanding for EPS purposes.~~

Potentially Dilutive Common Stock Equivalents

~~At September~~As of June 30, ~~2017~~2020 and ~~2016, the Company~~2019, we excluded the ~~outstanding~~potentially dilutive securities summarized below, which entitle the holders thereof to ~~ultimately~~potentially acquire shares of common stock, from ~~its~~our calculations of ~~earnings~~net loss per share and weighted average common shares outstanding, as their effect would have been anti-dilutive (in thousands)~~, as follows (unaudited):~~.

September 30, September 30,
2017 2016

Long Term Investor Rights — 342
Underwriter’s warrants 802 802
Warrants associated with convertible debt 676 1,038
Warrants associated with March 2017 Rights Offering 13,652 —
Common stock options 5,530 3,669
Restricted stock units 95 142
Employee stock purchase plan 220 109

Total 20,975 6,102

	June 30,
	2020		2019
Common stock warrants issued to underwriters		375		100
Common stock warrants issued in connection with March 2017 rights offering		1,706		1,706
Common stock warrants issued in connection with February 2019 rights offering		5,976		5,976
Common stock options		304		1,115
Restricted stock units		8		62
Employee stock purchase plan		—		56
		8,369		9,015

7. Warrants

On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.7 million. Direct cost of this offering consisted of an 8.5% underwriting fee and reimbursable expenses of $90,000 and other costs incurred by us of $100,000. Also, for cash consideration of $100, we granted to the underwriters warrants to purchase 375,000 shares of the Company’s common stock at an exercise price of $1.25 per share, which was 25 percent above the offering price to the investors. The warrant is exercisable, in whole or in part, for a period commencing 180 days after the effective date of the underwriting agreement (April 30, 2020) and ending on the fifth anniversary date of the effective date of the underwriting agreement. The fair value of these warrants, calculated using the Black-Scholes option-pricing model, was determined to be $280,000 ($0.75per share) using the following assumptions: expected term of 5.0 years, volatility of 94.0%, risk-free interest rate of 0.67% and expected dividend rate of 0.0%. The fair value of these warrants reduced the amounts included in common stock from the offering and were offset by an increase in additional paid in capital.

On February 22, 2019, we completed a registered rights offering to existing stockholders in which we sold approximately 5,976,000 units at $5.792 per unit, which was the adjusted closing price of our common stock on that date. Each Unit consisted of a share of our common stock and a warrant to purchase an additional share of our stock for $11.76. The warrants had a five-year life and trade on Nasdaq under the symbol EYESW.

~~7. Warrants~~On March 6, 2017, we completed a registered rights offering to existing stockholders in which we sold approximately 1,706,000 units at $11.76 per unit, which was the adjusted closing price of our common stock on that date. Each unit consisted of a share of our common stock and a warrant to purchase an additional share of our stock for $11.76. The warrants have a five-year life and have been approved for trading on Nasdaq under the symbol EYESW. As of June 30, 2020, 632 of the warrants associated with the rights offering had been exercised.

We extended the term of 1.7 million warrants issued in our March 2017 rights offering by approximately two years effective as of February 15, 2019 as part of our February 2019 rights offering. We determined the fair value of the March 2017 Warrants immediately before and after the modification. The fair value of the March 2017 Warrants after the modification was increased by approximately $1.6 million, resulting in an accounting adjustment to additional paid-in capital and accumulated deficit in the consolidated statements of shareholders’ equity. The assumptions used in the determination of fair value of the warrants before and after the extension included a risk free interest rate of 2.50% and 2.49%, expected volatility of 81% and 82%, and expected lives of 3.08 years and 5.08 years, respectively and 0% dividend yields for both.

A summary of ~~warrant~~warrants activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 is presented below (in thousands, except per share and contractual life data) ~~(unaudited)~~.

						Weighted Average		Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)
				Weighted		Remaining
	Number of			Average		Contractual
	Shares			Exercise Price		Life (in Years)
Warrants outstanding at December 31, 2016		1,840		$	7.72		1.80
Warrants outstanding as of December 31, 2019									7,682	$	11.76		4.21
Issued		13,652		$	1.47				375		1.25		4.85
Exercised		—							—
Forfeited or expired		(362	)	$	5.00				—

Warrants outstanding at September 30, 2017		15,130		$	2.15		4.15

Warrants exercisable at September 30, 2017		15,130		$	2.15		4.15
Warrants outstanding as of June 30, 2020									8,057	$	11.27		3.76
Warrants exercisable as of June 30, 2020									8,057	$	11.27		3.76

The ~~intrinsic value of~~ warrants outstanding ~~at September~~as of June 30, ~~2017 was $0.~~

2020 had no intrinsic value.

8. Stock-Based Compensation

Effective June 1, 2011, the Company adopted the 2011 Equity Incentive Plan (the “2011 Plan”), which replaced previous equity plans. On June 6, 2017, the shareholders approved amendments to the 2011 Plan increasing the maximum number of shares of common stock that may be issued from 7,500,000 to 9,500,000, which is offset and reduced by options previously granted under previous plans. The option price is determined by the Board of Directors but cannot be less than the fair value of the shares at the grant date. Generally, the options vest ratably over either four or five years and expire ten years from the grant date. In the event of a change of control, as defined in the 2011 Plan, vesting is accelerated.

A summary of stock option activity under our 2011 Equity Incentive Plan (“2011 Plan”) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 is presented below (in thousands, except per share and contractual life data) ~~(unaudited)~~.

	Number			Weighted Average		Weighted Average Remaining Contractual		Number of Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)
	of Shares			Exercise Price		Life (in Years)
Options outstanding at December 31, 2016		3,667		$	7.23		6.27
Options outstanding as of December 31, 2019									984		$	21.78		7.70
Granted		2,504		$	1.85				206		$	5.98
Exercised		—			—				—		$
Forfeited or expired		(641	)	$	5.58				(886	)	$	20.50

Options outstanding at September 30, 2017		5,530		$	4.98		7.56

Options exercisable at September 30, 2017		2,090		$	7.15		5.36
Options outstanding as of June 30, 2020									304		$	14.82		8.05
Options exercisable as of June 30, 2020									181		$	18.90		7.56

The estimated aggregate intrinsic value of stock options exercisable ~~at September~~as of June 30, ~~2017~~2020 was ~~$0.~~zero. As of ~~September~~June 30, ~~2017,~~2020, there was ~~$5.7~~$0.7 million of total unrecognized compensation cost related to outstanding stock options that will be recognized over a weighted average period of ~~2.91~~2.76 years.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, the Company~~2020, we granted stock options to purchase ~~2,464,150~~205,701 shares of common stock to certain employees. The options are exercisable for a period of ten years from the date of grant at ~~prices ranging from $1.13 to $1.97~~$5.98 per share, which was the fair value of ~~the Company’s~~our common stock on the respective grant ~~dates.~~date. The options generally vest over a period of four ~~years.~~years . The fair value of these options, as calculated ~~pursuant to~~using the Black-Scholes option-pricing model, was determined to be ~~$2,222,000~~$0.8 million ($~~0.55 to $0.96~~4.05 per share)~~. Assumptions used in~~ using the ~~model were an~~following assumptions: expected term of ~~6.25~~6.02 years, volatility of ~~48.0%~~78.0%, a risk-free interest rate of ~~1.92% to 2.14%,~~1.50% and an expected dividend rate of 0%0.0%.

~~In March 2017,~~During the ~~Company granted~~three and six months ended June 30, 2020, approximately 586,000 and 886,000 options were cancelled or expired resulting in a reduction of stock ~~options to purchase 40,000 shares~~option expense of common stock to an outside attorney in connection with his services relating to the Company’s March, 2017 rights offering to stockholders. The options are exercisable for a period of four years from the date of grant at a price of $1.76 per share, which was 120% of the fair value of the Company’s common stock on the grant date of March 6, 2017. The options vested as of the date of grant. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $19,640 ($0.49 per share). Assumptions used in the model were an expected term of 4.0 years, volatility of 48.0%, a risk-free interest rate of 1.81%,approximately $88,000 and ~~an expected dividend rate of 0%. The cost of these shares was treated as an issuance cost of the offering and was deducted from the gross proceeds from the offering.~~

The Company adopted an employee stock purchase plan (“ESPP”) starting in June 2015 for all eligible employees. On June 6, 2017, the shareholders approved an amendment to the ESPP increasing the maximum number of shares of common stock that may be issued from 250,000 to 750,000. Under the ESPP, shares of the Company’s common stock may be purchased at six-month intervals at 85% of the lower of the closing fair market value of the common stock (i) on the first trading day of the offering period or (ii) on the last trading day of the purchase period. An employee may purchase in any one calendar year shares of common stock having an aggregate fair market value of up to $25,000 determined as of the first trading day of the offering period. Additionally, a participating employee may not purchase more than 100,000 shares of common stock in any one offering period. At September 30, 2017, 435,139 shares had been purchased under the ESPP.

$255,000, respectively.

The following table summarizes ~~Restricted Stock Unit (RSU)~~restricted stock unit (“RSU”) activity ~~(unaudited)~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 (in thousands, except per share data):

Number
of Awards Weighted
Average Grant
Date Fair Value
Per Share

Outstanding as of December 31, 2016 131 $ 12.43
Awarded — —
Vested (36 ) 12.43
Forfeited/canceled — —
Outstanding as of September 30, 2017 95 $ 12.43

	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Outstanding as of December 31, 2019		61		$	5.92
Awarded		—			—
Vested and released		(15	)		5.92
Forfeited/canceled		(38	)		5.92
Outstanding as of June 30, 2020		8		$	5.92

As of ~~September~~June 30, ~~2017,~~2020, there was ~~$1.1 million~~$40,000 of total unrecognized compensation cost related to the outstanding RSUs that will be recognized over a weighted average period of ~~1.88~~2.64 years.

We adopted an employee stock purchase plan in June 2015 for all eligible employees. At June 30, 2020 the available number of shares that may be issued under the plan is 77,031.

We completed our offer to rescind certain purchases of shares under our ESPP plan on May 27, 2020. We voluntarily offered to rescind the sale of shares of our common stock to employees who purchased those shares under the ESPP and to reimburse any losses upon the sale of our shares of our common stock for certain purchase periods because these shares may not have been exempt from registration under the Securities Act of 1933. The rescission of these share purchases resulted in the repurchase and cancelation of 39,467 shares of our common stock. The total cost for the repurchase of these shares and the reimbursement of any losses from the sale of such shares totaled approximately $270,000.

Stock-based compensation expense recognized for stock-based awards ~~granted under the 2011 Plan and the ESPP~~ in the condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 is~~2019 was as follows (in thousands) ~~(unaudited)~~:

	Three Months Ended September 30, 2017		Three Months Ended September 30, 2016		Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016		Three Months Ended June 30,				Six Months Ended June 30,
									2020		2019		2020		2019
Cost of sales	$	36	$	80	$	184	$	245	$	—	$	43	$	—	$	90
Research and development		71		77		203		238		7		134		109		321
Clinical and regulatory		42		43		135		136		12		31		27		65
Selling and marketing		116		74		321		59		—		131		41		261
General and administrative		641		624		1,978		1,903		69		520		190		1,020
Total	$	906	$	898	$	2,821	$	2,581	$	88	$	859	$	367	$	1,757

9. Risk and Uncertainties

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread globally. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, most states in the U.S., including California, where we are headquartered, have declared a state of emergency. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns.

In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to work remotely unless they cannot perform their essential functions remotely, and have also suspended all non-essential travel for our employees. While a significant number of our employees may be accustomed to working remotely or working with other remote employees, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, temporarily suspending travel and restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.

In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. For example, scheduled patient visits to our clinical sites at UCLA and Baylor were temporarily put on hold due to COVID-19 and we are in the process of planning to resume patient visits with the sites. Although regularly scheduled visits are on hold due to the coronavirus outbreak, sites continue to see patients if needed for any potential medical issues that may arise including any suspected adverse events. In addition, the validation study for the revised FLORA assessment was paused due to travel requirements for its completion. Also, some of our suppliers of certain materials used in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We could experience further harm to our business and we cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change.

COVID-19 has directly and indirectly adversely affected Second Sight and will likely continue to do so for an uncertain period of time. In March and April 2020 we laid off a substantial majority of our employees as a result of COVID-19 and an inability to obtain financing. We retain approximately 10 of our employees to oversee current operations. The cumulative effects of COVID-19 on the Company cannot be predicted at this time, but could include, without limitation:

inability to meet warranty obligations for our Argus II products;

reputational damages of the Company and its products;

inability to raise additional funds to finance and continue our operations;

inability to maintain adequate office laboratory facilities;

inability to retain and hire experienced personnel;

inability to finalize our plan for and enroll patients into our proposed pivotal clinical trial;

material delays or inability to complete development and commercialization of Orion;

•

inability to satisfy Nasdaq’s continued listing requirements and possible delisting; and

other uncertain events that may have negative impact on our operations.

