eyes-10q_20190630.htm

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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 August 6, 2019, the registrant had 124,586,323 shares of common stock, $0 par value per share and 61,459,657 warrants, outstanding.

	June 30,			December 31,
	2019			2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	25,161		$	4,471
Accounts receivable, net		629			504
Inventories, net		1,474			3,250
Prepaid expenses and other current assets		783			1,395
Total current assets		28,047			9,620
Property and equipment, net		993			1,025
Right-of-use assets		2,454			—
Deposits and other assets		26			37
Total assets	$	31,520		$	10,682
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,255		$	1,305
Accrued expenses		2,562			2,503
Accrued compensation expense		2,207			2,690
Accrued clinical trial expenses		1,038			933
Current operating lease liabilities		219			—
Contract liabilities		557			167
Total current liabilities		7,838			7,598
Long term operating lease liabilities		2,487			—
Total liabilities		10,325			7,598
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value, 10,000 shares authorized; none outstanding		—			—
Common stock, no par value; 300,000 shares authorized; shares issued and outstanding: 124,586 and 76,336 as of June 30, 2019 and December 31, 2018, respectively		263,656			229,019
Additional paid-in capital		47,445			44,111
Accumulated other comprehensive loss		(574	)		(575	)
Accumulated deficit		(289,332	)		(269,471	)
Total stockholders’ equity		21,195			3,084
Total liabilities and stockholders’ equity	$	31,520		$	10,682

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	1,282		$	1,907		$	2,410		$	2,883
Cost of sales		933			836			1,664			1,504
Gross profit		349			1,071			746			1,379

Operating expenses:
Research and development, net of grants		3,436			2,422			5,619			4,895
Clinical and regulatory, net of grants		536			1,126			1,542			2,475
Selling and marketing		1,689			2,879			3,792			5,891
General and administrative		2,256			2,632			4,705			5,875
Restructuring charges		873			—			3,297			—
Total operating expenses		8,790			9,059			18,955			19,136

Loss from operations		(8,441	)		(7,988	)		(18,209	)		(17,757	)
Interest income		1			27			69			43

Net loss	$	(8,440	)	$	(7,961	)	$	(18,140	)	$	(17,714	)

Net loss per common share – basic and diluted	$	(0.07	)	$	(0.12	)	$	(0.16	)	$(0.29)

Weighted average common shares outstanding – basic and diluted		124,332			64,418			110,526			61,750

	Common Stock				Common Stock Issuable						Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Loss			Deficit			Equity
Balance, December 31, 2017		57,630	$	202,156		82		$	153		$	40,522	$	(572	)	$	(234,377	)	$	7,882
Issuance of shares of common stock, net of issuance costs		2,224		3,992		—			—			—		—			—			3,992
Warrants exercise		5		7		—			—			—		—			—			7
Common stock issuance for services		—		—		34			65			—		—			—			65
Release of restricted stock units		12		—		—			—			—		—			—			—
Stock-based compensation expense		—		—		—			—			1,285		—			—			1,285
Exercise of common stock options		5		8		—			—			—		—			—			8
Net loss		—		—		—			—			—		—			(9,753	)		(9,753	)
Foreign currency translation adjustment		—		—		—			—			—		45			—			45
Balance, March 31, 2018		59,876		206,163		116			218			41,807		(527	)		(244,130	)		3,531
Issuance of shares of common stock, net of issuance costs		6,757		9,978		—			—			—		—			—			9,978
Issuance of common stock in connection with employee stock purchase plan		226		261		—			—			—		—			—			261
Common stock issued or issuable for services		133		262		(116	)		(218	)		—		—			—			44
Release of restricted stock units		12		—		—			—			—		—			—			—
Stock-based compensation expense		—		—		—			—			627		—			—			627
Exercise of common stock options		71		141		—			—			—		—			—			141
Net loss		—		—		—			—			—		—			(7,961	)		(7,961	)
Foreign currency translation adjustment		—		—		—			—			—		(77	)		—			(77	)
Balance, June 30, 2018		67,075	$	216,805		—		$	—		$	42,434	$	(604	)	$	(252,091	)	$	6,544

