UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172021
OR
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File Number 333-198073 001-36747
Second Sight Medical Products, Inc.
(Exact name of Registrant as specified in its charter)
California | 02-0692322 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
12744 San Fernando Road, Suite 400, Sylmar, CA 9134213170 Telfair Avenue, Sylmar, CA91342
(Address of principal executive offices, including zip code)
(818) (818) 833-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | EYES | NASDAQ | ||
Warrants | EYESW | NASDAQ |
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 (§229.405232.405 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):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
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).
Yes ☐ No ☒
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 11, 2021, the issuerregistrant had 56,806,352 shares of common stock, issuedno par value per share and 7,680,938 warrants, outstanding.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
FormFORM 10-Q for the Quarter Ended September 30, 2017
INDEXTABLE OF CONTENTS
Part I. Financial Statements
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(Inin thousands)
September 30, | December 31, | June 30, | December 31, | |||||||||||||
2017 | 2016 | 2021 | 2020 | |||||||||||||
(Unaudited) | (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 | ||||||||||||||
Cash and cash equivalents | $ | 73,845 | $ | 3,177 | ||||||||||||
Prepaid expenses and other current assets | 462 | 717 | 1,593 | 1,092 | ||||||||||||
Total current assets | 17,719 | 15,282 | 75,438 | 4,269 | ||||||||||||
Property and equipment, net | 1,327 | 1,489 | 135 | 174 | ||||||||||||
Right-of-use assets, net | 311 | — | ||||||||||||||
Deposits and other assets | 35 | 39 | 32 | 17 | ||||||||||||
Total assets | $ | 19,081 | $ | 16,810 | $ | 75,916 | $ | 4,460 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 826 | $ | 1,156 | $ | 670 | $ | 486 | ||||||||
Accrued expenses | 2,330 | 2,088 | 1,126 | 875 | ||||||||||||
Accrued compensation expense | 2,266 | 1,600 | 424 | 173 | ||||||||||||
Accrued clinical trial expenses | 623 | 629 | 933 | 1,063 | ||||||||||||
Deferred revenue | 64 | 85 | ||||||||||||||
Deferred grant revenue | — | 104 | ||||||||||||||
Current operating lease liabilities | 173 | — | ||||||||||||||
Current debt | — | 2,200 | ||||||||||||||
Contract liabilities | 335 | 335 | ||||||||||||||
Total current liabilities | 6,109 | 5,662 | 3,661 | 5,132 | ||||||||||||
Long term operating lease liabilities | 151 | — | ||||||||||||||
Total liabilities | 3,812 | 5,132 | ||||||||||||||
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 | ||||||||||||||
Stockholders’ equity (deficit): | ||||||||||||||||
Preferred stock, 0 par value, shares authorized; outstanding | — | — | ||||||||||||||
Common stock, 0 par value; shares authorized; shares issued and outstanding: and as of June 30, 2021 and December 31, 2020, respectively | 347,940 | 270,126 | ||||||||||||||
Additional paid-in capital | 39,559 | 30,697 | 49,352 | 49,314 | ||||||||||||
Notes receivable to finance stock option exercises | — | (2 | ) | |||||||||||||
Accumulated other comprehensive loss | (572 | ) | (608 | ) | (387 | ) | (448 | ) | ||||||||
Accumulated deficit | (226,968 | ) | (205,861 | ) | (324,801 | ) | (319,664 | ) | ||||||||
Total stockholders’ equity | 12,972 | 11,148 | ||||||||||||||
Total stockholders’ equity (deficit) | 72,104 | (672 | ) | |||||||||||||
Total liabilities and stockholders’ equity | $ | 19,081 | $ | 16,810 | $ | 75,916 | $ | 4,460 |
TheSee accompanying notes are an integral part of theseto the condensed consolidated financial statements.
3
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales | $ | 0 | $ | 0 | 0 | 0 | ||||||||||
Cost of sales | 0 | 0 | 0 | 0 | ||||||||||||
Gross profit | 0 | 0 | 0 | 0 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development, net of grants | 695 | 323 | 1,029 | 4,210 | ||||||||||||
Clinical and regulatory, net of grants | 263 | 429 | 300 | 1,343 | ||||||||||||
Selling and marketing | — | — | — | 701 | ||||||||||||
General and administrative | 1,338 | 1,516 | 3,810 | 3,537 | ||||||||||||
Restructuring charges | — | 848 | — | 2,229 | ||||||||||||
Total operating expenses | 2,296 | 3,116 | 5,139 | 12,020 | ||||||||||||
Loss from operations | (2,296 | ) | (3,116 | ) | (5,139 | ) | (12,020 | ) | ||||||||
Interest income | 2 | 16 | 2 | 34 | ||||||||||||
Net loss | $ | (2,294 | ) | $ | (3,100 | ) | $ | (5,137 | ) | $ | (11,986 | ) | ||||
Net loss per common share – basic and diluted | $ | (0.08 | ) | $ | (0.15 | ) | $ | (0.20 | ) | $ | (0.67 | ) | ||||
Weighted average common shares outstanding – basic and diluted | 28,667 | 20,337 | 26,117 | 17,993 |
See accompanying notes to the condensed consolidated financial statements.