10. Litigation, Claims and Assessments

~~Twenty-one~~Ten oppositions ~~have been~~ filed by ~~a third-party~~Pixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned ~~or exclusively licensed~~ by us. We have filed one opposition that is currently pending in the ~~Company.~~European Patent Office challenging the validity of a patent owned by Pixium Vision. The outcome of the challenges isare not certain, however, if successful, they may affect ~~the Company’s~~our ability to block competitors from utilizing ~~some of its~~our patented ~~technology in Europe. Management of the Company does not~~technology. We believe ~~that~~ a successful challenge will not have a material effect on ~~the Company’s~~our ability to manufacture and sell ~~its~~our products, or otherwise have a material effect on ~~the Company’s~~our operations.

By letters received on June 23, 2020 and July 21, 2020 counsel for a participant in the Orion Early Feasibility Study has alleged claims against the Company for breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, promissory estoppel and negligent infliction of emotional distress. Counsel in addition has alleged that Second Sight has violated the protocol established by the FDA for good clinical practice within this industry. As full compensation for damages arising from these claims the Company was presented with a demand for payment of $3,000,000. The Company believes that the claims asserted are without merit. Although the Company does not believe a lawsuit will be filed imminently, the claim is in the early stage and no assurance can be given that this matter will not result in litigation. To the extent a lawsuit is filed, the Company intends to vigorously defend it.

We are party to litigation arising in the ordinary course of business. It is ~~management’s~~our opinion that the outcome of such matters will not have a material effect on our results of operations, however, the ~~Company’s financial statements.~~ results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors

11. Subsequent Events

Nasdaq

Letter from Nasdaq dated July 23, 2020

On July 23, 2020, Nasdaq notified us that we no longer met Listing Rule 5550(b)(2) (the “Rule”) requiring the Company to maintain a minimum market value of listed securities (“MVLS”) of $35 million. Nasdaq’s notice was based on a review of our MVLS for the prior 30 business days. Nasdaq’s letter also noted that we do not meet the requirements under Listing Rules 5550(b)(1) and 5550(b)(3) which require stockholders’ equity of at least $2.5 million, or net income from continuing operations of $500,000 in the most recently completed, or in two of the three most recently completed, fiscal years, respectively. However, Nasdaq’s listing rules provide us a compliance period of 180 calendar days, or until January 19, 2021, in which to regain compliance.

In the event we do not regain compliance with the Rule prior to the expiration of the compliance period, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a Nasdaq Hearings Panel.

Letter from Nasdaq dated July 21, 2020

On July 21, 2020, Nasdaq notified us, based on our submitted information that the board of directors had appointed an independent director to our compensation committee, that we currently comply with Rule 5605(d)(2) (the “Rule”), and this matter is now closed.

As previously disclosed prior to that remediation, Nasdaq had notified us on June 2, 2020 that we did not comply with the compensation committee requirement for continued listing on Nasdaq set forth in the Rule.

Separately from the foregoing, Nasdaq had notified us on July 15, 2020 that we again qualified for a cure period to meet listing rules brought into question due to changes in board of directors. We previously reported in Forms 8-K filed with the SEC regarding letters from Nasdaq dated April 15, 2020, June 1, 2020, and June 2, 2020.

As previously disclosed, Nasdaq notified us on April 15, 2020, after the appointment of Matthew Pfeffer, one of our then independent directors, as our acting Chief Executive Officer effective March 27, 2020, that we no longer complied with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605 (the “Listing Rules”). On June 1, 2020, Nasdaq notified us that following the resignation of William J. Link as a director effective May 31, 2020, our noncompliance with the Listing Rules was then due to more than one vacancy on our board and audit committee. As a result, Nasdaq advised the Company that we were no longer eligible for the cure period set forth in our Form 8-K filed June 4, 2020 and that a plan of compliance was required to be submitted to Nasdaq no later than July 16, 2020.

Our board of directors has concluded that our non-executive Chair, Gregg Williams, meets the criteria of an independent director and has appointed Mr. Williams to be a member of the Audit Committee as of June 22, 2020, as a result of which the Company has only one vacancy on its board and committees. In the July 15, 2020 letter, Nasdaq acknowledged our conclusion regarding Mr. Williams’ independent director status and appointment to the Audit Committee. As a result, Nasdaq confirmed that we again are eligible for the cure period provided in Nasdaq’s Listing Rules. As such, Nasdaq reiterated that consistent with Listing Rules 5605(b)(1)(A) and 5605(c)(4), our cure period to regain compliance is as follows:

until the earlier of the Company’s next annual shareholders’ meeting or March 27, 2021;

if the next annual shareholders’ meeting is held before September 23, 2020, then the Company must evidence compliance no later than September 23, 2020.

Nasdaq requires us to submit documentation, including biographies of any new directors, evidencing compliance with the rules no later than as described above. If we do not regain compliance by the dates set forth above, Nasdaq will provide us written notification that our securities will be delisted, at which time we may appeal the delisting determination to a Nasdaq Hearing Panel.

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

The following discussion and analysis of our financial condition and results of operations should be read ~~in conjunction~~together with ~~the~~our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited ~~2016~~2019 financial statements and related notes included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”) on March ~~16, 2017. In addition to historical~~19, 2020. Some of the information ~~the~~contained in this discussion and analysis ~~here~~ or set forth elsewhere in this Quarterly Report, including information with respect toourproducts,plansand ~~throughout this Form 10-Q~~strategy for our business and related financing, contains forward-looking statements that involve risks and uncertainties, including statements regarding our expected financial results in future periods. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “will,” “would,” “strategy” and ~~assumptions. Our actual~~similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, liquidity, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals, insurance reimbursements and product launches, our financing plans and future capital requirements,the materially adverse impact of the recent COVID-19 coronavirus pandemic and related public health measures on our business. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from ~~those anticipated~~the plans, intentions and expectations disclosed in ~~these~~the forward-looking statements ~~as a result of certain factors, including, but not limited, to those set forth under~~that we make. You should read “Risk Factors” in Part II, Item 1A of this ~~report.~~

Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We assume no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect actual outcomes.

Second Sight ~~was founded in 1998 with a mission~~Medical Products, Inc. (NASDAQ: EYES) develops implantable visual prosthetics that are intended to ~~develop, manufacture, and market prosthetic devices that restore some~~deliver useful artificial vision to blind individuals. We are a recognized global leader in neuromodulation devices for blindness, and are committed to developing new technologies to treat the broadest populations of sight-impaired individuals.

Leveraging our 20 years of experience in neuromodulation for vision, we are developing the Orion^® Visual Cortical Prosthesis System (“Orion”), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due to a wide range of causes, including RP, glaucoma, diabetic retinopathy, optic nerve injury or disease and eye injury. Orion is intended to convert images captured by a miniature video camera mounted on glasses into a series of small electrical pulses. The device is designed to bypass diseased or injured eye anatomy and to transmit these electrical pulses wirelessly to an array of electrodes implanted on the surface of the brain’s visual cortex, where it is intended to provide the perception of patterns of light. We are conducting a six-subject Early Feasibility Study of the Orion device at the Ronald Reagan UCLA Medical Center in Los Angeles (“UCLA”) and Baylor College of Medicine in Houston (“Baylor”) Although regularly scheduled visits are on hold due to the coronavirus outbreak, sites continue to see patients if needed for any potential medical issues that may arise including any suspected adverse events. Our 12 month results for the subjects indicate to us that:

We have a good safety profile. Four subjects experienced a total of eleven adverse events (AEs) through the latest independent medical safety monitor meeting in March 2020 related to the device or to the surgery. One was considered a serious adverse event (SAE), and all of the adverse events were in the expected category. The one SAE was resolved quickly and did not require a hospital stay.

The efficacy data is encouraging. We measure efficacy by looking at three measures of visual function: The first is square localization, where Orion subjects sit in front of a touch screen and are asked to touch within the boundaries of a square when it appears. The second is direction of motion, where subjects are asked to identify the direction and motion of lines on a screen. The third is grating visual acuity, a measure of visual acuity that is adapted for very low vision. On square localization, five of the six subjects in our feasibility study performed significantly better with the system on than off. On direction of motion, all six performed better on than off; and on grating visual acuity, three had measurable visual acuity on the scale of this test (versus none who can do it with the device off). Another efficacy measurement of day-to-day functionality and benefit is FLORA, which stands for Functional Low-Vision Observer Rated Assessment. FLORA is an assessment performed by an independent, third-party low vision orientation and mobility specialist who spends time with each of the subjects in their homes. The specialist asks each of the subjects a series of questions and also observes them performing 15 or more daily living tasks, such as finding light sources, following a sidewalk, or sorting laundry. The specialist then determines if the system is providing a benefit, if it is neutral, or if it is actually hurting the abilities of subjects to perform these tasks. Our FLORA results show that for five of the six subjects, the Orion system is providing benefit. No peer-reviewed data is available yet for the Orion system. We reached agreement with the FDA in the fourth quarter of 2019 to utilize a revised version of FLORA as our primary efficacy endpoint in our pivotal trial for Orion, pending successful validation of the instrument.

Our principal offices are located in ~~Sylmar, California, approximately 25 miles northwest of downtown~~ Los ~~Angeles. We also have an office in Lausanne, Switzerland, that manages our commercial and clinical operations in Europe, the Middle East and Asia.~~Angeles, California.

Our ~~current~~first commercially approved product, the Argus^® II Retinal Prosthesis System (“Argus II”), treats outer retinal degenerations, such as retinitis pigmentosa, ~~which we refer~~also referred to as RP. The Argus II was the only retinal prosthesis approved in the United States by the Food and Drug Administration (“FDA”), and was the first approved retinal prosthesis in the world. RP is a hereditary disease, affecting an estimated 1.5 million people worldwide including about 100,000 people in the United States, that causes a progressive degeneration of the light-sensitive cells of the retina, leading to significant visual impairment and ultimately blindness. The Argus II System is the only retinal prosthesis approved in the United States by the Food and Drug Administration (FDA), and was the first approved retinal prosthesis in the world. By providing a useful formA subset of ~~artificial vision in~~these patients ~~who otherwise have total sight loss,~~would be eligible for the Argus II ~~System can provide benefits which include:~~

●

~~improving patients’ orientation and mobility, such as locating doors and windows, avoiding obstacles, and following the lines of a crosswalk,~~

●

~~allowing patients to feel more connected with people in their surroundings, such as seeing when someone is approaching or moving away,~~

●

providing patients with enjoyment from being “visual” again, such as locating the moon, tracking groups of players as they move around a field, and watching the moving streams of lights from fireworks, and

●

~~improving patients’ well-being and ability to perform activities of daily living.~~

~~The Argus II System provides an artificial form of~~since the approved baseline vision that differs from the vision of people with normal sight. It does not restore normal vision and it does not slow or reverse the progression of the disease. Results vary among patients and while the majority of patients receive a significant benefit fromfor the Argus II ~~some~~is worse than legally blind (20/200). We commissioned 3^rd party market research to estimate the size of the RP market that resulted in an estimate of approximately 1,500 patients ~~report receiving little or no benefit.~~

~~Our major corporate, clinical and regulatory milestones include:~~

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~~In 1998, Second Sight was founded.~~

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~~In 2002, we commenced clinical trials in the US for our prototype product, the Argus I retinal prosthesis.~~

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~~In 2007, we commenced clinical trials in the US for the Argus II System, which later became our first commercial product.~~

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~~In 2011, we received marketing approval in Europe (CE Mark) for the Argus II System.~~

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~~In 2013, we received marketing approval in the United States (FDA) for the Argus II System.~~

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~~In 2014, we launched the Argus II in the US, completed our initial public offering (“IPO”), and began trading on NASDAQ under the symbol “EYES.”~~

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~~In 2014, we launched the Argus II in the US, completed our initial public offering (“IPO”), and began trading on NASDAQ under the symbol “EYES.”~~

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~~In 2015, we commenced a clinical trial in the UK for an expanded indication for the Argus II System in individuals with dry AMD.~~

in the US with advanced RP that could be treated with the Argus II given the eligibility criteria of our label.

We began selling the Argus II System in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, ~~and~~Iran, Taiwan, South Korea and Russia in ~~2017. With~~2017, and Singapore in 2018. Given the ~~exception~~limited addressable market of ~~Taiwan~~Argus II, we no longer market the Argus II and ~~Russia,~~have focused all of our resources on the development of Orion.

We are also researching multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with 3^rd party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we believe will be complimentary to our products include: eye tracking, object recognition and localization, thermal imaging and depth-based decluttering.

Recent developments

In March 2020, we were severely adversely impacted by the unprecedented economic shock caused by the COVID-19 pandemic and its related effects on our ability to secure financing for our planned activities. As a result, we significantly reduced our staff and expenses and conserved liquidity as we continue operations and explore strategic options. These options include securing additional funding and exploring business alternatives that may include partnering, acquiring, investing in or combining with businesses that may or may not be in a related industry. We are actively seeking opportunities to develop partnerships or collaborations with others to advance further Orion development, conduct pivotal trials and bring the product to market for the treatment of blindness. No assurances can be given that any of these initiatives will occur.

In early March 2020, we commenced clinical validation activities for the FLORA-20 instrument, the primary efficacy endpoint we have ~~full regulatory approval~~selected for our future pivotal clinical trial of Orion. In mid-March 2020, our validation activities were suspended as a result of public health concerns and related social distancing due to ~~sell~~COVID-19. We are in ~~these regions.~~ the process of evaluating when activities related to the validation study can be resumed.

On March 27, 2020, the Board of Directors appointed Matthew Pfeffer, a member of our Board and Chairman of the Audit Committee of the Board, as acting Chief Executive Officer.

In ~~Taiwan and Russia~~furtherance of our decision to withdraw Argus II from the market, we have ~~limited regulatory~~terminated two post-market studies for Argus II in Germany and the U.S., terminated an extended non-significant risk study in the U.S. for Argus 2s, and suspended our technical support of Argus II worldwide. We have not yet formally withdrawn our submission to the FDA for market approval ~~but~~of the Argus 2s wearables system while we ~~are~~evaluate our strategic options.

In May 2020, we completed an underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate gross proceeds of $7.5 million, and net proceeds of approximately $6.7 million after deducting underwriting discounts, commissions and other offering expenses. Based on our current plans, we believe the financing provides sufficient working capital to ~~obtain full regulatory approval~~sustain ongoing operations into the fourth quarter of 2020.

In May 2020, we entered into a Letter Agreement with Sylmar Biomedical Park, LLC (the “Landlord”) to terminate our facility leases in ~~both countries.~~ which we agreed to vacate the premises by June 18, 2020 and pay $210,730 to bring our leases current and pay a one-time early termination fee of $150,000. Prior to the early termination, we were obligated to pay aggregate base rent of approximately $0.9 million and common area maintenance expenses for the respective remaining terms of our leases in February 2022 and April 2023.

We ~~sell primarily through~~completed our ~~direct sales force, but use distributors~~offer to rescind certain purchases of shares under our ESPP plan on May 27, 2020. We voluntarily offered to rescind the sale of shares of our common stock to employees who purchased those shares under the ESPP and to reimburse any losses upon the sale of our shares of our common stock for certain purchase periods because these shares may not have been exempt from registration under the Securities Act of 1933. The rescission of these share purchases resulted in ~~certain countries.~~the repurchase and cancelation of 39,467 shares of our common stock. The total cost for the repurchase of these shares and the reimbursement of any losses from the sale of such shares totaled approximately $270,000.

In June 2020, we commenced a process to dissolve our Swiss subsidiary which is expected to take approximately one year.

On July 7, 2020, we entered into a lease with Sylmar Biomedical Park, LLC, to lease a smaller portion of our present facility. The new lease allows us to significantly reduce our rent while maintaining operations and our current address. The term of the lease is from June 16, 2020 until December 31, 2020 and automatically renews monthly thereafter unless terminated by either party with 30 day notice. The monthly rent is $16,000 inclusive of a proportionate share of the building’s maintenance cost. The prior rent was $38,000, plus a proportionate share of the building’s maintenance cost, which averaged approximately $20,000 per month in 2019. The facility will support the Company’s current staff and operations, including continuation of its Orion early feasibility study, with six subjects at UCLA and Baylor College of Medicine, and other Orion research.

~~Going Concern~~As of August 10, 2020, we have eleven employees including three which we have rehired to refocus on the advancement of Orion and sustain our ongoing operations.

Capital Funding

From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated byfrom the sale of our Argus II ~~System. During~~product. Funding of our business since 2017 has been primarily provided by:

On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.7 million

Issuances of common stock and warrants in a Rights Offering in February 2019 which provided $34.4 million of net cash proceeds

Issuances of common stock through our At Market Issuance Sales Agreement during the fourth quarter of 2019 which provided $0.1 million of net cash proceeds

Issuances of common stock through our At Market Issuance Sales Agreement during the first quarter of 2018, which provided $4.0 million of net cash proceeds

Issuances of common stock via stock purchase agreements in May, August, October and December 2018, which provided net cash proceeds of $22.0 million

Revenue of $3.4 million and $6.9 million, for the years ended December 31, ~~2016~~2019 and ~~2015~~2018, respectively, generated by sales of our Argus II product.

We received an award for $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and approval) from the ~~nine~~National Institutes of Health (NIH) to fund the “Early Feasibility Clinical Trial of a Visual Cortical Prosthesis” that commenced in January 2018. Our second year award of $1.4 million was recently approved under this grant. As of June 30, 2020 we recorded $0.3 million of deferred grant costs which will be offset with the related grant funds when received. During the six months ended June 30, 2020, we received a total of $0.4 million of grant funds primarily from this grant.

On September ~~30,~~17, 2019, we received a $2.4 million, four-year grant from the National Institutes of Health (NIH) to develop spatial localization and mapping technology (“SLAM”). This grant involves a joint collaboration with the Johns Hopkins University Applied Physics Laboratory, and is intended to speed the integration of SLAM into future generations of Orion. The goal is to give Orion users the ability to localize objects and navigate landmarks in unfamiliar surroundings in real time. APL is the primary recipient of the grant. We have suspended our activities on the project until we clarify our future plans.

In a rights offering completed on February 22, 2019 we sold approximately 5,976,000 units, each priced at $5.792 for net cash proceeds of approximately $34.4 million. Each unit consisted of one share and one immediately exercisable warrant having an exercise price of $11.76 per share. Entities controlled by Gregg Williams, our Chairman of the Board of Directors, acquired approximately 5,180,000 units in the offering for an aggregate investment of approximately $30 million.

In November 2017, we ~~funded~~entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley FBR Inc. and H.C. Wainwright & Co., LLC, as agents (“Agents”) pursuant to which we offered and sold, from time to time through either of the Agents, shares of our ~~business primarily through:~~

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~~Revenue of $4.9 million in the first nine months of 2017, and $4.0 million and $8.9 million in fiscal years 2016 and 2015, respectively, generated by sales of our Argus II System,~~

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~~Issuance of common stock in our Rights Offering in June 2016, which generated net proceeds of $19.5 million after offering expenses,~~

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~~Issuance of common stock and warrants in our Rights Offering in March 2017, which generated net proceeds of $19.7 million after offering expenses.~~

~~Our financial statements have been presented on the basis that our business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities~~common stock having an aggregate offering price as set forth in the ~~normal course~~Sales Agreement and a related prospectus supplement filed with the SEC. We agreed to pay the Agents a cash commission of ~~business.~~ 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. During January and February 2018, we sold 278,000 shares of common stock for additional net proceeds of $4.0 million under the Sales Agreement. During December 2019, we sold approximately 17,000 shares of common stock which provided net proceeds of $0.1 million under the Sales Agreement. This agreement was terminated in April 2020.

We are subject to the risks and uncertainties associated with a business with ~~one product line and limited commercial product revenues, including limitations on our operating capital resources and uncertain demand for our products.~~no revenue that is developing a novel medical device. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future. Based on our current plans, we do not have sufficient funds to continue operating our business at current levels for at least twelve months from the ~~next few years,~~date of issuance of this report. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured. However, our operating plan may change as a result of many factors currently unknown to us, and we will need to seek additional funds during that period, through public or private equity offerings or debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs, or we may be unable to expand or maintain our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which ~~management has concluded that there is~~could materially and adversely affect our business, financial condition and results of operations. Accordingly, these factors among others raise substantial doubt about ~~the Company’s~~our ability to continue as a going concern. ~~The Company’s~~Our independent registered public accounting firm, in its report on ~~the Company’s 2016~~our 2019 consolidated financial statements, has ~~also~~ raised substantial doubt about ~~the Company’s~~our ability to continue as a going concern.

In June 2016, the Company successfully completed a Rights Offering to existing stockholders, raising proceeds of $19.5 million net of cash offering costs, selling 6.0 million shares of common stock at $3.315 per share, representing 85% of the Company’s per share stock price at the close of the Rights Offering.

In March 2017, the Company successfully completed a Rights Offering to existing stockholders, raising proceeds of $19.7 million net of cash offering costs, selling 13.7 million Units at $1.47 per Unit, which was the Company’s per share stock price at the close of the Rights Offering. Each Unit consisted of one share of common stock and one warrant, with a five-year life, to buy an additional share of common stock at $1.47 per share. The Company believes that it has sufficient funds to last through the first quarter of 2018. To continue business operations beyond that point, the Company will need to raise additional debt and/or equity capital. However, there can be no assurances that the Company will be able to secure any such additional financing on acceptable terms and conditions, or at all so as to be able to continue its business at current levels past the end of the first quarter of fiscal 2018. If cash resources become insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its technology and product development programs and/or clinical trials, or obtain funds, if available (although there can be no certainty), through strategic alliances that may require the Company to relinquish rights to its products, or to discontinue its operations entirely.

~~Global Reimbursement~~

Obtaining reimbursement from governmental and private insurance companies is critical to our commercial success. Due to the cost of the Argus II System, our sales would be limited without the availability of third party reimbursement. In the US, coding, coverage, and payment are necessary for the surgical procedure and Argus II system to be reimbursed by payers. Coding has been established for the device and the surgical procedure. Coverage and payment vary by payer. The majority of Argus II patients are eligible for Medicare, and coverage is primarily provided through traditional Medicare, sometimes referred to as Medicare Fee-for-Service (FFS) or Medicare Advantage. A small percentage of patients are covered by commercial insurers.

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~~Medicare FFS patients~~– Coverage is determined by Medicare Administrative Contractors (MACs) that administer various geographic regions of the US. Positive coverage decisions for the Argus II are effective in seven of 12 MAC jurisdictions (comprising 28 states). Effective January 1, 2017, the Centers for Medicare and Medicaid Services (CMS) established a 2017 payment rate of $150,000 for both the procedure and the Argus II Retinal Prosthesis System. On November 1, 2017, CMS posted a final 2018 payment rate of $122,500 for both the procedure and the Argus II Retinal Prosthesis System.

~~Medicare Advantage patients~~– Medicare Advantage plans are required to cover the same benefits as those covered by the MAC in that jurisdiction. For example, if a MAC in a jurisdiction has favorable coverage for the Argus II, then all Medicare Advantage plans in that MAC jurisdiction are required to offer the same coverage for the Argus II. Individual hospitals and ASCs may negotiate contracts specific to that individual facility, which may include additional separate payment for the Argus II implant system. In addition, procedural payment is variable and can be based on a percentage of billed charges, payment groupings or other individually negotiated payment methodologies. Medicare Advantage plans also allow providers to confirm coverage and payment for the Argus II procedure in advance of implantation.

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~~Commercial insurer patients~~~~– Commercial insurance plans make coverage and payment rate decisions independent of Medicare, and contracts are individually negotiated with facility and physician providers.~~

The Company employs dedicated employees and consultants with insurance reimbursement expertise engaged to expand and enhance coverage decisions. Currently, seven Medicare jurisdictions, including CGS (J15 -- Ohio and Kentucky), Palmetto GBA (JM -- Virginia, (excluding Part B for Arlington and Fairfax counties), West Virginia, North Carolina and South Carolina), NGS (J6 -- Minnesota, Illinois and Wisconsin), NGS (JK -- Connecticut, New York, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont), FCSO (JN -- Florida, Puerto Rico and the U.S. Virgin Islands), and Novitas (JH and JL -- Arkansas, Colorado, Delaware, District of Columbia, Louisiana, Maryland, Mississippi, New Jersey, New Mexico, Oklahoma, Pennsylvania, and Texas) provide coverage of the Argus II in 28 states, two territories and the District of Columbia when medically necessary. We are actively engaged with the remaining MACs and are committed to supporting their requests for additional information and clinical evidence. We expect that additional positive coverage decisions will be issued over time but cannot predict timing or ultimate success with each MAC.

