CONDENSED CONSOLIDATED BALANCE SHEETS



	June 30,		December 31,
	2020		2019
	(In thousands, except share and per share data)
CURRENT ASSETS:
Cash and cash equivalents	$	13,496	$	9,426
Restricted cash		31		33
Accounts receivable, net		14,034		19,331
Prepaid expenses and other current assets		2,942		2,565
Inventory (Note 7)		1,968		1,390
Total current assets		32,471		32,745
NON-CURRENT ASSETS:
Property and equipment, net		1,205		940
Right of use assets, net		867		1,107
Intangible asset, net (Note 8)		13,816		14,783
Deferred tax asset		735		734
TOTAL ASSETS	$	49,094	$	50,309
CURRENT LIABILITIES:
Accounts payable	$	5,884	$	7,077
Accrued expenses		3,140		4,716
Notes payable		889		—
Finance lease obligations		226		255
Total current liabilities		10,139		12,048
NON-CURRENT LIABILITIES:
Notes payable, net of discount (Note 10)		42,510		38,658
Finance lease obligations — less current portion		311		94
Other non-current liabilities		3,664		3,954
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT:
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2020 and December 31, 2019:
Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2020 and December 31, 2019; liquidation preference of $24,000 at June 30, 2020 and December 31, 2019		19,227		19,227
Series C Convertible Preferred Stock, 10,150 authorized issued and outstanding at June 30, 2020 and December 31, 2019; liquidation preference of $10,150 at June 30, 2020 and December 31, 2019		11,117		11,117
Common stock, $.01 par value — 150,000,000 shares authorized, 5,031,745 shares issued and outstanding at June 30, 2020 and 4,965,949 shares issued and outstanding at December 31, 2019		50		50
Additional paid-in capital		350,769		350,117
Common stock warrants		3,707		3,707
Accumulated deficit		(391,314)		(387,570)
Accumulated other comprehensive loss		(1,086)		(1,093)
TOTAL STOCKHOLDERS’ DEFICIT		(7,530)		(4,445)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	49,094	$	50,309

June 30,
2019 December 31, 2018
(In thousands, except share and per share data)
CURRENT ASSETS:
Cash and cash equivalents $ 12,157
$ 13,043
Restricted cash 32
32
Accounts receivable, net 13,892
17,259
Prepaid expenses and other current assets 2,691
2,109
Inventory (Note 7) 2,141
2,405
Total current assets 30,913
34,848
NON-CURRENT ASSETS:
Property and equipment, net 1,095
1,355
Right of use assets, net 1,299
—
Intangible asset, net (Note 8) 15,761
16,723
Deferred tax asset 1,174
1,182
TOTAL ASSETS $ 50,242
$ 54,108
CURRENT LIABILITIES:
Accounts payable $ 7,875
$ 6,355
Accrued expenses (Note 9) 3,468
3,643
Finance lease obligations 247
236
Total current liabilities 11,590
10,234
NON-CURRENT LIABILITIES:
Note payable (Note 11) 38,288
37,873
Finance lease obligations — less current portion 172
305
Other non-current liabilities 3,874
2,974
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ (DEFICIT) EQUITY:
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2019 and December 31, 2018:

Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $24,000 at June 30, 2019 and December 31, 2018 19,227
19,227
Series C Convertible Preferred Stock, 10,150 authorized issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $10,150 at June 30, 2019 and December 31, 2018 11,117
11,117
Common stock, $.01 par value — 150,000,000 shares authorized, 71,000,495 shares issued and outstanding at June 30, 2019 and 70,078,878 shares issued and outstanding at December 31, 2018 710
701
Additional paid-in capital 347,524
346,108
Common stock warrants 3,707
3,707
Accumulated deficit (384,928 ) (377,127 )
Accumulated other comprehensive loss (1,039 ) (1,011 )
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY (3,682 ) 2,722
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY $ 50,242
$ 54,108

See Notes to Condensed Consolidated Financial Statements.

‎

Table of Contents

ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands, except share and per share data)
NET REVENUE	$	10,038	$	10,855	$	24,573	$	23,745
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(1,485)		(1,174)		(3,412)		(2,774)
GROSS PROFIT		8,553		9,681		21,161		20,971
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		1,810		2,834		4,693		5,561
GENERAL AND ADMINISTRATIVE EXPENSES		2,975		3,675		6,156		7,068
SALES AND MARKETING EXPENSES		4,382		6,108		10,054		12,021
DEPRECIATION AND AMORTIZATION		685		654		1,339		1,306
OPERATING EXPENSES		9,852		13,271		22,242		25,956
NET LOSS FROM OPERATIONS		(1,299)		(3,590)		(1,081)		(4,985)
INTEREST EXPENSE AND OTHER		(1,351)		(1,236)		(2,643)		(2,464)
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET		109		49		28		(20)
NET LOSS BEFORE TAXES		(2,541)		(4,777)		(3,696)		(7,469)
PROVISION FOR TAXES		(5)		(261)		(48)		(332)
NET LOSS	$	(2,546)	$	(5,038)	$	(3,744)	$	(7,801)
NET LOSS PER COMMON SHARE — Basic and diluted	$	(0.51)	$	(1.06)	$	(0.75)	$	(1.65)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — Basic and diluted		5,030,833		4,732,687		5,005,777		4,724,417

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In thousands, except share and per share data)
NET REVENUE $ 10,855
$ 10,717
$ 23,745
$ 20,347
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION (1,174 ) (913 ) (2,774 ) (2,017 )
GROSS PROFIT 9,681
9,804
20,971
18,330

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 2,834
2,777
5,561
5,599
GENERAL AND ADMINISTRATIVE EXPENSES 3,675
3,229
7,068
7,084
SALES AND MARKETING EXPENSES 6,108
5,926
12,021
11,895
DEPRECIATION AND AMORTIZATION 654
650
1,306
1,299
OPERATING EXPENSES 13,271
12,582
25,956
25,877
NET LOSS FROM OPERATIONS (3,590 ) (2,778 ) (4,985 ) (7,547 )

INTEREST EXPENSE AND OTHER (1,236 ) (1,178 ) (2,464 ) (2,329 )
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET 49
32
(20 ) 34
LOSS ON EARLY EXTINGUISHMENT OF DEBT —
—
—
(1,766 )
NET LOSS BEFORE TAXES (4,777 ) (3,924 ) (7,469 ) (11,608 )
PROVISION FOR TAXES (261 ) (76 ) (332 ) (76 )
NET LOSS (5,038 ) (4,000 ) (7,801 ) (11,684 )
NET LOSS PER SHARE — Basic and diluted $ (0.07 ) $ (0.06 ) $ (0.11 ) $ (0.17 )
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted 70,990,340
70,022,100
70,866,285
69,952,940

See Notes to Condensed Consolidated Financial Statements.

‎

Table of Contents

ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)
NET LOSS		(2,546)	$	(5,038)	$	(3,744)	$	(7,801)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments		93		55		7		(27)
TOTAL OTHER COMPREHENSIVE LOSS		93		55		7		(27)
COMPREHENSIVE LOSS	$	(2,453)	$	(4,983)	$	(3,737)	$	(7,828)

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In thousands)
NET LOSS $ (5,038 ) $ (4,000 ) $ (7,801 ) $ (11,684 )

OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments 55
(213 ) (27 ) (107 )
TOTAL OTHER COMPREHENSIVE INCOME 55
(213 ) (27 ) (107 )
COMPREHENSIVE LOSS $ (4,983 ) $ (4,213 ) $ (7,828 ) $ (11,791 )

See Notes to Condensed Consolidated Financial Statements.

‎

Table of Contents

ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Six Months Ended
	June 30,
	2020		2019
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,744)	$	(7,801)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,339		1,306
Unrealized foreign currency transaction (gain) loss		(28)		20
Amortization of debt discount		481		415
Stock-based compensation expense		757		1,399
Changes in assets and liabilities:
Accounts receivable		5,305		3,332
Prepaid expenses and other current assets		(238)		(963)
Inventory		(582)		256
Accounts payable		(1,211)		1,532
Accrued expenses and other current liabilities		(1,568)		(603)
Other long-term liabilities		(293)		431
Net cash provided by (used in) operating activities		218		(676)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(217)		(39)
Net cash used in investing activities		(217)		(39)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		10		26
Issuance of debt		4,278		—
Payment of debt costs		(19)		—
Payment of finance lease obligations		(231)		(168)
Net cash provided by (used in) financing activities		4,038		(142)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		29		(29)
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		4,068		(886)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period		9,459		13,075
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	13,527	$	12,189
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	1,084	$	2,048
Cash paid for income taxes	$	30	$	7
Supplemental schedule of non-cash investing and financing activities:
Property and equipment acquired under finance leases	$	495	$	64
Property and equipment acquired under operating leases	$	—	$	676
Note payable end of term payment accrued but unpaid	$	1,800	$	1,800

Six Months Ended
June 30,
2019 2018
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,801 ) $ (11,684 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,306
1,299
Inventory reserve —
9
Unrealized foreign currency transaction loss (gain) 20
(34 )
Loss on early extinguishment of debt —
1,766
Amortization of debt discount 415
421
Stock-based compensation expense 1,399
2,358
Changes in assets and liabilities:
Accounts receivable 3,332
(2,054 )
Prepaid expenses and other current assets (963 ) (48 )
Inventory 256
(651 )
Accounts payable 1,532
167
Accrued expenses and other current liabilities (603 ) 84
Other long-term liabilities 431
(35 )
Net cash used in operating activities (676 ) (8,402 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (39 ) (123 )
Net cash used in investing activities (39 ) (123 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options —
2
Proceeds from issuance of common stock 26
49
Issuance of debt —
40,000
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 finance lease obligations (168 ) (187 )
Net cash (used in) provided by financing activities (142 ) 1,178
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH (29 ) (34 )
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH (886 ) (7,381 )
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period 13,075
24,101
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period $ 12,189
$ 16,720
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 2,048
$ 1,579
Cash paid for income taxes $ 7
$ 229
Supplemental schedule of non-cash investing and financing activities:
Property and equipment acquired under finance leases $ 64
$ 432
Property and equipment acquired under operating leases $ 676
$ —
Note payable end of term payment accrued but unpaid $ 1,800
$ 1,800

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ ~~(DEFICIT) EQUITY~~DEFICIT



				Series A			Series C
				Convertible			Convertible									Accumulated
	Common Stock			Preferred Stock			Preferred Stock			Additional		Common				Other
										Paid-In		Stock		Accumulated		Comprehensive
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Warrants		Deficit		Loss		Total
2020	(In thousands, except share data)
Balance, December 31, 2019	4,965,949	$	50	600,000	$	19,227	10,150	$	11,117	$	350,117	$	3,707	$	(387,570)	$	(1,093)	$	(4,445)
Issuance of common stock, net of issuance costs	62,933		—	—		—	—		—		—		—		—		—		—
Stock-based compensation	—		—	—		—	—		—		440		—		—		—		440
Other	—		—	—		—	—		—		(115)		—		—		—		(115)
Net loss	—		—	—		—	—		—		—		—		(1,198)		—		(1,198)
Foreign currency translation adjustments	—		—	—		—	—		—		—		—		—		(86)		(86)
Balance, March 31, 2020	5,028,882	$	50	600,000	$	19,227	10,150	$	11,117	$	350,442	$	3,707	$	(388,768)	$	(1,179)	$	(5,404)
Issuance of common stock, net of issuance costs	2,863		—	—		—	—		—		10		—		—		—		10
Stock-based compensation	—		—	—		—	—		—		317		—		—		—		317
Net loss	—		—	—		—	—		—		—		—		(2,546)		—		(2,546)
Foreign currency translation adjustments	—		—	—		—	—		—		—		—		—		93		93
Balance, June 30, 2020	5,031,745	$	50	600,000	$	19,227	10,150	$	11,117	$	350,769	$	3,707	$	(391,314)	$	(1,086)	$	(7,530)

2019
Balance, December 31, 2018	4,671,921	$	47	600,000	$	19,227	10,150	$	11,117	$	346,762	$	3,707	$	(377,127)	$	(1,011)		2,722
Issuance of common stock, net of issuance costs	59,319		—	—		—	—		—		—		—		—		—		—
Stock-based compensation	—		—	—		—	—		—		770		—		—		—		770
Net loss	—		—	—		—	—		—		—		—		(2,763)		—		(2,763)
Foreign currency translation adjustments	—		—	—		—	—		—		—		—		—		(83)		(83)
Balance, March 31, 2019	4,731,240	$	47	600,000	$	19,227	10,150	$	11,117	$	347,532	$	3,707	$	(379,890)	$	(1,094)	$	646
Issuance of common stock, net of issuance costs	2,124		—	—		—	—		—		—		—		—		—		—
Stock-based compensation	—		—	—		—	—		—		655		—		—		—		655
Net loss	—		—	—		—	—		—		—		—		(5,038)		—		(5,038)
Foreign currency translation adjustments	—		—	—		—	—		—		—		—		—		55		55
Balance, June 30, 2019	4,733,364	$	47	600,000	$	19,227	10,150	$	11,117	$	348,187	$	3,707	$	(384,928)	$	(1,039)	$	(3,682)

Common Stock
Series A
Convertible
Preferred Stock

Series B
Convertible
Preferred Stock

Series C
Convertible
Preferred Stock

Additional
Paid-In
Capital

Common
Stock
Warrants

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss
Total
Shares Amount Shares Amount Shares Amount Shares Amount
2019 (In thousands, except share data)
Balance, December 31, 2018 70,078,878
$ 701
600,000
$ 19,227
—
$ —
10,150
$ 11,117
$ 346,108
$ 3,707
$ (377,127 ) $ (1,011 ) $ 2,722
Issuance of common stock, net of issuance costs 889,752
9
—
—
—
—
—
—
(9 ) —
—
—
—
Stock-based compensation —
—
—
—
—
—
—
—
770
—
—
—
770
Net loss —
—
—
—
—
—
—
—
—
—
(2,763 ) —
(2,763 )
Foreign currency translation adjustments —
—
—
—
—
—
—
—
—
—
—
(83 ) (83 )
Balance, March 31, 2019 70,968,630
$ 710
600,000
$ 19,227
—
$ —
10,150
$ 11,117
$ 346,869
$ 3,707
$ (379,890 ) $ (1,094 ) $ 646
Issuance of common stock, net of issuance costs 31,865
—
—
—
—
—
—
—
—
—
—
—
—
Stock-based compensation —
—
—
—
—
—
—
—
655
—
—
—
655
Net loss —
—
—
—
—
—
—
—
—
—
(5,038 ) —
(5,038 )
Foreign currency translation adjustments —
—
—
—
—
—
—
—
—
—
—
55
55
Balance, June 30, 2019 71,000,495
$ 710
600,000
$ 19,227
—
$ —
10,150
$ 11,117
$ 347,524
$ 3,707
$ (384,928 ) $ (1,039 ) $ (3,682 )

