eyes-10q_20190930.htm

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 September 30, 2019

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

For the transition period from ________ to ________

Commission File Number 001-36747

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 91342

(Address of principal executive offices, including zip code)

(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 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.

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 12, 2019, the registrant had 124,598,198 shares of common stock, $0 par value per share and 61,459,657 warrants, outstanding.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

FORM 10-Q

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for each of the three-month periods ended during the nine months ended September 30, 2019 and 2018 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 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	29

Item 4.	Controls and Procedures	29

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3.	Defaults Upon Senior Securities	35

Item 4.	Mine Safety Disclosures	35

Item 5.	Other Information	35

Item 6.	Exhibits	36

SIGNATURES		37

Part I. Financial Statements

Item 1. Financial Statements

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(in thousands)

	September 30,			December 31,
	2019			2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,462		$	4,471
Accounts receivable, net		264			504
Inventories, net		1,264			3,250
Prepaid expenses and other current assets		366			1,395
Total current assets		20,356			9,620
Property and equipment, net		1,125			1,025
Right-of-use assets		2,399			—
Deposits and other assets		18			37
Total assets	$	23,898		$	10,682
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,126		$	1,305
Accrued expenses		2,082			2,503
Accrued compensation expense		2,461			2,690
Accrued clinical trial expenses		734			933
Current operating lease liabilities		228			—
Contract liabilities		554			167
Total current liabilities		7,185			7,598
Long term operating lease liabilities		2,427			—
Total liabilities		9,612			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: 124,598 and 76,336 as of September 30, 2019 and December 31, 2018, respectively		263,656			229,019
Additional paid-in capital		48,131			44,111
Accumulated other comprehensive loss		(585	)		(575	)
Accumulated deficit		(296,916	)		(269,471	)
Total stockholders’ equity		14,286			3,084
Total liabilities and stockholders’ equity	$	23,898		$	10,682

See accompanying notes.

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,
	2019			2018			2019			2018
Net sales	$	472		$	2,246		$	2,882		$	5,129
Cost of sales		364			1,784			2,028			3,287
Gross profit		108			462			854			1,842

Operating expenses:
Research and development, net of grants		3,379			2,672			8,998			7,567
Clinical and regulatory, net of grants		862			964			2,404			3,439
Selling and marketing		1,308			3,040			5,100			8,931
General and administrative		2,178			2,332			6,883			8,208
Restructuring charges		—			—			3,297			—
Total operating expenses		7,727			9,008			26,682			28,145

Loss from operations		(7,619	)		(8,546	)		(25,828	)		(26,303	)
Interest income		35			24			104			67

Net loss	$	(7,584	)	$	(8,522	)	$	(25,724	)	$	(26,236	)

Net loss per common share – basic and diluted	$	(0.06	)	$	(0.12	)	$	(0.22	)	$ (0.41)

Weighted average common shares outstanding – basic and diluted		124,592			68,763			115,266			64,113

See accompanying notes.

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,
	2019			2018			2019			2018
Net loss	$	(7,584	)	$	(8,522	)	$	(25,724	)	$	(26,236	)

Other comprehensive income (loss):
Foreign currency translation adjustments		(11	)		24			(10	)		(8	)
Comprehensive loss	$	(7,595	)	$	(8,498	)	$	(25,734	)	$	(26,244	)

See accompanying notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(in thousands)

	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
Issuance of shares of common stock, net of issuance costs		3,225		4,969		—			—			—		—			—			4,969
Release of restricted stock units		12		—		—			—			—		—			—			—
Stock-based compensation expense		—		—		—			—			877		—			—			877
Net loss		—		—		—			—			—		—			(8,522	)		(8,522	)
Foreign currency translation adjustment		—		—		—			—			—		24			—			24
Balance, September 30, 2018		70,312	$	221,774		—		$	—		$	43,311	$	(580	)	$	(260,613	)	$	3,892

	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
Release of restricted stock units		12		—		—		—			—			—
Stock-based compensation expense		—		—		686		—			—			686
Net loss		—		—		—		—			(7,584	)		(7,584	)
Foreign currency translation adjustment		—		—		—		(11	)		—			(11	)
Balance, September 30, 2019		124,598	$	263,656	$	48,131	$	(585	)	$	(296,916	)	$	14,286

See accompanying notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(in thousands)

	Nine Months Ended September 30,
	2019			2018
	(unaudited)
Cash flows from operating activities:
Net loss	$	(25,724	)	$	(26,236	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		293			329
Stock-based compensation		2,443			2,789
Bad debt recovery		—			(6	)
Non-cash lease expense		13			—
Inventory reserve		(793	)		171
Restructuring charges-inventory impairment		2,587			—
Common stock issuance for services		—			109
Changes in operating assets and liabilities:
Accounts receivable		240			639
Inventories		186			(1,082	)
Prepaid expenses and other assets		1,010			291
Accounts payable		(178	)		795
Accrued expenses		(282	)		(447	)
Accrued compensation expenses		(227	)		351
Accrued clinical trial expenses		(199	)		155
Contract liabilities		388			63
Net cash used in operating activities		(20,243	)		(22,079	)
Cash flows from investing activities:
Purchases of property and equipment		(394	)		(144	)
Net cash used in investing activities		(394	)		(144	)
Cash flows from financing activities:
Net proceeds from sale of common stock and warrants		34,399			18,939
Proceeds from exercise of options, warrants and employee stock purchase plan options		238			417
Net cash provided by financing activities		34,637			19,356
Effect of exchange rate changes on cash and cash equivalents		(9	)		—
Cash and cash equivalents:
Net increase (decrease)		13,991			(2,867	)
Balance at beginning of period		4,471			7,839
Balance at end of period	$	18,462		$	4,972

See accompanying notes.

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Business Operations

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 potentially 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 September 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 retinitis pigmentosa (RP), 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.

Liquidity and Going Concern

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 2017 has been primarily provided by: