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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
   
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20172018
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission File Number: 001-34703
 
Alimera Sciences, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 20-0028718
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
6120 Windward Parkway, Suite 290
Alpharetta, GA
 30005
(Address of principal executive offices) (Zip Code)
(678) 990-5740
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    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”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filero Accelerated filerox
     
Non-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyxo
     
   Emerging growth companyo
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)(2)(B) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of August 8, 2017July 31, 2018, there were 69,050,60470,038,411 shares of the registrant’s Common Stock issued and outstanding.
   

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ALIMERA SCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
 
PART I. FINANCIAL INFORMATION
 
Item 1. Interim Condensed Consolidated Financial Statements (unaudited)
4
Condensed Consolidated Balance Sheets as of June 30, 20172018 and December 31, 20162017
4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 20172018 and 20162017
5
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 20172018 and 20162017
6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20172018 and 20162017
7
Notes to Condensed Consolidated Financial Statements
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2629
Item 3. Quantitative and Qualitative Disclosures about Market Risk
4341
Item 4. Controls and Procedures
4442
PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
4543
Item 1A. Risk Factors
4544
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
4645
Item 3. Defaults Upon Senior Securities
4645
Item 4. Mine Safety Disclosures
4645
Item 5. Other Information
4645
Item 6. Exhibits
4746
See the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

 


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS
Various statements in this report of Alimera Sciences, Inc. (we, our, Alimera, the Company or the registrant) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding Alimera Sciences, Inc.’s (we, our Alimera or the Company) strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as but not limited to, “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors whichthat could cause actual results to differ include, but are not limited to:include:
•
uncertainty as toregarding our ability to achieve profitability and positive cash flow through the commercialization of ILUVIEN® in the U.S., the European Economic Area (EEA), the United States (U.S.) and other regions of the world where we sell ILUVIEN;
our ability to operate our business in compliance with the covenants and restrictions that we are subject to under our credit facility;
dependence on third-party manufacturers to manufacture ILUVIEN or any future products or product candidates in sufficient quantities and quality.
our ability to raise sufficient additional funding and our need to raise such funds;quality;
uncertainty as toregarding the pricing and reimbursement guidelines for ILUVIEN or any future products or product candidates, including ILUVIEN;ILUVIEN in new markets;
our ability to successfully obtain the indication for non-infectious posterior uveitis in the EU;
our ability to successfully commercialize ILUVIEN following regulatory approval in additional markets;
delay in or failure to obtain regulatory approval of ILUVIEN in additional countries or any future products or product candidates;candidates in additional countries;
the possibility that we may again fail to comply with the continuing listing standards of the Nasdaq Global Market because the closing bid price of the our common stock on the Nasdaq Global Market is below $1.00 for 30 consecutive business days;
our ability to operate our business in compliance with the covenants and restrictions in our credit facility;
current and future laws and regulations; and
the extent of government regulations.our possible need to raise additional financing.
All written and verbaloral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation, and specifically decline any obligation, to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised,Please see, however, to consult any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission.Commission (SEC).
We encourage you to read the discussion and analysis of our financial condition and our unaudited interim condensed consolidated financial statements contained in this report. We also encourage you to read Item 1A of Part II of this Quarterly Report on Form 10-Q, entitled “Risk Factors” and Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2017, which contains a more completedetailed discussion of some of the risks and uncertainties associated with our business. In addition to the risks described above, other unknown or unpredictable factors also could affect our results. There can be no assurance that we will in fact achieve the actual results or developments anticipated by us will be realizedwe anticipate or, even if we do substantially realized,realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurance can be givenassurances that we will achieve the outcomes stated in suchthose forward-looking statements and estimates will be achieved.estimates.


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PART I. FINANCIAL INFORMATION
ITEM 1. Interim Condensed Consolidated Financial Statements (unaudited)
ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,
2017
 
December 31,
2016
June 30,
2018
 
December 31,
2017
(In thousands, except share and per share data)(In thousands, except share and per share data)
CURRENT ASSETS:      
Cash and cash equivalents$26,882
 $30,979
$16,687
 $24,067
Restricted cash33
 31
33
 34
Accounts receivable, net13,648
 13,839
13,419
 11,435
Prepaid expenses and other current assets2,574
 2,107
2,299
 2,278
Inventory, net (Note 5)1,143
 446
Inventory (Note 6)2,139
 1,508
Total current assets44,280
 47,402
34,577
 39,322
NON-CURRENT ASSETS:      
Property and equipment, net1,477
 1,787
1,542
 1,410
Intangible asset, net (Note 6)19,642
 20,604
Intangible asset, net (Note 7)17,701
 18,664
Deferred tax asset474
 436
1,015
 528
TOTAL ASSETS$65,873
 $70,229
$54,835
 $59,924
CURRENT LIABILITIES:      
Accounts payable$5,711
 $4,986
$6,542
 $5,905
Accrued expenses (Note 7)3,729
 3,758
Derivative warrant liability—
 188
Accrued expenses (Note 8)2,227
 3,582
Capital lease obligations137
 191
211
 184
Total current liabilities9,577
 9,123
8,980
 9,671
NON-CURRENT LIABILITIES:      
Note payable (Note 9)33,689
 33,084
Note payable (Note 10)37,461
 34,365
Capital lease obligations — less current portion132
 274
338
 203
Other non-current liabilities773
 2,162
2,518
 766
COMMITMENTS AND CONTINGENCIES

 



 

STOCKHOLDERS’ EQUITY:      
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2017 and December 31, 2016:

 

Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2017 and December 31, 2016; liquidation preference of $24,000 at June 30, 2017 and December 31, 201619,227
 19,227
Series B Convertible Preferred Stock, 8,417 authorized and 8,416.251 issued and outstanding at June 30, 2017 and December 31, 2016; liquidation preference of $50,750 at June 30, 2017 and December 31, 201649,568
 49,568
Common stock, $.01 par value — 150,000,000 shares authorized, 67,042,349 shares issued and outstanding at June 30, 2017 and 64,862,904 shares issued and outstanding at December 31, 2016670
 649
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2018 and December 31, 2017:

 

Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2018 and December 31, 2017; liquidation preference of $24,000 at June 30, 2018 and December 31, 201719,227
 19,227
Series B Convertible Preferred Stock, 8,417 authorized and 8,416 issued and outstanding at June 30, 2018 and December 31, 2017; liquidation preference of $50,750 at June 30, 2018 and December 31, 201749,568
 49,568
Common stock, $.01 par value — 150,000,000 shares authorized, 70,038,411 shares issued and outstanding at June 30, 2018 and 69,146,381 shares issued and outstanding at December 31, 2017700
 691
Additional paid-in capital336,093
 330,781
344,022
 341,622
Common stock warrants3,707
 3,707
3,707
 3,707
Accumulated deficit(386,566) (377,074)(410,758) (399,075)
Accumulated other comprehensive loss(997) (1,272)(928) (821)
TOTAL STOCKHOLDERS’ EQUITY21,702
 25,586
5,538
 14,919
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$65,873
 $70,229
$54,835
 $59,924
See Notes to Condensed Consolidated Financial Statements.

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ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20172018 AND 20162017
 
Three Months Ended
June 30,
 Six Months Ended
June 30,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2017 2016 2017 20162018 2017 2018 2017
(In thousands, except share and per share data)(In thousands, except share and per share data)
NET REVENUE$10,368
 $9,557
 $16,986
 $15,358
$10,917
 $10,368
 $20,719
 $16,986
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(769) (556) (1,356) (934)(1,113) (769) (2,389) (1,356)
GROSS PROFIT9,599
 9,001
 15,630
 14,424
9,804
 9,599
 18,330
 15,630
              
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES2,238
 3,205
 4,348
 6,225
2,777
 2,238
 5,599
 4,348
GENERAL AND ADMINISTRATIVE EXPENSES3,012
 4,039
 6,276
 7,434
3,229
 3,012
 7,084
 6,276
SALES AND MARKETING EXPENSES5,060
 7,510
 10,562
 14,619
5,926
 5,060
 11,895
 10,562
DEPRECIATION AND AMORTIZATION667
 696
 1,333
 1,385
650
 667
 1,299
 1,333
OPERATING EXPENSES10,977
 15,450
 22,519
 29,663
12,582
 10,977
 25,877
 22,519
NET LOSS FROM OPERATIONS(1,378) (6,449) (6,889) (15,239)(2,778) (1,378) (7,547) (6,889)
              
INTEREST EXPENSE, NET AND OTHER(1,384) (1,177) (2,721) (2,512)
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET28
 (14) —
 20
INTEREST EXPENSE AND OTHER(1,178) (1,384) (2,329) (2,721)
UNREALIZED FOREIGN CURRENCY GAIN, NET32
 28
 34
 —
CHANGE IN FAIR VALUE OF DERIVATIVE WARRANT LIABILITY21
 824
 188
 2,343
—
 21
 —
 188
LOSS ON EARLY EXTINGUISHMENT OF DEBT—
 —
 —
 (2,564)—
 —
 (1,766) —
NET LOSS BEFORE TAXES(2,713) (6,816) (9,422) (17,952)(3,924) (2,713) (11,608) (9,422)
PROVISION FOR TAXES(44) (42) (70) (51)(76) (44) (76) (70)
NET LOSS$(2,757) $(6,858) $(9,492) $(18,003)$(4,000) $(2,757) $(11,684) $(9,492)
NET LOSS PER SHARE — Basic and diluted$(0.04) $(0.15) $(0.15) $(0.40)$(0.06) $(0.04) $(0.17) $(0.15)
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted65,485,106
 45,088,072
 65,175,724
 45,046,952
70,022,100
 65,485,106
 69,952,940
 65,175,724
See Notes to Condensed Consolidated Financial Statements.

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ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20172018 AND 20162017
 
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three Months Ended
June 30,
 Six Months Ended
June 30,
2017 2016 2017 20162018 2017 2018 2017
(In thousands)(In thousands)
NET LOSS$(2,757) $(6,858) $(9,492) $(18,003)$(4,000) $(2,757) $(11,684) $(9,492)
              
OTHER COMPREHENSIVE INCOME (LOSS)       
OTHER COMPREHENSIVE INCOME       
Foreign currency translation adjustments226
 (70) 275
 (288)(213) 226
 (107) 275
TOTAL OTHER COMPREHENSIVE INCOME (LOSS)226
 (70) 275
 (288)
TOTAL OTHER COMPREHENSIVE INCOME(213) 226
 (107) 275
COMPREHENSIVE LOSS$(2,531) $(6,928) $(9,217) $(18,291)$(4,213) $(2,531) $(11,791) $(9,217)

See Notes to Condensed Consolidated Financial Statements.

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ALIMERA SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 20172018 AND 20162017
Six Months Ended
June 30,		Six Months Ended
June 30,
2017 20162018 2017
(In thousands)(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss$(9,492) $(18,003)$(11,684) $(9,492)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization1,333
 1,385
1,299
 1,333
Inventory reserve34
 50
9
 34
Unrealized foreign currency transaction gain—
 (20)(34) —
Loss on early extinguishment of debt—
 2,564
1,766
 —
Amortization of debt discount693
 517
421
 693
Stock-based compensation expense2,400
 2,619
2,358
 2,400
Change in fair value of derivative warrant liability(188) (2,343)—
 (188)
Changes in assets and liabilities:      
Accounts receivable337
 (3,456)(2,054) 337
Prepaid expenses and other current assets(390) (652)(48) (390)
Inventory(719) 301
(651) (719)
Accounts payable572
 264
167
 572
Accrued expenses and other current liabilities(216) 2,604
84
 (216)
Other long-term liabilities(1,357) (26)(35) (1,357)
Net cash used in operating activities(6,993) (14,196)(8,402) (6,993)
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property and equipment(167) (116)(123) (167)
Net cash used in investing activities(167) (116)(123) (167)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from exercise of stock options—
 88
2
 —
Proceeds from sale of common stock3,042
 287
49
 3,042
Payment of issuance cost of common stock(108) (52)
Payment of debt costs—
 (357)
Changes in restricted cash2
 —
Payment of common stock offering costs—
 (108)
Issuance of debt40,000
 —
Payment of principal on notes payable(35,000) —
Payment of extinguishment of debt costs(2,544) —
Payment of deferred financing costs(1,142) —
Payment of capital lease obligations(73) (124)(187) (73)
Net cash provided by (used in) financing activities2,863
 (158)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS200
 22
NET DECREASE IN CASH AND CASH EQUIVALENTS(4,097) (14,448)
CASH AND CASH EQUIVALENTS — Beginning of period30,979
 31,075
CASH AND CASH EQUIVALENTS — End of period$26,882
 $16,627
Net cash provided by financing activities1,178
 2,861
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH(34) 204
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH(7,381) (4,095)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period24,101
 31,010
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period$16,720
 $26,915
SUPPLEMENTAL DISCLOSURES:      
Cash paid for interest$2,013
 $2,006
$1,579
 $2,013
Cash paid for income taxes$55
 $263
$229
 $55
Supplemental schedule of non-cash investing and financing activities:      
Property and equipment acquired under capital leases$—
 $56
$432
 $—
Proceeds receivable from sale of common stock$—
 $172
Common stock issuance costs accrued but unpaid$—
 $32
Note payable end of term payment accrued but unpaid$1,400
 $1,400
$1,800
 $1,400
There were no dividend payments made during the six months ended June 30, 20172018 and 2016.2017.

See Notes to Condensed Consolidated Financial Statements.

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1.NATURE OF OPERATIONS
Alimera Sciences, Inc., together with its wholly-owned subsidiaries (the Company), is a pharmaceutical company that specializes in the commercialization research and development of prescription ophthalmic pharmaceuticals. The Company was formed on June 4, 2003 under the laws of the State of Delaware.
The Company is presently focused on diseases affecting the back of the eye, or retina, because the Company’s management believes these diseases are not well treated with current therapies and represent a significant market opportunity. The Company’s only commercial product is ILUVIEN®, which has received marketing authorization in the United States (U.S.), Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden and the United Kingdom. In the U.S., ILUVIEN is indicated for the treatment of diabetic macular edema (DME) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure (IOP). In the European Economic Area (EEA) countries in which ILUVIEN has received marketing authorization, it is indicated for the treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.
As part of the approval process in the EEA,Europe, the Company committed to conduct a five-year, post-authorization, open label registry study in 800 patients treated with ILUVIEN per the labeled indication. In the fourth quarter of 2016, the Company requested approval to modify its protocol to cap enrollment in the study dueILUVIEN. Due to its post market safety surveillance not showing any unexpected safety signals. Thesignals the Company requested and received regulatory approval fromto modify its protocol to cap enrollment in the Medicines & Healthcare products Regulatory Agency (MHRA) in July 2017. As of June 30, 2017,study. Enrollment was completed with 562 patients were enrolled in this study. The Company anticipates this study to complete by the end of 2019.
The Company launchedcommercially markets ILUVIEN directly in the U.S., Germany, and the United Kingdom, in the second quarter of 2013, in the U.S.Portugal, Austria and Portugal in the first quarter of 2015.Ireland.
In addition, the Company has entered into various agreements under which distributors will provide regulatory, reimbursement or sales and marketing support for commercialization or future commercialization of ILUVIEN in numerousseveral countries in the Middle East, as well as France, Italy, Spain, Australia, New Zealand and Canada. As of June 30, 2017,2018, the Company has recognized sales of ILUVIEN to ourthe Company’s distributors in the Middle East, France, Italy and Spain.
In July 2017, the Company amended its license with EyePoint Pharmaceuticals US, Inc. (EyePoint) formerly known as pSivida US, Inc. (pSivida) for the technology underlying ILUVIEN to include the treatment of uveitis, including non-infectious posterior uveitis (NIPU) in Europe, the Middle East and Africa (see Note 8)(Note 9). NIPUUveitis is an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid, that can lead to severe vision loss and blindness. TheIn December 2017, the Company plans to filefiled an application for a new indication for ILUVIEN for NIPU in the 17 EEA countries where ILUVIEN is currently approved for the treatment of DME. The regulatory authorities requested additional follow-up data from the clinical trials to support the application. The Company plans to submit the follow-up data in the fourth quarter of 2018, when it is expected to be available. The Company expects that it will obtain approval of its application for NIPU in the first half of 2019.

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. BASIS OF PRESENTATION
The Company has prepared the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information, and the instructions to Form 10-Q and Article 10-01 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying Interim Financial Statementsinterim financial statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.
The Interim Financial Statementsaccompanying interim financial statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 20162017 and related notes included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 3, 2017.2, 2018. The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.
Modification of Segment Footnote
The Company modified its segment footnote for the three and six months ended June 30, 2016 for an immaterial change and removed, within the segment footnote, certain non-cash expenses including $1,323,000 of stock-based compensation expense and $696,000 of depreciation and amortization from the Company’s U.S. and International segments for the three months ended June 30, 2016 and $2,619,000 of stock-based compensation expense and $1,385,000 of depreciation and amortization from the Company’s U.S. and International segments for the six months ended June 30, 2016. These amounts are appropriately classified as Other within the segment footnote of these Interim Financial Statements. Additionally, in the Company’s Annual Report on Form 10-K filing for the year ended December 31, 2016, the Company disclosed that the Company’s chief operating decision maker separately managed and evaluated each segment primarily upon net loss from operations. The modification made in these financial statements clarifies that the chief operating decision maker manages and evaluates each segment based on net loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization.

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2016.2017.
Research and Development Expenses
Research and development expenses were $3,000$310,000 and $541,000$3,000 for the three months ended June 30, 20172018 and 2016,2017, respectively. Research and development expenses were $354,000$414,000 and $1,102,000$354,000 for the six months ended June 30, 2018 and 2017, and 2016, respectively. These research and development expenses do not include medical affairs expenses.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies issue new accounting pronouncements that are adopted by uswe adopt as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
Adoption of New Accounting Standards
In AugustMay 2014, the FASBFinancial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15,2014-09, DisclosureRevenue from Contracts with Customers (Topic 606), whichamends the guidance for the recognition of Uncertainties aboutrevenue from contracts with customers to transfer goods and services. The FASB has subsequently issued an Entity’s Abilityadditional, clarifying ASU to Continue as a Going Concern. ASU 2014-15 requires management to performaddress issues arising from implementation of the new revenue recognition standard. The new revenue recognition standard became effective for interim and annual assessmentsperiods beginning on January 1, 2018. The new standard is required to be adopted using either a full-retrospective or a modified-retrospective approach. The Company adopted the new revenue guidance on January 1, 2018 using the modified-retrospective approach. The Company elected the practical expedient to apply the new revenue standard only to contracts that were not completed as of an entity’s abilityJanuary 1, 2018.
The most significant impact of the new revenue standard relates to continuethe accounting for the Company’s variable consideration and consideration payable to customers, specifically dealing with costs paid to its distributors. The new revenue standard requires the Company to classify consideration payable to customers as cost of goods sold, excluding depreciation and amortization, which consideration was previously classified as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and howdiscount to disclose going concern uncertainties in the financial statements. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The adoption of this guidancenet revenue. Adoption did not have a material impact on the Company’s financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchangedstatements on an ongoing basis. See Note 4 for inventory measured using LIFO or the retail inventory method. This ASU is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those years. The adoption of this guidance did not have a material impact on the Company’s financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The adoption of this guidance did not have a material impact on the Company’s financial statements.
Accounting Standards Issued but Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as subsequently amended. ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. The revenue guidance contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The standard is effective for the first interim period within annual reporting periods beginning after December 15, 2017 for public entities, with early adoption permitted in the annual reporting period beginning after December 15, 2016. The Company has evaluated the variable consideration provisions of the new guidance and does not believe there will be a material impact on the Company’s recognition of revenues. The Company anticipates adopting the new revenue standard using the modified retrospective transition method.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires all leases with durations greater than twelve months to be recognized on the balance sheet and is effective for interim and annual reporting periods beginning after December 15, 2018, although early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption on its financial statements.

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expanded disclosures.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230). ASU 2016-15 is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently in the process of evaluating the impact ofadopted this standard effective January 1, 2018, and the adoption of this guidance did not have a material impact on itsthe Company’s financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. ASU 2016-18 requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company doesadopted this standard effective January 1, 2018, and the adoption of this guidance did not expecthave a material impact on the Company’s financial statements. The Company’s condensed consolidated statement of cash flows for the six months ended June 30, 2017 has been reclassified for this ASU.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope Modification Accounting. The new standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. This standard became effective on January 1, 2018, and the Company adopted it on that date. The adoption of this guidance did not have a material impact on the Company’s financial statements.

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Accounting Standards Issued but Not Yet Effective
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires all leases with durations greater than twelve months to be recognized on the balance sheet and is effective for interim and annual reporting periods beginning after December 15, 2018, although early adoption is permitted. The primary effect of adoption will be the requirement to record right-of-use assets and corresponding lease obligations for current operating leases. In addition, the standard will require that we update our systems, processes and controls we use to track, record and account for our lease portfolio. The Company is currently in the process of evaluating the impact of the adoption to have a material effect on itsthe Company’s financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to allow reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Upon adoption of the ASU, entities will be required to describe the accounting policy for releasing income tax effects from accumulated other comprehensive income. The standard is required to be adopted for periods beginning after December 15, 2018, with early adoption available. The Company is currently in the process of evaluating the impact of the adoption on the Company’s financial statements.


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4. REVENUE RECOGNITION
Net Revenue
The Company sells its products to major pharmaceutical distributors, pharmacies and doctors (collectively, its Customers). In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. All of our current contracts have a single performance obligation, as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct.
Currently, all of our revenue is derived from product sales. The Company recognizes revenues from product sales at a point in time when the Customer obtains control, typically upon delivery. The Company accrues for fulfillment costs when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.
Estimates of Variable Consideration
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; commercial rebates and fees to Managed Care Organizations (MCOs), Group Purchasing Organizations (GPOs), distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distributor costs; wholesaler chargebacks; and allowances for patient assistance programs relating to the Company’s sales of its products.
These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.
Consideration Payable to Customers
Distribution service fees are payments issued to distributors for compliance with various contractually-defined inventory management practices or services provided to support patient access to a product. These fees are generally based on a set fee per unit of gross purchases but can also be based on additional services these entities provide. Most of these costs are reflected under the new guidance as a cost of sale; however, to the extent the benefit from services can be separately identified and the fair value determined, costs are classified as Selling, general and administrative expenses. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses.
Product Returns
The Company’s policies provide for product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Customer’s possession; and (c) following product recalls. Generally, returns for expired product are accepted three months before and up to one year after the expiration date of the related product, and the related product is destroyed after it is returned. The Company may either refund the sales price paid by the Customer by issuance of a credit, or exchange the returned product with replacement inventory. The Company typically does not provide cash refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including historical returns experience, the estimated level of inventory in the distribution channel, the shelf life of products and product recalls, if any.
The estimation process for product returns involves, in each case, a number of interrelating assumptions, which vary for each Customer. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue from Product sales in the period the related revenue is recognized, and because this returned product cannot be resold, there is no corresponding asset for product returns. To date, product returns have been minimal.
Other Revenue
The Company enters into agreements in which it licenses certain rights to its products to partner companies that act as distributors. The terms of these arrangements typically include payment to the Company of one or more of the following: non-

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refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services the Company provides; and a revenue share on net sales of licensed products. Each of these payments is recognized as other revenues.
As part of the accounting for these arrangements, the Company must develop estimates that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. Performance obligations are promises in a contract to transfer a distinct good or service to the Customer, and the Company recognizes revenue when, or as, performance obligations are satisfied. The Company uses key assumptions to determine the stand-alone selling price; these assumptions may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical, regulatory and commercial success.
Certain of these agreements include consideration in the form of milestone payments. At the inception of each arrangement that includes milestone payments, the Company evaluates the recognition of milestone payments. Typically, milestone payments are associated with events that are not entirely within the control of the Company or the licensee, such as regulatory approvals; are included in the transaction price; and are subject to a constraint until it is probable that there will not be a significant revenue reversal, typically upon achievement of the milestone. At the end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.
Customer Payment Obligations
The Company receives payments from its Customers based on billing schedules established in each contract, which vary across the Company’s locations, but generally range between 30 to 120 days. Occasionally, the timing of receipt of payment for the Company’s international Customers can be extended. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation is that Customer will pay for the product or services in one year or less of receiving those products or services.
The income statement reclassifications that occurred under the new guidance for the three months ended June 30, 2018 are summarized as follows:
 Three Months Ended June 30, 2018
 Under previous revenue recognition guidance Reclassification As reported
 (in thousands)
NET REVENUE$10,717
 $200
 $10,917
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(913) (200) (1,113)
GROSS PROFIT$9,804
 $—
 $9,804
The income statement reclassifications that occurred under the new guidance for the six months ended June 30, 2018 are summarized as follows:
 Six Months Ended June 30, 2018
 Under previous revenue recognition guidance Reclassification As reported
 (in thousands)
NET REVENUE$20,347
 $372
 $20,719
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(2,017) (372) (2,389)
GROSS PROFIT$18,330
 $—
 $18,330


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5. GOING CONCERN
The accompanying Interim Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.
To date, the Company has incurred recurring losses and negative cash flow from operations and has accumulated a deficit of $386,566,000$410,758,000 from inception through June 30, 2017.2018. As of June 30, 2017,2018, the Company had approximately $26,882,000$16,687,000 in cash and cash equivalents. The Company’s ability to achieve profitability and positive cash flow is dependentdepends upon its ability to increase revenue and contain its expenses.
Further, the Company must maintain compliance with the debt covenants of its debt agreement$40,000,000 Loan and Security Agreement (2018 Loan Agreement) with Solar Capital Ltd. (Solar Capital) as Collateral Agent (Agent), and the parties signing the 2018 Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (each a Lender and collectively, the Lenders) (see Note 9). During the six months ended June 30, 2017, the Company raised $3,001,000 of additional equity, and subsequent to June 30, 2017 the Company raised $3,000,000 of additional equity via the Company’s at-the-market offering facility in order to raise additional funds for operations and ensure compliance with its debt covenants. The Company does not plan to sell additional shares via the at-the-market offering, which expires on August 13, 2017 (see Notes 12 and 17)10). In management’s opinion, the uncertainty regarding future revenues raises substantial doubt about the Company’s ability to continue as a going concern without access to alternate or additional debt or equity financing, over the course of the next twelve months.
In order toTo meet the Company’s future working capital needs, through the next twelve months and maintain compliance with its debt covenants, the Company may need to raise alternate or additional debt or equity financing. The Company implemented a cost savings program in late 2016 that the Company believes will help decrease cash burn over the next twelve months. While the Company has historically been able to raise additional capital through issuance of equity and/or debt financing, and while the Company has implemented a plan in place to reduce spending in ordercontrol its expenses to satisfy its obligations due within one year from the date of issuance of these financial statements, there canthe Company cannot guarantee that it will be no guarantees on the Company’s abilityable to maintain debt compliance, raise additional equity or successfully implement its cost reduction plans.increase revenue. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these financial statements are issued.

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5.6. INVENTORY

Inventory consisted of the following:
 
June 30,
2017
 
December 31,
2016
 (In thousands)
Component parts (1)$455
 $115
Work-in-process (2)480
 18
Finished goods208
 353
Total inventory1,143
 486
Inventory reserve—
 (40)
Inventory — net$1,143
 $446
 
June 30,
2018
 
December 31,
2017
 (In thousands)
Component parts (1)$391
 $404
Work-in-process (2)878
 587
Finished goods, net870
 517
Total Inventory$2,139
 $1,508

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

(2) Work-in-process primarily consists of completed units of ILUVIEN that are undergoing, but have not completed, quality assurance testing or stability testing as required by regulatory authorities in Europe and the U.S.
6.7. INTANGIBLE ASSET
As a result of the approval of ILUVIEN by the U.S. Food and Drug Administration’sAdministration (FDA) approval of the New Drug Application (NDA) for ILUVIEN in September 2014, the Company was required to pay pSividaEyePoint a milestone payment of $25,000,000 (the pSividaEyePoint Milestone Payment) in October 2014 (see Note 8)9). The Company had no intangible assets prior to September 2014.
The gross carrying amount of the intangible asset iswas $25,000,000, which is being amortized over approximately 13 years from the payment date. The amortization expense related to the intangible asset was approximately $484,000 for both the three months ended June 30, 20172018 and 2016,2017, respectively. The amortization expense related to the intangible asset was approximately $962,000 and $967,000 for both the six months ended June 30, 20172018 and 2016,2017, respectively. The net book value of the intangible asset was $19,642,000$17,701,000 and $20,604,000$18,664,000 as of June 30, 20172018 and December 31, 2016,2017, respectively.
The estimated future amortization expense as of June 30, 20172018 for the remaining periods in the next five years and thereafter is as follows:
Years Ending December 31(In thousands)(In thousands)
2017$978
20181,940
$978
20191,940
1,940
20201,946
1,946
20211,940
1,940
20221,940
Thereafter10,898
8,957
Total$19,642
$17,701

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7.8. ACCRUED EXPENSES
Accrued expenses consisted of the following:
 
June 30,
2017
 
December 31,
2016
June 30,
2018
 
December 31,
2017
(In thousands)(In thousands)
Accrued clinical investigator expenses$765
 $1,122
$667
 $696
Accrued compensation expenses494
 1,020
535
 511
Accrued rebate, chargeback and other revenue reserves374
 809
521
 305
Accrued End of Term Payment (Note 9)1,400
 —
Accrued End of Term Payment (see Note 10)—
 1,400
Other accrued expenses696
 807
504
 670
Total accrued expenses$3,729
 $3,758
$2,227
 $3,582
8.9. LICENSE AGREEMENTS
pSividaEyePoint Agreement
The Company entered into an agreement with EyePoint (formerly known as pSivida US, Inc.) for the use of fluocinolone acetonide (FAc) in pSivida’sEyePoint’s proprietary delivery deviceinsert technology in February 2005, which2005. This agreement was subsequently amended a number of times (as amended, the pSividaEyePoint Agreement). The pSividaEyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.
2008 Amended and Restated Collaboration Agreement
Pursuant to the payment terms of the 2008 Amended and Restated Agreement (the 2008 Agreement), the Company was required to share with EyePoint 20% of the net profits of ILUVIEN, determined on a cash basis and 33% of any lump sum milestone payments received from a sub-licensee of ILUVIEN, as defined by the 2008 Agreement.ILUVIEN. In connection with the 2008 Agreement,this arrangement, the Company was entitled to recover 20%out of commercial losses associated withEyePoint’s share of the net profits of ILUVIEN, as20% of ILUVIEN’s commercialization costs (as defined in the pSivida Agreement,EyePoint Agreement) that could be offset in anywere incurred prior to product profitability. (The Company’s future quarter out of payments of pSivida’s share of net profits (therights to recover these amounts from EyePoint are referred to as the Future Offset). As of December 31, 2016, the total Future Offsets available to reduce future net profit payments to pSivida, as defined in the 2008 Agreement, was $24,475,000.Offset.) In connection with the New Collaboration Agreement discussed below, the Company and pSivida agreed to cap the Future Offset amount at June 30, 2017 to $25,000,000. Due to the uncertainty of future net profits as of June 30, 2017 and December 31, 2016, the Company fully reserved these Future Offset amounts in the Interim Financial Statements.
May 2017 Amendment
In the second quarter of 2016, pSivida disputed portions of the Company’s claimed commercialization costs for the year ended December 31, 2014. On May 3, 2017, the Company and pSivida settled this dispute and amended and clarified certain definitions and clauses of the 2008 Agreement. As part of this settlement, the Company and pSivida agreed no additional amounts would be due for the year ended December 31, 2014 and effectively no audits would occur for the years ended December 31, 2015 and 2016. As a result of this settlement and amendment, Future Offsets was reduced from $25,828,000 to $24,475,000 as of December 31, 2016. Since these amounts were fully reserved, there was no impact on the statements of operations for any period as a result of this settlement and amendment.further amended.
New Collaboration Agreement - Second Amended and Restated Collaboration Agreement
On July 10, 2017, the Company and pSividaEyePoint entered into a Second Amended and Restated Collaboration Agreement (the New Collaboration Agreement), which amends and restates the pSividaEyePoint Agreement.
Prior to entering into the New Collaboration Agreement, the Company held the worldwide license from pSividaEyePoint for the use of FAc in pSivida’sEyePoint’s proprietary delivery deviceinsert technology for the treatment of all ocular diseases other than uveitis. The New Collaboration Agreement expands the license to include uveitis, including NIPU, in Europe, the Middle East and Africa and allows the Company to also pursue an indication for posterior uveitis for ILUVIEN in those territories.
The New Collaboration Agreement converts the Company’s obligation to share 20% of its net profits to a royalty payable on global net revenues of ILUVIEN. The Company will beginbegan paying a 2% royalty on net revenues and other related consideration to pSivida beginning effectiveEyePoint on July 1, 2017. This royalty amount will increase to 6% upon the earliestearlier of January

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1, 2019,December 12, 2018 or the receipt of the first marketing approval for ILUVIEN for the treatment of posterior uveitis, or one year from the Company’s filing of a marketing authorization application in the EU for posterior uveitis.NIPU. The Company will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75,000,000 in any year. During the three and six months ended June 30, 2018, the Company recognized approximately $218,000 and $411,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2018, approximately $218,000 of this royalty expense was included in the Company’s accounts payable. During the three and six months ended June 30, 2017, the Company recognized approximately $50,000 and $247,000 of profit share expense, respectively.
The New Collaboration Agreement did not require an upfront cash payment by the Company. In connection with the New Collaboration Agreement, the Company and EyePoint first agreed to cap the Future Offset amount at $25,000,000 as of June 30, 2017 and the Company then agreed to forgive $10,000,000 of the total $25,000,000 of the Future Offset.Offset at the July 10, 2017 amendment date. Following the signing of the New Collaboration Agreement, the Company retains a right to recover an additionalup to the remaining $15,000,000 of the Future Offset. The Company will be ableis entitled to recover this additionalup to $15,000,000 as a reduction of future royalties otherwise owed to EyePoint as follows:

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In the first two years following the increase in royalty amount to 6%, the royalty will be reduced to 4% for net revenues and other related consideration up to $75,000,000 annually and 5% for net revenues and other related consideration in excess of $75,000,000 on an annual basis; and
Beginning with the third year following the increase in royalty amount to 6%, the royalty will be reduced to approximately 5.2% for net revenues and other related consideration up to $75,000,000 annually and to approximately 6.8% for net revenues and other related consideration in excess of $75,000,000 on an annual basis.
The Company will forgive an additionalup to $5,000,000 of the remaining $15,000,000 of Future Offsets upon the earlier of the approval of ILUVIEN for posterior uveitis in any EU country or January 1, 2020, unless certain conditions under the New Collaboration Agreement are not met. The Company expects that it will obtain approval of its application for NIPU in the first half of 2019. If the amounts recoverable by the Company associated with the Future Offsets are less than $5,000,000 at that time, the Company will pay pSividaEyePoint the difference in cash.
General DiscussionThe Company valued the transaction by utilizing a present value analysis at approximately $2,851,000.
Possible Reversion of pSivida Agreementthe Company’s License Rights to EyePoint
The Company’s license rights to pSivida’sEyePoint’s proprietary delivery device could revert to pSividaEyePoint if the Company were to (i) fail twice to cure its breach of an obligation to make certain payments to pSivida following receipt of written notice thereof; (ii) fail to cure other breaches of material terms of the pSivida Agreement within 30 days after notice of such breaches or such longer period (up to 90 days) as may be reasonably necessary if the breach cannot be cured within such 30-day period; (iii) file for protection under the bankruptcy laws, make an assignment for the benefit of creditors, appoint or suffer appointment of a receiver or trustee over its property, file a petition under any bankruptcy or insolvency act or have any such petition filed against it and such proceeding remains undismissed or unstayed for a period of more than 60 days; or (iv) notify pSivida in writing of its decision to abandon its license with respect to a certain product using pSivida’s proprietary delivery device.to:
As a result of the FDA’s approval of the NDA for ILUVIEN in September 2014, the Company made the pSivida Milestone Payment of $25,000,000 in October 2014.

(i)fail twice to cure its breach of an obligation to make certain payments to EyePoint following receipt of written notice thereof;
(ii)fail to cure other breaches of material terms of the EyePoint Agreement within 30 days after notice of such breaches or such longer period (up to 90 days) as may be reasonably necessary if the breach cannot be cured within such 30-day period;
(iii)file for protection under the bankruptcy laws, make an assignment for the benefit of creditors, appoint or suffer appointment of a receiver or trustee over its property, file a petition under any bankruptcy or insolvency act or have any such petition filed against it and such proceeding remains undismissed or unstayed for a period of more than 60 days; or
(iv)notify EyePoint in writing of its decision to abandon its license with respect to a certain product using EyePoint’s proprietary delivery device.

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9.10. LOAN AGREEMENTS
Hercules Loan Agreement
2014 Loan Agreement
In April 2014, Alimera Sciences Limited (Limited), a subsidiary of the Company, entered into a loan and security agreement (2014(Hercules Loan Agreement) with Hercules Capital, Inc. (Hercules) providing for a term loan of up to $35,000,000 (2014 Term Loan), which Limited and Hercules amended in November 2015 (the First Loan Amendment), March 2016 (the Second Loan Amendment), May 2016 (the Third Loan Amendment), October 2016 (the Fourth Loan Amendment) and May 2017 (the Fifth Loan Amendment and, collectively with the 2014 Loan Agreement, the First Loan Amendment, the Second Loan Amendment, the Third Loan Amendment and the Fourth Loan Amendment, the Term Loan Agreement). Under the 2014 Loan Agreement, Hercules made an advance in the initial principal amount of $10,000,000 to Limited at closing to provide Limited with additional working capital for general corporate purposes and to repay a 2013 term loan with Silicon Valley Bank. Hercules made an additional advance of $25,000,000 to Limited in September 2014, following the approval of ILUVIEN by the FDA to fund the pSivida Milestone Payment.$35,000,000. The 2014 Loan Agreement provided for interest only payments through November 2015. Interest on the 2014 Term Loan accrued at a floating per annum rate equal to the greater of (i) 10.90%, or (ii) the sum of (A) 7.65%, plus (B) the prime rate. Following the interest only period the 2014 Term Loan was due and payable to Hercules in equal monthly payments of principal and interest through May 1, 2018.
First Loan Amendment
In November 2015, Limited and HerculesCompany amended the 2014 Loan Agreement to extend the interest only payments through May 2017. In connection with the First Loan Amendment, Limited paid to Hercules an amendment fee of $262,500 and agreed to make an additional payment of $1,050,000, equal to 3% of the 2014 Term Loan at the time of the final payment (End of Term Payment).
Limited and the Company, on a consolidated basis with the Company’s other subsidiaries (the Consolidated Group), agreed to customary affirmative and negative covenants and events of default in connection with these arrangements. The occurrence of an event of default could result in the acceleration of Limited’s obligations under the Term Loan Agreement and an increase to the applicable interest rate and would permit Hercules to exercise remedies with respect to the collateral under the Term Loan Agreement. In connection with the First Loan Amendment, Limited agreed to covenants regarding certain revenue thresholds and a liquidity threshold.
Second Loan Amendment
In Januaryseveral times. On October 20, 2016 the revenue threshold covenant was not met by the Consolidated Group and as a result, in March 2016, LimitedCompany and Hercules entered into a fourth amendment to the SecondHercules Loan Amendment,Agreement (the Fourth Loan Amendment), which further amended certainprovided the operative loan agreement terms of the 2014 Loan Agreement. In conjunction with the Second Loan Amendment, Hercules waived this covenant violation.
The Second Loan Amendment adjusted the revenue covenant to a rolling three-month calculation, first measured for the three months ended May 31, 2016. In addition, the Second Loan Amendment increased the liquidity covenant. Upon execution of the Second Loan Amendment, Limited paid Hercules an amendment fee of $350,000 and agreed to increase the End of Term Payment to $1,400,000 from $1,050,000, which is payable in May 2018.
The Company concluded that the Second Loan Amendment resulted in a substantial modification of the terms of debt when considered with the First Loan Amendment in accordance with the guidance in ASC 470-50, Debt. As a result,during 2017. On January 5, 2018 the Company accounted for the Second Loan Amendment as an extinguishment and recognized a loss on early extinguishment of debt of approximately $2,564,000 within the consolidated statement of operations for the year ended December 31, 2016. The loss on early extinguishment consisted primarily of the unamortized debt discount associatedpaid off its loan with the warrant and debt issuance costs incurred prior to the Second Loan Amendment, the incremental fair value of the warrant as a result of modifying the terms of the warrant and the debt issuance costs of $360,000 paid to Hercules for the Second Loan Amendment.
Third Loan Amendment and July 2016 Waiver
In May 2016, Limited and Hercules entered into the Third Loan Amendment to expand the definition of liquidity to allow for the inclusion of cash of up to $2,000,000 in bank accounts outside of the U.S. and the United Kingdom.
In July 2016, Limited obtained a waiver of the requirements of the liquidity covenant (the Waiver) because the Consolidated Group was not in compliance with the liquidity covenant as of June 30, 2016. The Waiver cured the default of the liquidity covenant then existing under the Term Loan Agreement and decreased the liquidity requirement. In addition, the