4
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
(in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net loss | $ | (2,294 | ) | $ | (3,100 | ) | (5,137 | ) | (11,986 | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | 25 | 10 | 61 | 29 | ||||||||||||
Comprehensive loss | $ | (2,269 | ) | $ | (3,090 | ) | $ | (5,076 | ) | $ | (11,957 | ) |
See accompanying notes to the condensed consolidated financial statements.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited)
(in thousands)
Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Loss | Deficit | Equity(Deficit) | |||||||||||||||||||
Balance, December 31, 2019 | 15,643 | $ | 264,008 | $ | 48,613 | $ | (562 | ) | $ | (304,784 | ) | $ | 7,725 | |||||||||||
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 ESSP shares as part of 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 |
Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Loss | Deficit | Equity(Deficit) | |||||||||||||||||||
Balance, December 31, 2020 | 23,214 | $ | 270,126 | $ | 49,314 | $ | (448 | ) | $ | (319,664 | ) | $ | (672 | ) | ||||||||||
Issuance of shares of common stock in underwritten public offering | 4,650 | 24,451 | — | — | — | 24,451 | ||||||||||||||||||
Warrants exercised | 44 | 15 | — | — | — | 15 | ||||||||||||||||||
Stock-based compensation expense | — | — | 19 | — | — | 19 | ||||||||||||||||||
Net loss | — | — | — | — | (2,843 | ) | (2,843 | ) | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | 36 | — | 36 | ||||||||||||||||||
Balance, March 31, 2021 | 27,908 | $ | 294,592 | $ | 49,333 | $ | (412 | ) | $ | (322,507 | ) | $ | 21,006 | |||||||||||
Issuance of shares of common stock in underwritten public offering | 11,500 | 53,338 | — | — | — | 53,363 | ||||||||||||||||||
Warrants exercised | 1 | 10 | — | — | — | 10 | ||||||||||||||||||
Stock-based compensation expense | — | — | 19 | — | — | 19 | ||||||||||||||||||
Net loss | — | — | — | — | (2,294 | ) | (2,294 | ) | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | 25 | — | 25 | ||||||||||||||||||
Balance, June 30, 2021 | 39,409 | $ | 347,940 | $ | 49,352 | $ | (387 | ) | $ | (324,801 | ) | $ | 72,104 |
See accompanying notes to the condensed consolidated financial statements.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (5,137 | ) | $ | (11,986 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 39 | 126 | ||||||
Stock-based compensation | 38 | 367 | ||||||
Non-cash lease expense | 13 | 3 | ||||||
Restructuring charges-inventory and fixed asset impairment | — | 1,115 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | — | 461 | ||||||
Inventories | — | (144 | ) | |||||
Prepaid expenses and other assets | (515 | ) | (364 | ) | ||||
Accounts payable | 169 | (1,019 | ) | |||||
Accrued expenses | 327 | 108 | ||||||
Accrued compensation expenses | 234 | (2,369 | ) | |||||
Accrued clinical trial expenses | (131 | ) | (189 | ) | ||||
Net cash used in operating activities | (4,963 | ) | (13,891 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | — | (331 | ) | |||||
Net cash used in investing activities | — | (331 | ) | |||||
Cash flows from financing activities: | ||||||||
Net proceeds from sale of common stock and/or warrants | 77,814 | 6,679 | ||||||
Repayment of debt | (2,200 | ) | — | |||||
Repurchase of ESPP shares and fractional shares in connection with reverse stock split | — | (281 | ) | |||||
Net cash provided by financing activities | 75,614 | 6,398 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 17 | 2 | ||||||
Cash and cash equivalents: | ||||||||
Net increase (decrease) | 70,668 | (7,822 | ) | |||||
Balance at beginning of period | 3,177 | 11,327 | ||||||
Balance at end of period | $ | 73,845 | $ | 3,505 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period ended for: | ||||||||
Interest | $ | 135 | — |
See accompanying notes to the condensed consolidated financial statements.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
(In 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
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In 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.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In 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 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In 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 |
The accompanying notes are integral part of these condensed consolidated financial statements.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(unaudited)
Three and Nine Months Ended September 30, 2017 and 2016
1. | Organization and Business Operations |
Second Sight Medical Products, Inc. (“Second Sight”Sight,” the “Company,” “we,” “us,” “our” or “the Company”), formerly Second Sight LLC, was founded in 1998 as a limited liability companysimilar terms) has developed, manufactured and was subsequently incorporated in the State of California in 2003. Second Sight develops, manufactures and marketsmarketed implantable prosthetic devicesvisual prosthetics that can restore some functionalare intended to deliver useful artificial vision to patients blinded by outer retinal degenerations, such as Retinitis Pigmentosa.blind individuals. We are a recognized global leader in neuromodulation devices for blindness, and are committed to developing new technologies to treat the broadest population of sight-impaired individuals.
Our principal offices are located in Los Angeles, California.
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 corporate stockholders, Second Sight Medical Products (Switzerland) SarlSàrl is 99.5%99.5% owned directly by the Companyus and 0.5% is0.5% owned by an executive of Second Sight who is acting as a nominee of the Company.March 31, 2021. Accordingly, Second Sight Medical Products (Switzerland) SarlSàrl is considered 100%100% owned for financial statement purposes and is consolidated with Second Sight for all periods presented. We have closed our foreign operations and expect final dissolution of this entity in the third quarter of 2021.
Since itsLeveraging 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 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”). Regularly scheduled visits at both sites were paused in mid-March 2020 due to the coronavirus outbreak, however visits at UCLA resumed mid-September 2020 and Baylor resumed in December 2020. Our 24 month results, most of which were measured after the study resumed, indicate to us that:
• | We have a good safety profile. Five subjects experienced a total of thirteen adverse events (AEs) related to the device or to the surgery, through February 2021. One was considered a serious adverse event (SAE), and all of the adverse events were in the expected category. The one SAE occurred at about three months post-implant, was resolved quickly, and did not require a hospital stay. There have been no serious adverse events due to the device or surgery since June 2018. |
• | 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. Four subjects have completed these tests at 36-months, one subject at 24-months, and one subject at 12-months. For these most recent results, on square localization, six of six subjects tested in our feasibility study performed significantly better with the system on than off. On direction of motion, six of six performed better with the system on than off. On grating visual acuity, two of six tested 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, an acronym 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. Due to the Covid-19 pandemic, 4 out of 6 FLORA assessments were not performed at the 24 month timeframe. A protocol update was made to add FLORA assessments at the 36 month timeframe. FLORA results to date show that 4 out of 6 completing the FLORA at 36 months had positive results indicating the Orion system is providing benefit. 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. |
No peer-reviewed data is available yet for the Orion system. We are currently negotiating the clinical and regulatory pathway to commercialization with the FDA as part of the Breakthrough Devices Program.
Product and Clinical Development Plans
By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The principal notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable. 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 based on our clinical trials and the associated results.
Our objective in designing and developing the Orion visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. A six-subject Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor. Our 24 month results for the six subjects indicate a good safety profile with encouraging efficacy data and benefits in helping subjects perform their daily living tasks. We believe these data results 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 our larger Orion clinical trials.
In November 2017, the FDA granted Breakthrough Devices Program designation for the Orion. This designation is given to a few select medical devices in 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.
On February 26, 2021, the U.S. Food and Drug Administration (FDA) approved the Argus 2s Retinal Prosthesis System, a redesigned set of external hardware (glasses and video processing unit) initially for use in combination with previously implanted Argus II systems for the treatment of retinitis pigmentosa (RP). The Company expects that the Argus 2s will be adapted to be the external system for the next generation Orion Visual Cortical Prosthesis System currently under development. In addition to ergonomic improvements, the Argus 2s system offers significantly more processing power, potentially allowing for improved video processing. A decision on when or if to begin production of the newly approved hardware is under evaluation.
Liquidity and Capital Resources
From inception, our operations have been funded primarily through the Company hassales of our common stock and warrants, as well as from the issuance of debt, convertible debt, research and clinical grants, and limited product revenue generated limited revenues from the sale of products and has financed its operations primarily through the issuanceour Argus II product. Funding of common stock, convertible debt (whichour business since 2019 has been converted into common stock),primarily provided by:
• | On June 25, 2021, we closed an underwritten public offering of 53.3 million shares of common stock at a price of $ per share for aggregate net proceeds of $ | |
• | On March 23, 2021, we closed our private placement to seven institutional investors of 24.5 million shares of common stock at a price of $ per share for aggregate net proceeds of approximately $ | |
• | On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. These loans and accrued interest were repaid in the second quarter of 2021 | |
• | On May 5, 2020, we closed our underwritten public offering of 6.7 million shares of common stock at an offering price of $ per share for aggregate net proceeds of approximately $ |
We were awarded a $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and grants primarilyapproval) from government agencies.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 of $1.4 million was approved on April 6, 2021 and our third year grant of $1.4 million was approved on May 12, 2021. As of June 30, 2021 we recorded $0.3 million of deferred grant costs receivable, included in prepaid expenses and other current assets.
On March 6, 2017, the Company successfully completed a registered Rights Offering to existing stockholders raising net proceeds of approximately $19.7 million in which it sold 13.7 million Units at $1.47 per Unit, which was the closing price of the Company’s common stock on that date. Each 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 per 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 an exercise price that is less than the fair value of the stock, then the weighted average shares outstanding and basic and diluted earnings per share shall be adjusted retroactively to reflect the bonus element of the rights offering for all periods presented. The Company determined that the application of this specific provision of ASC 260 was immaterial to previously issued financial statements and, therefore, did not retroactively adjust previously reported weighted average shares outstanding and basic and diluted earnings per share.