Within Europe, we have obtained reimbursement approval or funding in Germany, France, and one region of Italy. In France, the Company was selected to receive the first “Forfait Innovation” (Innovation Bundle) from the Ministry of Health, which is a special funding program for breakthrough procedures to be introduced into clinical practice. As part of this program, the Company is conducting a post-market study in France which has enrolled a total of 18 subjects and will follow them for two years. The French program will fund implantation of up to 18 additional patients that will not be part of the post-market study. After review of the study’s results, we expect Argus II therapy to be covered and funded through the standard payment system in France, however, we can provide no assurance that the French government will continue to fund the Argus II after the first 36 implants.

In December 2016, NHS England announced it would cover 10 Argus implantations as part of a CtE program. The CtE program is especially designed for treatments that show significant promise for the future, while new clinical and patient experience data are collected within a formal evaluation program. This program is similar to the Forfait Innovation program in France. NHS England is known to be under significant financial pressure and also highly selective in adopting innovative technologies – which must demonstrate sufficient value for the cost expended. We expect first implants to occur sometime in 2018.

~~We are also seeking reimbursement approval in other countries including Belgium and Turkey and we are also seeking reimbursement approval in additional regions of Italy.~~

To date, our marketing activities have focused on raising awareness of the Argus II System with potential patients, implanting physicians, and referring physicians. Our marketing activities include exhibiting, sponsoring symposia, and securing podium presence at professional and trade shows, securing journalist coverage in popular and trade media, attending patient meetings focused on educating patients about existing and future treatments, and sponsoring information sessions for the Argus II System. In the United States, our efforts are currently focused on media advertisements dedicated to RP patients and their families. These advertisements are placed in geographic areas where we have Centers of Excellence committed to Argus II.

Product and Clinical Development Plans

The Argus II System is currently approved for RP patients with bare or no light perception in the US, and in Europe for severe to profound vision loss due to outer retinal degeneration, such as from retinitis pigmentosa (RP), choroideremia, and other similar conditions. The number of people who are legally blind due to RP is estimated to be about 25,000 in the US, 42,000 in Europe, and about 375,000 total worldwide. A subset of these patients would be eligible for the Argus II System since the approved baseline vision for the Argus II System is worse than legally blind (20/200).

The Company believes an opportunity exists to expand the use of its Argus II technology to better sighted individuals with RP who are currently not being treated. To achieve this market expansion, the Company is undertaking multiple clinical data collection efforts and product development efforts to improve the technology’s performance, including:

	●	~~Clinical trials with better-sighted individuals;~~
	●	~~Development of retinal stimulation programs that~~Orion. By further developing our visual cortical prosthesis, Orion, we ~~believe can achieve improved resolution by adjusting electronic retinal stimulation methods;~~
	●	Redesigns of the externals (glasses, camera, and video processing unit) that will possess processing power many times greater than the current Argus II system, which will enable enhanced image processing support for the commercial implementation of the new retina stimulation protocols, possibly by 2018.

We believe we ~~can further~~may be able to significantly expand our market to include nearly all profoundly blind ~~individuals, other than~~individuals. The only notable exceptions for potential use of the Orion are those who are blind due to ~~preventable~~otherwise currently treatable diseases, individuals who are born blind, or blindness due to ~~brain~~direct damage ~~by developing a~~of the visual ~~cortical prosthesis. We refer to this product as~~cortex, which is rare. However, of the ~~Orion I visual prosthesis system. We estimate that~~estimated 36 million blind people worldwide, there are approximately 5.8 million people ~~worldwide~~ who are legally blind due to causes ~~other than preventable conditions, RP~~that are not otherwise treatable (including RP) or ~~AMD. If approved~~age-related macular degeneration (“AMD”). We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligible for the Orion I based on our clinical ~~trial~~trials and the associated results.

Our objective in designing and developing the Orion I visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. ~~In October 2017, we received final IDE approval from the FDA to begin a human feasibility study~~A six-subject Early Feasibility Study of the Orion ~~I visual prosthesis system. This study~~device is currently underway at UCLA and Baylor. Although regularly scheduled visits are on hold due to the coronavirus outbreak, sites continue to see patients if needed for any potential medical issues that may arise including any suspected adverse events. Our 12 month results for six of the subjects indicate a good safety profile with encouraging efficacy data and benefits in helping subjects perform their daily living tasks. We believe these data are encouraging and support advancement of Orion into a larger pivotal clinical study. Early promising results are not necessarily indicative of results which may be obtained in large clinical trials. No assurance can be given that we will ~~confirm initial findings~~achieve similar results in our ~~human pilot study we announced in~~larger Orion clinical trials. No peer-reviewed data is available yet for the ~~fourth quarter of 2016 and provide~~Orion system.

In November 2017, the ~~first human data of a fully functional wireless visual cortical stimulator system including~~FDA granted Breakthrough Devices Program designation for the ~~external video camera system. We expect to implant and activate our Orion I visual prosthesis system in human subjects in late 2017.~~Orion. This study will provide the first human data of a fully functional wireless visual cortical stimulator system including an external video camera system. This initial study in a small number of subjects, if successful, should also form the basis for an expansiondesignation is given to a ~~pivotal clinical trial~~few select medical devices in ~~2018.~~ order to provide more effective treatment of life-threatening or irreversibly debilitating diseases or conditions. This program is intended to help patients have more timely access to these medical devices by expediting their development, assessment, and review.

~~We began a five-subject pilot study in~~COVID-19 Pandemic

In accordance with local and state guidelines regarding the ~~United Kingdom in June 2015,~~COVID-19 pandemic, we are requiring all of our employees to ~~determine the utility~~work remotely unless they cannot perform their essential functions remotely, and have also suspended all non-essential travel for our employees. While many of ~~the Argus II System for use in persons suffering from dry AMD. In the second quarter~~our employees are accustomed to working remotely, much of ~~2016~~our workforce has not historically been remote. Although we ~~completed enrollment and~~ continue to ~~track~~monitor the ~~subjects via the site in Manchester. The subjects have reported~~situation and may adjust our current policies as more information and public health guidance becomes available, temporarily suspending travel and restricting the ability to ~~integrate their native peripheral vision with their artificial central vision. Subjects also report that they enjoy using their Argus system. To date, however,~~do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.

In addition, our clinical trials have been affected by the ~~subjects~~COVID-19 outbreak. Patient visits in ongoing clinical trials have ~~not demonstrated significant objective benefit over their residual vision when using~~been delayed, for example, due to prioritization of hospital resources toward the ~~Argus II. We plan~~COVID-19 outbreak, travel restrictions imposed by governments, and the inability to ~~continue testing these subjects~~access sites for initiation and monitoring. Also, some of our suppliers of certain materials used in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will ~~submit~~continue to adversely affect global economies and financial markets, and may result in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a ~~revised clinical protocol~~result of the continued global economic impact of the pandemic. We cannot anticipate all of the ways in ~~2017. Our approaches~~which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to ~~improving~~monitor and assess the ~~effective resolution in RP patients may work in AMD patients, which could help us demonstrate objective benefit over their residual vision. The revised protocol will request approval~~effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to ~~test new retinal stimulation programs with~~change. See the ~~existing subjects with~~Risk Factors section for further discussion of the ~~belief they may benefit. If this clinical testing is successful, we plan to enroll additional patients in~~possible impact of the COVID-19 pandemic on our ~~pursuit of a solution for this large patient population.~~

business.

Critical Accounting Policies

and Estimates

The preparation of our condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States ~~or GAAP, requires~~(“GAAP”) and the requirements of the United States Securities and Exchange Commission require management to make estimates, assumptions and ~~assumptions~~judgments that affect the amounts, liabilities, revenue and expenses reported in the financial statements and the notes to the financial statements.On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~ 2019.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. Our chief operating decision-maker reviews financial information presented on a consolidated basis. Accordingly, we consider ourselves to be in a single reporting segment, specifically the discovery, development and commercialization of visual prosthetics for profoundly blind individuals. We historically managed our Argus II and Orion programs on a consolidated basis within this single operating segment and do not assess the performance of our product lines or geographic regions on other measures of income or expense, such as program expense, operating income or net income. Our underlying technology consists of hardware components (implanted and wearable) and software. A vast majority of this underlying technology is shared between our Argus II and Orion branded systems. While we have ceased marketing the Argus II product indicated for individuals with retinitis pigmentosa, we are developing Orion as a next generation product with potential to treat a broader market of blind individuals, including the retinitis pigmentosa market.

Based upon our decision on May 10, 2019 to accelerate our transition to the Orion platform and suspend production of Argus, we recorded impairment charges of $2.6 million related to inventory of Argus II in the six months ended June 30, 2019. As part of this transition we commenced a corporate restructuring plan to focus on development of Orion and other key research projects. On March 31, 2020, due to the COVID-19 pandemic and related inability to secure additional funding, we laid off the majority of our employees and reduced our operating expenses significantly to allow for our continuing business operations. Due to our focus on Orion and wind down of selling and marketing activities related to Argus II, we recorded further impairment charges to our inventory of $0.5 million and $0.7 million to our fixed assets used primarily for Argus activities. We also incurred $0.2 million in material and overhead costs associated with Argus II and $0.8 million in severance payments and other costs associated with the wind down, all of which were substantially paid by June 30, 2020. We continue to advance the development of our Orion technology and are exploring various strategic options, however we cannot assure that any of these endeavors will yield satisfactory results or that we will be able to maintain our operations.

There have been no other material changes to our critical accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

2020.

Results of Operations

Net sales.Our net sales ~~are derived~~consists of revenue primarily from the sale of our Argus II ~~System.~~product which is no longer marketed. We ~~began selling our products in Europe in 2011, Saudi Arabia in 2012,~~do not expect future revenues from the ~~United States and Canada in 2014, Turkey in 2015, Russia, South Korea and Taiwan in 2017. Our objective is to increase our product revenue over the next several years as we pursue commercialization~~sale of ~~our product, as our product becomes more well-known and accepted in the market, and as insurance coverage becomes more widespread.~~Argus II.

Cost of sales.Cost of sales includes the salaries, benefits, material, overhead, third party costs, warranty, charges for excess and obsolete inventory, and other costs required to make ~~our~~the Argus II ~~System~~system at our ~~Sylmar,~~Los Angeles, California facility. ~~In the second quarter of 2016, due to lower implant rates~~Our product involves technologically complex materials and revenue, we decreased production output and increased our reserve for slow-moving inventory. As a result of the lower production levels, we have been incurring expenses for unabsorbed overhead charges. Beginning in the first quarter of 2017, based on our rolling 12-month sales forecasts, we have been reducing our reserve for slow moving inventory, which has the effect of offsetting theprocesses. We record cost of ~~goods shipped for revenue in~~sales when products are implanted, which may differ from the ~~period. We expect~~period we are able to ~~work through~~record revenue. Such timing differences may cause our ~~slow-moving inventory and resume normal production when and if sales orders increase. Our ability~~reported results of operations to ~~generate a gross profit in future periods will depend on our ability~~be difficult to ~~(i) generate higher revenues and (ii)~~compare from period to produce our product in sufficient quantities that will allow us to absorb all production costs in a given period by spreading our costs over a larger production base, which will lower our cost per unit.period.

Operating Expenses.We generally recognize our operating expenses as ~~we incur them~~incurred in four general operational categories: research and development, clinical and regulatory, sales and marketing, and general and administrative. Our operating expenses also include a non-cash component related to the amortization of ~~deferred~~ stock-based compensation ~~allocated to~~for research and development, clinical and regulatory, sales and marketing, and general and administrative personnel. ~~From time to time we~~We have received grants from institutions or agencies, such as the National Institutes of Health, to help fund the some of the cost of our development efforts. We have recorded the amount of funding received from these grants as ~~offsets~~reductions to ~~the costs as they are incurred to complete the related work.~~operating expenses.

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Research and development expenses consist primarily of employee compensation ~~materials,~~ and consulting costs related to the design, development, and enhancements of our current and potential future products, offset by grant revenue received in support of specific research projects. We expense our research and development costs as they are incurred. ~~We expect~~Due to the recent downsizing of our business, we are currently evaluating the path forward for our research and development ~~expenses to increase in~~activities for Orion, including the ~~future as we pursue further enhancements of our existing product and develop technology~~potential for ~~our potential future products, such as~~collaboration with 3^rd parties and/or outsourcing the ~~Orion I visual cortical prosthesis. We also expect to receive additional grants in the future that will be offset primarily against research and development costs.~~

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~~Clinical and regulatory expenses consist primarily of salaries, travel and related expenses~~engineering work for personnel engaged in clinical and regulatory functions, as well as internal and external costs associated with conducting clinical trials and maintaining relationships with regulatory agencies. We expect clinical and regulatory expenses to increase as we assess the safety and efficacy of enhancements to our current Argus II System, seek to expand the indications for the Argus II System, such as AMD, and prepare to initiate clinical studies of potential future products such as the Orion I visual cortical prosthesis.