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ALIMERA SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Waiver modified the three-month revenue covenant so that it was not measured at July 31, 2016 and reduced the three-month revenue target to be measured at August 31, 2016. Following execution of the Waiver, Limited incurred a weekly ticking fee equal to 0.05% multiplied by the outstanding principal amount through the closing of the Company’s public offering in August 2016 (see Note 12), totaling $65,000. Further, Limited paid Hercules a fee of $350,000 associated with the Waiver.
Fourth Loan Amendment
In October 2016, Limited entered into the Fourth Loan Amendment with Hercules, which further amended certain terms of the Term Loan Agreement. Pursuant to the terms of the Fourth Loan Amendment, Hercules agreed to provide up to an additional $10,000,000 to Limited with (i) the first $5,000,000 available at Limited’s option through June 30, 2017 subject to (A) the Consolidated Group’s achievement of $12,000,000 in trailing three month net product revenue and (B) no event of default having occurred since October 20, 2016 (the Effective Date) and (ii) the second $5,000,000 available at Limited’s option through December 31, 2017 subject to (A) the Consolidated Group’s achievement of $15,000,000 in trailing three month net product revenue, (B) no event of default having occurred since the Effective Date and (C) the prior $5,000,000 having been advanced to Limited (the Additional Advances and, together with the 2014 Term Loan, the Term Loan). The Consolidated Group did not achieve the trailing three month net product revenue threshold prior to June 30, 2017 and as a result the additional $10,000,000 is not available to Limited.Hercules.
The Fourth Loan Amendment providesprovided for interest onlyinterest-only payments through November 30, 2018 (the Interest-Only Period). Pursuant to the Fourth Loan Amendment, interest on the TermHercules Loan accruesAgreement accrued at a floating per annum rate equal the greater of (i) 11.0% andor (ii) the sum of (A) 11.0% plus (B) the prime rate as reported in The Wall Street Journal, or if not reported, the prime rate most recently reported in The Wall Street Journal, minus 3.5%. In addition to the interest described above,in the preceding sentence, the principal balance of the TermHercules Loan will bearAgreement bore “payment-in kind” interest at the rate of 1.0% (PIK Interest), which PIK Interest will bewas added to the outstanding principal balance of the TermHercules Loan so as to increase the outstanding principal balance of the Term Loan on each payment date for the Term Loan and which amount will be payable when the aggregate outstanding principal amount of the Term Loan is payable. The Term Loan will be due and payable to Hercules in 24 equal monthly payments of principal and interest following the Interest-Only Period beginning on December 1, 2018 and matures in full on November 1, 2020.Agreement. The interest rate on the TermHercules Loan Agreement was 11.75%12.0% as of June 30,December 31, 2017.
Limited paidUnder the Hercules a facility charge of $337,500 and reimbursed Hercules for legal and diligence fees incurred in connection with the Fourth Loan Amendment. If Limited prepays the Term Loan, it will pay Hercules a prepayment penalty (i) if such amounts are prepaid in any of the first 12 months following the Effective Date, equal to 3.0% of the principal amount of the Term Loan being repaid, (ii) if such amounts are prepaid after 12 months but prior to 24 months following the Effective Date, equal to 2.0% of the principal amount of the Term Loan being repaid, and (iii) if such amounts are prepaid at any time thereafter, equal to 1.0% of the principal amount of the Term Loan being repaid.
The Consolidated Group also agreed to customary affirmative and negative covenants, including, without limitation, covenants relating to minimum liquidity, minimum trailing six-month net revenue and adjusted EBITDA and events of default in connection with these arrangements. The occurrence of an event of default could result in the acceleration of Limited’s obligations under the Term Loan Agreement as amended by the Fourth Loan Amendment, and an increase toany principal prepayment of the applicable interest rate and would permit Hercules to exercise remedies with respect toloan triggered a prepayment penalty based on when the collateral underprepayment occurred. Because the TermCompany prepaid the Hercules Loan Agreement as amended byon January 5, 2018, the Company paid 2.0% of the principal amount repaid, or $709,000, which is included in loss on early extinguishment of debt for the six months ended June 30, 2018. Prior to entering into the Fourth Loan Amendment. In the event that the Company maintains $35,000,000 in liquidity, including cash and eligible accounts receivable, at the end of the month and has not been and is not in breach of the amended debt facility, the six-month trailing revenue covenant is waived for such month. As of June 30, 2017,Agreement, the Company was in compliance with its debt covenants.
Fifth Loan Amendment
In May 2017, Limited entered intoalready obligated to pay an end of term payment of $1,400,000, which was paid when the Fifth Loan AmendmentCompany paid off the loan with Hercules which further amended and clarified certain terms of the Term Loan Agreement. The amendment was not material.
General Discussion of the Term Loan Agreement
Pursuant to the Term Loan Agreement, Limited’s obligations to Hercules are secured by a first-priority security interest in substantially all of Limited’s assets, excluding intellectual property. Hercules does, however, maintain a negative pledge on Limited’s intellectual property requiring Hercules’ consent prior to the sale of such intellectual property. The Company and certain of the Company’s other subsidiaries are guarantors of the obligations of Limited to Hercules under the Term Loan Agreement pursuant to separate guaranty agreements between Hercules and each of Limited and such subsidiaries (Guaranties). Pursuant to the Guaranties, the Company and these subsidiaries granted Hercules a first-priority security interest in substantially all of their respective assets excluding intellectual property. The Term Loan Agreement also places limitations on the Company’s ability to declare or pay any dividend or distribution on any shares of capital stock.

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ALIMERA SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

January 5, 2018.
2014 Warrant
In connection with Limited entering into the 2014 Loan Agreement, the Company issued a warrant to Hercules to purchase up to 285,016 shares of the Company’s common stock at an exercise price of $6.14 per share (the 2014 Warrant). Sixty percent ofThe Company amended the 2014 Warrant was exercisable at the closing in April 2014 and the remaining forty percent became exercisable upon the funding of the additional $25,000,000 to Limited in September 2014.
The Company agreed to amend the 2014 Warrant in connection with the First Loan Amendment to increase thea number of shares issuable upon exercise to 660,377 and decrease the exercise price to $2.65 per share. Upon entering into the Second Loan Amendment, the Company agreed to further amend the 2014 Warrant to increase the number of shares issuable upon exercise to 862,069 and decrease the exercise price to $2.03 per share. In connection with the July 2016 Waiver, the Company agreed to further amend the 2014 Warranttimes to increase the number of shares issuable upon exercise to 1,258,993 and decrease the exercise price to $1.39 per share. The right to exercise this warrant expires on November 2, 2020.
2016 Warrant
In connection with Limited entering into the Fourth Loan Amendment, the Company agreed to issue a new warrant to Hercules (the 2016 Warrant) to purchase up to 458,716 shares of the Company’s common stock at an exercise price of $1.09 per share, which was equalshare. The right to $500,000 divided byexercise this warrant expires on October 20, 2021.
Solar Capital Loan Agreement
On January 5, 2018, the lowest volume-weighted average sale price forCompany entered into a share$40,000,000 Loan and Security Agreement (2018 Loan Agreement) with Solar Capital, as Collateral Agent (Agent), and the parties signing the 2018 Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (each a “Lender” and collectively, the “Lenders”). Under the 2018 Loan Agreement, the Company borrowed the entire $40,000,000 as a term loan that matures on July 1, 2022.
The Company used the proceeds of the Company’s common stock reported over any ten consecutive trading days duringterm loan to extinguish the period commencingHercules Loan Agreement and expenses. The Company used the remaining loan proceeds to provide additional working capital for general corporate purposes.
Interest on and including September 23, 2016 andthe 2018 Loan Agreement is payable at one-month LIBOR plus 7.65% per annum. The 2018 Loan Agreement provides for interest-only payments for the first 30 months ending on July 1, 2020, followed by 24 months of payments of principal and interest. If the earlierCompany meets certain revenue thresholds and no event of default has occurred, the Company can extend the interest-only period an additional 6 months ending on January 1, 2021, followed by 18 months of payments of principal and interest. As of June 30, 2018, the interest rate on the 2018 Loan Agreement was approximately 9.7%.
As part of the fees and expenses incurred in conjunction with the 2018 Loan Agreement discussed above, the Company paid Solar Capital a $400,000 fee at closing. The Company is obligated to occurpay a $1,800,000 fee upon repayment of (i) December 30, 2016 (inclusivethe term loan in full ($2,000,000 if the interest-only period has been extended to 36 months). The Company may elect to prepay the outstanding principal balance of such date),the 2018 Loan Agreement in increments of $10,000,000 or more. The Company must pay a prepayment premium upon any prepayment of the 2018 Loan Agreement before its maturity date, whether by mandatory or voluntary prepayment, acceleration or otherwise, equal to:

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

a.2.00% of the principal amount prepaid for a prepayment made on or after January 5, 2018 through and including January 5, 2019;
b.1.00% of the principal amount prepaid for a prepayment made after January 5, 2019 through and including January 5, 2020; and
c.0.50% of the principal amount prepaid for a prepayment made after January 5, 2020 and greater than 30 days before the maturity date.
The Company is also obligated to pay additional fees under the Exit Fee Agreement (Exit Fee Agreement) dated as of January 5, 2018 by and (ii)among the second trading day immediately precedingCompany, Solar Capital as Agent, and the dateLenders. The Exit Fee Agreement survives the termination of closingthe 2018 Loan Agreement and has a term of 10 years. The Company is obligated to pay up to, but no more than, $2,000,000 in fees under the Exit Fee Agreement.
Specifically, the Company is obligated to pay an exit fee of $2,000,000 upon a merger event“change in control” (as defined in the 2016 Warrant)Exit Fee Agreement). To the extent that Alimera has not already paid the $2,000,000 fee, the Company is also obligated to pay a fee of $1,000,000 on achieving each of the following milestones:
a.first, if the Company achieves revenues of $80,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month; and
b.second, if the Company achieves revenues of $100,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured in the same manner.
The Company agreed, for itself and its subsidiaries, to customary affirmative and negative covenants and events of default in connection with the 2018 Loan Agreement. The occurrence of an event of default could result in the acceleration of the Company’s obligations under the 2018 Loan Agreement and an increase to the applicable interest rate, and would permit Solar Capital to exercise remedies with respect to the collateral under the 2018 Loan Agreement. While certain covenants are in effect from the date of the agreement, the financial covenants that require a testing of the Company’s GAAP revenues are effective as of June 30, 2018. On this date, and in subsequent quarterly periods, the revenues will be tested utilizing a trailing six-month formula to determine if the Company is in compliance. As of June 30, 2018 the Company was in compliance with the covenants of the 2018 Loan Agreement.
The Company’s obligations to Agent and the Lenders are secured by a first priority security interest in substantially all of the assets, excluding intellectual property, of the Company and its wholly owned subsidiary, Alimera Sciences (DE), LLC (Alimera DE), which is a guarantor of the loan, provided that only 65% of the voting interests in AS C.V., a Dutch subsidiary owned by the Company and Alimera DE, are pledged to the Lenders, and no assets or equity interests in the direct or indirect subsidiaries of AS C.V. are subject to the Lenders’ security interests. The Lender does, however, maintain a negative pledge on the property of the Company and all of its subsidiaries, including the Company’s intellectual property, requiring the Lender’s consent for any liens (other than typical permitted liens) on, or the sale of, such property.
Extinguishment of Debt
In accordance with the guidance in ASC 470-50, Debt, the Company accounted for the extinguishment of the Hercules Loan Amendment as an extinguishment and recognized a loss on early extinguishment of debt of approximately $1,766,000 within the condensed consolidated statements of operations for the six months ended June 30, 2018. The loss on early extinguishment consisted primarily of the early termination fee paid to Hercules and unamortized debt discounts including the remaining portion of warrant values and debt issuance costs.
Fair Value of Debt
The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing and the fair value of the warrants that were issued in connection with the Company’s notes payable are immaterial.financing. Therefore, the carrying amount of the notes approximated their fair value at June 30, 20172018 and December 31, 2016.2017.

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. LOSS PER SHARE (EPS)
Basic EPS is calculated in accordance with ASC 260, Earnings per Share, by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average common shares outstanding for the dilutive effect of common stock options, warrants and convertible preferred stock. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive. Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive, were as follows:
Three Months Ended
June 30,
 Six Months Ended
June 30,
Three and Six Months Ended
June 30,
2017 2016 2017 20162018 2017
Series A convertible preferred stock9,022,556
 9,022,556
 9,022,556
 9,022,556
9,022,556
 9,022,556
Series B convertible preferred stock8,416,251
 8,416,251
 8,416,251
 8,416,251
8,416,251
 8,416,251
Series A convertible preferred stock warrants4,511,279
 4,511,279
 4,511,279
 4,511,279
—
 4,511,279
Common stock warrants1,795,663
 940,023
 1,795,663
 940,023
1,795,663
 1,795,663
Stock options11,496,801
 10,648,702
 11,496,801
 10,648,702
12,514,650
 11,496,801
Restricted stock units861,430
 —
 861,430
 —
1,023,630
 861,430
Total36,103,980
 33,538,811
 36,103,980
 33,538,811
32,772,750
 36,103,980


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.12. PREFERRED STOCK
Series A Convertible Preferred Stock
On October 2, 2012, the Company closed its preferred stock financing in which it sold units consisting of 1,000,000 shares of Series A Convertible Preferred Stock and warrants to purchase 300,000 shares of Series A Convertible Preferred Stock for gross proceeds of $40,000,000, prior to the payment of approximately $560,000 of related issuance costs. The powers, preferences and rights of the Series A Convertible Preferred Stock are set forth in the certificate of designation filed by the Company with theDelaware’s Secretary of State of the State of Delaware on October 1, 2012. Each share of Series A Convertible Preferred Stock, including any shares of Series A Convertible Preferred Stock issued upon exercise of the warrants, is convertible into shares of the Company’s common stock at any time at the option of the holder at the rate equal to $40.00 divided by $2.66 (Conversion Price). The initial Conversion Price was subject to adjustment based on certain customary price based anti-dilution adjustments. These adjustment features lapsed in September 2014. Each share of Series A Convertible Preferred Stock shall automatically be converted into shares of common stock at the then-effective Conversion Price upon the occurrence of the later to occur of both (i) the Company receives and publicly announces the approval by the FDA of the Company’s NDANew Drug Application (NDA) for ILUVIEN and (ii) the date on which the Company consummates an equity financing transaction pursuant to which the Company sells to one or more third party investors either (a) shares of common stock or (b) other equity securities that are convertible into shares of common stock and that have rights, preference or privileges, senior to or on a parity with, the Series A Convertible Preferred Stock, in each case having an as-converted per share of common stock price of not less than $10.00 and that results in total gross proceeds to the Company of at least $30,000,000. The rights and preferences of Series A Convertible Preferred Stock also place limitations on the Company’s ability to declare or pay any dividend or distribution on any shares of capital stock.
Each unit sold in the preferred stock financing included a warrant to purchase 0.30 shares of Series A Convertible Preferred Stock at an exercise price equal to $44.00 per share. At the election of the holder of a warrant, the warrant may becould have been exercised for the number of shares of common stock then issuable upon conversion of the Series A Convertible Preferred Stock that would otherwise be issued upon such exercise at the then-effective Conversion Price.
These warrants arewere considered derivative instruments because the agreements provideprovided for settlement in Series A Convertible Preferred Stock shares or common stock shares at the option of the holder, an adjustment to the warrant exercise price for common shares at some point in the future and contain anti-dilution provisions whereby the number of shares for which the warrants are exercisable and/or the exercise price of the warrants arewas subject to change in the event of certain issuances of stock at prices below the then-effective exercise price of the warrants. Therefore the warrants were recorded as a liability at issuance. The warrant anti-dilution provisions lapsed in September 2014. At June 30, 2017 and December 31, 2016, the fair market value of the warrants was estimated to be approximately $0 and $188,000, respectively. During the three and six months ended June 30, 2017, and 2016, the Company recorded gains of $21,000 and $824,000, respectively, as a result of the change in fair value of the warrants. During the six months ended June 30, 2017 and 2016, the Company recorded gains of $188,000, and $2,343,000, respectively, as a result of the change in fair value of the warrants. The rights to exercise these warrants expireexpired on October 1, 2017.
In 2014, 6,015,037 shares of common stock were issued pursuant to the conversion of 400,000 shares of Series A Convertible Preferred Stock. As of June 30, 2017,2018, there were 600,000 shares of Series A Convertible Preferred Stock issued and outstanding.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Series B Convertible Preferred Stock
On December 12, 2014, the Company closed a preferred stock financing in which it sold 8,291.873 shares of Series B Convertible Preferred Stock for a purchase price of $6,030 per share, or an aggregate purchase price of $50,000,000, prior to the payment of approximately $432,000 of related issuance costs. The Company issued an additional 124.378 shares of Series B Convertible Preferred Stock as a subscription premium to the purchasers. The powers, preferences and rights of the Series B Convertible Preferred Stock are set forth in the certificate of designation filed by the Company with the Secretary of State of the State of Delaware. Each share of Series B Convertible Preferred Stock is convertible into 1,000 shares of the Company’s common stock at any time at the option of the holder, provided that the holder will be prohibited from converting Series B Convertible Preferred Stock into shares of the Company’s common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.98% of the total number of shares of the Company’s common stock then issued and outstanding. The Series B Convertible Preferred Stock ranks junior to the Company’s existing Series A Convertible Preferred Stock and senior to the Company’s common stock, with respect to rights upon liquidation. The Series B Convertible Preferred Stock ranks junior to all existing and future indebtedness. Except as otherwise required by law (or with respect to approval of certain actions), the Series B Convertible Preferred Stock do not have voting rights. The Series B Convertible Preferred Stock is not redeemable at the option of the holder. The Series B Convertible Preferred Stock is not subject to any price-based or other anti-dilution protections and does not provide for any accruing dividends.
The Company determined that the conversion option of the Series B Convertible Preferred Stock represented a beneficial conversion feature, as the conversion feature had intrinsic value to the holder on the commitment date as a result of the subscription premium. Therefore, the Company recorded a beneficial conversion feature of $750,000 as an increase in additional paid in capital. Because the Series B Convertible Preferred Stock was immediately convertible into common stock at the option of the holder at issuance, the Company immediately accreted the full value of the beneficial conversion feature to the carrying value of the Series B Convertible Preferred Stock on that date.
12.13. COMMON STOCK
In September 2014,2017, the Company sold 4,203,015 shares of the Company’s common stock at a weighted average price of $1.43 per share through the Company’s at-the-market offering that was in place with Cowen and Company, LLC (Cowen), for total gross proceeds of approximately $6,000,000, reduced by approximately $183,000 of related commissions, issuance costs and placement agent fees. The Company used the net proceeds from this offering for general corporate purposes and working capital. The Company’s sales agreement with Cowen to sell additional shares expired on August 13, 2017.
In October 2017, the Company entered into a common stock sales agreement (Sales Agreement) with Cowen and Company,H.C. Wainwright & Co., LLC (Cowen)(HCW) to offer shares of itsthe Company’s common stock from time to time through CowenHCW, as our sales agent, for the offer and sale of the shares up to an aggregate offering price of $35,000,000. During the three and six months ended$25,000,000. In June 30, 2017,2018, the Company sold a totalnotified HCW that it was terminating the Sales Agreement in accordance with the termination provisions of 2,140,713the Sales Agreement, effective on June 1, 2018. The Company had no obligation to sell shares of its common stock at a weighted average purchase price of $1.40 per share resulting in gross proceeds of $3,001,000, prior to the payment of approximately $108,000 of sales agent discounts and commissions and related issuance costs. During the year ended December 31, 2016, the Company sold a total of 662,779 shares of its common stock at a weighted average purchase price of $1.83 per share, resulting in gross proceeds of $1,211,000, prior to the payment of approximately $62,000 of sales agent discounts and commissions and related issuance costs. Proceeds from the offering were used for general corporate and working capital purposes. As of June 30, 2017, the Company can sell up to approximately $18,503,000 of its common stock under the terms of thethis sales agreement with Cowen. Subsequent to June 30, 2017HCW and the Company never sold additional shares via the Company’s at-the-market offering facility (see Note 17).under this agreement. The Company does not plan to sell additional shares underincurred no early termination penalties in connection with the sales agreement, which expires on August 13, 2017.
In addition, in August, 2016, pursuant to an underwriting agreement with Cowen, as representativetermination of the several underwriters named therein, the Company closed a public offering in which it sold 18,900,000 shares of its common stock at a price to the public of $1.40 per share. The offering resulted in gross proceeds of $26,460,000, prior to the payment of approximately $1,309,000 of underwriter discounts and commissions and related issuance costs.
During the three and six months ended June 30, 2017 and 2016, 38,732 and 41,413 shares of the Company’s common stock were acquired through its employee stock purchase plan resulting in proceeds of $41,000 and $78,000, respectively.Sales Agreement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13.14. STOCK INCENTIVE PLANS
Stock Option Plans
During the three months ended June 30, 20172018 and 2016,2017, the Company recorded compensation expense related to stock options of approximately $1,007,000$888,000 and $1,304,000,$1,007,000, respectively. During the six months ended June 30, 20172018 and 2016,2017, the Company recorded compensation expense related to stock options of approximately $1,979,000$1,754,000 and $2,568,000,$1,979,000, respectively. As of June 30, 2017,2018, the total unrecognized compensation cost related to non-vested stock options granted was $6,980,000$4,558,000 and is expected to be recognized over a weighted average period of 2.182.13 years. The following table presents a summary of stock option activity for the three months ended June 30, 2018 and 2017:
 Three Months Ended June 30,
 2018 2017
 Options 
Weighted
Average
Exercise
Price
 Options 
Weighted
Average
Exercise
Price
Options outstanding at beginning of period12,343,820
 $2.75
 11,696,269
 $3.00
Grants320,625
 0.88
 336,300
 1.39
Forfeitures(149,795) 2.70
 (535,768) 3.04
Exercises—
 —
 —
 —
Options outstanding at period end12,514,650
 2.70
 11,496,801
 2.96
Options exercisable at period end8,578,358
 3.19
 7,599,761
 3.25
Weighted average per share fair value of options granted during the period$0.56
   $1.07
  