The Company’sOur financial statements have been presentedprepared on the basis that its business is a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. TheWe estimate that currently available cash will provide sufficient funds to enable the Company is subject to the risks and uncertainties associated with a business with one product line and limited commercial product revenues, including limitations onmeet its operating capital resources and uncertain demand for its products. The Company has incurred recurring operating losses and negative operating cash flows since inception, and expects to continue to incur operating losses and negative operating cash flowsplanned obligations for at least the next several years as a result of which, management has concluded that there is substantial doubt about the Company’seighteen months. Our ability to continue as a going concern. The Company’s independent registered public accounting firm, in its reportconcern is dependent on the Company’s 2016 consolidated financial statements, has also raised substantial doubt about the Company’sour ability to continue as a going concern.
The Company believes that it has sufficient funds to lastdevelop profitable operations through the first quarterimplementation of 2018. To continueour business operations beyond that point, the Company will need toinitiatives and/or raise additional debt and/or equity capital. However,capital, however, there can be no assurances that the Companywe 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. do so.
2. We were notified by the Nasdaq stock market regarding our non-compliance with one of the continued listing requirements of the Nasdaq Capital Market. We have subsequently satisfied the Nasdaq compliance listing requirement.
2. | Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements |
Basis of Presentation Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation
The accompanyingThese unaudited condensed consolidatedinterim financial statements have been prepared in accordance with accounting principles generally accepted in the rulesUnited States (“GAAP”) and regulationsfollowing the 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 disclosuresthat are normally included inrequired 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 rulesprepared on the same basis as the audited financial statements and regulations.include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for periods presented. The condensed consolidated balance sheet atas of December 31, 20162020 has been derived from the Company’sour audited consolidated financial statements.
In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statementsbalance sheet included in the Company’s Annual Reportour annual report on Form 10-K for the year ended December 31, 2016. Operating2020 as filed with the SEC on March 16, 2021. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2020, contained in our Annual Report on Form 10-K. The results forof the interim periods are not necessarily indicative of operatingthe results expected for an entirethe full fiscal year or any other interim period or any future periods.year or period.
Significant Accounting PoliciesReverse Stock Split
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’saccompanying 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 was shared between the Argus II and Orion branded systems. While we have ceased production and marketing the Argus II product we are developing Orion as a next generation product with potential to treat a broader market of blind individuals.
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. In the six months ended June 30, 2020, due to our focus on Orion and wind down of selling and marketing activities related to Argus II, we recorded 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 severance payments. We continue to advance the development of our Orion technology and are exploring various strategic options to accelerate development of Orion.
Our significant accounting policies are set forth in Note 2 of the financial statements in itsour Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Net Operating Loss CarryforwardsRecently Issued Accounting Pronouncements
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 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 deferred 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 fromContracts 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 doesWe 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
3. | Concentration of Risk |
Credit Risk
Financial instruments that subject the Companyus to concentrations of credit risk consist primarily of cash and money market funds, and trade accounts receivable. The Company maintainsfunds. 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 differing levels of credit to customers, and typically does not require collateral.
The Company also maintains a cash balance at a bank in Switzerland, which is insured up to an amount specified by the deposit insurance agency of Switzerland.
Customer Concentration
During the three and nine months ended September 30, 2017 and 2016, the following customers comprised more than 10% of revenues (unaudited):
Three Months September 30, 2017 | Three Months September 30, 2016 | Nine Months September 30, 2017 | Nine Months September 30, 2016 | ||||||||||||||
Customer 1 | 18 | % | 0 | % | 8 | % | 0 | % | |||||||||
Customer 2 | 18 | % | 0 | % | 6 | % | 4 | % | |||||||||
Customer 3 | 18 | % | 0 | % | 6 | % | 0 | % | |||||||||
Customer 4 | 10 | % | 0 | % | 3 | % | 0 | % | |||||||||
Customer 5 | 9 | % | 0 | % | 11 | % | 0 | % | |||||||||
Customer 6 | 0 | % | 21 | % | 0 | % | 8 | % | |||||||||
Customer 7 | 0 | % | 12 | % | 3 | % | 3 | % | |||||||||
Customer 8 | 0 | % | 11 | % | 0 | % | 16 | % | |||||||||
Customer 9 | 0 | % | 0 | % | 0 | % | 10 | % |
As of September 30, 2017 and December 31, 2016, the following customers comprised more than 10% of 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 | % |
we deem reputable.
Geographic Concentration
During the three and nine months ended September 30, 2017 and 2016, regional revenue, based on customer locations which comprised more than 10% of revenues, consisted of the following (unaudited):
Three Months September 30, 2017 | Three Months September 30, 2016 | Nine Months September 30, 2017 | Nine Months September 30, 2016 | |||||||||||||
United States | 72 | % | 47 | % | 59 | % | 47 | % | ||||||||
Italy | 9 | % | 11 | % | 11 | % | 21 | % | ||||||||
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 SeptemberJune 30, 2017 (unaudited)2021 and December 31, 20162020 include assets amounting to $2.0 million$27,000 and $1.7 million,$18,000, respectively, relating to operations of the Company’sour subsidiary based in Switzerland. It is possible that unanticipated events in foreign countries could disrupt the Company’s operations.
4. Money Market Funds
4. | 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 haswe 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.
MoneyCash equivalents, which includes money market funds, are the only financial instrument measured and recorded at fair value on the Company’sour consolidated balance sheet, and they are consideredvalued using Level 1 valuation securities. The following table presents money market fundsinputs.
Assets measured at their level within the fair value hierarchy at September 30, 2017 and December 31, 2016on 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, 2021 (unaudited): | ||||||||||||||||||||||||||||||||
Money market funds | $ | 12,705 | $ | 12,705 | $ | $ | — | $ | 73,818 | $ | 73,818 | $ | — | $ | — | |||||||||||||||||
December 31, 2016: | ||||||||||||||||||||||||||||||||
December 31, 2020: | ||||||||||||||||||||||||||||||||
Money market funds | $ | 10,336 | $ | 10,336 | $ | — | $ | — | $ | 3,122 | $ | 3,122 | $ | — | $ | — |
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 | |||||||
(Unaudited) | ||||||||
Raw materials | $ | 390 | $ | 477 | ||||
Work in process | 3,378 | 5,032 | ||||||
Finished goods | 3,123 | 3,284 | ||||||
6,891 | 8,793 | |||||||
Allowance for excess and obsolescence | (3,646 | ) | (5,377 | ) | ||||
Inventories, net | $ | 3,245 | $ | 3,416 |
5. | Selected Balance Sheet Detail |
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 | |||||||
(Unaudited) | ||||||||
Laboratory equipment | $ | 2,398 | $ | 2,300 | ||||
Computer hardware and software | 1,297 | 1,220 | ||||||
Leasehold improvements | 299 | 288 | ||||||
Furniture, fixtures and equipment | 46 | 45 | ||||||
4,040 | 3,853 | |||||||
Accumulated depreciation and amortization | (2,713 | ) | (2,364 | ) | ||||
Property and equipment, net | $ | 1,327 | $ | 1,489 |
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
Laboratory equipment | $ | 584 | $ | 584 | ||||
Computer hardware and software | 69 | 69 | ||||||
653 | 653 | |||||||
Accumulated depreciation and amortization | (518 | ) | (479 | ) | ||||
Property and equipment, net | $ | 135 | $ | 174 |
6. Equity SecuritiesAs a result of our decision to cease marketing of Argus II we recorded an impairment of $0.7 million during the period ended June 30, 2020 related to our fixed assets.
Common Stock IssuableDebt
Non-employee membersOn December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $ from two unaffiliated shareholders. Each promissory note was unsecured and accrued interest at a rate of twelve percent (12%) per annum beginning on receipt of the loan amounts. We repaid the principal and accrued interest of $135,000 during the quarter ended June 30, 2021.
Contract Liabilities
Contract liabilities consisted of the following (in thousands):
Beginning balance as of December 31, 2020 |
| $ | 335 |
|
Consideration received in advance of revenue recognition |
|
| — |
|
Revenue recognized |
|
| — |
|
Ending balance as of June 30, 2021 |
| $ | 335 |
|
Product Warranties
A summary of activity of our warranty liabilities, which are paidincluded in accrued expenses, for their servicesthe period ended June 30, 2021 is presented below:
Beginning balance as of December 31, 2020 |
| $ | 200 |
|
Additions |
|
| 0 |
|
Settlements |
|
| 0 |
|
Adjustments and other |
|
| (15) |
|
Ending balance as of June 30, 2021 |
| $ | 185 |
|
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 common stockthe income statement over the lease term on June 1a straight-line basis. Depreciation is computed using the straight-line method over the estimated useful life of each yearthe 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 average closing pricesinformation 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 no 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 immediately preceding twenty trading days.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 Septemberthe 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 have accrued an early termination fee of $150,000 which is included in accrued expenses and restructuring charges as of and for the six months ended June 30, 2017,2020.
On January 22, 2021, we entered into a lease agreement, effective February 1, 2021, to sub-lease office space to replace our existing headquarters. We pay $17,000 per month, increasing to $17,500 per month on February 1, 2022, plus operating expenses, to lease 17,290 square feet of office space at 13170 Telfair Avenue, Sylmar, CA 91342. Additionally, we received full rent abatement for March 2021, and will receive half rent abatement during March 2022. The sub-lease is for two years and two months. We are not affiliates of, are not related to, or otherwise have any other relationship with, the other parties, other than the lease.
The Company accrued $86,000evaluated the lease amendment under the provisions of ASC 842. Information related to the Company’s right-of-use assets and related lease liabilities are as followings (in thousands, except for these services, which equates to 75,000 shares. These shares have not yet been issuedremaining lease term and are excluded fromdiscount rate):
Year ending December 31: |
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2021 (6 months remaining) |
| $ | 102 |
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2022 |
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| 201 |
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2023 |
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| 52 |
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Total lease payments |
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| 355 |
|
Less imputed interest |
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| (31 | ) |
Total lease liabilities |
| $ | 324 |
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Other supplemental information: |
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Current operating lease liabilities |
| $ | 173 |
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Long term operating lease liabilities |
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| 151 |
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Total lease liabilities |
| $ | 324 |
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Discount rate |
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| 10 | % |
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| For the three |
| For the three 2020 |
| For the six | For the six | ||||||
Cash paid for operating lease liabilities |
| $ | 51 |
| $ | 106 |
| 68 | 227 |
Rent expense, including common area maintenance charges, was $49,000 and $229,000 during the calculation of weighted average common shares outstanding for EPS purposes.six-month periods ended June 30, 2021 and 2020, respectively.
6. | Equity Securities |
Potentially Dilutive Common Stock Equivalents
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 |
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Common stock warrants issued to underwriter in connection with May 2020 offering |
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Common stock warrants issued in connection with March 2017 rights offering |
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Common stock warrants issued in connection with February 2019 rights offering |
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Common stock options |
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Restricted stock units |
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7. Warrants
7. | Warrants |
On February 22, 2019, we completed a registered rights offering to existing stockholders in which we sold approximately five-year life and trade on Nasdaq under the symbol EYESW.
units at $ 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 $ . The warrants had aOn March 6, 2017, we completed a registered rights offering to existing stockholders in which we sold approximately five-year life and have been approved for trading on Nasdaq under the symbol EYESW.
units at $ 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 $ . The warrants have aWe 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.
Upon close of our May 2020 registered offering we issued 375,000 warrants to our underwriter. These warrants are exercisable at $1.25 per share and expire on May 5, 2025. At June 30, 2021, 10,125 of the warrants are still outstanding.
A summary of warrantwarrants activity for the ninesix months ended SeptemberJune 30, 20172021 is presented below (in thousands, except per share and contractual life data) (unaudited).
Weighted Average |
| Number of |
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| Weighted |
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| Weighted |
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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, 2020 |
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| 7,759 |
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| $ | 11.66 |
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| 3.21 |
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Issued | 13,652 | $ | 1.47 |
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| — |
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Exercised | — |
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| (68 | ) |
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| 11.76 |
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Forfeited or expired | (362 | ) | $ | 5.00 |
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| — |
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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, 2021 |
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| 7,691 |
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| $ | 11.75 |
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| 2.71 |
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Warrants exercisable as of June 30, 2021 |
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| 7,691 |
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| $ | 11.75 |
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| 2.71 |
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The intrinsic value of warrants outstanding at Septemberas of June 30, 2017 was $0.2021 had $ in intrinsic value.
8. Stock-Based Compensation
A summary of stock option activity under our 2011 Equity Incentive Plan (“2011 Plan”) for the ninesix months ended SeptemberJune 30, 20172021 is presented below (in thousands, except per share and contractual life data) (unaudited).
Number | Weighted Average | Weighted Average Remaining Contractual |
| Number of |
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| Weighted |
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| Weighted |
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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, 2020 |
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Granted | 2,504 | $ | 1.85 |
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Exercised | — | — |
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| — |
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Forfeited or expired | (641 | ) | $ | 5.58 |
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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 and expected to vest as of June 30, 2021 |
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Options exercisable as of June 30, 2021 |
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| $ |
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The estimated aggregate intrinsic value of stock options exercisable at Septemberas of June 30, 20172021 was $0.$ . As of SeptemberJune 30, 2017,2021, there was $5.7 million $ of total unrecognized compensation cost related to outstanding stock options that will be recognized over a weighted average period of 2.91 years.
During the nine months ended September 30, 2017, the Company granted stock options to purchase 2,464,150 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 per share, which was the fair value of the Company’s common stock on the respective grant dates. The options vest over a period of four years. The fair value of these options, as calculated pursuant to the Black-Scholes option-pricing model, was determined to be $2,222,000 ($0.55 to $0.96 per share). Assumptions used in the model were an expected term of 6.25 years, volatility of 48.0%, a risk-free interest rate of 1.92% to 2.14%, and an expected dividend rate of 0%.
In March 2017, the Company granted stock options to purchase 40,000 shares 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%, 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 CompanyWe adopted an employee stock purchase plan (“ESPP”) starting in June 2015 for all eligible employees. OnAt June 6, 2017,30, 2021 the shareholders approved an amendment to the ESPP increasing the maximumavailable 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.plan is .