2018
Balance, December 31, 2017 69,146,381
$ 691
600,000
$ 19,227
8,416
$ 49,568
—
$ —
$ 341,622
$ 3,707
$ (399,074 ) $ (821 ) $ 14,920
Issuance of common stock, net of issuance costs 839,285
9
—
—
—
—
—
—
(9 ) —
—
—
—
Exercise of stock options 1,563
—
—
—
—
—
—
—
2
—
—
—
2
Stock-based compensation —
—
—
—
—
—
—
—
1,207
—
—
—
1,207
Net loss —
—
—
—
—
—
—
—
—
—
(7,684 ) —
(7,684 )
Foreign currency translation adjustments —
—
—
—
—
—
—
—
—
—
—
106
106
Balance, March 31, 2018 69,987,229
$ 700
600,000
$ 19,227
8,416
$ 49,568
—
$ —
$ 342,822
$ 3,707
$ (406,758 ) $ (715 ) $ 8,551
Issuance of common stock, net of issuance costs 51,182
—
—
—
—
—
—
—
(9 ) —
—
—
(9 )
Stock-based compensation —
—
—
—
—
—
—
—
1,209
—
—
—
1,209

Net loss —
—
—
—
—
—
—
—
—
—
(4,000 ) —
(4,000 )
Foreign currency translation adjustments —
—
—
—
—
—
—
—
—
—
—
(213 ) (213 )
Balance, June 30, 2018 70,038,411
$ 700
600,000
$ 19,227
8,416
$ 49,568
—
$ —
$ 344,022
$ 3,707
$ (410,758 ) $ (928 ) $ 5,538

Table of Contents

ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	~~NATURE OF OPERATIONS~~

1. NATURE OF OPERATIONS

Alimera Sciences, Inc., together with its ~~wholly-owned~~wholly owned subsidiaries (the Company), is a pharmaceutical company that specializes in the commercialization and development of ophthalmic pharmaceuticals. The Company ~~was formed on June 4, 2003 under the laws of the State of Delaware.~~

~~The Company is~~ presently ~~focused~~focuses on diseases affecting the back of the eye, or retina, because the Company believes these diseases are not well treated with current therapies and affect millions of people ~~in our aging populations.~~globally. The Company’s only ~~commercial~~ product is ILUVIEN^®, which has received marketing authorization and reimbursement approval in the U.S., Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Kuwait, Lebanon, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, the United Arab Emirates and the United Kingdom. In the U.S., Canada, Kuwait, Lebanon and the United Arab Emirates, ILUVIEN is indicatednumerous countries 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~~addition, ILUVIEN has received marketing authorization ~~it is indicated~~in 16 European countries and has obtained reimbursement approval in 2 countries, Germany and the U.K., for the ~~treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.~~

~~In addition, as explained in the following paragraph, ILUVIEN is now indicated for~~ prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIPU) in the EEA countries where the Company has satisfied the country’s labeling requirements. As of the date of this filing, the Company has satisfied the labeling requirements in the United Kingdom and expects to comply with the local labeling requirements of other EEA countries, but timelines for satisfying individual country requirements vary. 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.

In July 2017, the Company amended its license with EyePoint Pharmaceuticals US, Inc. (EyePoint) formerly known as pSivida US, Inc. for the technology underlying ILUVIEN to include the treatment of uveitis, including NIPU in Europe, the Middle East and Africa (See Note 10)(NIU-PS). In December 2017, the Company filed 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. In March 2019, the Company received the Final Variation Assessment Report (FVAR) for ILUVIEN from the Medicines and Healthcare products Regulatory Agency of the United Kingdom (MHRA) based on the Company’s submission to the MHRA through the Mutual Recognition Procedure. Under that procedure, the United Kingdom has acted as the Reference Member State and prepared an assessment report to share with the 16 other countries in the EEA in which the Company applied for an additional indication. The FVAR states that ILUVIEN is approved for the additional indication for prevention of relapse in NIPU. In June 2019, the United Kingdom's National Institute for Health and Care Excellence (NICE) recommended funding for ILUVIEN for NIPU. In the United Kingdom, a NICE recommendation for funding signifies that the country’s National Health Service (NHS) will pay for ILUVIEN prescriptions for the treatment of NIPU as part of its offering. Timing for receiving funding for ILUVIEN for NIPU, if received at all, in the other EEA countries in which the Company has applied for the additional indication can vary. The reimbursement process in each EEA country usually starts after the Company has satisfied the labeling requirements of each individual country.

The Company has completed enrollment into a five-year, post-authorization, open label registry study in patients treated with ILUVIEN. In total, 562 patients enrolled in this study, and the Company anticipates the follow up period to be completed in early 2020.

~~The Company commercially~~ markets ILUVIEN directly in the U.S., Germany, the ~~United Kingdom,~~U.K., Portugal, Austria and Ireland. In addition, the Company has entered into various agreements under which distributors are providing or will provide regulatory, reimbursement orand sales and marketing support for ~~commercialization or future commercialization of~~ ILUVIEN in Belgium, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand, Canada and several countries in the Middle East. In 2016, the Company’s Middle East distributor launched ILUVIEN and initiated named patient sales in the United Arab Emirates. The Company’s Italian distributor launched ILUVIEN in Italy in 2017. The Company’s Spanish distributor began selling on a named patient basis in 2017 and is currently pursuing reimbursement at the national level. The Company’s French distributor received pricing and reimbursement approval in March 2019 for ILUVIEN for DME and began selling in April 2019. The Company’s Canadian distributor is currently pursuing reimbursement. As of June 30, ~~2019,~~2020, the Company has recognized sales of ILUVIEN to the Company’s international distributors in the Middle East, France, Italy and Spain.

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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 with the instructions to Form 10-Q and Article ~~10-01~~8-03 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, ~~they~~these Interim Financial Statements 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 Statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.

The accompanying ~~interim financial statements~~Interim Financial Statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, ~~2018~~2019 and related notes included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on ~~February 25, 2019.~~March 2, 2020. The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.

Effects of the COVID-19 Pandemic

The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and the Company expects will continue to have, certain negative effects on, and present certain risks to, the Company’s business. The Company is currently unable to fully determine its future impact on the Company’s business. These limitations and other effects of the COVID-19 pandemic had an adverse impact on the Company’s revenues late in the first quarter of 2020 and throughout the second quarter of 2020. The Company expects these factors to continue to adversely impact the Company’s revenue, and the extent and duration of that impact is uncertain at this time. The Company is monitoring the pandemic and its potential effect on the Company’s financial position, results of operations and cash flows. This uncertainty could have an impact in future periods on certain estimates used in the preparation of the Company’s quarterly financial results, including impairment of intangible assets, the income tax provision and realizability of certain receivables. Should the pandemic continue for an extended period, the impact on the Company’s operations could have an adverse effect on the Company’s revenue, financial condition and cash flows.

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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, ~~2018.~~

~~Research~~2019.

Reverse Stock Split

On November 14, 2019, the Company filed a certificate of amendment to its restated certificate of incorporation with the Secretary of State of the State of Delaware, which effected a one-for-15 reverse stock split (the “reverse split”) of its issued and ~~Development Expenses~~

~~Research~~outstanding shares of common stock at 5:01 PM Eastern Time on that date. As a result of the reverse split, every 15 shares of common stock issued and ~~development expenses~~outstanding were ~~$166,000~~converted into one share of common stock. The Company paid cash in lieu of fractional shares, and ~~$310,000 for~~accordingly, 0 fractional shares were issued in connection with the ~~three months ended June 30, 2019 and 2018, respectively. Research and development expenses were $363,000 and $414,000 for the six months ended June 30, 2019 and 2018, respectively.~~

~~Prior period reclassification~~

An immaterial reclassification of prior period amounts related to revenue and cost of goods sold, excluding depreciation and amortization has been made to conform to the current period presentation. This reclassificationreverse split.