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance, December 31, 2018		76,336	$	229,019	$	44,111	$	(575	)	$	(269,471	)	$	3,084
Adoption of ASC Topic 842-Leases (see note 2)		—		—		—		—			(144	)		(144	)
Issuance of shares of common stock and warrants in connection with rights offering, net of issuance costs		47,812		34,399		—		—			—			34,399
Release of restricted stock units		50		—		—		—			—			—
Warrants modification (see note 7)		—		—		1,577		—			(1,577	)		—
Stock-based compensation expense		—		—		898		—			—			898
Net loss		—		—		—		—			(9,700	)	(9,700)
Foreign currency translation adjustment		—		—		—		(8	)		—			(8	)
Balance, March 31, 2019		124,198		263,418		46,586		(583	)		(280,892	)		28,529

Release of restricted stock units		12		—		—		—			—			—
Issuance of common stock in connection with employee stock purchase plan		376		238										238
Stock-based compensation expense		—		—		859		—			—			859
Net loss		—		—		—		—			(8,440	)		(8,440	)
Foreign currency translation adjustment		—		—		—		9			—			9
Balance, June 30, 2019		124,586	$	263,656	$	47,445	$	(574	)	$	(289,332	)	$	21,195

	Six Months Ended June 30,
	2019			2018
	(unaudited)
Cash flows from operating activities:
Net loss	$	(18,140	)	$	(17,714	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		196			222
Stock-based compensation		1,757			1,912
Non-cash lease expense		10			—
Inventory reserve		(446	)		61
Restructuring charges-inventory impairment		2,587			—
Common stock issuance for services		—			109
Changes in operating assets and liabilities:
Accounts receivable		(122	)		1,100
Inventories		(364	)		(947	)
Prepaid expenses and other assets		585			161
Accounts payable		(49	)		471
Accrued expenses		192			(344	)
Accrued compensation expenses		(483	)		(162	)
Accrued clinical trial expenses		105			294
Contract liabilities		387			213
Net cash used in operating activities		(13,785	)		(14,624	)
Cash flows from investing activities:
Purchases of property and equipment		(164	)		(116	)
Net cash used in investing activities		(164	)		(116	)
Cash flows from financing activities:
Net proceeds from sale of common stock and warrants		34,399			13,970
Proceeds from exercise of options, warrants and employee stock purchase plan options		238			417
Net cash provided by financing activities		34,637			14,387
Effect of exchange rate changes on cash and cash equivalents		2			(10	)
Cash and cash equivalents:
Net increase (decrease)		20,690			(363	)
Balance at beginning of period		4,471			7,839
Balance at end of period	$	25,161		$	7,476

Second Sight Medical Products, Inc. (“Second Sight,” “we,” “us,” or “the Company”) was incorporated in the State of California in 2003. Second Sight develops, manufactures and markets implantable visual prosthetics to enable blind individuals to achieve greater independence.

In 2007, Second Sight formed Second Sight Medical Products (Switzerland) 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-Pacific. As the laws of Switzerland require at least two corporate stockholders, Second Sight Medical Products (Switzerland) Sàrl is 99.5% owned directly by us and 0.5% owned by an executive of Second Sight as of June 30, 2019. Accordingly, Second Sight Medical Products (Switzerland) Sàrl is considered 100% owned for financial statement purposes and is consolidated with Second Sight for all periods presented.

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

Our commercially approved product, the Argus^® II retinal prosthesis system (“Argus II”), entered clinical trials in 2006, received CE Mark approval for marketing and sales in the European Union (“EU”) in 2011, and received approval by the United States Food and Drug Administration (“FDA”) for marketing and sales in the United States in 2013. We began selling the Argus II in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we have made the decision to maximize capital efficiency with our Argus commercial and clinical activities and increase our investment of resources with our Orion clinical and R&D programs. See Note 2 for discussion of Discontinued Operations.

From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated from the sale of our Argus II product. Funding of our business since 2018 has been provided by:

In November 2017, we entered into an At Market Issuance Sales Agreement with B. Riley FBR Inc. and H.C. Wainwright & Co., LLC, as agents (“Agents”) pursuant to which we may offer and sell, from time to time through either of the Agents, shares of our common stock having an aggregate offering price as set forth in the Sales Agreement and a related prospectus supplement filed with the SEC. We agreed to pay the Agents a cash commission of 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. During January and February 2018, we sold 2.2 million shares of common stock which provided net proceeds of $4.0 million under the Sales Agreement. No shares have been sold since February 2018 under the Sales Agreement.

In a rights offering completed on February 22, 2019, we sold approximately 47.8 million units, each priced at $0.724 for gross proceeds of approximately $34.6 million. Each unit consisted of one share and one immediately exercisable warrant having an exercise price of $1.47 per share. Entities controlled by Gregg Williams, our Chairman of the Board of Directors, acquired approximately 41.4 million units in the offering for an aggregate investment of approximately $30 million.

On January 25, 2019, we received a letter from The Nasdaq Stock Market advising us that for 30 consecutive trading days preceding the date of the letter, the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on The Nasdaq Capital Market pursuant to listing rules, and therefore we could become subject to delisting if we did not regain compliance within the compliance period. Nasdaq has extended the compliance period for an additional 180 days through January 20, 2020 and we continue to monitor and evaluate our options to cure this deficiency within this extended compliance period.

Our financial statements have been presented on the basis that our business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. 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 product. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future.

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

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

These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and following the requirements of the United States Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In our opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and 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. Certain prior year amounts have been reclassified to conform to the current year presentation. 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, 2018, contained in our Annual Report on Form 10-K filed with the SEC on March 19, 2019. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

Based upon our decision on May 10, 2019 to accelerate our transition to the Orion platform, we evaluated our accounting policies related to the disposition in accordance with ASC 205-20 Discontinued Operations, and assessed our long-lived assets for any indications that their carrying values may not be recoverable in accordance with ASC 360, Property, Plant, and Equipment, for any impairment. Based upon these reviews we recorded in March, 2019 an impairment charge of $2.4 million related to inventory of Argus II based on our plans to suspend production of Argus II. As part of this transition we commenced a corporate restructuring plan to focus on development of Orion and other key research projects. Specifically, we reduced expenses and personnel related to commercial activities and production for the Argus II. We recognized approximately $0.7 million of pre-tax restructuring charges in the second quarter of fiscal year 2019 in connection with this restructuring, consisting of severance and other employee termination benefits, substantially all of which are expected to be settled in cash during the next two quarters of 2019. In addition we incurred an additional $0.2 million impairment charge related to inventory in the three months ended June 30, 2019. Until Argus II operations cease, we continue to present it as part of continuing operations. Based upon our review of the applicable accounting standards we determined that there was no impairment of any other assets.

Our significant accounting policies are set forth in Note 2 of the financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018.

We adopted ASU No. 2016-02—Leases (Topic 842), as amended, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the period of adoption without

restating prior comparative periods which is the method we have chosen. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of right-of-use assets and operating lease liabilities of approximately $2.6 million and $2.8 million respectively, as of January 1, 2019. The difference of $0.2 million between the right-of-use assets and operating lease liabilities, net of the deferred tax impact, was recorded as an adjustment to accumulated deficit at January 1, 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

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

Financial instruments that subject us to concentrations of credit risk consist primarily of cash, money market funds, and trade accounts receivable. We maintain cash and money market funds with financial institutions that we deem reputable. We extend differing levels of credit to our customers, and typically do not require collateral.

The following tables provide information about disaggregated revenue by service type, customer and geographical market.

The following table shows our revenues by customer type during the three and six months ended June 30, 2019 and 2018:

During the three and six months ended June 30, 2019 and 2018, the following customers each comprised greater than 10% of our total revenues:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Customer 1		26	%		—	%		14	%		—	%
Customer 2		21	%		—	%		11	%		4	%
Customer 3		13	%		7	%		14	%		10	%
Customer 4		13	%		—	%		7	%		3	%
Customer 5		10	%		15	%		16	%		15	%
Customer 6		10	%		—	%		10	%		—	%
Customer 7		—	%		12	%		—	%		8	%

As of June 30, 2019 and December 31, 2018, the following customers each comprised greater than 10% of our total accounts receivable:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	EYES	NASDAQ
Warrants	EYESW	NASDAQ

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for each of the three-month periods ended during the six months ended June 30, 2019 and 2018 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

SIGNATURES		31

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