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 |
As of September 30, 2017, there was $1.1 million of total unrecognized compensation cost related to the outstanding RSUs that will be recognized over a weighted average period of 1.88 years.
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 ninesix months ended SeptemberJune 30, 20172021 and 2016 is2020 was as follows (in thousands) (unaudited):
Three Months September 30, 2017 | Three Months September 30, 2016 | Nine Months September 30, 2017 | Nine Months September 30, 2016 |
| Three Months Ended |
| Six Months Ended June 30, | |||||||||||||||||||||||||
| 2021 |
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| 2020 |
| 2021 | 2020 | |||||||||||||||||||||||||
Cost of sales | $ | 36 | $ | 80 | $ | 184 | $ | 245 |
| $ |
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| $ |
| — | 90 | ||||||||||||||||
Research and development | 71 | 77 | 203 | 238 |
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| 10 | 321 | ||||||||||||||||||||
Clinical and regulatory | 42 | 43 | 135 | 136 |
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| 18 | 65 | ||||||||||||||||||||
Selling and marketing | 116 | 74 | 321 | 59 |
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| — | 261 | ||||||||||||||||||||
General and administrative | 641 | 624 | 1,978 | 1,903 |
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| 10 | 1,020 | ||||||||||||||||||||
Total | $ | 906 | $ | 898 | $ | 2,821 | $ | 2,581 |
| $ |
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| $ |
| $ | 38 | $ | 1,757 |
9. Risk and Uncertainties
9. 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 retained approximately 11 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:
• | reputational damages of the Company and its products; |
• | inability to raise additional funds to finance and continue our operations; |
• | inability to maintain adequate 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 exposure to delisting if not remedied; and |
• | other uncertain events that may have negative impact effect on our operations. |
10. Litigation, Claims and Assessments
Twenty-oneFour oppositions have been filed by a third-partyPixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned or exclusively licensed by the Company.us. The outcomeoutcomes of the challenges isare not certain, however, if successful, they may affect the Company’sour ability to block competitors from utilizing some of itsour patented technology in Europe. Management of the Company does nottechnology. We believe that a successful challenge will not have a material effect on the Company’sour ability to manufacture and sell itsour products, or otherwise have a material effect on the Company’sour operations.
As described in the Company’s 10-K for the year ended December 31, 2020, the Company had entered into a Memorandum of Understanding (“MOU”) for a proposed business combination with Pixium Vision SA (“Pixium”). In response to a press release by Pixium dated March 24, 2021, and subsequent communications between us and Pixium, our Board of Directors determined that the business combination with Pixium was not in the best interest of our shareholders. On April 1, 2021, we gave notice to Pixium that we were terminating the MOU between the parties and seeking an amicable resolution of termination amounts that may be due, however no assurance can be given that an amicable resolution will be reached. We accrued $1,000,000 of liquidated damages as contemplated by the MOU in accounts payable as of March 31, 2021 and remitted that amount to Pixium in April 2021. Pixium indicated that it considered this termination wrongful, rejected the Company’s offers, but retained the $1,000,000 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, claiming damages of €5,217,659.60, about $6,162,760. We believe we have fulfilled our obligations to Pixium with the liquidated damages payment of $1,000,000.
In November 2020, we and Pixium retained Oppenheimer & Co. Inc. as placement agent for a proposed private placement of securities in connection with the Business Combination. On April 1, 2021, we received an invoice from Oppenheimer for more than $1.86 million. This amount includes a requested commission of 6.5% on $27.9 million raised in the private placement. We believe that claims for payment presented by this invoice are without merit.
On or about July 19, 2021 Martin Sumichrast filed a complaint with the Superior Court of the State of California, County of Los Angeles—Central District, claiming that he is entitled to compensation for services, as well as exemplary and other damages in an amount to be determined at trial but not less than $2 million, which arise from his allegedly arranging and securing financing that the Company obtained in May 2020 via a registered underwritten public offering of common stock. The action is in early stages and the Company is considering its responses, however the Company believes that the claims for compensation are without merit and intends to defend vigorously.
We are party to litigation arising in the ordinary course of business. It is management’sour 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
We were notified on July 29, 2021, we were awarded a grant from the National Institutes of Health to fund a patient preference information study of blind candidates for a visual prosthesis. The entirety of the $155,964 grant will be provided to UCLA as a subcontractor to conduct the study. This study will help us better understand acceptable risks, necessary benefits, and appropriate risk/benefit balance for devices such as the Orion Visual Cortical Prosthesis and the decision process of a person deciding whether or not to be implanted with a visual prosthesis.
One subject in the Early Feasibility study had the Orion device explanted on August 9, 2021. The explant was due to the need for an MRI to diagnose a condition unrelated to the Orion device.
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 conjunctiontogether with theour unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited 20162020 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 historical2021 and as thereafter amended on April 14, 2021 and April 27, 2021. Some of the information thecontained in this discussion and analysis hereor set forth elsewhere in this Quarterly Report, including information with respect to our products, plans and throughout this Form 10-Qstrategy 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 actualsimilar 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 anticipatedthe plans, intentions and expectations disclosed in the forward-looking statements that we make. We assume no obligations to update these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” in Part II, Item 1Areflect events or circumstances after the date of this report.Quarterly Report or to reflect actual outcomes.
Second Sight was founded in 1998 with a missionMedical Products, Inc. (NASDAQ: EYES) develops implantable visual prosthetics that are intended to develop, manufacture, and market prosthetic devices that restore somedeliver 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”). Our 24 month results, most of which were measured after the study resumed, indicate to us that:
• | We have a good safety profile. Five subjects experienced a total of thirteen adverse events (AEs) related to the device or to the surgery, through February 2021. One early AF was considered a serious adverse event (SAE), and all of the adverse events were in the expected category. The one SAE occurred at about three months post-implant, was resolved quickly, and did not require a hospital stay. There have been no serious adverse events due to the device or surgery since June 2018. |
• | 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. Four subjects have completed these tests at 36-months, one subject at 24-months, and one subject at 12-months. For these most recent results, on square localization, six of six subjects tested in our feasibility study performed significantly better with the system on than off. On direction of motion, six of six performed better with the system on than off. On grating visual acuity, two of six tested 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, an acronym 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. Due to the Covid-19 pandemic, 4 out of 6 FLORA assessments were not performed at the 24 month timeframe. A protocol update was made to add FLORA assessments at the 36 month timeframe. FLORA results to date show that four out of six completing the FLORA at 36 months had positive results indicating the Orion system is providing benefit. 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 currentfirst commercially approved product was the Argus® II Retinal Prosthesis System treats outer retinal degenerations, such as retinitis pigmentosa, which we refer to as RP. 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.(“Argus II”). The Argus II System iswas the only retinal prosthesis approved in the United States by the Food and Drug Administration (FDA)(“FDA”), and was the first approved retinal prosthesis in the world. By providing a usefulThe Argus II system provided an artificial form of vision that differs from the vision of people with normal sight. It did not restore normal vision and there is no evidence that it slowed or reversed the progression of any disease. The majority of patients received a significant benefit from the Argus II, however results did vary and some patients reported receiving little or no benefit. By creating an artificial form of useful vision in patients who otherwise havehad total sight loss, the Argus II System can provideprovided benefits which include:that included:
• | restoring independence through a renewed ability to navigate independently in unfamiliar environments; |
• | improving patients’ orientation and mobility, such as locating doors and windows, avoiding obstacles, and following the lines of a |
• | allowing patients to feel more connected with people in their surroundings, such as seeing when someone is approaching or moving |
• | 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 |
• | enabling some patients to re-enter the workforce through multiple vocations that become possible because of Argus II; and |
• | improving patients’ well-being and ability to perform activities of daily |
living
The Argus II System provides an artificial form of 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 from the Argus II, some patients report receiving little or no benefit.