The reverse split did not change the par value of the common stock or the authorized number of shares of common stock. All outstanding options, preferred stock, restricted stock units, warrants and other securities entitling their holders to purchase or otherwise receive shares of Alimera’s common stock have ~~any impact on gross profit, net loss from operations or net loss.~~

~~Recent~~ been adjusted as a result of the reverse split, as required by the terms of each security. The number of shares available to be awarded under the 2019 Omnibus Incentive Plan and the number of shares that are purchasable under the 2010 Employee Stock Purchase Plan have also been appropriately adjusted.

Accounting ~~Pronouncements~~

~~From time to time,~~Standards Issued but Not Yet Effective

In June 2016, the Financial Accounting Standards Board (FASB) or other standard setting bodies issue new accounting pronouncements that we 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 February 2016, the FASB~~ issued Accounting Standards Update (ASU) ~~2016-02,~~ ~~Leases (ASC 842)~~, to increase transparency and comparability among organizations for lease recognition and disclosure. ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet, while recognizing expenses on the income statements in a manner similar to the guidance previously in effect. ASU 2016-02 became effective for fiscal years and interim periods for the Company in the first quarter of 2019. ASU 2016-02 requires that leases be recognized and measured as of the earliest period presented, using a modified retrospective approach, with all periods presented being adjusted and presented under the new standard. In July 2018, the FASB issued ASU 2018-11, ~~Leases (ASC 842)~~: ~~Targeted Improvements,~~ ~~which provides companies an optional adoption method to ASU 2016-02 whereby a company does not have to adjust comparative period financial statements for the new standard.~~

The Company adopted this ASU on January 1, 2019 and did not restate comparative periods. The Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease classification, or whether its contracts contain or are leases. The Company also made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of 12 months or less, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. See Note 5 for expanded disclosures.

~~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 enacted in December 2017. Upon adoption of the ASU, entities are required to describe the accounting policy for releasing income tax effects from accumulated other comprehensive income. The Company adopted this standard on January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s financial statements.

~~In June 2018, the FASB issued ASU No. 2018-07,~~ ~~Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting~~, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. This ASU became effective on January 1, 2019, and the Company adopted it at that time. Entities will apply the ASU by recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption. The adoption of this guidance did not have an impact on the Company’s financial statements.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~Accounting Standards Issued but Not Yet Effective~~

~~In June 2016, the FASB issued ASU~~ No. 2016-13, Financial Instruments - Credit Losses (Accounting Standards Codification (ASC326)): Measurement of Credit Losses on Financial Instruments. This ASU replaces the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology thatreflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The standard isbecomes effective for ~~annual periods beginning after~~the Company on January 1, 2023. The Company does not anticipate the adoption of this ASU will have a material impact on its financial statements.

In December ~~15,~~ 2019, ~~including~~the FASB issued ASU No. 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes. The standard eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exceptions in interim ~~periods within those annual periods,~~period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with ~~early adoption available.~~a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax and (4) enacted changes in tax laws in interim periods. The standard becomes effective for the Company on January 1, 2021. The Company is in the process of determining the effect that the adoption will have on its financial statements.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

4. REVENUE RECOGNITION

Net Revenue

The Company sells its products to major pharmaceutical distributors, pharmacies, hospitals and wholesalers (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 the Company’s 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~~

All of the Company’s 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.

As of June 30, ~~2019,~~2020, the Company had received a total of $1,000,000 of milestone payments in connection with the ~~Company's~~Company’s Canadian distributor that it has not recognized as revenue based on the Company’s analysis in connection with ASU 2014-09, Revenue from Contracts with Customers (ASC 606). These deferred revenues are included as a component of other non-current liabilities on the Company’s balance sheets.

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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.

With respect to the Company’s international contracts with third party distributors, certain contracts have elements of variable consideration, and management reviews those contracts on a regular basis and makes estimates of revenue based on historical ordering patterns and known market events and data. The amount of variable consideration included in net sales in each period could vary depending on the terms of these contracts and the probability of reversal in future periods.

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. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses and are recorded as a reduction of revenue.

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 issuing a credit or exchanging the returned product for 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~~several 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

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

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 may include payment to the Company of one or more of the following: non-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

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events that are not entirely within the control of the Company or the licensee, such as regulatory ~~approvals;~~approvals, are included in the transaction ~~price;~~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 the Customer will pay for the product or services in one year or less of receiving those products or services.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

5. LEASES

The Company evaluates all of its contracts to determine whether it is or contains a lease at inception. The Company reviews its contracts for options to extend, terminate or purchase any right of use assets and accounts for these, as applicable, at inception of the contract. Upon adoption of ASC 842, the Company elected the transition package of three practical expedients permitted within the standard. In accordance with the package of practical expedients, the Company did not reassess initial direct costs, lease classification, or whether its contracts contain or are leases. The Company made an accounting policy election not to recognize right of use assets and liabilities for leases with a term of 12 months or less, or those that do not meet the Company’s capitalization threshold, unless the leases include options to renew or purchase the underlying asset that are reasonably certain to be exercised. Lease costs associated with those leases are recognized as incurred. The Company has also chosen the practical expedient that allows it to combine lease and non-lease components as a single lease component.

Lease renewal options are not recognized as part of the lease liability until the Company determines it is ~~reasonably certain it will exercise any applicable renewal options. The Company has determined it is not~~ reasonably certain it will exercise any applicable renewal options. The Company has not recorded any liability for renewal options in these Interim Financial Statements. The useful lives of leased assets as well as leasehold improvements, if any, are limited by the expected lease term.

Operating Leases

The Company’s operating lease activities primarily consist of leases for office space in the U.S., the United Kingdom and Germany. Most of these leases include options to renew, with renewal terms generally ranging from one to seven years. The exercise of lease renewal options is at the Company’s sole discretion. Certain of the Company’s operating lease agreements include variable lease costs that are based on common area maintenance and property taxes. The Company expenses these payments as incurred. The Company’s operating lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information as of June 30, ~~2019~~2020 for the Company’s operating leases is as follows:



	(In thousands)
NON-CURRENT ASSETS:
Right of use assets, net	$	867
Total lease assets	$	867
CURRENT LIABILITIES:
Accrued expenses	$	486
NON-CURRENT LIABILITIES:
Other non-current liabilities		537
Total lease liabilities	$	1,023

(in thousands)
NON-CURRENT ASSETS:
Right of use assets, net $ 1,299
Total lease assets $ 1,299

CURRENT LIABILITIES:
Accrued expenses (Note 9) $ 446
NON-CURRENT LIABILITIES:
Other non-current liabilities 1,050
Total lease liabilities $ 1,496

The Company’s operating lease cost for the three and six months ended June 30, ~~2019~~2020 was ~~$120,000~~$96,000 and ~~$243,000,~~$223,000, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

As of June 30, ~~2019,~~2020, a schedule of maturity of lease liabilities under all of the Company’s operating leases is as follows:



Years Ending December 31	(In thousands)
2020	$	284
2021		451
2022		152
2023		152
2024		152
Thereafter		—
Total		1,191
Less amount representing interest		(168)
Present value of minimum lease payments		1,023
Less current portion		(486)
Non-current portion	$	537

Years Ending December 31 (In thousands)
2019 (remaining) $ 281
2020 569
2021 456
2022 156
2023 156
Thereafter 156
Total 1,774
Less amount representing interest (278 )
Present value of minimum lease payments 1,496
Less current portion (446 )
Non-current portion $ 1,050

Cash paid for operating leases was ~~$239,000~~$216,000 during the six months ended June 30, ~~2019. Right~~2020. NaN right of use assets ~~of $676,000~~ were obtained in exchange for operating leases for the six months ended June 30, ~~2019.~~

2020.