Orion.

Clinical and regulatory expenses consist primarily of salaries, travel and related expenses for personnel engaged in clinical and regulatory functions, as well as internal and external costs associated with conducting clinical trials and maintaining relationships with regulatory agencies offset by grant revenue received in support of specific clinical research projects. We expect clinical and regulatory expenses to be lower in the short-run as we have closed our clinical study activities related to Argus II and Orion clinical site visits have been temporarily put on hold due to COVID-19. In the long-run, we expect clinical and regulatory expenses to increase if and when we conduct a pivotal clinical study of Orion.

Sales and marketing expenses consist primarily of salaries, commissions, travel and related expenses for personnel engaged in sales, marketing, market access and business development functions, as well as costs associated with promotional and other marketing activities including the cost of units consumed as demos or samples. We expect sales and marketing expenses to be significantly lower in 2020 than in 2019 as we no longer employ sales and marketing personnel and no longer market the Argus II product.

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Sales and marketing expenses consist primarily of salaries, commissions, travel and related expenses for personnel engaged in sales, marketing and business development functions, as well as costs associated with promotional and other marketing activities. We expect sales and marketing expenses to increase as we hire additional sales personnel, initiate additional marketing programs, develop relationships with new distributors, and expand the number of medical centers that buy and implant our Argus II System and any future products.

General and administrative expenses consist primarily of salaries and related expenses for executive, legal, finance, human resources, information technology and administrative personnel, as well as recruiting and professional fees, patent filing and annuity costs, insurance costs and other general corporate expenses, including rent. We expect general and administrative expenses to be significantly lower in 2020 as we have significantly reduced staff.

●

General and administrative expenses consist primarily of salaries and related expenses for executive, legal, finance, human resources, information technology and administrative personnel, as well as recruiting and professional fees, patent filing costs, insurance costs and other general corporate expenses, including rent. We expect general and administrative expenses to increase as we add personnel and incur additional costs related to the growth of our business and operate as a public company.

Comparison of the Three Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

~~Worldwide commercial implant volume for~~We implanted no Argus II products during the ~~three and nine months ended September 30, 2017 was as follows:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016

Europe and the Middle East 4 10 16 25
Asia 1 — 5 —
Canada 0 — 5 1
United States 7 4 19 9
Total 12 14 45 35

~~Net Sales.~~~~Net sales increased by $430,000, or 36%, from $1,180,000~~second quarter of 2020 compared to 11 in the ~~third~~second quarter of ~~2016 to $1,610,000 in the third quarter of 2017, which was the result of fewer implants offset by a higher amount of revenue per implant in the current year quarter.~~

~~In the third quarter implant volume outside of North America declined from 10 implants in 2016 to five implants in 2017 due, in part, to summer seasonality typical~~2019. Four of the ~~European market. In the U.S., we had seven~~ implants in the ~~third~~second quarter of ~~2017~~2019 were in Europe, the Middle East and Asia (collectively, “EMEA”) while the remainder were in the U.S.

Net Sales. There were no net sales in the second quarter of 2020 as compared to ~~four~~$1.3 million in the ~~third~~same period in 2019. Revenue was recognized for ten units in the second quarter of 2016, as our Centers of Excellence strategy continued to gain traction. Based on implant activity through October, and the number of implants scheduled for the remainder of the quarter, we expect to see growth in implants in the fourth quarter of 2017 relative to the third quarter.

2019. Revenue recognized per implant was ~~$134,000~~approximately $128,000 in the ~~third~~second quarter of ~~2017~~2019. We do not expect future revenues from the sale of Argus II.

Cost of sales. There were no cost of sales in the first quarter of 2020 as compared to ~~$84,000~~$0.9 million in the ~~third~~second quarter of 2016. The higher revenue per implant is due mainly to (i) a higher mix of implants in the U.S. and Asia where the prices tend to be higher, (ii) the higher U.S. Medicare reimbursement level in 2017 compared to 2016, and (iii) higher deferred revenue recognized in the third quarter of 2017 compared to same period of 2016. We expect our average revenue per implant for the remainder of 2017 to be in a range of $100,000 to $120,000, depending on the geographic mix of implants. In 2018, with the lower CMS rate discussed above, we expect that our average revenue per implant will be in the range of $90,000 to $105,000, depending on the geographic mix of implants.

~~Cost of sales.~~~~Cost of sales decreased by approximately $1,614,000, or 62%, from $2,615,000 in the third quarter 2016 to $1,001,000 in the third quarter of 2017.~~2019. Cost of sales in the ~~third~~second quarter of ~~2017 included a charge~~2019 consisted primarily of $498,000 for unabsorbed production costs and a credit of $275,000 for the partial reversal of a reserve for slow moving inventory. Cost of sales in the third quarter of 2016 included a charge of $665,000 for unabsorbed production costs and approximately $1,044,000 to increase the reserve for slow moving inventory. Excluding these costs, cost of goods sold decreased by approximately $128,000, or 14%, from $906,000 in the third quarter of 2016 to $778,000 in the third quarter of 2017. The decrease in costs of goods sold, excluding the impact of unabsorbed production costs and inventory reserves, is consistent with the 14% decrease in implants from 14 in the third quarter of 2016 to 12 in the third quarter of 2017. For the next few quarters we expect that we will continue to keep our production levels low which will result in the generation of significant unabsorbed production costs. We also expect that we will continue to reverse our reserve for excess inventory, as we sell our existing supply of Argus II systems, which will offset the cost of products ~~that we ship.~~implanted and unabsorbed production costs.

Research and development expense.Research and development expense increased by $238,000, or 15%, to $1,826,000 in the third quarter of 2017 as compared to $1,588,000 in the third quarter of 2016. These expense amounts include $107,000 of offsetting grant revenue in the third quarter of 2017 and $713,000 of offsetting grant revenue in the third quarter of 2016. Excluding the impact of grant revenues, research and development expense decreased by ~~$368,000,~~$3.1 million, or ~~16%~~91%, ~~from $2,301,000~~to $0.3 million in the ~~third~~second quarter of ~~2016 to $1,933,000~~2020 from $3.4 million in the ~~third~~second quarter of ~~2017. This decrease~~2019. The costs decreased from the prior ~~year is~~period due primarily ~~attributable~~ to ~~$63,000 of higher people-related~~ costs ~~including compensation, benefits~~related to our reduction in force and ~~travel, offset in part by $387,000 of lower costs for supplies and product prototypes. While~~significantly curtailed activity while we ~~expect research and~~reevaluate our development expense to remain fairly constant for the remainder of the year, we expect that research and development costs will increase in future periods as we continue to enhance our current products and develop new products. plans.

Clinical and regulatory expense.Clinical and regulatory expense ~~increased $20,000,~~decreased $0.1 million, or 3%20%, ~~from $609,000~~to $0.4 million in the ~~third~~second quarter of ~~2016 to $629,000~~2020 from $0.5 million in the ~~third~~second quarter of ~~2017.~~2019. This decrease is attributable to decreased costs associated with the Orion feasibility study. We expect clinical and regulatory costs to increase ~~in the future as (i)~~once we ~~increase~~are able to resume our ~~implant run rate~~Orion development and ~~enroll more patients in post-market clinical studies for regulatory authorities, and (ii) we conduct new clinical trials~~resume our Early Feasibility Study but to ~~assess new products such as the Orion I, test further enhancements to our existing product, and begin new trials for better sighted patients.~~continue at a reduced level until that point.

Selling and marketing expense.Selling and marketing expense ~~increased $113,000,~~decreased $1.7 million, or 5%100%, ~~from $2,262,000~~to zero in the ~~third~~second quarter of ~~2016 to $2,375,000~~2020 from $1.7 million in the ~~third~~second quarter of ~~2017.~~2019. This ~~increase~~decrease in costs was primarily ~~the result~~driven by our elimination of ~~$326,000 more in people related costs, including salaries, benefits, stock based compensation, travel and commissions partially offset by $248,000 in lower costs for consultants~~commercial activities related to ~~items such as customer outreach programs~~Argus II and ~~marketing strategies in~~ the ~~U.S.~~resulting decreased use of outside services, supplies, reduced headcount and foreign markets. While we expect these costs to increase in the future as we increase our selling and marketing resources to accelerate the commercialization of our product, we expect selling and marketing expense to decrease over time when expressed as a percentage of product revenue.related compensation expense.

General and administrative ~~expense~~. expense. General and administrative expense decreased ~~$77,000,~~$0.8 million, or 3%33%, ~~from $2,605,000~~to $1.5 million in the ~~third~~second quarter of ~~2016 to $2,528,000~~2020 from $2.3 million in the ~~third quarter~~same period of ~~2017.~~2019. This decrease is primarily attributable to ~~decreases in patent~~lower compensation costs ~~business insurance and bad debt expense offset, partially, by increases in people costs and outside legal expense. While we expect these costs~~primarily due to ~~increase in the future, we~~reduced staffing. We expect general and administrative ~~expense~~expenses to ~~decrease over~~remain at these levels until such time ~~when expressed~~ as ~~a percentage of product revenue.~~we are able to resume our development activities related to Orion.

Restructuring charges. We recorded a non-cash restructuring charge of $0.2 million in the second quarter of 2019 to our reserve for excess and obsolete inventory in connection with our plans to suspend Argus II production. In addition, we recognized $0.7 million of pre-tax restructuring charges in the second quarter of fiscal year 2019 consisting of severance and other employee termination benefits. We recorded restructuring charges of $0.8 million in the second quarter of 2020 comprised of $0.2 million in material and overhead costs in connection with our decision to no longer market Argus II and a $0.6 million cash charge for severance compensation and other associated costs all of which was substantially settled by June 30, 2020.

Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019

~~Net Sales.~~~~Our net sales increased from $3,270,000~~We implanted no Argus II products during the first six months of 2020 compared to 21 in the first ~~nine~~six months of ~~2016 to $4,855,000 in~~2019. Eight of the first nine months of 2017, an increase of $1,585,000, or 48%. This increase in net sales was due to an increase in the number of implants to 45 in the first nine months of 2017 compared to 35 in the first nine months of 2016 coupled with a higher average revenue per implant.

~~In the first nine months of 2017 implant volume in the North American market increased from 10 to 24 units. This increase was driven mainly by the U.S. where we had 19~~ implants in the first ~~nine~~six months of ~~2017 compared to nine implants~~2019 were in ~~the first nine months of 2016, as our Centers of Excellence strategy continued to gain momentum. In~~ Europe, the Middle East and Asia ~~we saw implant volume decrease slightly from 25 units~~(collectively, “EMEA”) while the remainder were in the U.S.

Net Sales. There were no net sales in the first ~~nine~~six months of ~~2016~~2020 as compared to 21$2.4 million in the same period in 2019. Revenue was recognized for 19 units in the first ~~nine~~six months of ~~2017.~~

~~In the first nine months of 2017, revenue~~2019. Revenue recognized per implant ~~of $108,000~~ was compared to $93,000 in first nine months of 2016. The higher revenue per implant is due mainly to (i) a higher mix of implants in the North America and Asia where the prices tend to be higher, and the (ii) the higher U.S. Medicare reimbursement level in 2017 compared to 2016. We expect our average revenue per implant for the remainder of 2017 to be in a range of $100,000 to $120,000, depending on the geographic mix of implants. In 2018, with the lower CMS rate discussed above, we expect that our average revenue per implant will be in the range of $90,000 to $105,000, depending on the geographic mix of implants.

~~Cost of sales.~~~~Cost of sales decreased by~~ approximately ~~$3,513,000, or 52%, from $6,768,000~~$127,000 in the first ~~nine~~six months of ~~2016 to $3,255,000~~2019. We do not expect future revenues from the sale of Argus II.

Cost of sales. There were no cost of sales in the first ~~nine~~quarter of 2020 as compared to $1.7 million in the first six months of ~~2017.~~2019. Cost of sales in the first ~~nine~~six months of ~~2017 included charges~~2019 consisted primarily of $2,027,000 for unabsorbed production costs and a benefit of approximately $1.7 million for the partial reversal of a reserve for slow moving inventory. Cost of sales in the first nine months of 2016 included charges of $2,099,000 for unabsorbed production costs and approximately $2.6 million to increase the reserve for slow moving inventory. Excluding these costs, cost of goods sold increased by approximately $901,000 or 44%, from $2,058,000 in the first nine months of 2016 to $2,959,000 in the first nine months of 2017. This increase in costs of goods sold, excluding the impact of unabsorbed production costs and inventory reserves, compares to the 29% increase in implants from 35 in the first nine months of 2016 to 45 in the first nine months of 2017. For the next few quarters we expect that we will continue to keep our production levels low which will result in the generation of significant unabsorbed production costs. We also expect that we will continue to reverse our reserve for excess inventory, as we sell our existing supply of Argus II systems, which will offset the cost of products ~~that we ship.~~ implanted and unabsorbed production costs.