The following table presents a summary of stock option activity for the six months ended June 30, 20172018 and 2016:2017:
Three Months Ended June 30, Six Months Ended June 30,Six Months Ended June 30,
2017 2016 2017 20162018 2017
Options 
Weighted
Average
Exercise
Price
 Options 
Weighted
Average
Exercise
Price
 Options 
Weighted
Average
Exercise
Price
 Options 
Weighted
Average
Exercise
Price
Options 
Weighted
Average
Exercise
Price
 Options 
Weighted
Average
Exercise
Price
Options outstanding at beginning of period11,696,269
 $3.00
 10,626,077
 $3.32
 10,804,412
 $3.22
 9,475,890
 $3.43
11,595,510
 $2.90
 10,804,412
 $3.22
Grants336,300
 1.39
 192,500
 1.59
 1,648,800
 1.23
 1,420,500
 2.34
1,553,625
 1.10
 1,648,800
 1.23
Forfeitures(535,768) 3.04
 (120,647) 2.81
 (956,411) 2.93
 (198,460) 3.10
(632,922) 2.43
 (956,411) 2.93
Exercises—
 —
 (49,228) 1.80
 —
 —
 (49,228) 1.80
(1,563) 1.06
 —
 —
Options outstanding at period end11,496,801
 2.96
 10,648,702
 3.30
 11,496,801
 2.96
 10,648,702
 3.30
12,514,650
 2.70
 11,496,801
 2.96
Options exercisable at period end7,599,761
 3.25
 6,739,491
 3.28
 7,599,761
 3.25
 6,739,491
 3.28
8,578,358
 3.19
 7,599,761
 3.25
Weighted average per share fair value of options granted during the period$1.07
   $1.19
   $0.95
 
 $1.77
 
$0.73
   $0.95
  
The following table provides additional information related to outstanding stock options, exercisable stock options and stock options that were expected to vest as of June 30, 20172018:
Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining Contractual
Term
 
Aggregate
Intrinsic
Value
Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining Contractual
Term
 
Aggregate
Intrinsic
Value
    (In thousands)    (In thousands)
Outstanding11,496,801
 $2.96
 6.69 years $282
12,514,650
 $2.70
 6.61 years $—
Exercisable7,599,761
 3.25
 5.61 years 28
8,578,358
 3.19
 5.61 years —
Outstanding, vested and expected to vest11,028,468
 2.99
 6.59 years 240
12,039,749
 2.75
 6.52 years —

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides additional information related to outstanding stock options, exercisable stock options and stock options that were expected to vest as of December 31, 2016:2017:
Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining Contractual
Term
 
Aggregate
Intrinsic
Value
Shares 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining Contractual
Term
 
Aggregate
Intrinsic
Value
    (In thousands)    (In thousands)
Outstanding10,804,412
 $3.22
 6.45 years $—
11,595,510
 $2.90
 6.60 years $35
Exercisable7,363,400
 3.29
 5.42 years —
8,085,064
 3.25
 5.68 years —
Outstanding, vested and expected to vest10,374,846
 3.23
 6.35 years —
11,161,477
 2.94
 6.51 years 34

20
TableAs of Contents
ALIMERA SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

June 30, 2018, the Company was authorized to grant options to purchase up to an additional 1,093,385 shares under the 2010 Equity Incentive Plan, taking into account the annual increase in the number of shares available for issuance under the Company’s 2010 Equity Incentive Plan and the options and restricted stock units (RSUs) granted and forfeited during the six months ended June 30, 2018.
Employee Stock Purchase Plan
During the three months ended June 30, 20172018 and 2016,2017, the Company recorded compensation expense related to its employee stock purchase plan of approximately $7,000$8,000 and $19,000,$7,000, respectively. During the six months ended June 30, 20172018 and 2016,2017, the Company recorded compensation expense related to its employee stock purchase plan of approximately $20,000$18,000 and $52,000,$20,000, respectively.
Restricted Stock Units
During the six months ended June 30, 2018, the Company granted 1,080,830 RSUs to its employees in lieu of a cash bonus program for 2018. As of June 30, 2018, 1,023,630 RSUs were outstanding. During the three and six months ended June 30, 2018, the Company recorded compensation expense of $256,000 and $587,000, respectively, related to outstanding and vested RSUs.
During the six months ended June 30, 2017, the Company granted 949,330 restricted stock units (RSUs)RSUs to its employees in lieu of a cash bonus program for 2017. As2017, of June 30, 2017, 861,430which 839,285 RSUs were outstanding.vested and converted to common shares in January 2018. During the three and six months ended June 30, 2017, the Company recorded compensation expense related to these RSUs of approximately $219,000 and $401,000, respectively.


24
14.
Table of Contents
ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15. INCOME TAXES
In accordance with ASC 740, Income Taxes, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities at the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a valuation allowance against its net deferred tax asset to reduce the net carrying value to an amount that is more likely than not to be realized.

At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, the Company’s best estimate of operating results and foreign currency exchange rates. The Company’s quarterly income tax rate may differ from its estimated annual effective tax rate because accounting standards require the Company to exclude the actual results of certain entities expected to generate a pretax loss when applying the estimated annual effective tax rate to the Company’s consolidated pretax results in interim periods. In estimating the annual effective tax rate, the Company does not include the estimated impact of unusual and/or infrequent items, including the reversal of valuation allowances, which may cause significant variations in the customary relationship between income tax expense (benefit) and pretax income (loss) in quarterly periods. The income tax expense (benefit) for such unusual and/or infrequent items is recorded in the quarterly period such items are incurred.

The Company’s income tax expense and resulting effective tax rate are based upon the respective estimated annual effective tax rates applicable for the respective periods adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions and other items. The Company’s effective tax rate for the three and six months ended June 30, 20172018 properly excluded tax benefits associated with year-to-date pre-tax losses generated in the U.S. and the Netherlands. Income tax positions are considered for uncertainty in accordance with ASC 740-10. The Company has recorded unrecognized tax benefits related to research and development tax credits. In accordance with ASC 740-10, such attributes are reduced to the amount that is expected to be recognized in the future. The Company has not accrued interest or penalties as no research and development credits have been utilized due to significant net operating losses (NOLs) available. The Company does not expect any decreases to the unrecognized tax benefits within the next twelve months due to any lapses in statute of limitations. Tax years since 2003 remain subject to examination in Georgia, Tennessee and at the U.S. federal level. The time period is longer than the standard statutory 3-year period duelevel between 2010 and 2016, and subject to NOLs from 2003 being available for utilization.examinations at various state levels between 2005 and 2016. The statute of limitations on these years will close when the NOLs expire or when the statute closes on the years in which the NOLs are utilized. Tax years since 2012 remain subject to examination in the United Kingdom and the Netherlands. Tax years since 2013 remain subject to examination in Germany.
Significant management judgment is involved in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Due to uncertainties with respect to the realization of deferred tax assets due to the history of operating losses, a valuation allowance has been established against the net deferred tax asset balance in the U.S. and the Netherlands. The valuation allowance is based on management’s estimates of taxable income in the jurisdictions in which the Company operates and the period over which deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance may be needed, which could materially impact itsthe Company’s financial position and results of operations.
At December 31, 2016,2017, the Company had federal NOL carry-forwards of approximately $104,944,000$121,413,000 and state NOL carry-forwards of approximately $83,270,000$161,753,000 available to reduce future taxable income. The Company’s federal NOL carry-forwards remain fully reserved as of June 30, 2017.2018. If not utilized, the federal NOL carry-forwards will expire at various dates between 2029 and 20352037 and the state NOL carry-forwards will expire at various dates between 2020 and 2035.2037.

21
TableSections 382 and 383 of Contents
ALIMERA SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Internal Revenue Code (IRC) limit the annual use of NOL carry-forwards and tax credit carry-forwards, respectively, following an ownership change. NOL carry-forwards may be subject to annual limitations under Internal Revenue Code (IRC)IRC Section 382 (Section 382) (or comparable provisions of state law) in the event that certain changes in ownership of the Company were to occur. The Company periodically evaluates its NOL carry-forwards and whether certain changes in ownership have occurred that would limit the Company’s ability to utilize a portion of its NOL carry-forwards. If it is determined that significant ownership changes have occurred since the Company generated its NOL carry-forwards, it may be subject to annual limitations on the use of these NOL carry-forwards under Section 382 (or comparable provisions of state law). The Company has determined that a Section 382 change in ownership occurred in late 2015. Therefore,As a result of this change in ownership, the annual utilizationCompany estimated that approximately $18.6 million of the Company’s federal NOLs are subjectand approximately $382,000 of federal tax credits generated prior to certain limitations under Section 382 and other limitations under state tax laws.the change in ownership will not be utilized in the future. The Company is currently in the process of calculatingrefining and finalizing these limitations. Anycalculations, and upon finalization, will determine if a write-off is necessary. The reduction to the Company’s

25
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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOL deferred tax asset due to the annual Section 382 limitation and the NOL carryforward period would result in an offsetting reduction in valuation allowance recorded against the NOL deferred tax asset. Therefore, any limitation would not have an impact on the statements of operations for the periods presented. The results of the analysis on the impact to the Company’s NOLs will be disclosed at a later date.
As of December 31, 2016,2017, the Company had cumulative book losses in foreign subsidiaries of $92,939,000.$113,278,000. The Company has not recorded a deferred tax asset for the excess of tax over book basis in the stock of its foreign subsidiaries. The Company anticipates that its foreign subsidiaries will be profitable and have earnings in the future. Once the foreign subsidiaries do have earnings, the Company intends to indefinitely reinvest in its foreign subsidiaries all undistributed earnings of and original investments in such subsidiaries. As a result, the Company has not recorded a deferred tax liability related to excess of book over tax basis in the stock of its foreign subsidiaries in accordance with ASC 740-30-25.
15. FAIR VALUE
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) which made widespread changes to the Internal Revenue Code. The Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously not subject to U.S. tax and creates new income taxes on certain foreign sourced earnings. The Company applies ASC 820, Fair Value Measurements,has made reasonable estimates related to (1) the remeasurement of U.S. deferred tax balances for the reduction in determining the fair valuetax rate, (2) the liability for the transition tax and (3) the taxes accrued relating to the change in permanent reinvestment assertion for unremitted earnings of certain assets and liabilities. Under this standard, fair value is defined asforeign subsidiaries. For the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value,quarter ended June 30, 2018, the Company uses various valuation approaches. The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair valuemade any adjustments to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
There have been no changes in the methodologies used at June 30, 2017 andestimated amounts recorded as of December 31, 2016.2017.

22
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ALIMERA SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following fair value table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:
June 30, 2017
Level 1Level 2Level 3Total
(In thousands)
Assets:
Cash equivalents (1)$—
$—
$—
$—
Assets measured at fair value$—
$—
$—
$—
Liabilities:
Derivative warrant liability (2)$—
$—
$—
$—
Liabilities measured at fair value$—
$—
$—
$—
 December 31, 2016
 Level 1 Level 2 Level 3 Total
 (In thousands)
Assets:       
Cash equivalents (1)$—
 $—
 $—
 $—
Assets measured at fair value$—
 $—
 $—
 $—
        
Liabilities:       
Derivative warrant liability (2)$—
 $188
 $—
 $188
Liabilities measured at fair value$—
 $188
 $—
 $188
(1)The carrying amounts approximate fair value due to the short-term maturities of the cash equivalents.

(2)The Company uses the Black-Scholes option pricing model and assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments.

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. SEGMENT INFORMATION
ForDuring the three and six months ended June 30, 20172018 and 2016, there were only2017, two customers within the U.S. segment. These two customers, whichsegment that are large pharmaceutical distributors accounted for 78%73% and 75%78%, respectively, of the Company’s consolidated revenues for the three months ended June 30, 2017 and 2016, respectively. These two customers also accounted for 74% of the Company’s consolidated revenues in bothrevenues. During the six months ended June 30, 20162018 and 2017, respectively.these same two customers accounted for 72% and 74%, respectively, of the Company’s consolidated revenues. These same two customers within the U.S. segment accounted for approximately 84%82% and 90%81% of the Company’s consolidated accounts receivable at June 30, 20172018 and at December 31, 2016,2017, respectively.
The Company’s chief operating decision maker is the Chief Executive Officer (CEO). While the CEO is apprised of a variety of financial metrics and information, the business is principally managed and organized based upon geographic and regulatory environment. Each segment is separately managed and is evaluated primarily upon segment income or loss from operations. Non-cash items including stock-based compensation expense and depreciation and amortization are categorized as Other within the table below.
The following table presents a summary of the Company’s reporting segments for the three months ended June 30, 20172018 and 2016:2017:
Three Months Ended
June 30, 2017		 Three Months Ended
June 30, 2016		Three Months Ended
June 30, 2018		 Three Months Ended
June 30, 2017
U.S. International Other Consolidated U.S. International Other ConsolidatedU.S. International Other Consolidated U.S. International Other Consolidated
(In thousands)(In thousands)
NET REVENUE$8,056
 $2,312
 $—
 $10,368
 $7,208
 $2,349
 $—
 $9,557
$7,999
 $2,918
 $—
 $10,917
 $8,056
 $2,312
 $—
 $10,368
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(503) (266) —
 (769) (368) (188) —
 (556)(856) (257) —
 (1,113) (503) (266) —
 (769)
GROSS PROFIT7,553
 2,046
 —
 9,599
 6,840
 2,161
 —
 9,001
7,143
 2,661
 —
 9,804
 7,553
 2,046
 —
 9,599
                              
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES1,498
 518
 222
 2,238
 1,869
 1,048
 288
 3,205
1,602
 954
 221
 2,777
 1,498
 518
 222
 2,238
GENERAL AND ADMINISTRATIVE EXPENSES1,828
 476
 708
 3,012
 2,126
 1,164
 749
 4,039
1,866
 723
 640
 3,229
 1,828
 476
 708
 3,012
SALES AND MARKETING EXPENSES3,521
 1,236
 303
 5,060
 5,185
 2,039
 286
 7,510
4,142
 1,493
 291
 5,926
 3,521
 1,236
 303
 5,060
DEPRECIATION AND AMORTIZATION—
 —
 667
 667
 —
 —
 696
 696
—
 —
 650
 650
 —
 —
 667
 667
OPERATING EXPENSES6,847
 2,230
 1,900
 10,977
 9,180
 4,251
 2,019
 15,450
7,610
 3,170
 1,802
 12,582
 6,847
 2,230
 1,900
 10,977
SEGMENT INCOME (LOSS) FROM OPERATIONS706
 (184) (1,900) (1,378) (2,340) (2,090) (2,019) (6,449)
SEGMENT (LOSS) GAIN FROM OPERATIONS(467) (509) (1,802) (2,778) 706
 (184) (1,900) (1,378)
OTHER INCOME AND EXPENSES, NET—
 —
 (1,335) (1,335) —
 —
 (367) (367)—
 —
 (1,146) (1,146) —
 —
 (1,335) (1,335)
NET LOSS BEFORE TAXES      $(2,713)       $(6,816)      $(3,924)       $(2,713)

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ALIMERA SCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents a summary of the Company’s reporting segments for the six months ended June 30, 20172018 and 2016:2017:
 Six Months Ended
June 30, 2017		 Six Months Ended
June 30, 2016
 U.S. International Other Consolidated U.S. International Other Consolidated
 (In thousands)
NET REVENUE$12,501
 $4,485
 $—
 $16,986
 $11,327
 $4,031
 $—
 $15,358
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(951) (405) —
 (1,356) (590) (344) —
 (934)
GROSS PROFIT11,550
 4,080
 —
 15,630
 10,737
 3,687
 —
 14,424
                
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES2,656
 1,259
 433
 4,348
 3,576
 2,134
 515
 6,225
GENERAL AND ADMINISTRATIVE EXPENSES3,531
 1,395
 1,350
 6,276
 4,047
 1,878
 1,509
 7,434
SALES AND MARKETING EXPENSES7,567
 2,378
 617
 10,562
 10,495
 3,529
 595
 14,619
DEPRECIATION AND AMORTIZATION—
 —
 1,333
 1,333
 —
 —
 1,385
 1,385
OPERATING EXPENSES13,754
 5,032
 3,733
 22,519
 18,118
 7,541
 4,004
 29,663
SEGMENT LOSS FROM OPERATIONS(2,204) (952) (3,733) (6,889) (7,381) (3,854) (4,004) (15,239)
OTHER INCOME AND EXPENSES, NET—
 —
 (2,533) (2,533) —
 —
 (2,713) (2,713)
NET LOSS BEFORE TAXES      $(9,422)       $(17,952)
17. SUBSEQUENT EVENT
As disclosed in Note 8 License Agreements, the Company and pSivida entered into the New Collaboration Agreement on July 10, 2017. The specific terms of the New Collaboration Agreement are described in detail within Note 8 License Agreements.
As discussed in notes 4 and 12, subsequent to June 30, 2017, the Company sold a total of 2,062,302 shares of its common stock at a weighted average purchase price of $1.45 per share, resulting in gross proceeds of $3,000,000, prior to the payment of approximately $75,000 of sales agent discounts and commissions and related issuance costs. The Company does not plan to sell additional shares under the sales agreement with Cowen, which expires on August 13, 2017.
 Six Months Ended
June 30, 2018		 Six Months Ended
June 30, 2017
 U.S. International Other Consolidated U.S. International Other Consolidated
 (In thousands)
NET REVENUE$14,976
 $5,743
 $—
 $20,719
 $12,501
 $4,485
 $—
 $16,986
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(1,741) (648) —
 (2,389) (951) (405) —
 (1,356)
GROSS PROFIT13,235
 5,095
 —
 18,330
 11,550
 4,080
 —
 15,630
                
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES3,242
 1,904
 453
 5,599
 2,656
 1,259
 433
 4,348
GENERAL AND ADMINISTRATIVE EXPENSES4,159
 1,630
 1,295
 7,084
 3,531
 1,395
 1,350
 6,276
SALES AND MARKETING EXPENSES8,514
 2,771
 610
 11,895
 7,567
 2,378
 617
 10,562
DEPRECIATION AND AMORTIZATION—
 —
 1,299
 1,299
 —
 —
 1,333
 1,333
OPERATING EXPENSES15,915
 6,305
 3,657
 25,877
 13,754
 5,032
 3,733
 22,519
SEGMENT LOSS FROM OPERATIONS(2,680) (1,210) (3,657) (7,547) (2,204) (952) (3,733) (6,889)
OTHER INCOME AND EXPENSES, NET—
 —
 (4,061) (4,061) —
 —
 (2,533)
(2,533)
NET LOSS BEFORE TAXES      $(11,608)       $(9,422)

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors” in our most recent annual report on Form 10-K. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this quarterly report on Form 10-Q.
Alimera Sciences, Inc., and its subsidiaries (we Alimera or the Company)Alimera), is a pharmaceutical company that specializes in the commercialization research and development of prescription ophthalmic pharmaceuticals. We are presently focusedfocus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and represent a significant market opportunity.
Our only commercial product is ILUVIEN®, which is approved to treat diabetic macular edema (DME). DME is a disease of the retina that affects individuals with diabetes and can lead to severe vision loss and blindness. ILUVIEN has received marketing authorization in the United States (U.S.)U.S., Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden and the United Kingdom. In the U.S., ILUVIEN is indicated for the treatment of DMEdiabetic macular edema (DME) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure (IOP). In the European Economic Area (EEA) countries in which ILUVIEN has received marketing authorization, it is indicated for the treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.
As part of the approval process for DME in Europe, we committed to conduct a five-year, post-authorization, open label registry study in 800 patients treated with ILUVIEN. In the fourth quarter of 2016, we requested approval to modify our protocol to cap enrollment in the study due to our post market safety surveillance not showing any unexpected safety signals. As of June 30, 2017, 562 patients were enrolled in this study. We received regulatory approval from the Medicines & Healthcare products Regulatory Agency (MHRA) in July 2017 to cease enrollment. 
In JulyDecember 2017, we amended our licensefiled an application for the technology underlyinga new indication for ILUVIEN to includefor the treatment of non-infectious posterior uveitis (NIPU) in Europe, the Middle East and Africa from pSivida US, Inc. (pSivida). NIPU17 EEA countries where ILUVIEN is currently approved for the treatment of DME. Uveitis is an inflammatory disease of the uveal tract, which is comprised of the iris, ciliary body and choroid, that can lead to severe vision loss and blindness. The regulatory authorities requested additional follow-up data from the clinical trials to support the application. We plan to file ansubmit the follow-up data by the end of 2018, when it is expected to be available. We expect that we will obtain approval of our application for a new indication for ILUVIEN for NIPU in the 17 EEA countries where ILUVIEN is currently approved for the treatmentfirst half of DME.2019.
We launchedcommercially market ILUVIEN in the U.S., Germany, and the United Kingdom, Portugal, Austria and Ireland. We began selling ILUVIEN in the second quarter of 2013, in the U.S. and PortugalAustria in the first quarter of 2015.2017 and in Ireland in the fourth quarter of 2017.
In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement or sales and marketing support for future commercialization of ILUVIEN in numerousseveral countries in the Middle East, as well as Italy, Spain, France, Canada, Australia and New Zealand and Canada. In the third quarter of 2016, our Middle East distributor launched ILUVIEN and initiated named patient sales in the United Arab Emirates. Our Italian distributor launched ILUVIEN in Italy in the second quarter of 2017.Zealand. As of June 30, 2017,2018, we have recognized sales of ILUVIEN to ourthe Company’s distributors in the Middle East, France, Italy and Spain.
We commenced operationsamended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, the technology underlying ILUVIEN now includes the treatment of uveitis, including non-infectious posterior uveitis (NIPU) in Europe, the Middle East and Africa.
Before we entered into the New Collaboration Agreement, we were required to share with EyePoint 20% of our net profits on a country-by-country basis. We were permitted to offset up to 20% of this amount with accumulated commercialization costs incurred in previous quarters. The New Collaboration Agreement converts this profit share obligation to a royalty payable on global net revenues of ILUVIEN. We began paying a 2% royalty on net revenues and other related consideration to EyePoint effective July 1, 2017. This royalty amount will increase to 6% upon the earlier of December 12, 2018 or the receipt of the first marketing approval for ILUVIEN for the treatment of NIPU. We will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75.0 million in any year. During the three and six months ended June 2003. Since our inception30, 2018, we have incurred significant losses.recognized approximately $218,000 and $411,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2018, approximately $218,000 of this royalty expense was included in our accounts payable. During the three and six months ended June 30, 2017, we recognized approximately $50,000 and $247,000 of profit share expense, respectively.
Following the signing of the New Collaboration Agreement, we retained a right to offset $15.0 million of future royalty payments. This offset will be reduced by up to $5.0 million upon the earlier of the approval of ILUVIEN for posterior uveitis in any EU country or January 1, 2020, unless certain conditions under the New Collaboration Agreement are not met (see Note 9 of our notes to condensed consolidated financial statements).

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We have incurred significant losses since our inception in June 2003. As of June 30, 2018, we had accumulated a deficit of $386.6$410.8 million. We expect to continue to incur substantial losses through the continued commercialization of ILUVIEN as we:
continue the commercialization of ILUVIEN in the U.S. and EEA, where we sell direct, and in other countries in the EEA;
seek the regulatory approval of ILUVIEN for NIPU in Europe,EEA and the Middle East, and Africa;where we sell through our distributors;
continue to seek regulatory approval of ILUVIEN for DMEother indications and in other jurisdictionsjurisdictions;
evaluate the use of ILUVIEN for the treatment of other diseases; and
advance the clinical development of any future products or product candidates either currently in our pipeline, or that we may license or acquire in the future.
As of June 30, 2017,2018, we had approximately $26.9$16.7 million in cash and cash equivalents.
AsOn January 5, 2018, we entered into a result$40.0 million Loan and Security Agreement (2018 Loan Agreement) with Solar Capital Ltd. (Solar Capital). Under the 2018 Loan Agreement, we borrowed the entire $40.0 million as a term loan that matures on July 1, 2022.
We used the proceeds of the limited revenue2018 Loan Agreement loan to refinance and pay off the previous loan agreement with Hercules Capital, Inc. (Hercules Loan Agreement) and to pay closing expenses associated with the 2018 Loan Agreement. We used the remaining loan proceeds to provide additional working capital for general corporate purposes. (See Note 10 of our notes to condensed consolidated financial statements).
Our revenues for the three and six months ended June 30, 2018 and 2017 were generated by ILUVIEN to date, our negative cash flow from operations and accumulated deficit raise substantial doubt about our ability to continue as a going concern. Our Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. We believe that we have sufficient funds to allow us to become cash flow positiveproduct sales primarily in the U.S., Germany, Portugal and the United Kingdom. In the U.S., two large pharmaceutical distributors accounted for 73% and 78% of our consolidated revenues for the three months ended June 30, 2018 and 2017, respectively, and 72% and 74% of our consolidated revenues for the six months ended June 30, 2018 and 2017, respectively. These distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries in whichwhere we sell ILUVIEN. However, it is possible thatdirect, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we may determine that we may needsell to raise additional funds in the future in order to support our business indistributors, these countries, to expand ILUVIEN into new geographies, to allow us to expand the indicationdistributors maintain inventory levels of ILUVIEN and sell to maintain compliance with our debt covenants or other business development activities. We cannot be sure that additional financing will be available when needed or that, if available, the additional financing will be obtained on terms favorable to us or our stockholders.their customers.

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Our Agreement with pSivida
pSivida Agreement
General DiscussionResults of pSivida Agreement
We entered into an agreement with pSivida for the use of fluocinolone acetonide (FAc) in pSivida’s proprietary delivery device in February 2005, which was subsequently amended and restated a number of times (as amended, the pSivida Agreement). The pSivida Agreement provides us with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN. ILUVIEN consists of a tiny polyimide tube with a permeable membrane cap on one end and an impermeable silicone cap on the other end that is filled with FAc in a polyvinyl alcohol matrix for delivery to the back of the eye for the treatment and prevention of eye diseases in humans (other than uveitis). The pSivida Agreement also provides us with a worldwide non-exclusive license to utilize pSivida’s proprietary delivery device to deliver other corticosteroids to the back of the eye for the treatment and prevention of eye diseases in humans (other than uveitis) or to treat DME by delivering a compound to the back of the eye through a direct delivery method through an incision required for a 25-gauge or larger needle. We do not have the right to utilize pSivida’s proprietary delivery device in connection with indications for diseases outside of the eye or for the treatment of uveitis. Further, the pSivida Agreement permits pSivida to grant to any other party the right to use its intellectual property (i) to treat DME through an incision smaller than that required for a 25-gauge needle, unless using a corticosteroid delivered to the back of the eye, (ii) to deliver any compound outside the back of the eye unless it is to treat DME through an incision required for a 25-gauge or larger needle, or (iii) to deliver non-corticosteroids to the back of the eye, unless it is to treat DME through an incision required for a 25-gauge or larger needle.
As a result of the U.S. Food and Drug Administration (FDA) approval of ILUVIEN in September 2014, we paid pSivida a milestone payment of $25.0 million (the pSivida Milestone Payment) in October 2014.
2008 Amended and Restated Collaboration Agreement
Pursuant to the payment terms of the 2008 Amended and Restated Agreement (the 2008 Agreement), we were required to share 20% of the net profits of ILUVIEN, determined on a cash basis and 33% of any lump sum milestone payments received from a sub-licensee of ILUVIEN, as defined by the 2008 Agreement. In connection with the 2008 Agreement, we were entitled to recover 20% of commercial losses associated with ILUVIEN, as defined in the pSivida Agreement, that could be offset in any future quarter out of payments of pSivida’s share of net profits (the Future Offset). As of December 31, 2016, the total Future Offsets available to reduce future net profit payments to pSivida, as defined in the 2008 Agreement, was $24.5 million. In connection with the New Collaboration Agreement discussed below we and pSivida agreed to cap the Future Offset amount at June 30, 2017 to $25.0 million. Due to the uncertainty of future net profits as of June 30, 2017 and December 31, 2016, we fully reserved these Future Offset amounts in our Interim Financial Statements.
May 2017 Amendment
In the second quarter of 2016, pSivida disputed portions of our claimed commercialization costs for the year ended December 31, 2014. On May 3, 2017, we and pSivida settled this dispute and amended and clarified certain definitions and clauses of the 2008 Agreement. As part of this settlement, we and pSivida agreed no additional amounts would be due for the year ended December 31, 2014 and effectively no audits would occur for the years ended December 31, 2015 and 2016. As a result of this settlement and amendment, Future Offsets was reduced from $25.8 million to $24.5 million as of December 31, 2016. Since these amounts were fully reserved, there was no impact on our statements of operations for any period as a result of this settlement and amendment.
New Collaboration Agreement - Second Amended and Restated Collaboration Agreement
On July 10, 2017, we and pSivida entered into a Second Amended and Restated Collaboration Agreement (the New Collaboration Agreement), which amends and restates the pSivida Agreement.
Prior to entering into the New Collaboration Agreement, we held the worldwide license from pSivida for the use of FAc in pSivida’s proprietary delivery device for the treatment of all ocular diseases other than uveitis. The New Collaboration Agreement expands the license to include uveitis in Europe, the Middle East and Africa and allows us to also pursue an indication for posterior uveitis for ILUVIEN in those territories.
The New Collaboration Agreement converts our obligation to share 20% of our net profits to a royalty payable on global net revenues of ILUVIEN. We will begin paying a 2% royalty on net revenues and other related consideration to pSivida beginning effective July 1, 2017. This royalty amount will increase to 6% upon the earliest of January 1, 2019, the receipt of the first marketing approval for ILUVIEN for the treatment of posterior uveitis, or one year from our filing of a marketing

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authorization application in the EU for posterior uveitis. We will pay an additional 2% royalty on global net revenues and other related consideration in excess of $75.0 million in any year.
The New Collaboration Agreement did not require an upfront cash payment from us. In connection with the New Collaboration Agreement, we agreed to forgive $10.0 million of the Future Offset. Following the signing of the New Collaboration Agreement, we retain a right to recover an additional $15.0 million of the Future Offset. We will be able to recover this additional $15.0 million as a reduction of future royalties as follows:
In the first two years following the increase in royalty amount to 6%, the royalty will be reduced to 4% for net revenues and other related consideration up to $75.0 million annually and 5% for net revenues and other related consideration in excess of $75.0 million on an annual basis; and
Beginning with the third year following the increase in royalty amount to 6%, the royalty will be reduced to 5.2% for net revenues and other related consideration up to $75.0 million annually and to 6.8% for net revenues and other related consideration in excess of $75.0 million on an annual basis.
We will forgive an additional $5.0 million of the Future Offsets upon the earlier of the approval of ILUVIEN for posterior uveitis in any EU country or January 1, 2020, unless certain conditions under the New Collaboration Agreement are not met. If the amounts recoverable by us associated with the Future Offsets are less than $5.0 million at that time, we will pay pSivida the difference in cash.

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Our Credit Facility
Hercules Loan Agreement
2014 Loan Agreement
In April 2014, Alimera Sciences Limited (Limited), our subsidiary, entered into a loan and security agreement (2014 Loan Agreement) with Hercules Capital, Inc. (Hercules) providing for a term loan of up to $35.0 million (2014 Term Loan), which Limited and Hercules amended in November 2015 (the First Loan Amendment), March 2016 (the Second Loan Amendment), May 2016 (the Third Loan Amendment), October 2016 (the Fourth Loan Amendment) and May 2017 (the Fifth Loan Amendment and, collectively with the 2014 Loan Agreement, the First Loan Amendment, the Second Loan Amendment, the Third Loan Amendment and the Fourth Loan Amendment, the Term Loan Agreement). Under the 2014 Loan Agreement, Hercules made an advance in the initial principal amount of $10.0 million to Limited at closing to provide Limited with additional working capital for general corporate purposes and to repay a 2013 term loan with Silicon Valley Bank. Hercules made an additional advance of $25.0 million to Limited in September 2014, following the approval of ILUVIEN by the FDA to fund the pSivida Milestone Payment. The 2014 Loan Agreement provided for interest only payments through November 2015. Interest on the 2014 Term Loan accrued at a floating per annum rate equal to the greater of (i) 10.90%, or (ii) the sum of (A) 7.65%, plus (B) the prime rate. Following the interest only period, the 2014 Term Loan was due and payable to Hercules in equal monthly payments of principal and interest through May 1, 2018.
First Loan Amendment
In November 2015, Limited and Hercules amended the 2014 Loan Agreement to extend the interest only payments through May 2017. In connection with the First Loan Amendment, Limited paid to Hercules an amendment fee of $262,500 and agreed to make an additional payment of $1,050,000, equal to 3% of the 2014 Term Loan at the time of the final payment on May 1, 2018 (End of Term Payment).
We and Limited, on a consolidated basis with our other subsidiaries (the Consolidated Group), agreed to customary affirmative and negative covenants and events of default in connection with these arrangements. The occurrence of an event of default could result in the acceleration of Limited’s obligations under the Term Loan Agreement and an increase to the applicable interest rate and would permit Hercules to exercise remedies with respect to the collateral under the Term Loan Agreement. In connection with the First Loan Amendment, Limited agreed to covenants regarding certain revenue thresholds and a liquidity threshold.
Second Loan Amendment
In January 2016, the revenue threshold covenant was not met by the Consolidated Group and as a result, in March 2016, Limited and Hercules entered into the Second Loan Amendment, which further amended certain terms of the 2014 Loan Agreement. In conjunction with the Second Loan Amendment, Hercules waived this covenant violation.
The Second Loan Amendment adjusted the revenue covenant to a rolling three-month calculation, first measured for the three months ended May 31, 2016. In addition, the Second Loan Amendment increased the liquidity covenant. Upon execution of the Second Loan Amendment, Limited paid Hercules an amendment fee of $350,000 and agreed to increase the End of Term Payment to $1,400,000 from $1,050,000, which was payable on the date that the 2014 Term Loan was to be paid in full.
We concluded that the Second Loan Amendment resulted in a substantial modification of the terms of debt when considered with the First Loan Amendment in accordance with the guidance in Accounting Standard Codification (ASC) 470-50, Debt. As a result, we accounted for the Second Loan Amendment as an extinguishment and recognized a loss on early extinguishment of debt of approximately $2,564,000 within the consolidated statement of operations for the year ended December 31, 2016. The loss on early extinguishment consisted primarily of the unamortized debt discount associated with the warrant and debt issuance costs incurred prior to the Second Loan Amendment, the incremental fair value of the warrant as a result of modifying the terms of the warrant and the debt issuance costs of $360,000 paid to Hercules for the Second Loan Amendment.
Third Loan Amendment and July 2016 Waiver
In May 2016, Limited and Hercules entered into the Third Loan Amendment to expand the definition of liquidity to allow for the inclusion of cash of up to $2.0 million in bank accounts outside of the U.S. and the United Kingdom.
In July 2016, Limited obtained a waiver of the requirements of the liquidity covenant (the Waiver) because the Consolidated Group was not in compliance with the liquidity covenant as of June 30, 2016. The Waiver cured the default of the liquidity covenant then existing under the Term Loan Agreement and decreased the liquidity requirement. In addition, the Waiver modified the three-month revenue covenant so that it was not measured at July 31, 2016 and reduced the three-month

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revenue target to be measured at August 31, 2016. Following execution of the Waiver, Limited incurred a weekly ticking fee equal to 0.05% multiplied by the outstanding principal amount through the closing of our public offering in August 2016, totaling $65,000. Further, Limited paid Hercules a fee of $350,000 associated with the Waiver.
Fourth Loan Amendment
In October 2016, Limited entered into the Fourth Loan Amendment with Hercules, which further amended certain terms of the Term Loan Agreement. Pursuant to the terms of the Fourth Loan Amendment, Hercules agreed to provide up to an additional $10.0 million to Limited with (i) the first $5.0 million available at Limited’s option through June 30, 2017 subject to (A) the Consolidated Group’s achievement of $12.0 million in trailing three month net product revenue and (B) no event of default having occurred since October 20, 2016 (the Effective Date) and (ii) the second $5.0 million available at Limited’s option through December 31, 2017 subject to (A) the Consolidated Group’s achievement of $15.0 million in trailing three month net product revenue, (B) no event of default having occurred since the Effective Date and (C) the prior $5.0 million having been advanced to Limited (the Additional Advances and, together with the 2014 Term Loan, the Term Loan). We did not achieve the trailing three month net product revenue threshold prior to June 30, 2017 and as a result the additional $10.0 million is not available to Limited.
The Fourth Loan Amendment provides for interest only payments through November 30, 2018 (the Interest-Only Period). Pursuant to the Fourth Loan Amendment, interest on the Term Loan accrues at a floating per annum rate equal to the greater of (i) 11.0% and (ii) the sum of (A) 11.0% plus (B) the prime rate as reported in The Wall Street Journal, or if not reported, the prime rate most recently reported in The Wall Street Journal, minus 3.5%. In addition to the interest described above, the principal balance of the Term Loan will bear “payment-in kind” interest at the rate of 1.0% (PIK Interest), which PIK Interest will be added to the outstanding principal balance of the Term Loan so as to increase the outstanding principal balance of the Term Loan on each payment date for the Term Loan and which amount will be payable when the aggregate outstanding principal amount of the Term Loan is payable. The Term Loan will be due and payable to Hercules in 24 equal monthly payments of principal and interest following the Interest-Only Period beginning on December 1, 2018 and matures in full on November 1, 2020. The interest rate on the Term Loan Agreement was 11.75% as of June 30, 2017.
Limited paid Hercules a facility charge of $337,500 and reimbursed Hercules for legal and diligence fees incurred in connection with the Fourth Loan Amendment. If Limited prepays the Term Loan, it will pay Hercules a prepayment penalty (i) if such amounts are prepaid in any of the first 12 months following the Effective Date, equal to 3.0% of the principal amount of the Term Loan being repaid, (ii) if such amounts are prepaid after 12 months but prior to 24 months following the Effective Date, equal to 2.0% of the principal amount of the Term Loan being repaid, and (iii) if such amounts are prepaid at any time thereafter, equal to 1.0% of the principal amount of the Term Loan being repaid.
The Consolidated Group also agreed to customary affirmative and negative covenants, including, without limitation, covenants relating to minimum liquidity, minimum trailing six-month net revenue and adjusted EBITDA, and events of default in connection with these arrangements. The occurrence of an event of default could result in the acceleration of Limited’s obligations under the Term Loan Agreement, as amended by the Fourth Loan Amendment and an increase to the applicable interest rate, and would permit Hercules to exercise remedies with respect to the collateral under the Term Loan Agreement, as amended by the Fourth Loan Amendment. In the event that we maintain $35.0 million in liquidity, including cash and eligible accounts receivable, at the end of the month and have not been and are not in breach of the amended debt facility, the six-month trailing revenue covenant is effectively waived for such month. As of June 30, 2017, we were in compliance with our debt covenants.
Fifth Loan Amendment
In May 2017, Limited entered into the Fifth Loan Amendment with Hercules, which further amended and clarified certain terms of the Term Loan Agreement. The amendment was not material.
General Discussion of the Term Loan Agreement
Pursuant to the Term Loan Agreement, Limited’s obligations to Hercules are secured by a first-priority security interest in substantially all of Limited’s assets, excluding intellectual property. Hercules does, however, maintain a negative pledge on Limited’s intellectual property requiring Hercules’ consent prior to the sale of such intellectual property. We and certain of our other subsidiaries are guarantors of the obligations of Limited to Hercules under the Term Loan Agreement pursuant to separate guaranty agreements between Hercules and each of Limited and such subsidiaries (Guaranties). Pursuant to the Guaranties, we and our subsidiaries granted Hercules a first-priority security interest in substantially all of their respective assets excluding intellectual property. The Term Loan Agreement also places limitations on our ability to declare or pay any dividend or distribution on any shares of capital stock.