As of June 30, ~~2019,~~2020, the weighted average remaining lease terms of the Company’s operating leases was ~~3.8~~3.1 years. The weighted average discount rate used to determine the lease liabilities was ~~10.2%~~10.1%. When available, the Company uses the rate implicit in the lease or sublease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. In using the Company’s incremental borrowing rate, management has elected to utilize a portfolio approach and apply the rates to a portfolio of leases with similar underlying assets and terms. Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

Finance Leases

The Company’s finance lease activities primarily consist of leases for office equipment and automobiles. ~~The property~~Property and equipment isleases are capitalized at the lesser of fair market value or the present value of the minimum lease payments at the inception of the leases using the Company’s incremental borrowing rate. The Company’s finance lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019 for the Company’s finance leases is as follows:



	June 30,		December 31,
	2020		2019
	(In thousands)
NON-CURRENT ASSETS:
Property and equipment, net	$	641	$	414
Total lease assets	$	641	$	414
CURRENT LIABILITIES:
Finance lease obligations	$	226	$	255
NON-CURRENT LIABILITIES:
Finance lease obligations — less current portion		311		94
Total lease liabilities	$	537	$	349

June 30, 2019 December 31, 2018
(In thousands)
NON-CURRENT ASSETS:
Property and equipment, net $ 508
$ 615
Total lease assets $ 508
$ 615

CURRENT LIABILITIES:
Finance lease obligations $ 247
$ 236
NON-CURRENT LIABILITIES:
Finance lease obligations — less current portion 172
305
Total lease liabilities $ 419
$ 541

Depreciation expense associated with property and equipment under finance leases was approximately ~~$77,000~~$112,000 and ~~$53,000~~$77,000 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Depreciation expense associated with property and

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

equipment under finance leases was approximately ~~$153,000~~$193,000 and ~~$102,000~~$153,000 for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Interest expense associated with finance leases was ~~$8,000~~$13,000 and ~~$9,000~~$8,000 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Interest expense associated with finance leases was ~~$17,000~~$19,000 and ~~$15,000~~$17,000 for the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

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As of June 30, ~~2019,~~2020, a schedule of maturity of lease liabilities under finance leases, together with the present value of minimum lease payments, is as follows:



Years Ending December 31	(In thousands)
2020	$	191
2021		252
2022		110
2023		18
Total		571
Less amount representing interest		(34)
Present value of minimum lease payments		537
Less current portion		(226)
Non-current portion	$	311

Years Ending December 31 (In thousands)
2019 (remaining) $ 136
2020 243
2021 65
2022 3
Total 447
Less amount representing interest (28 )
Present value of minimum lease payments 419
Less current portion (247 )
Non-current portion $ 172

Cash paid for finance leases was ~~$190,000~~$210,000 during the six months ended June 30, ~~2019.~~2020. The Company acquired ~~$64,000~~$495,000 of property and equipment in exchange for finance leases ~~for~~during the six months ended June 30, ~~2019.~~

2020.

As of June 30, ~~2019,~~2020, the weighted average remaining lease terms of the Company’s financing leases was ~~1.5~~1.3 years. The weighted average discount rate used to determine the financing lease liabilities was ~~7.0%~~8.2%. When available, the Company uses the rate implicit in the lease or sublease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. In using the Company’s incremental borrowing rate, management has elected to utilize a portfolio approach and applies the rates to a portfolio of leases with similar underlying assets and terms.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

6. 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 ~~$384,928,000~~$391,314,000 from inception through June 30, ~~2019.~~2020. As of June 30, ~~2019,~~2020, the Company had approximately ~~$12,157,000~~$13,496,000 in cash and cash equivalents. The Company’s ability to ~~achieve profitability and positive~~avoid depleting its cash ~~flow~~ depends upon its ability to ~~increase~~maintain revenue and contain its expenses.

Should the impact of the COVID-19 pandemic be extended, the Company has plans in place to reduce its expenses further in the future.

Further, the Company must maintain compliance with the debt covenants of its ~~$40,000,000~~$45,000,000 Loan and Security Agreement ~~dated January 5, 2018~~ with Solar Capital Ltd., as ~~Collateral Agent, and the parties signing such agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender~~amended (see Note ~~11)~~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 additional debt and/or equity financing over the course of the next twelve months.

To meet the Company’s future working capital needs, the Company may need to raise additional debt or equity financing. While the Company has ~~historically~~from time to time been able to raise additional capital through issuance of equity and/or debt financing, and while the Company has implemented a plan to control its expenses to satisfy its obligations due within one year from the date of issuance of these Interim Financial Statements, the Company cannot guarantee that it will be able to maintain debt compliance, raise additional equity, contain expenses, or increase revenue. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these Interim Financial Statements are issued.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

7. INVENTORY

Inventory consisted of the following:



	June 30,		December 31,
	2020		2019
	(In thousands)
Component parts (1)	$	420	$	389
Work-in-process (2)		600		399
Finished goods		948		602
Total Inventory	$	1,968	$	1,390

June 30,
2019 December 31, 2018
(In thousands)
Component parts (1) $ 469
$ 129
Work-in-process (2) 470
924
Finished goods 1,202
1,352
Total Inventory $ 2,141
$ 2,405

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

(2) Work-in-process consists of completed units of ILUVIEN that are undergoing, but have not completed, quality assurance testing or stability testing as required by U.S. or EEA regulatory authorities.

8. INTANGIBLE ASSET

As a result of the approval of ILUVIEN by the U.S. Food and Drug Administration (FDA) in 2014, the Company was required to pay EyePoint Pharmaceuticals, Inc. (EyePoint) a milestone payment of $25,000,000 ~~(the EyePoint Milestone Payment)~~ (see Note ~~10)~~9).

The gross carrying amount of the intangible asset is $25,000,000, which is being amortized over approximately 13 years from the acquisition date. The amortization expense related to the intangible asset was approximately $484,000 for both the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The amortization expense related to the intangible asset was approximately $967,000 and $962,000 for ~~both~~ the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The net book value of the intangible asset was ~~$15,761,000~~$13,816,000 and ~~$16,723,000~~$14,783,000 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

The estimated future amortization expense as of June 30, ~~2019~~2020 for the remaining periods in the next five years and thereafter is as follows:



Years Ending December 31	(In thousands)
2020	$	978
2021		1,940
2022		1,940
2023		1,940
2024		1,946
Thereafter		5,072
Total	$	13,816

Years Ending December 31 (In thousands)
2019 (remaining) $ 978
2020 1,946
2021 1,940
2022 1,940
2023 1,940
Thereafter 7,017
Total $ 15,761

~~Table~~

Property and equipment and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of ~~Contents~~

~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~9. ACCRUED EXPENSES~~

~~Accrued expenses consisted~~an asset may not be recoverable. When indicators of impairment are present, the Company evaluates the carrying amount of such assets in relation to the operating performance and future estimated undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the ~~following:~~

June 30, 2019 December 31, 2018
(In thousands)
Accrued clinical investigator expenses $ 853
$ 781
Accrued compensation expenses 1,666
1,427
Accrued rebate, chargeback and other revenue reserves 414
346
Accrued lease liabilities (Note 5) 446
—
Other accrued expenses 89
1,089
Total accrued expenses $ 3,468
$ 3,643

~~10.~~assets exceeds the fair value of the assets. The assessment of the recoverability of assets will be impacted if estimated future operating cash flows are not achieved.