Our major corporate, clinical and regulatory milestones include:
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, andIran, Taiwan, South Korea and Russia in 2017. With2017, and Singapore in 2018. Given the exceptionlimited addressable market of TaiwanArgus II, we no longer market the Argus II and Russia, we have full regulatory approval to sell in these regions. In Taiwan and Russia we have limited regulatory approval but we are working to obtain full regulatory approval in both countries. We sell primarily throughfocused all of our direct sales force, but use distributors in certain countries.resources on the development of Orion.
We also researched 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 3rd 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.
Going ConcernProduct and Clinical Development Plans
By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The only notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable. 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 based on our clinical trials and the associated results.
Our objective in designing and developing the Orion visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. A six-subject Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor. Regularly scheduled visits at both sites were paused in mid-March due to Covid-19, however visits at UCLA resumed mid- September 2020 and Baylor resumed in December 2020. Our 24 month results for the six 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 achieve similar results in our larger Orion clinical trials. No peer-reviewed data is available yet for the Orion system.
In November 2017, the FDA granted Breakthrough Devices Program designation for the Orion. This designation is given to a few select medical devices in 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. The U.S. Food and Drug Administration (FDA) approved the Argus 2s Retinal Prosthesis System, a redesigned set of external hardware (glasses and video processing unit) initially for use in combination with previously implanted Argus II systems for the treatment of retinitis pigmentosa (RP). The Company expects that the Argus 2s will be adapted to be the external system for the next generation Orion Visual Cortical Prosthesis System currently under development. In addition to ergonomic improvements, the Argus 2s system offers significantly more processing power, potentially allowing for improved video processing. A decision on when or if to begin production of the newly approved hardware is under evaluation.
Liquidity and Capital Resources
From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of debt, convertible debt, research and clinical grants, and limited product revenue which was generated byfrom the sale of our Argus II System. During the years ended December 31, 2016 and 2015 and the nine months ended September 30, 2017, we fundedproduct. Funding of our business since 2019 has been primarily through:provided by:
On June 25, 2021, we closed an underwritten public offering of 11,500,000 shares of common stock at a price of $5.00 per share for aggregate net proceeds of $53.3 million.
On March 23, 2021, we closed our private placement to seven institutional investors of 4,650,000 shares of common stock at an offering price of $6.00 per share for aggregate net proceeds of approximately $24.5 million
On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. These loans and accrued interest were repaid in the second quarter of 2021.
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 were awarded a $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 financial statementssecond year grant of $1.4 million was approved on April 6, 2021 and our third year grant of $1.4 million was approved on May 12, 2021. As of June 30, 2021 we recorded $0.3 million of deferred grant costs, included in prepaid expenses and other current assets.
We were notified by the Nasdaq stock market regarding our non-compliance with one of the continued listing requirements of the Nasdaq capital market. We have been presented onsubsequently satisfied the basis that our business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Nasdaq compliance listing.
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 at least the next few years, as a result of which, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent registered public accounting firm, in its report on the Company’s 2016 consolidated financial statements, has also raised substantial doubt about the Company’s 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.foreseeable future. To continue businessfinance our operations beyond that point, the Companywe will need to raise additional capital, which cannot be assured. Our operating plan may change as a result of many factors currently unknown to us, and we will need to seek additional funds through public or private equity offerings or debt and/financings, grants, collaborations, strategic partnerships or equity capital.other sources. However, there canwe may be no assurances that the Company will be ableunable to secure anyraise additional capital or enter into such additional financingother arrangements when needed on acceptablefavorable terms and conditions, or at all so asall. If we are unable 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 wouldobtain funding on a timely basis, we may be required to scale backsignificantly curtail, delay or discontinue its technology and productone or more of our research or development programs, and/or clinical trials, or obtain funds, if available (although there canwe may 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.
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.
The Company employs dedicated employees and consultants with insurance reimbursement expertise engagedunable to expand or maintain our operations, maintain our current organization 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 timingemployee base 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:
We believe we can further expand our market to include nearly all profoundly blind individuals, other than those who are blind due to preventable diseases or due to brain damage, by developing a visual cortical prosthesis. We refer to this product as the Orion I visual prosthesis system. We estimate that there are approximately 5.8 million people worldwide who are legally blind due to causes other than preventable conditions, RP or AMD. If approved for marketing, the FDA and other regulatory agencies will determine the subset of these patients who are eligible for the Orion I basedotherwise capitalize on our clinical trial 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 vision. In October 2017, we received final IDE approval from the FDA to begin a human feasibility study of the Orion I visual prosthesis system. This study will confirm initial findings in our human pilot study we announced in the fourth quarter of 2016 and provide the first human data of a fully functional wireless visual cortical stimulator system including the external video camera system. We expect to implant and activate our Orion I visual prosthesis system in human subjects in late 2017. 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 expansion to a pivotal clinical trial in 2018.
We began a five-subject pilot study in the United Kingdom in June 2015, to determine the utility of the Argus II System for use in persons suffering from dry AMD. In the second quarter of 2016 we completed enrollment and continue to track the subjects via the site in Manchester. The subjects have reported 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, the subjects have not demonstrated significant objective benefit over their residual vision when using the Argus II. We plan to continue testing these subjects and will submit a revised clinical protocol in 2017. Our approaches to improving the effective resolution in RP patients may work in AMD patients,business opportunities, as desired, which could help us demonstrate objective benefit over their residual vision. The revised protocol will request approval to test new retinal stimulation programs with the existing subjects with the belief they may benefit. If this clinical testing is successful, we plan to enroll additional patients inmaterially and adversely affect our pursuitbusiness, financial condition and results of a solution for this large patient population.operations.
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 assumptionsjudgments 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. 2020.
There have been no material changes to our critical accounting policies during the ninesix months ended SeptemberJune 30, 2017.2021 from those disclosed in the Annual Report on 10-K for the year ended December 31, 2020.
Results of Operations
Net sales.Our net sales are derivedconsisted 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, the United States and Canada in 2014, Turkey in 2015, Russia, South Korea and Taiwan in 2017. Our objective ishave discontinued sales of this product to increase our product revenue over the next several years as we pursue commercializationfocus on development of our product, as our product becomes more well-known and accepted in the market, and as insurance coverage becomes more widespread.Orion.
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 ourthe Argus II Systemsystem at our Sylmar,Los Angeles, California facility. In the second quarter of 2016, due to lower implant ratesOur 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 insales when products are implanted, which may differ from the period. We expectperiod we are able to work throughrecord revenue. Such timing differences may cause our slow-moving inventory and resume normal production when and if sales orders increase. Our abilityreported results of operations to generate a gross profit in future periods will depend on our abilitybe 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 themincurred 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 tofor research and development, clinical and regulatory, sales and marketing, and general and administrative personnel. From time to time weWe 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 offsetsreductions to the costs as they are incurred to complete the related work.operating expenses.
• | Research and development expenses consist primarily of employee compensation |
• | 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 |
• | 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 |
• | 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 |
Comparison of the Three Months Ended SeptemberJune 30, 20172021 and 20162020
Worldwide commercial implant volume for 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 in the third 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 of the European market. In the U.S., we had seven implants in the third quarter of 2017 compared to four in the third 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.
Revenue recognized per implant was $134,000 in the third quarter of 2017 compared to $84,000 in the third 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. Cost of sales in the third quarter of 2017 included a charge 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.
Research and development expense.Research and development expense increased by $238,000,$0.4 million, or 15%115%, to $1,826,000$0.7 million in the thirdsecond quarter of 2017 as compared to $1,588,0002021 from $0.3 million in the thirdsecond 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, or 16%, from $2,301,000 in the third quarter of 2016 to $1,933,000 in the third quarter of 2017. This decrease from the prior year is primarily attributable to $63,000 of higher people-related2020. The costs including compensation, benefits and travel, offset in part by $387,000 of lower costs for supplies and product prototypes. While we expect research and development expense to remain fairly constant for the remainder of the year, we expect that research and development costs will increase in future periodsincreased as we continuerestarted our curtailed activity due to enhance our current products and develop new products. COVID-19.
Clinical and regulatory expense.Clinical and regulatory expense increased $20,000,decreased $0.1 million, or 3%39%, from $609,000to $0.3 million in the thirdsecond quarter of 2016 to $629,0002021 from $0.4 million in the thirdsecond quarter of 2017.2020. This decrease is attributable to decreased costs associated with the Orion feasibility study and increased offsets of grant funds. We expect clinical and regulatory costs to increasecontinue in the future at a reduced level as (i) we resume activities for our Early Feasibility Study.
General and administrative expense. General and administrative expense decreased $0.2 million, or 12%, to $1.3 million in the second quarter of 2021 from $1.5 million in the same period of 2020. General and administrative expenses decreased as a result of staffing reductions.
Restructuring charges. We recorded a restructuring charges of $0.8 million in the second quarter of 2020 comprised of $0.2 million of 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 were substantially settled by June 30, 2020.
Comparison of the Six Months Ended June 30, 2021 and 2020
Research and development expense. Research and development expense decreased by $3.2 million, or 76%, to $1.0 million in the first six months 2021 from $4.2 million in the same period of 2020. The costs decreased due to our staffing reductions. We expect our research and development expenses to increase as we restart our implant run ratecurtailed activity based upon our revised development plans.
Clinical and enroll more patientsregulatory expense. Clinical and regulatory expense decreased $1.0 million, or 78%, to $0.3 million in post-market clinical studies for regulatory authorities, and (ii) we conduct new clinical trialsthe first six months of 2021 from $1.3 million in the same period of 2020. This decrease is attributable to assess new products such asdecreased costs associated with the Orion I, test further enhancementsfeasibility study and increased offsets of grant funds. We expect clinical and regulatory costs to our existing product, and begin new trials for better sighted patients.continue in the future at a reduced level.
Selling and marketing expense.Selling and marketing expense increased $113,000, or 5%, from $2,262,000was zero in the third quarterfirst six months of 20162021 as compared to $2,375,000$0.7 million in the third quartersame period of 2017. This increase in costs was primarily the result 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 related to items such as customer outreach programs and marketing strategies in the U.S. 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, we2020. We expect selling and marketing expense to decrease over time when expressed as a percentage of product revenue.
General and administrative expense. General and administrative expense decreased $77,000, or 3%, from $2,605,000 in the third quarter of 2016 to $2,528,000 in the third quarter of 2017. This decrease is primarily attributable to decreases in patent costs, business insurance and bad debt expense offset, partially, by increases in people costs and outside legal expense. Whilecease until we expect these costs to increase in the future, we expect general and administrative expense to decrease over time when expressed as a percentage of product revenue.
Comparison of the Nine Months Ended September 30, 2017 and 2016
Net Sales.Our net sales increased from $3,270,000 in the first nine months of 2016 to $4,855,000 in 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 months of 2017 compared to nine implants in the first nine months of 2016, asbegin marketing 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 in first nine months of 2016 to 21 units in the first nine months of 2017.
In the first nine months of 2017, 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 in the first nine months of 2016 to $3,255,000 in the first nine months of 2017. Cost of sales in the first nine months of 2017 included charges 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.
Research and development expense.Research and development expense, net of grant revenue, increased by $2,356,000, or 72%, from $3,266,000 in the first nine months of 2016 to $5,622,000 in the first nine months of 2017. In the first nine months of 2017, we utilized $235,000 of grant funds 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 improvements to our Argus II product and development of our new Orion cortical implant.
Clinical and regulatory expense.Clinical and regulatory expense decreased by $28,000, or 1%, from $1,955,000 in the first nine months of 2016 to $1,927,000 in the nine months of 2017. We expect clinical and regulatory costs to increase in upcoming quarters as we (i) conduct clinical trials to assess new products such as the Orion cortical implant, (ii) test enhancements 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.
Selling and marketing expense.Selling and marketing expense increased by $584,000, or 9%, from $6,473,000 in the first nine months of 2016 to $7,057,000 in the first nine months of 2017. This increase was primarily due to $823,000 in higher people related costs in 2017 as compared to 2016, including higher salaries, stock based compensation, travel and commissions, offset in part by $250,000 less spent out outside services for items such as customer outreach 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 expect selling and marketing expense to decrease over time when expressed as a percentage of product revenue.
General and administrative expense.General and administrative expense increased by $535,000,$0.3 million, or 7%8%, from $7,635,000to $3.8 million in the first ninesix months of 20162021 from $3.5 million in the same period of 2020. This increase is attributable to $8,170,000increased legal costs and termination fee associated with our termination of the MOU of $1.0 million. General and administrative expenses also decreased from staffing reductions.
Restructuring charges. We recorded non-cash restructuring charges of $1.2 million in the first ninesix months of 2017. This increase is primarily attributable2020 comprised of $0.5 million to $488,000fully 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 higher personnelOrion and a $0.2 million in material and overhead costs in 2017associated with Argus II and $478,000 morea $0.8 million cash charge for outside services, including legalseverance compensation and consulting costs, partially offset by a $317,000 decrease in bad debt expense. other associated costs.
Liquidity and Capital Resources
Our consolidated financial statements have been presentedprepared on the basis of our being a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have experienced recurring operating losses and negative operating cash flows since inception, and have financed our working capital requirements through the recurring sale of our equity securities in both public and private offerings. As a result, our independent registered public accounting firm, in its report on our 2016 consolidated financial statements, has raised substantial doubt about ourOur ability to continue as a going concern (see “Going Concern” above). In March 2017, the Company successfully completed a Rights Offeringis dependent on our ability to existing shareholders, raising proceedsdevelop profitable operations through implementation 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 continueour business operations past that point, we will need toinitiatives and/or raise additional debt and/or equity capital. However,capital, however, there can be no assurances that we will be able to securedo so.
On June 25, 2021, we closed an underwritten public offering of 11,500,000 shares of common stock at a price of $5.00 per share for aggregate net proceeds of $53.3 million.