Research and development expense.Research and development expense ~~net of grant revenue, increased~~decreased by ~~$2,356,000,~~$1.4 million, or ~~72%~~25%, ~~from $3,266,000~~to $4.2 million in the first ~~nine~~six months of ~~2016 to $5,622,000~~2020 from $5.6 million in the first ~~nine~~six months of ~~2017. In~~2019. The costs decreased from the ~~first nine months of 2017, we utilized $235,000 of grant funds~~prior period due primarily to ~~offset~~ costs versus $1,985,000 of grant funds utilized in the first nine months of 2016. Excluding this grant revenue offset, there was an increase in research and development expense of $606,000, or 12%, from $5,251,000 in the first nine months of 2016 to $5,857,000 in the first nine months of 2017. This increase is primarily the result of increased expenditures of $582,000 for compensation costs and $339,000 for outside services, including consultants, partially offset by $389,000 of lower costs for supplies and product prototypes. We expect to see research and development costs remain at the 2017, or higher, levels as we continue to invest in improvementsrelated to our ~~Argus II product~~reduction in force and significantly curtailed activity while we reevaluate our development ~~of our new Orion cortical implant.~~plans.

Clinical and regulatory expense.Clinical and regulatory expense decreased ~~by $28,000,~~$0.2 million, or 1%13%, ~~from $1,955,000~~to $1.3 million in the first ~~nine~~six months of ~~2016 to $1,927,000~~2020 from $1.5 million in the ~~nine~~first six months of ~~2017.~~2019. This decrease is attributable to decreased costs associated with the Orion feasibility study. We expect clinical and regulatory costs to increase ~~in upcoming quarters as~~once we ~~(i) conduct clinical trials~~are able to ~~assess new products such as the~~resume our Orion ~~cortical implant, (ii) test enhancements~~development and our Early Feasibility Study but to ~~our existing products, (iii)~~ continue to assess the safety and efficacy of our current product for treating blindness due to age related macular degeneration, and (iv) conduct clinical trials to determine whether better-sighted patients would benefit from our current product.at a reduced level until that point.

Selling and marketing expense.Selling and marketing expense ~~increased by $584,000,~~decreased $3.1 million, or 9%82%, ~~from $6,473,000~~to $0.7 million in the first ~~nine~~six months of ~~2016 to $7,057,000~~2020 from $3.8 million in the first ~~nine~~six months of ~~2017.~~2019. This ~~increase~~decrease in costs was primarily ~~due~~driven by our elimination of commercial activities related to ~~$823,000 in higher people related costs in 2017 as compared to 2016, including higher salaries, stock based compensation, travel~~Argus II and ~~commissions, offset in part by $250,000 less spent out~~the resulting decreased use of outside services, ~~for items such as customer outreach~~supplies, reduced headcount and ~~reimbursement consultants. While we expect these costs to increase in the future as we increase our selling and marketing resources to accelerate the commercialization of our product, we~~related compensation expense. We expect selling and marketing expense to decrease ~~over time when expressed~~ as ~~a percentage of product revenue.~~we no longer market Argus II and are focused on Orion development.

General and administrative expense.General and administrative expense ~~increased by $535,000,~~decreased $1.2 million, or 7%25%, ~~from $7,635,000~~to $3.5 million in the first ~~nine~~six months of ~~2016 to $8,170,000~~2020 from $4.7 million in the ~~first nine months~~same period of ~~2017.~~2019. This ~~increase~~decrease is primarily attributable to ~~$488,000 of higher personnel~~lower compensation costs ~~in 2017~~primarily due to reduced staffing. We expect general and ~~$478,000 more for outside services, including legal and consulting costs, partially offset by a $317,000 decrease in bad debt expense.~~ administrative expenses to remain at these levels until such time as were are able to resume our development activities relating to Orion.

Restructuring charges. We recorded a non-cash restructuring charge of $2.6 million in the first six months of 2019 to our reserve for excess and obsolete inventory in connection with our plans to suspend Argus II production. In addition, we recognized $0.7 million of pre-tax restructuring charges in the first six months of 2019 consisting of severance and other employee termination benefits. We recorded non-cash restructuring charges of $1.2 million in the first six months of 2020 comprised of $0.5 million to fully reserve our inventory in connection with our decision to no longer market Argus II and $0.7 million to write-down our fixed assets that are not directly involved in the development of Orion and $0.2 million in material and overhead costs associated with Argus II and $0.8 million cash charge for severance compensation and other associated costs all of which was substantially settled by June 30, 2020.

Liquidity and Capital Resources

Our ~~consolidated~~ financial statements have been presented on the basis ofthat our ~~being~~business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We are subject to the risks and uncertainties associated with a business with no revenue that is developing a novel medical device, including limitations on our operating capital resources and uncertain demand for our products. We have ~~experienced~~incurred recurring operating losses and negative operating cash flows since inception, and ~~have financed~~we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future.

On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.7 million. We believe the financing provides sufficient working capital ~~requirements~~to sustain ongoing operations into the fourth quarter of 2020.

In a rights offering completed on February 22, 2019, we sold approximately 5,976,000 units, each priced at $5.792 for net cash proceeds of approximately $34.4 million. Each unit consisted of one share and one immediately exercisable warrant having an exercise price of $11.76 per share. Entities controlled by Gregg Williams, our Chairman of the Board of Directors, acquired approximately 5,180,000 units in the offering for an aggregate investment of approximately $30 million. The expiration date of the warrants issued pursuant to this rights offering is March 14, 2024, and the expiration date of all previously outstanding warrants listed for trading under the symbol “EYESW” were extended to March 14, 2024.

We do not have sufficient funds to support our operations for the next 12 months from the date of issuance of this report. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Conducting clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete and we may never generate the necessary data or results required to obtain marketing approval. We do not expect revenues until we are successful in completing the development and obtaining marketing approval for Orion. We expect expenses to increase in connection with our ongoing activities, particularly as we continue clinical trials of Orion, initiate new research and development projects and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for Orion, we expect to incur significant additional expenses related to sales, marketing, distribution and other commercial infrastructure to commercialize such product. In addition, our product candidates, if approved, may not achieve commercial success. We incur significant costs associated with operating as a public company in a regulated industry.

Until such time, if ever, we can generate substantial product revenues, we anticipate that we will seek to fund our operations through public or private equity or debt financings, grants, collaborations, strategic partnerships or other sources. Accordingly, these factors among others raise substantial doubt about our ability to continue as a going concern. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the ~~recurring~~ sale of equity, convertible debt or other equity-linked securities, the ownership interests of some or all of our common stockholders will be diluted, the holders of new equity securities ~~in both public~~may have priority rights over our existing stockholders and ~~private offerings. As~~the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If adequate funds are not available, we may be required to further curtail operations significantly or to obtain funds by entering into agreements on unattractive terms. If, for example, we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. Our inability to raise capital could have a ~~result,~~material adverse effect on our business, financial condition and results of operations. Our independent registered public accounting firm, in its report on our ~~2016~~2019 consolidated financial statements, has raised substantial doubt about our ability to continue as a going concern (see “Going Concern” above). In March 2017, the Company successfully completed a Rights Offering to existing shareholders, raising proceeds of $19.7 million net of cash offering costs, and selling 13.7 million Units at $1.47 per Unit. Each Unit consisted of a share of common stock and a five-year warrant with an exercise price of $1.47. Based upon this funding, management believes it has sufficient funds to through the first quarter of 2018. In order to continue business operations past that point, we will need to raise additional debt and/or equity capital. However, there can be no assurances that we will be able to secure any such additional financing on acceptable terms and conditions, or at all. If cash resources become insufficient to satisfy our ongoing cash requirements, then we would be required to scale back or discontinue our technology and product development programs and/or clinical trials, or obtain funds, if available (although there can be no certainty), through strategic alliances that may require us to relinquish rights to our products, or to discontinue our operations entirely.

concern.

Cash and ~~money market funds increased~~cash equivalents decreased by ~~$2.4~~$7.8 million ~~or 22%,~~ from ~~$10.9~~$11.3 million atas of December 31, ~~2016~~2019 to ~~$13.3~~$3.5 million ~~at September~~as of June 30, ~~2017.~~2020. Working capital was ~~$11.6~~$1.9 million ~~at September~~as of June 30, ~~2017,~~2020, as compared to ~~$9.6~~$6.2 million atas of December 31, ~~2016, an increase~~2019, a decrease of ~~$2.0 million, or 21%.~~$4.3 million. We use our cash ~~money market funds~~and cash equivalents and working capital to fund our operating activities.

Cash Flows from Operating Activities

During the first ~~nine~~six months of ~~2017,~~2020, we used ~~$17.2~~$13.9 million of cash in operating activities, consisting primarily of a net loss of ~~$21.1~~$12.0 million, offset by non-cash charges which provided cash of ~~$1.5~~$1.6 million for depreciation and amortization of property and equipment, stock-based compensation, ~~excess inventory reserve, bad debt recovery~~change in right of use assets, impairment charge and ~~common stock issuable and increased~~offset by a net change in operating assets and liabilities of ~~$2.4~~$3.5 million. During the first ~~nine~~six months of ~~2016,~~2019, we used ~~$18.1~~$13.8 million of cash in operating activities, consisting primarily of a net loss of ~~$22.8~~$18.1 million, offset by non-cash charges of ~~$5.9~~$4.1 million for depreciation and amortization of property and equipment, stock-based compensation, ~~bad debt expense, excess inventory reserves and common stock issuable, and decreased~~change in right of use assets offset by a net change in operating assets and liabilities of ~~$1.2~~$0.2 million.

Cash Flows from Investing Activities

~~During~~Cash used for investing activities in the first ~~nine~~six months of ~~2017, investing activities used $2.5 million~~2020 was $331,000 and was $164,000 in the first six months of ~~cash, reflecting $2.3 million used by the purchase of money market investments and $0.2 million used~~2019 both for the purchase of ~~equipment. This compares to the first nine months of 2016 when investing activities used $2.2 million, reflecting $1.8 million used by the purchase of money market investments~~property and ~~$0.4 million used for the purchase of~~ equipment.

Cash Flows from Financing Activities

~~During the first nine months of 2017, finance activities provided $19.9 million of cash, of which $19.7 million was from the Rights Offering and $0.2 million was from employee stock plan purchases.~~ Financing activities provided ~~$20.3~~$6.4 million of cash in the first ~~nine~~six months of ~~2016,~~2020 consisting of ~~which $19.5 million was provided by a Rights Offering and $0.8 million~~$6.7 of net proceeds from the ~~exercise~~sale of common stock ~~options~~offset by the use of $281,000 for the repurchase of partial shares in connection with our reverse stock split and our rescission purchase of our ESPP shares. Financing activities provided $34.6 million of cash in the first six months of 2019 consisting of the $34.4 million in net proceeds from the sale of common stock and warrants and $238,000 in proceeds from our employee stock ~~plan purchases.~~

purchase plan.

Off-Balance Sheet Arrangements

~~We do~~At June 30, 2020, we did not have any transactions, obligations or relationships that constitute off-balance sheet arrangements.

Item 3.

Quantitative and ~~Qualitative~~Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

The primary objective of our investment activities is to maintain the safety of principal and preserve liquidity without incurring significant risk. We invest cash in excess of our current needs in money market funds. As of ~~September~~June 30, ~~2017,~~2020, our investments consisted solely of money market funds.

Exchange Rate Sensitivity

~~During the nine months ended September 30, 2017, approximately 69% of our revenue was denominated in U.S. dollars, 27% in Euros, and 4% in Canadian dollars. In the same time period the~~The majority of our operating expenses were denominated in U.S. dollars. We have not entered into foreign currency forward contracts to hedge our operating expense exposure to foreign currencies, but we may do so in the future.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our Acting Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2017.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. As of ~~September~~June 30, ~~2017,~~2020, based on the evaluation of these disclosure controls and procedures, our CEO and ~~in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer~~CFO have concluded that our disclosure controls and procedures were ~~not effective.~~

~~Remediation Plan~~

As of September 30, 2017, there were control deficiencies which constituted material weaknesses in our internal control over financial reporting. Management has taken, and is taking steps to strengthen our internal control over financial reporting. Specifically:

●

~~Control over Financial Reporting~~~~. The Company does not have complete written documentation of its internal control policies, procedures and controls and has not fully completed its testing of its key controls. Management evaluated~~effective at the impact of its failure to have fully tested its internal controls and procedures and has concluded that the control deficiency that resulted represented a material weakness and that our internal control over financial reporting was not effective as of the end of the period covered by this Quarterly Report on Form 10-Q. We will continue to work on completing the documentation and testing of our internal controls.

●

~~Updating of Standard Costs.~~ It is a customary practice for manufacturing companies to update their standard costs on a regular basis (at least annually) to ensure that inventory costs are accurately and properly stated. During 2016, due to (i) the limited levels of production during the year, and (ii) the fact the Company had established reserves against approximately 61% of the cost of year-end inventory, which reserved for the cost of nearly all of the goods manufactured in 2016, the Company did not update its standard costs during fiscal 2016. The Company is currently reviewing it standard costs and expects to adjust its current standard costs before the end of 2017. The impact to the financial statements, taken as a whole, that would result from such an adjustment is expected to be immaterial.

While we have taken certain actions to address the material weaknesses identified, additional measures may be necessary as we work to improve the overall effectiveness of our internal controls over financial reporting. Through the actions in the remediation plan reported in our Annual Report on Form 10-K for the year ended December 31, 2016 and in our Quarterly Report on Form 10-Q for the period ended September 30, 2017, we believe that we are addressing the deficiencies that affected our internal control over financial reporting for the year and period then ended however we have not completed all of the corrective processes and procedures as contemplated herein for the identified material weaknesses. Until the remediation plan is fully implemented and operating for a sufficient period of time, we will not be able to conclude that the material weaknesses have been remediated. We will continue to monitor and assess our remediation activities to address the material weaknesses discussed above through remediation as soon as practicable and to provide reasonable assurance ~~that they will prevent or detect material error in the financial statements.~~level.

Changes in Internal Control over Financial Reporting

~~Other than changes that have~~There has been ~~enacted pursuant to our remediation plan, there were~~ no ~~changes~~change in our internal control over financial reporting during the ~~quarter~~six months ended ~~September~~June 30, ~~2017~~2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are updating our internal control environment to address changes in our risks in financial reporting to accommodate our reductions in operating activities, reductions in staffing levels, and segregation of duties. Such changes may result in new or reduced controls.

Inherent Limitations on Effectiveness of Controls

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, 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. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II-OTHER INFORMATION

Item 1.

Legal Proceedings

~~Twenty-one~~Ten oppositions ~~have been~~ filed by ~~a third-party~~Pixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned ~~or exclusively licensed~~ by us. We have filed one opposition that is currently pending in the ~~Company.~~European Patent Office challenging the validity of a patent owned by Pixium Vision. The outcome of the challenges isare not certain, however, if successful, they may affect ~~the Company’s~~our ability to block competitors from utilizing ~~some of its~~our patented ~~technology in Europe. Management of the Company believes that~~technology. We believe a successful challenge ~~or challenges~~ will not have a material effect on ~~the Company’s~~our ability to manufacture and sell ~~its~~our products, or otherwise have a material effect on ~~the Company’s~~our operations.

By letters received June 23, 2020 and July 21, 2020 counsel for a participant in the Orion Early Feasibility Study has alleged claims against the Company for breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, promissory estoppel and negligent infliction of emotional distress. Counsel in addition has alleged that Second Sight has violated the protocol established by the FDA for good clinical practice within this industry. As full compensation for damages arising from these claims the Company was presented with a demand for payment of $3,000,000. The Company believes that the claims asserted are without merit. Although the Company does not believe a lawsuit will be filed imminently, the claim is ~~party to litigation arising~~ in the ~~ordinary~~early stage and no assurance can be given that this matter will not result in litigation. To the extent a lawsuit is filed, the Company intends to vigorously defend it.

From time to time, we may be involved in a variety of legal proceedings and claims relating to securities laws, product liability, patent infringement, contract disputes, employment matters and other matters relating to various claims that arise in the normal course of ~~business.~~ our business in addition to governmental and other regulatory investigations and proceedings. It is ~~management’s~~our opinion that the outcome of such matters will not have a material adverse effect on our results of operations, however, the ~~Company’s financial statements.~~results of litigation, proceedings, disputes and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A.

Risk Factors

~~We incorporate herein by reference~~Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Quarterly Report, including our financial statements and related notes, which could have a material adverse effect on our business, financial condition, results of operations and prospects. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition, results of operations and prospects. In addition, the impact of COVID-19 and any worsening of the economic environment may exacerbate the risks described below, any of which could have a material impact on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

In addition to other information set forth in this report, you should carefully consider the risk factors discussed under the “Risk Factors” section included in our 2019 Annual Report on Form 10-K, which was filed with the SEC on March 19, 2020 and as amended on Form 10-K/A and filed with the SEC on April 28, 2020, as well as those risk factors contained in our prospectus supplement dated April 30, 2020 as filed with the SEC on May 1, 2020. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K and our prospectus supplement.

Since we have a limited operating history and have no current revenue producing operations, it is difficult to evaluate the future of our business.

To date, our operations on a consolidated basis have consisted of the continued development and clinical studies of our Orion-focused technologies and implementation of the early parts of our business plan. We have incurred significant operating losses in each year since our inception and we will continue to incur additional losses for the next several years. In addition, our losses may be greater than expected and our operating results may suffer. We have limited historical financial data upon which we may base our projected revenue and base our planned operating expenses. Our limited operating history makes it difficult to evaluate our technology or prospective operations and business prospects.

Despite promising results from the Early Feasibility Study for Orion being conducted at UCLA and Baylor we currently have no commercial products or product revenue and may never become profitable.

To date, we have not generated profit from sales of our now discontinued Argus II product and will not generate revenues until we complete the development and attain the marketing approval for Orion. We have relied principally on financing from the sale of equity securities and the receipt of government and other grants to fund our operations. We expect that our future financial results will depend primarily on our success in further developing the Orion, conducting FDA approved clinical trials and obtaining clearance or approval for, launching, selling and supporting our Orion technology. To establish these operations we expect a need to expend significant resources on hiring of personnel, continued scientific and product research and development, potential product testing and pre-clinical and clinical investigation, intellectual property development and prosecution, marketing and promotion, capital expenditures, working capital, general and administrative expenses, and fees and expenses associated with our capital raising efforts. We expect to incur costs and expenses related to consulting costs, laboratory development costs, hiring of scientists, engineers, sales representatives and other

operational personnel, and the continued development of relationships with potential partners as we continue to seek regulatory clearance or approval for our products. We are incurring significant operating losses, we expect to continue to incur additional losses for at least the next several years, and we cannot assure you that we will generate revenue or be profitable in the future. Our future or updated Orion products may never be cleared or approved or become commercially viable or accepted for use.

Investment in medical device technology is highly speculative, because it entails substantial upfront capital expenditures and significant risk that any potential product will fail to demonstrate adequate efficacy, clinical utility or acceptance by physicians and blind individuals. Investors should evaluate an investment in us in light of the uncertainties encountered by developing medical technology companies in a competitive environment. There can be no assurance that our efforts will be successful or that we will ultimately be able to achieve profitability. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could adversely affect the market price of our common stock and could significantly impair our ability to raise capital, expand our business or continue to implement our business plan.

There is substantial doubt about our ability to continue as a going concern.

To date, we have not generated any profit from our now discontinued Argus II product and we have incurred significant operating losses in each year since our inception and we anticipate continuing to incur additional losses for the next several years. In connection with our Annual Report on Form 10-K for the year ended December 31, 2019, management concluded that there is substantial doubt we can continue as an ongoing business for the next twelve months from the date that our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019 were issued unless we obtain additional capital. As a result, our independent registered public accountants included an explanatory paragraph in their auditors’ report relating to going concern.

In May 2020 we sold 7.5 million shares of common stock at $1.00 per share to raise net proceeds of $6.7 million in a registered public offering of securities. We plan to raise additional capital to fund our operations. No assurance can be given that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to us. Accordingly, management cannot conclude that such plans will be effectively implemented within the twelve months from the date that our unaudited condensed consolidated interim financial statements included in our Quarterly Report on Form 10-Q for the six months ended June 30, 2020 were issued.

These factors, combined with our forecast of cash required to fund operations for a period of at least twelve months from the date that unaudited condensed consolidated interim financial statements included in our Quarterly Report on Form 10-Q for the six months ended June 30, 2020 were issued, raise substantial doubt about our ability to continue as a going concern.

If we are unable to obtain sufficient funding, we may be unable to execute our business plan and fund operations. We may not be able to obtain additional financing on commercially reasonable terms, or at all.

We have experienced operating losses, and we may continue to incur operating losses for the next several years as we implement our business plan. Currently, we have no revenue and do not have arrangements in place for all the anticipated financing that would be required to fully implement our business plan. Our prior losses combined with expected future losses, have had and will continue to have, for the foreseeable future, an adverse effect on our stockholders’ equity and working capital.

We will need to raise additional capital in order to continue to execute our business plan in the future however there is no assurance that we will be successful, or that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to us. If we are unable to raise sufficient additional funds, we will need to further scale back our operations. The ongoing COVID-19 pandemic and resulting negative impact on the global macroeconomic environment and capital markets may make it more difficult for us to raise additional funds.

We cannot give any assurance that we will be able to obtain all the necessary funding that we may need. In addition, we believe that we will require additional capital in the future to fully develop our technologies and planned products to the stage of FDA approvals and a commercial launch. We have pursued and may pursue additional funding through various financing sources, including the private sale of our equity and debt securities, licensing fees for our technology, joint ventures with capital partners and project type financing. If we raise funds by issuing equity or equity-linked securities, dilution to some or all our stockholders will result. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings could impose significant restrictions on our operations. We also may seek government-based financing, such as development and research grants. There can be no assurance that funds will be available on commercially reasonable terms, if at all.

The incurrence of indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. In the event that we enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms. These agreements may require that we relinquish, or license to a third party on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves, or reserve certain opportunities for future potential arrangements when we might otherwise be able to achieve more favorable terms. In addition, we may be forced to work with a partner on one or more of our products or market development programs, which could lower the economic value of those programs to us.

If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate or delay the development of one or more of our Orion features updated products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products. If this were to occur, our ability to grow and support our business and to respond to market challenges could be significantly limited or we may be unable to continue operations, in which case you could lose your entire investment.

Our business may be adversely affected by health epidemics including the recent coronavirus outbreak.

inability to meet warranty obligations for our Argus II products;

reputational damages of the Company and its products;

inability to raise additional funds to finance and continue our operations;

inability to maintain adequate office laboratory facilities;

•

inability to retain and hire experienced personnel;

inability to finalize our plan for and enroll patients into our proposed pivotal clinical trial;

material delays or inability to complete development and commercialization of Orion;

inability to satisfy Nasdaq’s continued listing requirements and possible delisting; and

other uncertain events that may have negative impact on our operations.

Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take several or more years to complete, and its outcome is inherently uncertain. Failure or delay can occur at any time during the clinical trial process. Success in nonclinical studies and early feasibility clinical studies does not ensure that expanded clinical trials that will be used to support regulatory submissions will be successful. These setbacks may be caused by, among other things, nonclinical findings made while clinical trials were underway, and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval or clearance for our product candidates.

Interim “top-line” and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim top-line or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly.

Our efforts may never demonstrate the feasibility of our Orion technology.

Our research and development efforts remain subject to all of the risks associated with the development of new technology. Our Orion technology, though based on our FDA approved Argus II is not yet fully developed. Development of the underlying technology, including the further development and refinement of our Orion technology, may be affected by unanticipated technical or other problems, among other development and research issues, and the possible insufficiency of funds needed in order to complete development of these products or devices. Regulatory and clinical hurdles or challenges also may result in delays and cause us to incur additional expenses that may increase our need for capital and result in additional losses. If we cannot complete, or if we experience significant delays in developing our technology, applications or products for use by those patients who can benefit from vision restoration, particularly after incurring significant expenditures, our business may fail and investors may lose the entirety of their investment.

We are currently not in compliance with Nasdaq listing standards. If our common stock is delisted, the market price and liquidity of our common stock and our ability to raise additional capital would be adversely impacted.