In April of 2020, as a result of the potential impact of the COVID-19 pandemic on the Company’s statements of operations, the Company performed an asset impairment analysis by comparing future undiscounted cash flows of the identified asset group to the carrying value of that asset group. The Company concluded 0 impairment was necessary.

9. LICENSE AGREEMENTS

EyePoint Agreement

In February 2005, the Company entered into an agreement with EyePoint (formerly known as pSivida US, Inc.) for the use of fluocinolone acetonide (FAc) in EyePoint’s proprietary insert technology. This agreement was subsequently amended a number of times (as

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amended, the EyePoint Agreement). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.

~~Second Amended and Restated Collaboration Agreement~~

In July ~~10,~~ 2017, the Company amended and restated its license agreement with EyePoint, ~~entered into a Second Amended and Restated Collaboration Agreement~~which was made effective July 1, 2017 (the New Collaboration Agreement)~~, which amended and restated the EyePoint Agreement.~~

~~Prior to entering into~~. Under the New Collaboration Agreement, the Company ~~held~~has the ~~worldwide license from EyePoint for~~right to the ~~use of EyePoint’s proprietary insert~~ technology underlying ILUVIEN for the treatment of ~~all ocular diseases other than uveitis. The New Collaboration Agreement expanded the license to include~~ uveitis, including ~~NIPU,~~NIU-PS, in Europe, the Middle East and ~~Africa and also allows the Company to pursue an indication for posterior uveitis for ILUVIEN in those territories.~~

Africa. The New Collaboration Agreement converted the Company’s previous profit share obligation to a royalty payable on global net revenues of ILUVIEN. The Company began paying a 2% royalty on net revenues and other related consideration to EyePoint on July 1, 2017. ~~This~~The royalty amount increased to 6% effective December 12, 2018. ~~Pursuant to the New Collaboration Agreement, the~~The Company is required to 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, 2020, the Company recognized approximately $401,000 and $982,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2020, approximately $401,000 of this royalty expense was included in the Company’s accounts payable. During the three and six months ended June 30, 2019, the Company recognized approximately $434,000 and $950,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2019, approximately $434,000 of this royalty expense was included in the Company’s accounts payable. 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.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

In connection with a previous agreement with EyePoint, the Company was entitled to recover commercialization costs that were incurred prior to profitability of ILUVIEN and offset a portion of future payments owed to EyePoint in connection with sales of ILUVIEN with those accumulated commercialization costs. (The Company’s future rights to recover these amounts from EyePoint are referred to as the Future Offset.)

Following the signing of the New Collaboration Agreement, the Company retained a right to recover up to $15,000,000 of commercialization costs that were incurred prior to profitability of ILUVIEN and to offset a portion of future payments owed to EyePoint with these accumulated commercialization costs, referred to as the Future Offset. Due to the uncertainty of future net profits, the Company has fully reserved the Future Offset in the accompanying Interim Financial Statements. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for ~~NIPU~~NIU-PS in the ~~United Kingdom.~~U.K. As of June 30, ~~2019,~~2020, the balance of the Future Offset was approximately ~~$9,603,000. The Company will be able to recover the balance of the Future Offset as a reduction of future royalties that would otherwise be owed to EyePoint as follows:~~

From December 12, 2018 through December 12, 2020, the royalty has been and will continue to be reduced from 6% to 4% for net revenues and other related consideration up to $75,000,000 annually and from 8% to 5% for net revenues and other related consideration in excess of $75,000,000 on an annual basis; and

Beginning December 13, 2020, the royalty will be reduced from 6% to 5.2% for net revenues and other related consideration up to $75,000,000 annually and from 8% to 6.8% for net revenues and other related consideration in excess of $75,000,000 on an annual basis.

~~Possible Reversion of the Company’s License Rights to EyePoint~~

~~The Company’s license rights to EyePoint’s proprietary delivery device could revert to EyePoint if the Company were to:~~


~~(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 New Collaboration 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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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~11.~~$8,367,000.

10. LOAN AGREEMENTS

Hercules Loan Agreement

In April 2014, Alimera Sciences Limited (Alimera UK), a subsidiary of the Company, entered into a loan and security agreement (Hercules Loan Agreement) with Hercules Capital, Inc. (Hercules) providing for a term loan of up to $35,000,000 (Hercules Loan). The Company amended the Hercules Loan Agreement several times. On January 5, 2018, the Company paid off the Hercules Loan on behalf of Alimera ~~UK.~~

~~Under~~UK, using the ~~Hercules~~proceeds of the 2018 Solar Loan Agreement when the Company prepaid the Hercules Loan Agreement on January 5, 2018, (a) the Company paid a prepayment penalty of 2.0% of the principal amount prepaid, or $709,000, which is included in loss on early extinguishment of debt for the six months ended June 30, 2018; and (b) Alimera UK paid an end of term payment of $1,400,000.

~~Extinguishment of Debt~~

~~In accordance with the guidance in ASC 470-50,~~ ~~Debt~~, the Company accounted for the extinguishment of the Hercules Loan Agreement 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 prepayment penalty paid to Hercules and unamortized debt discounts including the remaining portion of warrant values and debt issuance costs.

described below.

2014 Warrant

In connection with Alimera UK entering into the Hercules Loan Agreement, the Company issued a warrant that granted Hercules the right to purchase up to ~~285,016~~19,002 shares of the Company’s common stock at an exercise price of ~~$6.14~~$92.10 per share (the 2014 Warrant). The Company amended the 2014 Warrant a number of times to increase the number of shares issuable upon exercise to ~~1,258,993~~83,933 and decrease the exercise price to ~~$1.39~~$20.85 per share. The right to exercise this warrant expires on November 2, 2020.

2016 Warrant

In connection with Alimera UK entering into an amendment to the Hercules Loan Agreement on October 20, 2016, the Company agreed to issue a new warrant to Hercules (the 2016 Warrant) that granted Hercules the right to purchase up to ~~458,716~~30,582 shares of the Company’s common stock at an exercise price of ~~$1.09~~$16.35 per share. The right to exercise this warrant expires on October 20, 2021.

2018 Solar Capital Loan Agreement

On January 5, 2018, the Company entered into a $40,000,000 Loan and Security Agreement ~~(2018~~(the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital), as Collateral Agent (Agent), and the parties signing the 2018 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2018 Solar Loan Agreement, the Company borrowed the entire $40,000,000 as a term loan (the 2018 Solar Loan) that ~~matures~~was scheduled to mature on July 1, 2022.

The Company paid Solar Capital a $400,000 fee at the closing of the 2018 Solar Loan Agreement. The Company repaid the 2018 Solar Loan on December 31, 2019 with a new loan agreement with Solar Capital as described below.

The Company used the proceeds of the ~~term loan~~2018 Solar Loan to extinguish (prepay) the Hercules Loan Agreement and pay related expenses. The Company used the remaining loan proceeds to provide additional working capital for general corporate purposes.

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Interest on the 2018 Solar Loan ~~Agreement is~~was payable at one-month LIBOR plus 7.65% per annum. The 2018 Solar Loan Agreement provided for interest only payments through the date of repayment. As of the final interest payment on the 2018 Solar Loan, the interest rate was approximately 9.3%.

The Company agreed, for itself and its subsidiaries, to customary affirmative and negative covenants and events of default in connection with the 2018 Solar Loan Agreement.

2018 Exit Fee Agreement

Notwithstanding the repayment of the 2018 Solar Loan, the Company remains obligated to pay additional fees under the Exit Fee Agreement (2018 Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, Solar Capital as Agent, and the Lenders. The 2018 Exit Fee Agreement survived the termination of the 2018 Solar Loan Agreement upon the repayment of the 2018 Solar Loan 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 2018 Exit Fee Agreement.

2019 Solar Capital Loan Agreement

On December 31, 2019, the Company entered into a $45,000,000 Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital, as Agent, and the parties signing the 2019 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2019 Solar Loan Agreement, the Company borrowed $42,500,000 on December 31, 2019 and subsequent to December 31, 2019, the Company borrowed the remaining $2,500,000 on February 21, 2020 (the two borrowings totaling $45,000,000 are referred to as the 2019 Solar Loan). The 2019 Solar Loan matures on July 1, 2024.

As noted above, the Company used the initial proceeds of the 2019 Solar Loan to pay off the 2018 Solar Loan, along with related prepayment, legal and other fees and expenses of approximately $2,278,000, which included a $1.8 million fee to Solar Capital upon repayment of the 2018 Solar Loan that was previously accrued and a $400,000 prepayment fee to Solar Capital that was capitalized as deferred financing costs. The Company expects to use the remaining loan proceeds to provide additional working capital for general corporate purposes.

Interest on the 2019 Solar Loan is payable at the greater of (i) one-month LIBOR or (ii) 1.78%, plus 7.65% per annum. As of December 31, 2019, the 2019 Solar Loan’s interest rate is 9.43%. The 2019 Solar Loan provides for interest only payments ~~for the first 30 months ending on July~~until January 1, ~~2020, followed by 24 months of payments of principal and interest.~~2023. If the Company meets certain revenue thresholds and no event of default shall have occurred and is continuing, the Company can extend the interest only period an additional six months, ~~to end~~ending on ~~January 1, 2021,~~June 30, 2023, followed by ~~18 months~~one year of monthly payments of principal and interest. ~~As of June 30, 2019, the interest rate on the 2018 Loan Agreement was approximately 10.1%.~~

~~As part of the fees and expenses incurred in conjunction with the 2018 Loan Agreement discussed above, the~~

The Company paid ~~Solar Capital~~the Lenders a ~~$400,000~~non-refundable facility fee ~~at closing. The~~in the amount of $25,000 on February 21, 2020. In addition, the Company is obligated to pay a ~~$1,800,000~~$2,250,000 fee upon repayment of the ~~term loan~~2019 Solar Loan.

First Amendment to 2019 Solar Capital Loan Agreement

On May 1, 2020, the Company entered into a First Amendment (the Amendment) to its 2019 Solar Loan Agreement with Solar Capital. The Amendment, among other things:

(a)eliminates the previous requirement that the following covenant (the Revenue Covenant) be measured at June 30, 2020 and September 30, 2020: the Company shall not permit revenues (under U.S. GAAP) from the sale of ILUVIEN in ~~full ($2,000,000 if~~ the ~~interest only period has been extended~~ordinary course of business to ~~36 months). The Company may elect~~third party customers, on a trailing six-month basis, to ~~prepay~~be less than a specified minimum revenue amount for each such date;

(b)requires that the ~~outstanding principal balance~~Revenue Covenant be measured at November 30, 2020 and specifies a new minimum revenue amount in that regard;

(c)requires that the Revenue Covenant be measured at December 31, 2020 and specifies a new minimum revenue amount in that regard; and

(d)requires that the Revenue Covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the ~~2018 Loan Agreement~~Company’s projected revenues in ~~increments~~accordance with an annual plan submitted by the Company to Agent by January 15th of ~~$10,000,000 or more. The Company must pay a prepayment premium upon any prepayment~~such year, such plan to be approved by the Company’s board of ~~the 2018 Loan Agreement before~~directors and Agent in its ~~maturity date, whether by mandatory or voluntary prepayment, acceleration or otherwise, equal to:~~

sole discretion.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~


a.	~~1.00% of the principal amount prepaid for a prepayment made after January 5, 2019 through and including January 5, 2020; and~~


b.	~~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 Amendment also adds the following new minimum liquidity requirement that is in effect from May 1, 2020 until the Company notifies Agent that it has met the Revenue Covenant at November 30, 2020: the Company shall not permit the aggregate amount of unrestricted cash and cash equivalents to be less than the sum of (i) $8,500,000 plus (ii) the amount of the Company’s accounts payable that have not been paid within 90 days from the invoice date of the relevant account payable. The Company paid 0 fees to Solar Capital; however, the Company agreed to reimburse Agent for its legal fees.

Paycheck Protection Program

On April 22, 2020, the Company received approximately $1,778,000 in support in the form of a loan from the U.S. federal government under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act (the PPP Loan). The PPP Loan is ~~also obligated~~unsecured and is evidenced by a note (the Note) in favor of HSBC Bank USA, National Association (HSBC) as the lender and is governed by a Loan Agreement with HSBC.

The interest rate on the Note is 1.0% per annum. The Note has a two-year term and is payable in 18 equal monthly payments of principal and interest beginning on the 180^th day following the disbursement of the loan proceeds, subject to forgiveness as described below. The Paycheck Protection Program provides a mechanism for forgiveness of up to the full amount borrowed as long as the Company uses the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. The Company used all of the proceeds from the PPP Loan to pay ~~additional fees~~expenses during the applicable period that the Company believes were for eligible purposes. On July 21, 2020, the Company submitted an application to HSBC for forgiveness of the PPP Loan.

In connection with the PPP Loan, the Company entered into a Consent to Loan and Security Agreement (the Consent) under the ~~Exit Fee Agreement (Exit Fee Agreement) dated as of January 5, 2018 by and among~~2019 Solar Loan Agreement. In the ~~Company,~~Consent, Solar Capital consented as Collateral Agent and a Lender, and the other Lenders consented as Lenders, to the indebtedness incurred under the PPP Loan, subject to certain conditions, including the Company’s covenant to comply with specified provisions of the CARES Act, the Company’s confirmation of the accuracy of its representations and warranties in the 2019 Solar Loan Agreement and related documents and a release in favor of the Collateral Agent and the Lenders. ~~The Exit Fee Agreement survives the termination of the 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~~accounted for the ~~Exit Fee Agreement.~~

~~Specifically, the Company is obligated to pay an exit fee of $2,000,000 upon a “change in control” (as defined~~PPP Loan in the ~~Exit Fee Agreement). To the extent~~same manner as it has for its other loan agreements. Payments that ~~Alimera has not already paid the $2,000,000 fee, the Company is also obligated to pay a fee~~are due within 12 months 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.~~

balance sheet dates are shown as current liabilities and payments due thereafter are shown as non-current liabilities. The Company ~~agreed, for itself~~incurred and ~~its subsidiaries, to customary affirmative and negative covenants and events of default in connection~~capitalized insignificant costs with third parties as deferred financing costs associated with the ~~2018~~PPP Loan ~~Agreement. The occurrence of an event of default could result in~~and is expensing these costs to interest expense over 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.

The Company’s obligations to Solar Capital as 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 guarantorlife of the loan ~~provided that only 65%~~using the effective interest method. If the Company’s application for forgiveness were to be approved, the Company will recognize a gain on extinguishment of debt at the time of forgiveness. As of the ~~voting interests~~date of this filing, the application for forgiveness is still pending review.