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2014 Warrant
In connection with Limited entering into the 2014 Loan Agreement, we issued a warrant to Hercules to purchase up to 285,016 shares of our common stock at an exercise price of $6.14 per share (the 2014 Warrant). Sixty percent of the 2014 Warrant was exercisable at the closing in April 2014 and the remaining forty percent became exercisable upon the funding of the additional $25.0 million to Limited in September 2014.
We agreed to amend the 2014 Warrant in connection with the First Loan Amendment to increase the number of shares issuable upon exercise to 660,377 and decrease the exercise price to $2.65 per share. Upon entering into the Second Loan Amendment, we agreed to further amend the 2014 Warrant to increase the number of shares issuable upon exercise to 862,069 and decrease the exercise price to $2.03 per share. In connection with the July 2016 Waiver, we agreed to further amend the 2014 Warrant to increase the number of shares issuable upon exercise to 1,258,993 and decrease the exercise price to $1.39 per share.
2016 Warrant
In connection with Limited entering into the Fourth Loan Amendment, we agreed to issue a new warrant to Hercules (the 2016 Warrant) to purchase up to 458,716 shares of our common stock at an exercise price of $1.09 per share which was equal to $500,000 divided by the lowest volume-weighted average sale price for a share of our common stock reported over any ten consecutive trading days during the period commencing on and including September 23, 2016 and ending on the earlier to occur of (i) December 30, 2016 (inclusive of such date), and (ii) the second trading day immediately preceding the date of closing of a merger event (as defined in the 2016 Warrant).
Fair Value of Debt
The weighted average interest rates of our notes payable approximate the rate at which we could obtain alternative financing and the fair value of the warrants that were issued in connection with our notes payable are immaterial. Therefore, the carrying amount of the notes approximated their fair value at June 30, 2017 and December 31, 2016.

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Financial Operations Overview
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Three Months Ended
June 30,		 Six Months Ended
June 30,
2017 2016 2017 20162018 2017 2018 2017
(In thousands)    (In thousands, except share and per share data)
NET REVENUE$10,368
 $9,557
 $16,986
 $15,358
$10,917
 $10,368
 $20,719
 $16,986
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(1,113) (769) (2,389) (1,356)
GROSS PROFIT9,599
 9,001
 15,630
 14,424
9,804
 9,599
 18,330
 15,630
       
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES2,777
 2,238
 5,599
 4,348
GENERAL AND ADMINISTRATIVE EXPENSES3,229
 3,012
 7,084
 6,276
SALES AND MARKETING EXPENSES5,926
 5,060
 11,895
 10,562
DEPRECIATION AND AMORTIZATION650
 667
 1,299
 1,333
OPERATING EXPENSES10,977
 15,450
 22,519
 29,663
12,582
 10,977
 25,877
 22,519
NET LOSS FROM OPERATIONS(1,378) (6,449) (6,889) (15,239)(2,778) (1,378) (7,547) (6,889)
       
INTEREST EXPENSE AND OTHER(1,178) (1,384) (2,329) (2,721)
UNREALIZED FOREIGN CURRENCY GAIN, NET32
 28
 34
 —
CHANGE IN FAIR VALUE OF DERIVATIVE WARRANT LIABILITY—
 21
 —
 188
LOSS ON EARLY EXTINGUISHMENT OF DEBT—
 —
 (1,766) —
NET LOSS BEFORE TAXES(3,924) (2,713) (11,608) (9,422)
PROVISION FOR TAXES(76) (44) (76) (70)
NET LOSS(2,757) (6,858) (9,492) (18,003)$(4,000) $(2,757) $(11,684) $(9,492)
NET LOSS PER SHARE — Basic and diluted$(0.06) $(0.04) $(0.17) $(0.15)
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted70,022,100
 65,485,106
 69,952,940
 65,175,724
Net Revenue
We began generating revenue from ILUVIEN in the second quarter of 2013. In addition to generatinggenerate revenue from product sales and revenue, and we intend to seek to generate revenue from other sources such as upfront fees, milestone payments in connection with collaborative or strategic relationships, and royalties resulting from the licensing of ILUVIEN or any future product candidates and other intellectual property. We expect anyAdditionally, revenue we generate will fluctuate from quarter to quarter as a resultour U.S. and international distributors fluctuates depending on the timing of the nature, timing and amountshipment of any milestone payments we may receive from potential collaborative and strategic relationships, as well as revenue we may receive upon the sale of our productsILUVIEN to the extent any are successfully commercialized.distributor and the distributors’ sales of ILUVIEN to their customers.
Net revenue increased by approximately $800,000,$500,000, or 8%5%, to approximately $10.9 million for the three months ended June 30, 2018, compared to approximately $10.4 million for the three months ended June 30, 20172017. The increase was primarily attributable to an increase of $390,000 in the countries in Europe where we sell direct, $210,000 in other countries where we sell to distributors and an increase of $200,000 in the U.S. due to the required recognition of certain distributor costs that are no longer offset against net revenue pursuant to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606). These increases were offset by a decrease of approximately $260,000 in U.S. net revenue from our distributors. End user demand, which represents units purchased by physicians and pharmacies from the Company’s distributors, increased by 12% during the three months ended June 30, 2018.
Net revenue increased by approximately $1.6$3.7 million, or 10%22%, to approximately $20.7 million for the six months ended June 30, 2018, compared to approximately $17.0 million for the six months ended June 30, 2017. The increase was primarily attributable to increased sales volumerevenue increases of $2.2 million in the U.S.
Gross Profit
Gross profit is impacted by costs due to our increased end user demand, our expanded U.S. sales presence and the promotion of good sold which includes costsour Phase 4 USER post-market clinical study data. Additionally, we had increases in our International segment of manufactured goods sold, royalty expenses, and net profit amounts owed$650,000 in countries where we sell to pSivida, as defineddistributors, $600,000 in the pSivida Agreement. Additionally, revenue from our international distributors will fluctuate depending oncountries in Europe where we sell direct and $300,000 in the timing of the shipmentU.S. due to the required recognition of certain distributor and the distributors’ sales of ILUVIEN to their customers.
Gross profit increased by approximately $600,000, or 7%, to $9.6 million for three months ended June 30, 2017, compared to $9.0 million for the three months ended June 30, 2016. Gross margin was 93% and 94% for the three months ended June 30, 2017 and 2016, respectively.
Gross profit increased by approximately $1.2 million, or 8%, to $15.6 million for six months ended June 30, 2017, compared to $14.4 million for the six months ended June 30, 2016. Gross margin was 92% and 94% for the six months ended June 30, 2017 and 2016, respectively.
Operating Expenses
Operating expenses decreased by approximately $4.5 million, or 29%, to approximately $11.0 million for the three months ended June 30, 2017, primarily as a result of decreases in sales and marketing expenses of approximately $2.4 million, in research, development and medical affairs expenses of approximately $1.0 million and in general and administrative expenses of approximately $1.0 million.
Operating expenses decreased by approximately $7.2 million, or 24%, to approximately $22.5 million for the six months ended June 30, 2017, primarily as a result of decreases in sales and marketing expenses of approximately $4.0 million, in research, development and medical affairs expenses of approximately $1.9 million and in general and administrative expenses of approximately $1.1 million.
Research, Development and Medical Affairs Expenses
Substantially all of our research, development and medical affairs expenses incurred to date related to our continuing operations have been related to the development of ILUVIEN. We anticipatecosts that we will incur additional research, development and medical affairs expenses in the future as we expand the availability of ILUVIEN in additional geographies, evaluate and possibly pursue the regulatory approval of ILUVIEN in additional jurisdictions, the development of ILUVIEN for additional indications, or develop additional products or product candidates. We recognize research, development and medical affairs expenses as they are incurred. Our research, development and medical affairs expenses consist primarily of:no longer offset against net

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revenue pursuant to ASC 606. End user demand, which represents units purchased by physicians and pharmacies from the Company’s distributors, increased by 16% during the six months ended June 30, 2018.
salariesCost of Goods Sold, Excluding Depreciation and related expensesAmortization, and Gross Profit
Gross profit is affected by costs of goods sold, which includes (a) costs of manufactured goods sold and (b) payments to EyePoint in the form of (1) royalty payments under the New Collaboration Agreement (after July 1, 2017), and (2) payments based on a percentage of net profits under our previous agreement with EyePoint (before July 1, 2017).
Cost of goods sold, excluding depreciation and amortization, increased by approximately $330,000, or 43%, to approximately $1.1 million for personnel, including medical science liaisons;the three months ended June 30, 2018, compared to approximately $770,000 for the three months ended June 30, 2017. The increase was primarily attributable to (a) the required recognition of certain distributor costs pursuant to ASC 606, of $200,000 to cost of goods sold, excluding depreciation and amortization (these distributor costs were included in net revenue in the 2017 period), and (b) an increase of $160,000 of royalty expense payable to EyePoint.
Cost of goods sold, excluding depreciation and amortization, increased by approximately $1.0 million, or 71%, to approximately $2.4 million for the six months ended June 30, 2018, compared to approximately $1.4 million for the six months ended June 30, 2017. The increase was primarily as a result of (a) our increased sales volume, (b) the required recognition of certain distributor costs relatedpursuant to ASC 606 of $372,000 to cost of goods sold, excluding depreciation and amortization (these distributor costs were included in net revenue in the provision2017 period), and (c) an increase of medical affairs support, including symposia development$100,000 of royalty expense payable to EyePoint.
Gross profit increased by approximately $200,000, or 2%, to approximately $9.8 million for physician education;the three months ended June 30, 2018, compared to approximately $9.6 million for the three months ended June 30, 2017. Gross margin was 90% and 93% for the three months ended June 30, 2018 and 2017, respectively.
Gross profit increased by approximately $2.7 million, or 17%, to approximately $18.3 million for the six months ended June 30, 2018, compared to approximately $15.6 million for the six months ended June 30, 2017. Gross margin was 88% and 92% for the three months ended June 30, 2018 and 2017, respectively.
The decrease in gross margin was primarily attributable to an increase in manufacturing costs relatedand the required recognition of certain distributor costs pursuant to compliance with FDA, EEA or other regulatory requirements;ASC 606 of approximately $200,000 and $372,000 for the three and six months ended June 30, 2018, respectively, to cost of goods sold, excluding depreciation and amortization (these distributor costs were included in net revenue in the 2017 period). See Notes 3 and 4 of our notes to condensed consolidated financial statements.
costs related to seeking the regulatory approval of ILUVIEN for NIPU in Europe, the Middle EastResearch, Development and Africa;
fees paid to consultants and contract research organizations (CRO) in conjunction with independently monitoring clinical trials and acquiring and evaluating data in conjunction with clinical trials, including all related fees such as investigator grants, patient screening, lab work and data compilation and statistical analysis;
costs incurred with third parties related to the establishment of a commercially viable manufacturing process for products or product candidates;
costs related to production of clinical materials;
costs related to post marketing authorization studies;
consulting fees paid to third-parties involved in research, development and medical affairs activities; and
costs related to stock options or other stock-based compensation granted to personnel in research, development and medical affairs functions.
We expense both internal and external development costs as they are incurred.Medical Affairs Expenses
Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN.ILUVIEN and includes salaries and related expenses for research and development and medical affairs personnel, including medical sales liaisons, costs related to the provision of medical affairs support, including symposia development for physician education, and costs related to compliance with FDA, EEA or other regulatory requirements. Until we reach profitability, if at all, we do not expect to change the focus of these activities. However, once we reach profitability, we expect thatto incur a large percentage of our research, development and medical affairs expenses in the future will be incurred in support of our current and future technical, preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in terms of both their timing and their total cost to completion. AssumingWe expense both internal and external development costs as they are incurred.
Research, development and medical affairs expenses increased by approximately $600,000, or 27%, to approximately $2.8 million for the three months ended June 30, 2018, compared to approximately $2.2 million for the three months ended June 30, 2017. The increase was primarily attributable to increases of (a) $350,000 in our clinical study costs, as we reach profitability, we expectbenefited from one-time cost savings associated with two clinical studies that offset expenses incurred during the three months ended June 30, 2017 and (b) $180,000 in personnel costs.
Research, development and medical affairs expenses increased by approximately $1.3 million, or 30%, to continueapproximately $5.6 million for the six months ended June 30, 2018, compared to develop stable formulationsapproximately $4.3 million for the six months ended June 30, 2017. The increase was primarily attributable to a refund from the FDA of approximately $440,000 in the first quarter of 2017, which was not repeated in the first quarter of 2018. Additionally, the increase was attributable to increases of approximately $280,000 in personnel costs, $180,000 in scientific communication costs, and $120,000 of costs related to maintaining the U.S. and international registrations of ILUVIEN, or any future products or product candidates, test such formulations in preclinical studies for toxicology, safety and efficacy and to conduct clinical trials for each future product candidate. We anticipate funding these clinical trials ourselves, but we may engage collaboration partners at certain stages of clinical development. As we obtain results from these clinical trials, we may elect to discontinue or delay them for certain products or product candidates or programs in order to focus our resources on more promising products or product candidates or programs. Completion of these clinical trials by us or our future collaborators may take several years or more, the length of time generally varying with the type, complexity, novelty and intended use of a product candidate.
Our only commercial product is ILUVIEN, which has received marketing authorization in the U.S., Austria, Belgium, the Czech Republic, Denmark, Finland, Germany, France, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden and the United Kingdom. In the U.S., ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in IOP. In the EEA countries in which ILUVIEN has received marketing authorization, it is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. Our distributor partners are assisting us with obtaining approvals in the Middle East and in other jurisdictions for DME, but ILUVIEN has not been approved in any jurisdiction other than as set forth above.
We planincluding costs to file an application for a new indication for marketing approval of ILUVIEN for NIPU in the 17 EEA countries where ILUVIEN is currently approved for the treatment of DME.
In order to grant marketing approval, a health authority such asNIPU in the FDA or foreign regulatory agencies must conclude that clinical and preclinical data establish the safety and efficacy of ILUVIEN or any future products or product candidates with an appropriate benefit to risk profile relevant to a particular indication and that the product can be manufactured under current Good Manufacturing Practice in a reproducible manner to deliver the product’s intended performance in terms of its stability, quality, purity and potency. Until our submissions are reviewed by health authorities, there is no way to predict the outcome of their review. Even if the clinical studies meet their predetermined primary endpoints and a registration dossier is accepted for filing, a health authority could still determine that an appropriate benefit to risk relationship does not exist for the indication that we are seeking. We cannot forecast with any degree of certainty whether ILUVIEN or any future products or product candidates will be subject to future collaborations or how such arrangements would affect our development plan or capital requirements. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will receive cash inflows from the commercialization and sale of an approved product candidate.EU.

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General and Administrative Expenses
General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, information technology and human resources. Other significant costs include facilities costs and professional fees for accounting and legal services, including legal services associated with obtaining and maintaining patents.patents and with SEC compliance. We expect to continue to incur significant costs to comply with the corporate governance, internal control and similar requirements applicable to public companies.
General and administrative expenses increased by approximately $200,000, or 6%, to approximately $3.2 million for the three months ended June 30, 2018, compared to approximately $3.0 million for the three months ended June 30, 2017.
General and administrative expenses increased by approximately $800,000, or 13%, to approximately $7.1 million for the six months ended June 30, 2018, compared to approximately $6.3 million for the six months ended June 30, 2017. The increase was primarily attributable to increases of $360,000 in audit and legal fees, $210,000 in personnel costs, and $110,000 of state franchise taxes.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of professionalthird-party marketing fees and compensation for employees for the commercial promotion, the assessment of the commercial opportunity of, the development of market awareness for, the pursuit of market reimbursement for and the execution of launch plans for ILUVIEN. Other costs include professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.
We launched ILUVIENSales and marketing expenses increased by approximately $800,000, or 16%, to approximately $5.9 million for the three months ended June 30, 2018, compared to approximately $5.1 million for the three months ended June 30, 2017. The increase was primarily attributable to increases of $480,000 in Germanypersonnel and the United Kingdomtravel and entertainment costs primarily related to our expanded sales force in the second quarterU.S, $130,000 of 2013,marketing costs and $130,000 of market access costs.
Sales and marketing expenses increased by approximately $1.3 million, or 12%, to approximately $11.9 million for the six months ended June 30, 2018, compared to approximately $10.6 million for the six months ended June 30, 2017. The increase was primarily attributable to increases of $1.0 million in personnel and travel and entertainment costs primarily related to our expanded sales force in the U.S. and Portugal$160,000 of marketing costs.
Operating Expenses
As a result of the increases in various expenses described above, total operating expenses increased by approximately $1.6 million, or 15%, to approximately $12.6 million for the first quarter of 2015.
We have a European marketing and sales team, including local management and sales teams in France, Germany, Portugal andthree months ended June 30, 2018, compared to approximately $11.0 million for the United Kingdom, totaling 26 persons as ofthree months ended June 30, 2017. We also have a U.S.The increase was primarily attributable to increases of approximately $800,000 in sales and marketing expenses, $600,000 in research, development and field force, including sales personnel, reimbursement specialistsmedical affairs expenses and payor relations directors, totaling 43 persons as of$200,000 in general and administrative expenses.
Total operating expenses increased by approximately $3.4 million, or 15%, to approximately $25.9 million for the six months ended June 30, 2018, compared to approximately $22.5 million for the six months ended June 30, 2017. The increase was primarily attributable to increases of approximately $1.3 million in sales and marketing expenses, $1.3 million in research, development and medical affairs expenses and $800,000 in general and administrative expenses.
InInterest Expense and Other
For the fourth quarterthree and six months ended June 30, 2018 interest expense consisted primarily of 2016, after unsuccessfully negotiatinginterest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the French government to obtain an appropriate price, we decided to close operations2018 Term Loan Agreement with Solar Capital. As discussed in France. We expect the closing of operations to be completed in 2017. We are continuing to evaluate our options to enter the French market, including potential distributor relationships.
Critical Accounting Policies and Estimates
Our discussion and analysisNote 10 of our financial condition and results of operations are based on our unaudited interimnotes to condensed consolidated financial statements, we entered into a new loan facility with Solar Capital on January 5, 2018 and notes (Interim Financial Statements) which have been preparedrefinanced the Hercules Loan Agreement with the proceeds. For the three and six months ended June 30, 2017, interest expense consisted primarily of interest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the Hercules Loan Agreement.
Interest expense and other decreased by approximately $200,000, or 14%, to approximately $1.2 million for the three months ended June 30, 2018, compared to approximately $1.4 million for the three months ended June 30, 2017. Interest expense and other decreased by approximately $400,000, or 15%, to approximately $2.3 million for the six months ended June 30, 2018, compared to approximately $2.7 million for the six months ended June 30, 2017. These decreases were primarily attributable to the lower effective interest rate on our 2018 Term Loan Agreement compared to the effective interest rate on the Hercules Loan Agreement.