Our common stock and warrants are currently listed on Nasdaq. Continued listing of a security on Nasdaq is conditioned upon compliance with various continued listing standards. On July 23, 2020 Nasdaq notified us that we no longer meet Listing Rule 5550(b)(2) requiring us to maintain a minimum market value of listed securities (“MVLS”) of $35 million. The notice was based on a review of our MVLS for the past 30 business days. Nasdaq also noted us that we do not meet the requirements under Listing Rules 5550(b)(1) and 5550(b)(3) which require stockholders’ equity of at least $2.5 million, or net income from continuing operations of $500,000 in the most recently completed or in two of the three most recently completed fiscal years, respectively. However, Nasdaq’s listing rules provide us a compliance period of 180 calendar days, or until January 19, 2021, in which to regain compliance.

If at any time during this compliance period our MVLS closes at $35 million or more for a minimum of ten consecutive business days, Nasdaq will provide written confirmation of compliance and the matter will be closed. In the event we do not regain compliance with the Rule prior to the expiration of the compliance period, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a Nasdaq Hearings Panel.

On July 21, 2020 Nasdaq notified us, based on the information that our board of directors had appointed an independent director to our compensation committee, that it has determined that we comply with Rule 5605(d)(2) and this matter is now closed. On July 15, 2020, Nasdaq notified us that we again qualified for a cure period to meet listing rules brought into question due to changes in our board of directors. We previously reported regarding letters from Nasdaq dated April 15, 2020, June 1, 2020, and June 2, 2020.

As previously disclosed, Nasdaq notified us on April 15, 2020, that due to the appointment of one of our independent directors as the acting Chief Executive Officer effective March 27, 2020, we no longer complied with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605. On June 1, 2020, Nasdaq notified us that following the resignation of William J. Link as a director effective May 31, 2020, our noncompliance with the Listing Rules was then due to more than one vacancy on our board and audit committee. As a result, Nasdaq advised us that we were no longer eligible for the cure period set forth in our Form 8-K filed June 4, 2020 and that a plan of compliance was required to be submitted no later than July 16, 2020.

Our board of directors concluded that our non-executive Chair, Gregg Williams, meets the criteria of an independent director and has appointed Mr. Williams to be a member of the Audit Committee as of June 22, 2020, as a result of which we ~~filed~~have only one vacancy on our board and committees. In the July 15, 2020 letter, Nasdaq acknowledged our conclusion regarding Mr. Williams’ independent director status and appointment to the Audit Committee. As a result, we are again eligible for the cure period provided in Nasdaq’s Listing Rules. As such, Nasdaq reiterated that consistent with Listing Rules 5605(b)(1)(A) and 5605(c)(4), the ~~Securities and Exchange Commission on March 16, 2017.~~Company’s cure period to regain compliance is as follows:

until the earlier of the Company’s next annual shareholders’ meeting or March 27, 2021;

if the next annual shareholders’ meeting is held before September 23, 2020, then the Company must evidence compliance no later than September 23, 2020.

As of August 10, 2020 the closing price of our common stock was $0.915. If the closing bid price for our common stock should remain below $1.00 per share for 30 consecutive trading days, Nasdaq could determine to delist our common stock. If our common stock were to be delisted from Nasdaq, trading of our common stock most likely would be conducted in the over–the–counter market on an electronic bulletin board established for unlisted securities such as the OTCQX Market, OTCQB Market. Such trading would likely reduce the market liquidity of our common stock. As a result, an investor could find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock. Many brokerage firms are reluctant to recommend low–priced stocks to their clients. Moreover, various regulations and policies restrict the ability of stockholders to borrow against or “margin” low–priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low–priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker–dealers by these requirements could discourage broker–dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock. As a result, the ability of our stockholders to resell their shares of common stock, and the price at which they could sell their shares, could be adversely affected. The delisting of our common stock from Nasdaq would also make it more difficult for us to raise additional capital.

If shares of our common stock cease to be listed on a national exchange our securities will not be eligible for federal preemption rights and could be subject to state “blue sky” laws which may affect our capabilities of raising capital.

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether securities will be registered or exempt from registration under the laws of any state. If our securities cease to be listed on the national exchange, a determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our common stock. Registering or qualifying shares with states can be time consuming. Compliance and regulatory costs may vary from state to state and may adversely affect future financings and our ability to raise capital.

If our common stock is delisted from national exchange some institutional investors may not be allowed to purchase our shares and may be required to liquidate their current positions in our stock which could negatively affect the price and volatility of our shares.

Institutional investors may be restricted by their investment policies from investing in shares of companies that are not listed on a national exchange and may be required to liquidate their positions if our securities are delisted from a national exchange. Liquidations, should they occur, may increase volatility and cause wide fluctuations and further declines in the prices of our securities.

Delisting of our common stock from national exchange can cause material dilution of our stock in future financings which can erode shareholder value.

If we are not able to maintain listing of our securities on Nasdaq, the trading prices of our securities may decline and we may need to sell larger amounts of our securities to obtain needed operating capital, possibly at prices which are at further discounts to the market or upon other terms that are less favorable to us, subjecting our shareholders to material dilution and losses to their investment.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

~~Not applicable.~~

Item 3.

Defaults upon Senior Securities

None.

~~Not applicable.~~

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

On June 20, 2017, Thomas B. Miller, Chief Financial Officer of the Company, notified the Company that he was submitting his resignation as Chief Financial Officer to pursue other opportunities. Mr. Miller agreed to remain in his current role during a transition period. Mr. Miller’s departure did not result from a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

Item 6.~~Item 6.~~

Exhibits

EXHIBIT INDEX

Exhibit No.		Exhibit Description
~~3.1~~		~~Restated Articles of Incorporation of the Registrant. (1)~~
~~3.2~~ 31.1		~~Amended and Restated Bylaws of the Registrant, as currently in effect. (1)~~
~~31.1~~		Certification of Principal Executive Officer of Second Sight Medical Products, Inc. pursuant to Section 302 of Sarbanes-Oxley Act of 2002.*
~~31.2~~
31.2		Certification of Principal Financial and Accounting Officer of Second Sight Medical Products, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
~~32.1~~
32.1		Certifications of Principal Executive Officer and Principal Financial and Accounting Officer of Second Sight Medical Products, Inc. pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
~~101.INS~~
101.INS		XBRL Instant Document.*
~~101.SCH~~
101.SCH		XBRL Taxonomy Extension Schema Document.*
~~101.CAL~~
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*
~~101.DEF~~
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*
~~101.LAB~~
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

*	~~Included herein.~~

(1) Incorporated by reference to the registrant’s registration statement on Form S-1, file no. 333-198073, originally filed with the Securities and Exchange Commission on August 12, 2014, as amended.

28 *	Included herein.

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name	Title	Date

/s/ ~~Jonathan Will McGuire~~Matthew Pfeffer	Acting Chief Executive Officer and Director	~~November 3,2017~~ August 13, 2020
~~Jonathan Will McGuire~~ Matthew Pfeffer	(Principal Executive Officer)

/s/ J~~Thomas B. Miller~~ohn T. Blake	Chief Financial Officer	~~November 3~~,~~2017~~ August 13, 2020
~~Thomas B. Miller~~ John T. Blake	(Principal Financial and Accounting Officer)

Large accelerated filer ☐	☐	Accelerated filer ☒	☐
Non-accelerated filer ☐	~~(Do not check if a smaller reporting company)~~ ☒	Smaller reporting company	☒
Emerging growth company	☐

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Net sales	$	1,610		$	1,180		$	4,855		$	3,270
Cost of sales		1,001			2,615			3,255			6,768
Gross profit (loss)		609			(1,435	)		1,600			(3,498	)

Operating expenses:
Research and development, net of grants		1,826			1,588			5,622			3,266
Clinical and regulatory		629			609			1,927			1,955
Selling and marketing		2,375			2,262			7,057			6,473
General and administrative		2,528			2,605			8,170			7,635
Total operating expenses		7,358			7,064			22,776			19,329

Loss from operations		(6,749	)		(8,499	)		(21,176	)		(22,827	)
Interest income		33			10			69			18

Net loss	$	(6,716	)	$	(8,489	)	$	(21,107	)	$	(22,809	)

Net loss per common share – basic and diluted	$	(0.12	)	$	(0.20	)	$	(0.40	)	$	(0.57	)

Weighted average common shares outstanding – basic and diluted		56,799			42,220			53,206			39,929

	Common Stock				Common Stock Issuable						Additional Paid-in		Notes Receivable for Stock Option			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Exercises			Loss			Deficit			Equity
Balance, December 31, 2015		35,942	$	166,049		33		$	205		$	27,277	$	(5	)	$	(581	)	$	(172,682	)	$	20,263
Issuance of common stock in connection with rights offering, net of expenses		5,978		19,430		—			—			—		—			—			—			19,430
Exercise of stock options		95		478		—			—			—		3			—			—			481
Stock-based compensation expense		—		—		—			—			2,581		—			—			—			2,581
Fair value of stock options issued for services in connection with rights offering		—		—		—			—			53		—			—			—			53
Stock issued or issuable for professional services		82		324		(7	)		(118	)		—		—			—			—			206
Issuance of common stock in connection with Employee Stock Purchase Plan		102		337		—			—			—		—			—			—			337
Issuance of RSUs		48		—		—			—			—		—			—			—			—
Comprehensive loss:
Net loss		—		—		—			—			—		—			—			(22,809	)		(22,809	)
Foreign currency translation adjustment		—		—		—			—			—		—			57			—			57
Comprehensive loss		—		—		—			—			—		—			57			(22,809	)		(22,752	)
Balance, September 30, 2016		42,247	$	186,618		26		$	87		$	29,911	$	(2	)	$	(524	)	$	(195,491	)	$	20,599

Balance, December 31, 2016		42,701	$	186,769		77		$	153		$	30,697	$	(2	)	$	(608	)	$	(205,861	)	$	11,148
Issuance of common stock and warrants in connection with rights offering, net of offering costs		13,653		13,647		—			—			6,021		—			—			—			19,668
Issuance of common stock in connection with Employee Stock Purchase Plan		193		189		—			—			—		—			—			—			189
Fair value of stock options issued for services in connection with rights offering		—		—		—			—			20		—			—			—			20
Common stock issued or issuable for services		223		262		(2	)		(67	)		—		—			—			—			195
Issuance of RSUs		36		—		—			—			—		—			—			—			—
Stock-based compensation expense		—		—		—			—			2,821		—			—			—			2,821
Repayment of notes receivable for stock option exercises		—		—		—			—			—		2			—			—			2
Comprehensive loss:
Net loss		—		—		—			—			—		—			—			(21,107	)		(21,107	)
Foreign currency translation adjustment		—		—		—			—			—		—			36			—			36
Comprehensive loss		—		—		—			—			—		—			36			(21,107	)		(21,071	)
Balance, September 30, 2017		56,806	$	200,867		75		$	86		$	39,559	$	—		$	(572	)	$	(226,968	)	$	12,972

	Nine Months Ended September 30,
	2017			2016

Cash flows from operating activities:
Net loss	$	(21,107	)	$	(22,809	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment		345			311
Stock-based compensation		2,821			2,581
Bad debt (recovery) expense		(128	)		191
Excess inventory (recovery) reserve		(1,731	)		2,611
Common stock issuable for services		195			206
Changes in operating assets and liabilities:
Accounts receivable		(311	)		874
Inventories		1,955			(166	)
Prepaid expenses and other assets		261			492
Accounts payable		(299	)		(16	)
Accrued expenses		233			(377	)
Accrued compensation expenses		668			(15	)
Accrued clinical trial expenses		(6	)		(61	)
Deferred revenue		(25	)		(135	)
Deferred grant revenue		(104	)		(1,741	)
Net cash used in operating activities		(17,233	)		(18,054	)

Cash flows from investing activities:
Purchases of property and equipment		(181	)		(406	)
Investment in money market funds		(2,362	)		(1,820	)
Net cash used in investing activities		(2,543	)		(2,226	)

Cash flows from financing activities:
Net proceeds from rights offering		19,688			19,483
Proceeds from repayment of note receivable		2			—
Proceeds from exercise of options and employee stock plan purchases		189			816
Net cash provided by financing activities		19,879			20,299

Effect of exchange rate changes on cash		(3	)		19

Cash:
Net increase		100			38
Balance at beginning of period		539			239
Balance at end of period	$	639		$	277

Supplemental cash flow information:
Non-cash financing and investing activities:
Fair value of stock options issued for services rendered in connection with rights offering	$	20		$	53

	Number of Awards			Weighted Average Grant Date Fair Value Per Share

Outstanding as of December 31, 2016		131		$	12.43
Awarded		—			—
Vested		(36	)		12.43
Forfeited/canceled		—			—
Outstanding as of September 30, 2017		95		$	12.43