On March 23, 2021, we closed our private placement to seven institutional investors of 4,650,000 shares of stock at an offering price of $6.00 per share for aggregate net proceeds of approximately $24.5 million. We believe the financing provides sufficient working capital to sustain approximately eighteen months of operations.
On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. These loans and accrued interest were repaid during May and June 2021.
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 $6.6 million.
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. However, we may be unable to raise additional financingcapital or enter into such other arrangements when needed on acceptablefavorable terms and conditions, or at all. To the extent that we raise additional capital through the 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 may have priority rights over our existing stockholders and 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 cash resources become insufficient to satisfy our ongoing cash requirements, thenadequate funds are not available, we wouldmay be required to scale backfurther curtail operations significantly or discontinue our technology and product development programs and/or clinical trials, orto obtain funds if available (although there can be no certainty),by entering into agreements on unattractive terms. If, for example, we raise funds through additional collaborations, strategic alliances thator licensing arrangements with third parties, we may require ushave to relinquish valuable rights to our products,technologies, future revenue streams, research programs or product candidates, or to discontinuegrant licenses on terms that may not be favorable to us. Our inability to raise capital could have a material adverse effect on our operations entirely.business, financial condition and results of operations.
Cash and money market fundscash equivalents increased by $2.4$70.6 million or 22%, from $10.9$3.2 million atas of December 31, 20162020 to $13.3$73.8 million at Septemberas of June 30, 2017.2021. Working capital was $11.6$71.8 million at Septemberas of June 30, 2017,2021, as compared to $9.6a deficit of $0.9 million atas of December 31, 2016,2020, an increase of $2.0 million, or 21%.$72.7 million. We use our cash money market fundsand cash equivalents and working capital to fund our operating activities.
Cash Flows from Operating Activities
During the first ninesix months of 2017,2021, we used $17.2$4.9 million of cash in operating activities, consisting primarily of a net loss of $21.1$5.1 million, offset by non-cash charges which provided cash of $1.5$0.1 million for depreciation and amortization of property and equipment, stock-based compensation, excess inventory reserve, bad debt recoverychange in right of use assets and common stock issuable and increased by a net change in operating assets and liabilities of $2.4$0.1 million. During the first ninesix months of 2016,2020, we used $18.1$13.9 million of cash in operating activities, consisting primarily of a net loss of $22.8$12.0 million, offset by non-cash charges which provided cash of $5.9$1.6 million for depreciation and amortization of property and equipment, stock-based compensation, bad debt expense, excess inventory reserveschange in right of use assets, impairment charge and common stock issuable, and decreasedoffset by a net change in operating assets and liabilities of $1.2$3.5 million.
Cash Flows from Investing Activities
DuringCash used for investing activities in the first ninesix months of 2017, investing activities used $2.5 million2021 was zero and was $331,000 in the first six months of cash, reflecting $2.3 million used by the purchase of money market investments and $0.2 million used2020 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 investmentsproperty 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$75.6 million of cash in the first ninesix months of 2016,2021 consisting of which $19.5$77.8 million was provided by a Rights Offering and $0.8 millionof net proceeds from the exercisesale of common stock options and employee$25,000 from the proceeds from warrant exercises offset by the repayment of debt of $2.2 million. Financing activities provided $6.4 million of cash in the first six months of 2020 consisting of $6.7 million of net proceeds from the sale of common stock plan purchases.offset by the use of $281,000 for the repurchase of partial shares in connection with our reverse stock split and the repurchase of ESPP shares.
Off-Balance Sheet Arrangements
We doAt June 30, 2021, we did not have any transactions, obligations or relationships that constitute off-balance sheet arrangements.
Item3. Quantitative and 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 SeptemberJune 30, 2017,2021, 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 theThe 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 Acting Chief FinancialAccounting Officer (“CAO”), evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2021. 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 SeptemberJune 30, 2017,2021, 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 OfficerCFO 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:
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 haveThere has been enacted pursuant to our remediation plan, there were no changeschange in our internal control over financial reporting during the quartersix months ended SeptemberJune 30, 20172021 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.
Item 1.Legal Proceedings
Twenty-oneFour oppositions have been filed by a third-partyPixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned or exclusively licensed by the Company.us. The outcomeoutcomes of the challenges isare not certain, however, if successful, they may affect the Company’sour ability to block competitors from utilizing some of itsour patented technology in Europe. Management of the Company believes thattechnology. We believe a successful challenge or challenges will not have a material effect on the Company’sour ability to manufacture and sell itsour products, or otherwise have a material effect on the Company’sour operations.
As described in the Company’s 10-K for the year ended December 31, 2020, the Company had entered into a Memorandum of Understanding (“MOU”) for a proposed business combination with Pixium Vision SA (“Pixium”). In response to a press release by Pixium dated March 24, 2021, and subsequent communications between us and Pixium, our Board of Directors determined that the business combination with Pixium was not in the best interest of our shareholders. On April 1, 2021, we gave notice to Pixium that we were terminating the MOU between the parties and seeking an amicable resolution of termination amounts that may be due, however no assurance can be given that an amicable resolution will be reached. We accrued $1,000,000 of liquidated damages as contemplated by the MOU in accounts payable as of March 31, 2021 and remitted that amount to Pixium in April 2021. Pixium indicated that it considered this termination wrongful, rejected the Company’s offers, but retained the $1,000,000 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, claiming damages of €5,217,659.60, about $6,162,760. We believe we have fulfilled our obligations to Pixium with the liquidated damages payment of $1,000,000.
In November 2020, we and Pixium retained Oppenheimer & Co. Inc. as placement agent for a proposed private placement of securities in connection with the Business Combination. On April 1, 2021, we received an invoice from Oppenheimer for more than $1.86 million. This amount includes a requested commission of 6.5% on $27.9 million raised in the private placed. We believe that claims for payment presented by this invoice are without merit.
On or about July 19, 2021 Martin Sumichrast filed a complaint with the Superior Court of the State of California, County of Los Angeles—Central District, claiming that he is entitled to compensation for services, as well as exemplary and other damages in an amount to be determined at trial but not less than $2 million, which arise from his allegedly arranging and securing financing that the Company obtained in May 2020 via a registered underwritten public offering of common stock. The action is in early stages and the Company is partyconsidering its responses, however the Company believes that the claims for compensation are without merit and intends to litigation arisingdefend vigorously.
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 ordinarynormal course of business.our business in addition to governmental and other regulatory investigations and proceedings. It is management’sour 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 theThere have been no material changes in information regarding our risk factors included inas described: Item 1A of our Annual Report on Form 10-K which weas filed with the Securities and Exchange CommissionSEC on March 16, 2017.2021 and any subsequent filings.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.None
Item 3.Defaults upon Senior Securities
Not applicable.None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
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Item 6.Exhibits
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.
EXHIBIT INDEX
Exhibit No. | Exhibit Description | |
101.INS | XBRL Instant Document.* | |
101.SCH | XBRL Taxonomy Extension Schema Document.* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document.* | |
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.
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/ | Acting Chief Executive Officer | August 13, 2021 | ||
Scott Dunbar | (Principal Executive Officer) | |||
/s/ | Acting Chief | August 13, 2021 | ||
Edward Sedo | (Principal Financial and Accounting Officer) |
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