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Change in Fair Value of Derivative Warrant Liability
Warrants to purchase our Series A Convertible Preferred Stock or common stock that do not meet the requirements for classification as equity, in accordance with accounting principles generally acceptedASC 815, Derivatives and Hedging, are classified as liabilities. We record these derivative financial instruments as liabilities in our balance sheet measured at their fair value. We record the changes in fair value of such instruments as non-cash gains or losses in the U.S.condensed consolidated statements of operations.
During the three and six months ended June 30, 2017, we recognized gains of approximately $21,000 and $188,000, respectively, related to the decreased fair value of our derivative warrant liability. The preparationchange in fair value was primarily due to the decreasing time remaining to exercise the warrants. The rights to exercise these warrants expired on October 1, 2017.
Loss on early extinguishment of these Interim Financial Statements requires usdebt
We recorded a loss on early extinguishment of debt of approximately $1.8 million for the six months ended June 30, 2018, as a result of refinancing the Hercules Loan Agreement by entering into the 2018 Term Loan Agreement with Solar Capital on January 5, 2018.
Basic and Diluted Net Loss Applicable to make estimatesCommon Stockholders per Share of Common Stock
We calculated net loss per share in accordance with ASC 260, Earnings Per Share. We had a net loss for both periods presented; accordingly, the inclusion of common stock options and judgmentswarrants would be anti-dilutive. Dilutive common stock equivalents would include the dilutive effect of convertible securities, common stock options, restricted stock units, warrants for convertible securities and warrants for common stock equivalents. Common stock equivalent securities that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. We discuss our critical accounting policieswould potentially dilute basic EPS in the Management’s Discussion and Analysis sectionfuture, but were not included in the computation of our Annual Report on Form 10-K. Therediluted EPS because to do so would have been no significant changes in our critical accounting policies.anti-dilutive, totaled approximately 32,772,750 for the three and six months ended June 30, 2018 and 36,103,980 for the three and six months ended June 30, 2017. Potentially dilutive common stock equivalents were excluded from the diluted earnings per share denominator for all periods of net loss because of their anti-dilutive effect. Therefore, for the three and six months ended June 30, 2018 and 2017, the weighted average shares used to calculate both basic and diluted loss per share are the same.

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Results of Operations - Segment Review
The following selected unaudited financial and operating data are derived from our Interim Financial Statements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and ourcondensed consolidated financial statements. The results and discussions that follow are reflective ofreflect how our executive management monitors the performance of our reporting segments. Our chief operating decision maker is our Chief Executive Officer (CEO). While the CEO is apprised of a variety of financial metrics
We have three segments: U.S., International and information, the business is principally managed and organized based upon geographic and regulatory environment.Other. Each segment is separately managed and is evaluated primarily upon segment loss from operations. The tables below exclude non-cashNon-cash items including stock-based compensation expense, and depreciation and amortization.amortization are categorized as Other. We allocate certain operating expenses between our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. There were no significant changes in our expense allocation methodology during 2018 or 2017.
U.S. Segment
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Three Months Ended
June 30,
 
Six Months Ended
June 30,
2017 2016 2017 20162018 2017 2018 2017
(In thousands)    (In thousands)
NET REVENUE$8,056
 $7,208
 $12,501
 $11,327
$7,999
 $8,056
 $14,976
 $12,501
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(503) (368) (951) (590)(856) (503) (1,741) (951)
GROSS PROFIT7,553
 6,840
 11,550
 10,737
7,143
 7,553
 13,235
 11,550
              
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES1,498
 1,869
 2,656
 3,576
1,602
 1,498
 3,242
 2,656
GENERAL AND ADMINISTRATIVE EXPENSES1,828
 2,126
 3,531
 4,047
1,866
 1,828
 4,159
 3,531
SALES AND MARKETING EXPENSES3,521
 5,185
 7,567
 10,495
4,142
 3,521
 8,514
 7,567
DEPRECIATION AND AMORTIZATION—
 —
 —
 —
OPERATING EXPENSES6,847
 9,180
 13,754
 18,118
7,610
 6,847
 15,915
 13,754
SEGMENT INCOME (LOSS) FROM OPERATIONS$706
 $(2,340) $(2,204) $(7,381)
SEGMENT (LOSS) GAIN FROM OPERATIONS$(467) $706
 $(2,680) $(2,204)
U.S. Segment - Three months ended June 30, 20172018 compared to the three months ended June 30, 20162017
Net Revenue.revenue. Net revenue increaseddecreased by approximately $900,000,$100,000, or 13%1%, to approximately $8.0 million for the three months ended June 30, 2018, compared to approximately $8.1 million for the three months ended June 30, 2017 compared2017. This decrease in net revenue resulted from a decrease of approximately $260,000 of net revenue from our distributors offset by an increase of $200,000 due to approximately $7.2 million forthe required recognition of certain distributor costs that are no longer offset against net revenue pursuant to ASC 606. The decrease in net revenue resulted from lower distributor orders received in the three months ended June 30, 2016. The increase was primarily attributable2018, compared to an increase in end user unit demand.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization increased by approximately $130,000, or 35%, to approximately $500,000 for the three months ended June 30, 2017, compared to approximately $370,000 fordespite growth in U.S. end user demand. End user demand, which represents units purchased by physicians and pharmacies from our distributors, was higher in the three months ended June 30, 2016, primarily as a result of increased sales for2018, increasing 12% to 955 units compared to 850 units in the three months ended June 30, 2017.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $400,000, or 21%, to approximately $1.5 million for the three months ended June 30, 2017 compared to approximately $1.9 million for the three months ended June 30, 2016. The decrease was primarily attributable to decreases of $210,000 in personnel costs, $130,000 in scientific communication costs and $110,000 of costs related to maintain the U.S. registration of ILUVIEN. These decreases were offset by an increase of $110,000 in our domestic scientific study costs.
General and administrative expenses. General and administrative expenses decreased by approximately $300,000, or 14%, to approximately $1.8 million for the three months ended June 30, 2017 compared to approximately $2.1 million for the three months ended June 30, 2016. The decrease was primarily attributable to a decrease of approximately $200,000 in costs associated with the 2016 dispute between us and pSivida that was later settled in 2017.
Sales and Marketing expenses. Sales and marketing expenses decreased by approximately $1.7 million, or 33%, to approximately $3.5 million for the three months ended June 30, 2017 compared to approximately $5.2 million for the three months ended June 30, 2016. The decrease was primarily attributable to decreases of $620,000 for personnel costs, $580,000 in marketing costs, $250,000 in market access costs and $140,000 in travel and entertainment costs. These reductions were a result of the cost savings program we implemented in late 2016.

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Six months ended June 30, 2017 compared to the six months ended June 30, 2016
Net Revenue. Net revenue increased by approximately $1.2 million, or 11%, to approximately $12.5 million for the six months ended June 30, 2017 compared to approximately $11.3 million for the six months ended June 30, 2016. The increase was primarily attributable to an increase in end user unit demand, offset by fluctuations in the timing of orders by our two U.S. distributors.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $360,000, or 61%72%, to approximately $950,000$860,000 for the sixthree months ended June 30, 20172018, compared to approximately $590,000$500,000 for the sixthree months ended June 30, 2016, as a result2017. This increase primarily resulted from increased manufacturing costs and the required recognition of an increasecertain distributor costs pursuant to ASC 606 of $200,000 to cost of goods sold, excluding depreciation and amortization, that were included in net profit amounts owed to pSivida, as definedrevenue in the pSivida Agreement from the first quarter of 2017 and from increased sales for the six months ended June 30, 2017.prior period.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreasedincreased by approximately $900,000,$100,000, or 25%7%, to approximately $2.7$1.6 million for the sixthree months ended June 30, 20172018, compared to approximately $3.6$1.5 million for the sixthree months ended June 30, 2016. The decrease was primarily attributable to decreases of $450,000 in personnel costs, $400,000 of costs related to maintain the U.S. registration of ILUVIEN and $170,000 in scientific communication costs. These decreases were offset by an increase of $190,000 in our domestic scientific study costs.2017.
General and administrative expenses. General and administrative expenses decreasedincreased by approximately $500,000,$100,000, or 13%5%, to approximately $3.5$1.9 million for the sixthree months ended June 30, 20172018, compared to approximately $4.0$1.8 million for the sixthree months ended June 30, 2016. The decrease was primarily attributable to decreases of approximately $230,000 in bonus expense as we granted restricted stock unit awards to our non-field personnel in lieu of a cash bonus program in 2017 and $200,000 in costs associated with the 2016 dispute between us and pSivida that was later settled in 2017.
Sales and Marketing expenses. Sales and marketing expenses decreased by approximately $2.9 million, or 28%, to approximately $7.6 million for the six months ended June 30, 2017 compared to approximately $10.5 million for the six months ended June 30, 2016. The decrease was primarily attributable to decreases of $1.4 million for personnel costs, $910,000 in marketing costs, $230,000 in market access costs and $270,000 in travel and entertainment costs. These reductions were a result of the cost savings program we implemented in late 2016.

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International Segment
 
Three Months Ended
June 30,
 Six Months Ended
June 30,
 2017 2016 2017 2016
 (In thousands)
NET REVENUE$2,312
 $2,349
 $4,485
 $4,031
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(266) (188) (405) (344)
GROSS PROFIT2,046
 2,161
 4,080
 3,687
        
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES518
 1,048
 1,259
 2,134
GENERAL AND ADMINISTRATIVE EXPENSES476
 1,164
 1,395
 1,878
SALES AND MARKETING EXPENSES1,236
 2,039
 2,378
 3,529
OPERATING EXPENSES2,230
 4,251
 5,032
 7,541
SEGMENT LOSS FROM OPERATIONS$(184) $(2,090) $(952) $(3,854)
Three months ended June 30, 2017 comparedSales and marketing expenses. Sales and marketing expenses increased by approximately $600,000, or 17%, to the three months ended June 30, 2016
Net Revenue. Net revenue was approximately $2.3$4.1 million for the three months ended June 30, 20172018, compared to approximately $3.5 million for the three months ended June 30, 2017. The increase was primarily attributable to an increase in personnel and 2016.travel and entertainment costs related to our expanded sales force in the U.S.
U.S. Segment - Six months ended June 30, 2018 compared to the six months ended June 30, 2017
Net revenue. Net revenue increased by approximately $2.5 million, or 20%, to approximately $15.0 million for the six months ended June 30, 2018, compared to approximately $12.5 million for the six months ended June 30, 2017. The increase was primarily attributable increases of $2.2 million due to our increased end user demand, our expanded U.S. sales presence and the promotion of our Phase 4 USER post-market clinical study data and $300,000 due to the required recognition of certain distributor costs that are no longer offset against net revenue pursuant to ASC 606.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $80,000,$700,000, or 42%70%, to approximately $270,000$1.7 million for the threesix months ended June 30, 20172018, compared to approximately $190,000$1.0 for the threesix months ended June 30, 2016. The2017. This increase was primarily attributabledue to an increaseour increased sales volume, increased manufacturing costs and the required recognition of certain distributor costs pursuant to ASC 606 of $372,000 to cost of goods sold, excluding depreciation and amortization, that were included in net revenue in the number of units sold to our international distributors.prior period.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreasedincreased by approximately $480,000,$500,000, or 48%19%, to approximately $520,000$3.2 million for the threesix months ended June 30, 20172018, compared to approximately $1.0$2.7 million for the threesix months ended June 30, 2016.2017. The decreaseincrease was primarily attributable to a refund from the FDA of approximately $440,000 in the first quarter of 2017 which was not repeated in the first quarter of 2018. Additionally, the increase was attributable to increases of approximately $140,000 in scientific communication costs, offset by a decrease of $110,000 in costs associated with our international scientific study costs including the five-year, post-authorization, open label registry study in Europe.U.S. clinical studies of ILUVIEN.
General and administrative expenses. General and administrative expenses increased by approximately $700,000, or 20%, to approximately $4.2 million for the six months ended June 30, 2018, compared to approximately $3.5 million for the six months ended June 30, 2017. The increase was primarily attributable to increases of $320,000 in audit and legal fees, $110,000 of U.S. state franchise taxes and $100,000 in personnel costs.
Sales and marketing expenses. Sales and marketing expenses increased by approximately $900,000, or 12%, to approximately $8.5 million for the six months ended June 30, 2018, compared to approximately $7.6 million for the six months ended June 30, 2017. The increase was primarily attributable to an increase in personnel and travel and entertainment costs related to our expanded sales force in the U.S.

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International Segment
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 2018 2017 2018 2017
 (In thousands)
NET REVENUE$2,918
 $2,312
 $5,743
 $4,485
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION(257) (266) (648) (405)
GROSS PROFIT2,661
 2,046
 5,095
 4,080
        
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES954
 518
 1,904
 1,259
GENERAL AND ADMINISTRATIVE EXPENSES723
 476
 1,630
 1,395
SALES AND MARKETING EXPENSES1,493
 1,236
 2,771
 2,378
DEPRECIATION AND AMORTIZATION—
 —
 —
 —
OPERATING EXPENSES3,170
 2,230
 6,305
 5,032
SEGMENT LOSS FROM OPERATIONS$(509) $(184) $(1,210) $(952)
International Segment - Three months ended June 30, 2018 compared to the three months ended June 30, 2017
Net revenue. Net revenue increased by approximately $600,000, or 26%, to approximately $2.9 million for the three months ended June 30, 2018, compared to approximately $2.3 million for the three months ended June 30, 2017. The increase was primarily attributable to sales increases of $390,000 in the countries in Europe where we sell direct and $210,000 in other countries where we sell to distributors.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, decreased by approximately $10,000, or 4%, to approximately $260,000 for the three months ended June 30, 2018 compared to approximately $270,000 for the three months ended June 30, 2017.
Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $430,000, or 83%, to approximately $950,000 for the three months ended June 30, 2018, compared to approximately $520,000 for the three months ended June 30, 2017. The increase was primarily attributable to increases of $280,000 in our clinical study costs, as we benefited from one-time cost savings associated with our clinical studies that offset expenses incurred during the three months ended June 30, 2017, and $120,000 in personnel costs.
General and administrative expenses. General and administrative expenses increased by approximately $240,000, or 50%, to approximately $720,000 or 60%,for the three months ended June 30, 2018, compared to approximately $480,000 for the three months ended June 30, 20172017. The increase was primarily attributable to increased personnel costs.
Sales and marketing expenses. Sales and marketing expenses increased by approximately $300,000, or 17%, to approximately $1.5 million for the three months ended June 30, 2018, compared to approximately $1.2 million for the three months ended June 30, 2016.2017. The decreaseincrease was primarily attributable to decreases of $240,000 in personnel costs, $200,000 in professional fees including legal and tax preparation fees and $150,000 in costs associated with the 2016 dispute between us and pSivida that was later settled in 2017.
Sales and Marketing expenses. Sales and marketing expenses decreased by approximately $800,000, or 40%, to approximately $1.2 million for the three months ended June 30, 2017 compared to approximately $2.0 million for the three months ended June 30, 2016. The decrease was primarily attributable to decreases of $460,000an increase in marketing costs as a result of the cost savings program we implemented in late 2016 and $190,000 in personnelmarket access costs.
International Segment - Six months ended June 30, 20172018 compared to the six months ended June 30, 20162017
Net Revenue.revenue. Net revenue increased by approximately $500,000,$1.2 million, or 13%27%, to approximately $5.7 million for the six months ended June 30, 2018, compared to approximately $4.5 million for the six months ended June 30, 2017 compared to approximately $4.0 million for the six months ended June 30, 2016.2017. The increase was primarily attributable to increased sales volumeincreases of $650,000 in countries where we sell to distributors and $600,000 in the countries in whichEurope where we operate directly in Europe and sales to our international distributors.sell direct.
Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $70,000,$240,000, or 21%59%, to approximately $650,000 for the six months ended June 30, 2018 compared to approximately $410,000 for the six months ended June 30, 2017 compared to approximately $340,000 for the six months ended June 30, 2016. The2017. This increase was primarily attributabledue to increasesour increased sales volume and in supplier and manufacturing costs.sales to our international distributors.
Research, development and medical affairs expenses. Research, development and medical affairs expenses decreasedincreased by approximately $800,000,$600,000, or 38%46%, to approximately $1.3$1.9 million for the six months ended June 30, 20172018, compared to approximately $2.1 million$1.3 for the six months ended June 30, 2016.2017. The decreaseincrease was primarily attributable to decreases(a) an increase of

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$710,000200,000 in personnel costs, (b) an increase of $190,000 in our international scientificclinical study costs, as we benefited from one-time cost savings associated with our clinical studies that offset expenses incurred during the three months ended June 30, 2017 and (c) an increase of $100,000 in costs related to maintaining the international registrations of ILUVIEN, including costs to file an application for a new indication for ILUVIEN for the five-year, post-authorization, open label registry studytreatment of NIPU in Europe, $130,000 in pharmacovigilance costs.the EU.
General and administrative expenses. General and administrative expenses decreasedincreased by approximately $500,000,$200,000, or 26%14%, to approximately $1.6 million for the six months ended June 30, 2018, compared to approximately $1.4 million for the six months ended June 30, 2017 compared2017. The increase was primarily attributable to increased personnel costs.
Sales and marketing expenses. Sales and marketing expenses increased by approximately $400,000, or 17%, to approximately $1.9$2.8 million for the six months ended June 30, 2016. The decrease was primarily attributable to decreases of $270,000 in personnel costs, $150,000 in costs associated with the 2016 dispute between us and pSivida that was later settled in 2017. and $140,000 in professional fees including legal and tax preparation fees.
Sales and Marketing expenses. Sales and marketing expenses decreased by approximately $1.1 million, or 31%,2018, compared to approximately $2.4 million for the six months ended June 30, 2017 compared to approximately $3.5 million for the six months ended June 30, 2016.2017. The decreaseincrease was primarily attributable to decreases of $400,000an increase in marketing costs as a result of the cost savings program we implemented in late 2016, $310,000 inand market access costs in the United Kingdom and Germany and $300,000 in personnel costs.
Other Segment
Our chief operating decision maker manages and evaluates our U.S. and International segments based on net loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, these non-cash expenses included in Research, Developmentresearch, development and Medical Affairs Expenses, Generalmedical affairs expenses, general and Administrative Expenses,administrative expenses, and Salessales and Marketing Expensesmarketing expenses are classified within the Other segment within our Interim Financial Statements.unaudited condensed consolidated financial statements.
Within the respective financial statement line items included in the Other segment, stock-based compensation expense, collectively, decreased bywas approximately $100,000, or 8%, to $1.2 million for both three months ended June 30, 2018 and 2017 compared to $1.3 million for the three months ended June 30, 2016. Stock-based compensation expense, collectively, decreased byand approximately $200,000, or 8%, to $2.4 million for six months ended June 30, 2017, compared to $2.6 million forboth the six months ended June 30, 2016.2018 and 2017.
Depreciation and amortization decreased by approximately $30,000,$20,000, or 4%3%, to $670,000$650,000 for three months ended June 30, 2017,2018, compared to $700,000 for the three months ended June 30, 2016. Depreciation and amortization decreased by approximately $100,000, or 7%, to $1.3 million for six months ended June 30, 2017, compared to $1.4 million for the six months ended June 30, 2016.

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Consolidated other income and expense
The following selected unaudited financial and operating data are derived from our consolidated financial statements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Interim Financial Statements.
 
Three Months Ended
June 30,
 Six Months Ended
June 30,
 2017 2016 2017 2016
 (In thousands)    
NET LOSS FROM OPERATIONS$(1,378) $(6,449) $(6,889) $(15,239)
        
INTEREST EXPENSE, NET AND OTHER(1,384) (1,177) (2,721) (2,512)
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET28
 (14) —
 20
CHANGE IN FAIR VALUE OF DERIVATIVE WARRANT LIABILITY21
 824
 188
 2,343
LOSS ON EARLY EXTINGUISHMENT OF DEBT—
 —
 —
 (2,564)
NET LOSS BEFORE TAXES(2,713) (6,816) (9,422) (17,952)
PROVISION FOR TAXES(44) (42) (70) (51)
NET LOSS$(2,757) $(6,858) $(9,492) $(18,003)
Interest expense, net and other.
Interest expense, net and other was approximately $1.4 million$670,000 for the three months ended June 30, 2017 and was approximately $1.2$1.3 million for the three months ended June 30, 2016. Interest incurred in both periods was related to the 2014 Term Loan and related amendments with Hercules.
Interest expense, net and other was approximately $2.7 million for the six months ended June 30, 20172018 and approximately $2.5 million for the six months ended June 30, 2016. Interest incurred in both periods was related to the 2014 Term Loan and related amendments with Hercules.
Unrealized foreign currency loss, net.
We recorded a non-cash unrealized foreign currency Gain of approximately $30,000 for the three months ended June 30, 2017 compared to a loss of approximately $10,000 for the three months ended June 30, 2016. The unrealized foreign currency loss and gain were primarily attributable to the changing values of the Euro and the British pound sterling during the three months ended June 30, 2017 and 2016.
There was no gain or loss for non-cash unrealized foreign currency changes for the six months ended June 30, 2017 compared to a gain of approximately $20,000 for the six months ended June 30, 2016. The unrealized foreign currency gain during the six months ended June 30, 2016 was primarily attributable to the changing values of the Euro and the British pound sterling.
Change in fair value of derivative warrant liability.
A decrease in the fair value of our derivative warrant liability resulted in a non-cash gains of approximately $20,000 and $820,000 for the three months ended June 30, 2017 and 2016, respectively. For the six months ended June 30, 2017 and 2016, we recorded gains of approximately $190,000 and $2.3 million, respectively, for the decrease in the fair value of our derivative warrant liability. The change in fair value was primarily attributable to the decreasing time remaining to exercise the warrants.
Loss on early extinguishment of debt.
We recorded a loss on early extinguishment of debt of approximately $2.6 million for the six months ended June 30, 2016, as a result of the Second Loan Amendment to our 2014 Term Loan with Hercules.2017.

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Liquidity and Capital Resources
To date,Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit of $386.6$410.8 million from our inception through June 30, 2018. We have funded our operations through the public and private placement of common stock, convertible preferred stock, warrants, the sale of certain assets of the non-prescription business in which we were previously engaged and certain debt facilities.
In September 2014, we entered into a sales agreement with Cowen and Company, LLC (Cowen) to offer shares of our common stock from time to time through Cowen, as our sales agent for the offer and sale of the shares up to an aggregate offering price of $35.0 million. We paid a commission equal to 3% of the gross proceeds from the sales of shares of our common stock under the sales agreement. Our sales agreement with Cowen to sell additional shares expired on August 13, 2017.
During the three and six months ended June 30, 2017, we sold 2,140,713 shares of our common stock at a weighted average purchase price of $1.40 per share resulting in gross proceeds of approximately $3.0 million, prior to the payment of approximately $110,000 of sales agent discounts and commissions and related issuance costs. During the year ended December 31, 2017, we sold 4,203,015 shares of our common stock at a weighted average price of $1.43 per share through this at-the-market offering, for total gross proceeds of approximately $6.0 million, reduced by approximately $180,000 of related commissions, issuance costs and placement agent fees. We used the net proceeds from this offering for general corporate purposes and working capital.
In October 2017, we entered into a common stock sales agreement (Sales Agreement) with H.C. Wainwright & Co., LLC (HCW) to offer shares of our common stock from time to time through HCW, as our sales agent, for the offer and sale of the shares up to an aggregate offering price of $25.0. In June 2018, we notified HCW that we were terminating the Sales Agreement in accordance with the termination provisions of the Sales Agreement, effective on June 1, 2018. We had no obligation to sell shares under this sales agreement with HCW and we never sold shares under this agreement. We incurred no early termination penalties in connection with the termination of the Sales Agreement.
On January 5, 2018, we entered into the $40.0 million 2018 Loan Agreement with Solar Capital. Under this agreement, we borrowed the entire $40.0 million as a term loan that matures on July 1, 2022. We used the proceeds of the 2018 Loan Agreement to repay the Hercules Loan Agreement and related expenses. We expect to use the remaining loan proceeds to provide additional working capital for general corporate purposes. (See Note 10 of our notes to condensed consolidated financial statements).
As of June 30, 2017,2018, we had approximately $26.9$16.7 million in cash and cash equivalents.
We launchedcommercially market ILUVIEN directly in the U.S., Germany, and the United Kingdom, Portugal, Austria and Ireland. We began selling ILUVIEN in the second quarter of 2013, in the U.S. and PortugalAustria in the first quarter of 2015.
In October 2016, Limited entered into the Fourth Loan Amendment. Under the Fourth Loan Amendment, Hercules agreed to provide up to an additional $10.0 million to Limited with (i) the first $5.0 million available at Limited’s option through June 30, 2017 subject to (A) the achievement of $12.0 million in trailing three month net product revenue and (B) no event of default having occurred since the Effective Date and (ii) the second $5.0 million available at Limited’s option through December 31, 2017 subject to (A) the achievement of $15.0 million in trailing three month net product revenue, (B) no event of default having occurred since the Effective Date and (C) the prior $5.0 million having been advanced to Limited. We did not achieve the trailing three month net product revenue threshold prior to June 30, 2017 and as a resultin Ireland in the additional $10.0 million is not availablefourth quarter of 2017. We sell ILUVIEN through distributors in the Middle East, France, Italy and Spain. Due to Limited.
The Term Loan Agreement requires that we maintain at least $25.0 million in liquid assets, with a minimum of $12.5 million in cash. Additionally, in any month in which we have $35.0 million in liquidity, including cash and eligible accounts receivable, the revenue and adjusted EBITDA covenants requirement will be waived.
As a result of the limited revenue generated by ILUVIEN to date, our negative cash flow from operations and accumulated deficit raise substantial doubt about our ability to continue as a going concern. Our Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty. We believe that we may have sufficient funds to allow us to become cash flow positive in the countries in which we sell ILUVIEN. However, during the six months ended June 30, 2017, we raised $3,001,000 of additional equity and subsequent to June 30, 2017 we raised $3,000,000 of additional equity via the Company’s at-the-market offering facility in order to raise additional capital to fund the continued commercialization of ILUVIEN. If we are unable to raise additional financing, we will need to adjust our commercial plans so that we can continue to operate with our existing cash resources. The actual amount of funds for operations and ensure compliance with its debt covenants. The Company does not plan to sell additional shares under its sales agreement with Cowen and Company LLC,that we will need will depend on many factors, some of which expires on August 13, 2017are beyond our control. We may need funds sooner than currently anticipated.
We cannot be sure that alternative or additional financing will be available if and when needed or that, if available, the additional financing willwould be obtained on terms favorable to us or our stockholders. If we were to raise additional funds by issuing equity securities, substantial dilution to existing stockholders would likely result and the terms of any new equity securities may have a preference over our common stock. If we were to attempt to raise additional funds through strategic collaboration agreements and debt financing, we may not be successful in obtaining collaboration agreements, or in receiving milestone or royalty payments under those agreements, oragreements. If we were to attempt to raise additional funds through debt financing the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to commercialize ILUVIEN or any future products or product candidates or operate our business.
For the six months ended June 30, 2018, cash used in our operations was $8.4 million. The cash used in our operations was primarily due to our net loss of $11.7 million, offset by $2.4 million of non-cash stock-based compensation expense, $1.8 million loss on our early extinguishment of debt, $1.3 million for non-cash depreciation and amortization, $420,000 for non-cash interest expense associated with the amortization of our debt discount and a $250,000 increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2018 was further affected by an increase in accounts receivable of $2.1 million and an increase of $650,000 of inventory.
For the six months ended June 30, 2017, cash used by our operations of $7.0 million was primarily due to our net loss of $9.5 million offset by non-cash items, including $2.4 million of stock-based compensation expense, $1.3 million for depreciation and amortization and $690,000 for non-cash interest expense associated with our debt discount. Increasing cash

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used in operations was a decrease in other long term liabilities of $1.4 million and increases in inventory of $720,000 and prepaid expenses and other current assets of $390,000. These increases were offset by an increase in accounts payable, accrued expenses and other current liabilities of $360,000 and a decrease in accounts receivable of $340,000.
For the six months ended June 30, 2016, cash used by our operations of $14.2 million was primarily due to our2018, net loss of $18.0 million increased by a non-cash gain of $2.3 million for the change in our derivative warrant liability and offset by non-cash items, including a $2.6 million loss on early debt extinguishment for the amendment to our Term Loan Agreement, $2.6 million of stock-based compensation expense, $1.4 million for depreciation and amortization and $520,000 for non-cash interest expense associated with our debt discount. Further decreasing cash used in operations were an increase in accounts payable, accrued expensesour investing activities was approximately $120,000, which was due to the purchase of property and other current liabilitiesequipment, primarily the purchase of approximately $2.9 million and a decrease in inventory of approximately $300,000. These were offset by increases in accounts receivable of approximately $3.5 million and in prepaid and other current assets of approximately $650,000.additional software.
For the six months ended June 30, 2017, net cash used in our investing activities was approximately $170,000, which was due to the purchase of property and equipment, primarily for the purchase of manufacturing equipment and software.

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For the six months ended June 30, 2016,2018, net cash used inprovided by our investingfinancing activities was approximately $120,000,$1.2 million, which wasis primarily due to entering into the purchase$40.0 million 2018 Loan Agreement with Solar Capital, offset by paying off the $35.0 million Hercules Loan Agreement and payment of property and equipment, primarily the purchaserelated debt costs of accounts payable software and leasehold improvements.$3.7 million.
For the six months ended June 30, 2017, net cash provided by our financing activities was approximately $2.9 million. During the second quarter of 2017, we sold a total of 2,140,713 shares of our common stock at a weighted average purchase price of $1.40 per share resulting in gross proceeds of approximately $3.0 million, prior to the payment of approximately $110,000 of sales agent discounts and commissions and related issuance costs.
For the six months ended June 30, 2016, net cash used in our financing activities was approximately $160,000 due to the payment of debt issuance costs of approximately $350,000 associated with the second amendment of our Hercules Term Loan Agreement and approximately $120,000 in payments on capital leases, offset by cash provided by proceeds from the issuance of common stock of $290,000.
Contractual Obligations and Commitments
There have been no other material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, filed with the SEC on March 3, 2017.2, 2018.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitatingto facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.
AdoptionImpact of NewRecent Accounting StandardsPronouncements
In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Disclosure of Uncertainties about an Entity’s AbilitySee Note 3 our notes to Continue as a Going Concern. ASU 2014-15 requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date thecondensed consolidated financial statements are issuedfor a description of recent accounting pronouncements, including the expected dates of adoption and provides guidanceexpected effects on determining whenresults of operations and how to disclose going concern uncertainties in the financial statements. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The adoption of this guidance did not have a material impact on our financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update requires entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. This ASU is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those years. The adoption of this guidance did not have a material impact on our financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The adoption of this guidance did not have a material impact on our financial statements.condition, if known.

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Accounting Standards Issued but Not Yet Effective
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. The revenue guidance contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017 for public entities, with early adoption permitted in the annual reporting period beginning after December 15, 2016. We have evaluated the variable consideration provisions of the new guidance and do not believe there will be a material impact on our recognition of revenues. We anticipate adopting the new revenue standard using the modified retrospective transition method.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires all leases with durations greater than twelve months to be recognized on the balance sheet and is effective for interim and annual reporting periods beginning after December 15, 2018, although early adoption is permitted. We are currently in the process of evaluating the impact of the adoption on our financial statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230). ASU 2016-15 is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. The standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted. We are currently in the process of evaluating the impact of the adoption on our financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. ASU 2016-18 requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. We do not expect the impact of the adoption to have a material effect on our financial statements.


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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Liquidity
See the “Liquidity and Capital Resources” section of this Quarterly Report on Form 10-Q for additional discussion of liquidity and related risks.
Interest Rate Risk
Our earnings and cash flows are subject to fluctuations due to changes in interest rates, principally in connection with our loan agreement with Hercules.Solar Capital. We do not believe we are materially exposed to changes in interest rates. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes. We estimate that a 100 basis point, or 1%, unfavorable change in interest rates would have resulted in approximately a $87,000$101,000 and $176,000$201,000 increase in interest expense for the three and six months ended June 30, 2017,2018, respectively.
Credit Quality Risk
We are subject to credit risk in connection with accounts receivable from our product sales of ILUVIEN. We have contractual payment terms with each of our customers and we monitor our customers’ financial performance and credit worthinesscreditworthiness so that we can properly assess and respond to any changes in their credit profile. During the three and six months ended June 30, 20172018 and 2016,2017, we did not recognize any charges for write-offs of accounts receivable. As of June 30, 20172018 and December 31, 2016,2017, two U.S.-based distributors accounted for 84%82% and 90%81%, respectively, of our accounts receivable balances.
Foreign Exchange Risk
As discussed further above, we market ILUVIEN outside the U.S. Therefore, significant changes in foreign exchange rates of the countries outside the U.S. where our product is sold can impactaffect our operating results and financial condition. As sales outside the U.S. continue to grow and as we expand our international operations, we will continue to assess potential steps, including foreign currency hedging and other strategies, to mitigate our foreign exchange risk.

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ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management,Under the supervision and with the participation of our management, including the Chief Executive Officer and ourthe Chief Financial Officer, we evaluated the effectiveness of our disclosure controlsthe design and procedures asoperation of June 30, 2017. The termour “disclosure controls and procedures,” asprocedures” (as defined in RulesRule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (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, withinAct) as of the time periods specified inend of the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosedperiod covered 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.this report. Based on thethat evaluation, of our disclosure controls and procedures as of June 30, 2017, ourthe Chief Executive Officer and the Chief Financial Officer concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.as of June 30, 2018.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 20172018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On December 22, 2016, Cantor Fitzgerald & Co. (Cantor Fitzgerald) filed a complaint against us in the Supreme Court of the State of New York, County of New York against us.(the Court). This complaint mirrored a complaint that Cantor Fitzgerald filed against us in November 2016 in the United States District Court for the Southern District of New York and then voluntarily dismissed.
In the operative complaint, Cantor Fitzgerald alleges breach of a letter agreement pursuant to which we had engaged Cantor Fitzgerald to assist us in obtaining bank or loan financing. Cantor Fitzgerald alleges that our agreement in October 2016 with Hercules Capital, Inc. (Hercules) to restructure and amend our then existing $35.0$35 million debt facility with Hercules and to secure an additional $10.0$10 million in debt financing requires the payment to Cantor Fitzgerald of an advisory fee of 2% of $45 million, or $900,000, plus expenses of $24,890. Cantor Fitzgerald seeks compensatory and punitive damages, pre- and post-judgment interest, plus attorneys’ fees and costs.
On January 12, 2017, we filed a counterclaim against Cantor Fitzgerald for breach of contract. We allege in the counterclaim, among other things, that Cantor Fitzgerald failed to meet its obligations to provide services to us as required under the letter agreement. We seek compensatory and other damages, arising from, among other things, our additional out-of-pocket costs incurred as a result of Cantor Fitzgerald’s breach.
Both parties have answered each other’s complaint and counterclaims and have denied liability. This lawsuit is currently in discovery.Discovery has concluded and both parties have filed motions for summary judgment. The Court has scheduled oral argument on the parties’ summary judgment motions for August 15, 2018. No trial date has been set, and we do not expect a trial date to be set until the secondthird quarter of 2018 at the earliest. We are not able to predict the outcome.outcome of this litigation.

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ITEM 1A. Risk Factors
In our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2017, filed with the SEC on March 3, 2017,2, 2018, we identify under Item 1A of Part I important factors which could affect our business, financial condition, results of operations and future operations and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q. ThereExcept as set forth below, there have been no material changes in our risk factors subsequent to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. However, the risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.
The following information should be read in conjunction with the interim condensed consolidated financial statements and related notes in Part I, Item 1, “Interim Condensed Consolidated Financial Statements” and the discussion and analysis of our financial condition in Part I, Item 2, “Management’s, Discussion and Analysis of Financial Condition and Results of Operations.”
We received notice in June 2018 from The Nasdaq Stock Market (“Nasdaq”) that we failed to comply with the Nasdaq Global Market’s minimum bid requirement because our stock price was below $1.00 per common share for 30 consecutive business days. Although we have regained compliance with Nasdaq’s minimum bid requirement, it is possible that we may again fail to comply with Nasdaq’s minimum bid requirement. If that were to occur and we were to fail to regain compliance, our shares could be delisted from the Nasdaq Global Market, which could materially reduce the liquidity of our common stock and have an adverse effect on its market price.
We received notice in June 2018 from Nasdaq Stock Market (“Nasdaq”) that we failed to comply with the Nasdaq Global Market’s minimum bid requirement because our stock price was below $1.00 per common share for 30 consecutive business days. On July 30, 2018, we received a letter from Nasdaq informing us that we have regained compliance with the minimum bid price requirement because our common stock had a closing bid price of $1.00 or more for 10 consecutive business days. Given that our stock price is currently trading close to $1.00 per share, however, it is possible that we may again fail to comply with Nasdaq’s minimum bid requirement. If that were to occur and we were to fail to regain compliance with this continuing listing requirement, our shares could be delisted from the Nasdaq Global Market, which could materially reduce the liquidity of our common stock and have an adverse effect on its market price. A delisting would also likely make it more difficult for us to obtain financing through the sale of our equity. Any such sale of equity would likely be more dilutive to our current shareholders than would be the case if our shares were listed. For more information about this matter and the effects on us if again fail to comply with Nasdaq’s minimum bid requirement, please see our Current Report on Form 8-K dated June 19, 2018 and filed with the SEC on June 22, 2018.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.

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ITEM 6. Exhibits
Exhibit
Number
 Description
   
3.1 
Restated Certificate of Incorporation of Registrant, as amended on various dates (filed as Exhibit 3.2 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-162782), as filed on April 6, 2010 and incorporated herein by reference).
   
3.2 
Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, as filed on November 5, 2015 and incorporated herein by reference).
   
3.3 
Certificate of Designation of Series A Convertible Preferred Stock (filed as Exhibit 3.5 to the Registrant’s Current Report on Form 8-K, as filed on October 2, 2012 and incorporated herein by reference).
   
3.4 
Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (filed as Exhibit 3.6 to the Registrant’s Current Report on Form 8-K, as filed on December 15, 2014 and incorporated herein by reference).
   
3.5 
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K, as filed on March 3, 2017 and incorporated herein by reference).
10.482017 Amendment to Amended and Restated Collaboration Agreement dated May 3, 2017 by and between Alimera Sciences Inc. and pSivida US, Inc. (f/k/a pSivida, Inc.).
10.49Fifth Amendment to Loan and Security Agreement dated May 5, 2017 by and among Alimera Sciences Limited, Hercules Capital Funding Trust and Hercules Capital, Inc. f/k/a Hercules Technology Growth Capital, Inc.
   
31.1 
Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 
Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 
Certification of the Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS+ XBRL Instance 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 Link Document.
   
101.PRE+ XBRL Taxonomy Extension Presentation Linkbase Document.
   
+Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections.

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

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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 ALIMERA SCIENCES, INC.
   
August 10, 20172, 2018By:/s/ C. Daniel Myers
  C. Daniel Myers
  Chief Executive Officer
  (Principal Executive Officer)
   
   
August 10, 20172, 2018By:/s/ Richard S. Eiswirth, Jr.
  Richard S. Eiswirth, Jr.
  President and Chief Financial Officer
  (Principal Financial and Accounting Officer)


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EXHIBIT INDEX
Exhibit
Number
Description
3.1Restated Certificate of Incorporation of Registrant, as amended on various dates (filed as Exhibit 3.2 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-162782), as filed on April 6, 2010 and incorporated herein by reference).
3.2Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, as filed on November 5, 2015 and incorporated herein by reference).
3.3Certificate of Designation of Series A Convertible Preferred Stock (filed as Exhibit 3.5 to the Registrant’s Current Report on Form 8-K, as filed on October 2, 2012 and incorporated herein by reference).
3.4Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (filed as Exhibit 3.6 to the Registrant’s Current Report on Form 8-K, as filed on December 15, 2014 and incorporated herein by reference).
3.5Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.5 to the Registrant’s Annual Report on Form 10-K, as filed on March 3, 2017 and incorporated herein by reference).
10.482017 Amendment to Amended and Restated Collaboration Agreement dated May 3, 2017 by and between Alimera Sciences Inc. and pSivida US, Inc. (f/k/a pSivida, Inc.).
10.49Fifth Amendment to Loan and Security Agreement dated May 5, 2017 by and among Alimera Sciences Limited, Hercules Capital Funding Trust and Hercules Capital, Inc. f/k/a Hercules Technology Growth Capital, Inc.
31.1Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of the Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+XBRL Instance 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 Link Document.
101.PRE+XBRL Taxonomy Extension Presentation Linkbase Document.
+Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections.

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

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