Modification of Debt

In accordance with the guidance in ~~AS C.V.~~ASC 470-50, Debt, ~~a Dutch subsidiary owned by~~ the Company entered into and ~~Alimera DE, are pledged to~~accounted for the ~~Lenders,~~2019 Solar Loan Agreement as a modification and ~~no assets or equity interests~~capitalized approximately $427,000 of costs as additional deferred financing costs and expensed approximately $76,000 of costs incurred with third parties within the consolidated statements of operations for the year ended December 31, 2019.

In accordance with the guidance 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~~ASC 470-50, Debt, the Company entered into and ~~all~~accounted for the May 1, 2020 Amendment to its 2019 Solar Loan Agreement as a modification, capitalized 0 additional costs and expensed approximately $76,000 of ~~its subsidiaries, including~~costs incurred with third parties within the ~~Company’s intellectual property, requiring~~consolidated statements of operations for the ~~Lender’s consent for any liens (other than typical permitted liens) on, or the sale of, such property.~~

three and six months ended June 30, 2020.

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. Therefore, the carrying amount of the notes approximated their fair value at June 30, ~~2019~~2020 and December 31, ~~2018.~~

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~12.~~2019.

11. EARNINGS (LOSS) PER SHARE (EPS)

The Company follows ASC 260, Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because the Company’s preferred stockholders participate in dividends equally with common stockholders (if the Company were to declare and pay dividends), the Company uses the two-class method to calculate EPS. However, the Company’s preferred stockholders are not contractually obligated to share in losses.

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Basic EPS is computed by dividing net income (loss) available to stockholders by the weighted average number of shares outstanding for the period. Diluted EPS is calculated in accordance with ASC 260 by adjusting weighted average shares outstanding for the dilutive effect of common stock options, restricted stock units and warrants. In periods where a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be anti-dilutive.



	Three and Six Months Ended
	June 30,
	2020		2019
Series A convertible preferred stock		601,504		601,504
Series C convertible preferred stock		676,667		676,667
Common stock warrants		119,712		119,712
Stock options		1,043,297		912,430
Restricted stock & RSUs outstanding at period end		30,086		36,763
Total		2,471,266		2,347,076

Three and Six Months Ended
June 30,
2019 2018
Series A convertible preferred stock 9,022,556
9,022,556
Series B convertible preferred stock —
8,416,251
Series C convertible preferred stock 10,150,000
—
Common stock warrants 1,795,663
1,795,663
Stock options 13,682,709
12,514,650
Restricted stock units 551,400
1,023,630
Total 35,202,328
32,772,750

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~13. 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 (Series A Preferred Stock) and warrants to purchase~~ ~~300,000~~ ~~shares of Series A 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 Preferred Stock are set forth in the certificate of designation for the Series A Preferred Stock filed by the Company with the Delaware Secretary of State as part of the Company’s certificate of incorporation. Each share of Series A Preferred Stock 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 Preferred Stock shall automatically be converted into shares of common stock at the then-effective Conversion Price upon 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 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 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 additional shares of Series A Preferred Stock. The rights to exercise these warrants expired on October 1, 2017.~~

In 2014, the Company issued 6,015,037 shares of common stock pursuant to the conversion of 400,000 shares of Series A Preferred Stock. As of June 30, 2019, there were 600,000 shares of Series A Preferred Stock issued and outstanding.

~~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 (Series B 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 Preferred Stock as a subscription premium to the purchasers. On September 4, 2018, all of the outstanding shares of Series B Preferred Stock were exchanged for shares of Series C Convertible Preferred Stock (see below).

On September 4, 2018, following the closing of the exchange of all outstanding shares of Series B Preferred Stock for shares of Series C Convertible Preferred Stock, the Company filed with the Delaware Secretary of State a Certificate of Elimination of Series B Convertible Preferred Stock of Alimera Sciences, Inc., which eliminated from the Company’s amended and restated certificate of incorporation, as amended, the Alimera Sciences, Inc. Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock. As a result, all shares of the Company’s preferred stock previously designated as Series B Convertible Preferred Stock were eliminated and returned to the status of authorized but unissued shares of preferred stock, without designation as to series.

~~Series C Convertible Preferred Stock~~

On September 4, 2018, the Company entered into and closed a Series B Preferred Stock Exchange Agreement (Exchange Agreement) with the holders of all of the outstanding approximately 8,416 shares of Series B Preferred Stock. Under the Exchange Agreement, the holders of Series B Preferred Stock exchanged their shares of Series B Preferred Stock for an aggregate of 10,150 shares of Series C Convertible Preferred Stock, par value $0.01 per share (Series C Preferred Stock). The powers, preferences and rights of the Series C Preferred Stock are set forth in the certificate of designation filed by the Company with the Delaware Secretary of State as part of the Company’s certificate of incorporation, as amended. All of the outstanding shares of Series B Preferred Stock were canceled in the exchange. The Company incurred approximately $122,000 in legal costs related to the Exchange Agreement.

The 10,150 issued and outstanding shares of Series C Preferred Stock have an aggregate stated value of $10,150,000 and are convertible into shares of the Company’s common stock at $1.00 per share, or 10,150,000 shares of the Company’s common stock in total, at any time at the option of the holder, provided that the holder will be prohibited from converting shares of Series C 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 C Preferred Stock is not redeemable at the option of the holder. In the event of a liquidation, dissolution or winding up of the Company and in the event of certain mergers, tender offers and asset sales, the holders of the Series C

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Preferred Stock will receive the greater of (a) the liquidation preference equal to $10,150,000 in the aggregate, plus any declared but unpaid dividends, or (b) the amount such holders would receive had all shares of the Series C Preferred Stock been converted into the Company’s common stock immediately before such event. With respect to rights upon liquidation, the Series C Preferred Stock ranks junior to the Company’s Series A Preferred Stock and senior to the Company’s common stock. The Series C 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 C Preferred Stock does not have voting rights. The Series C Preferred Stock is not subject to any price-based anti-dilution protections and does not provide for any accruing dividends.

The Company determined that the Exchange Agreement resulted in an extinguishment of the Series B Preferred Stock. As a result, the Company recognized a gain of $38,330,000 on the extinguishment of preferred stock during the third quarter of 2018. As of the transaction date, the Company made an assessment of the fair market value of the Series C Preferred Stock and calculated the value to be $11,239,000, prior to the payment of approximately $122,000 of related transaction costs. The Company recorded this gain within stockholders’ equity and as an increase to earnings available to stockholders during the third quarter of 2018. The $38,330,000 gain on extinguishment of preferred stock was derived by the difference in the fair market value of the Series C Preferred Stock and the carrying value of the Series B Preferred Stock.

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~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~14.~~

12. STOCK INCENTIVE PLANS

Stock Option Plans

During the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded compensation expense related to stock options of approximately ~~$463,000~~$279,000 and ~~$888,000,~~$463,000, respectively. During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded compensation expense related to stock options of approximately ~~$1,062,000~~$571,000 and ~~$1,754,000,~~$1,062,000, respectively. As of June 30, ~~2019,~~2020, the total unrecognized compensation cost related to non-vested stock options granted was ~~$2,801,000~~$1,997,000 and is expected to be recognized over a weighted average period of ~~2.43~~2.42 years. The following table presents a summary of stock option activity for the three months ended June 30, ~~2019~~2020 and ~~2018:~~2019:



	Three Months Ended
	June 30,
	2020			2019
			Weighted			Weighted
			Average			Average
			Exercise			Exercise
	Options		Price ($)	Options		Price ($)
Options outstanding at beginning of period		1,036,484	30.84		894,106	37.25
Grants		27,431	6.54		43,212	14.2
Forfeitures		(20,618)	49.07		(24,888)	41.80
Exercises		—	—		—	—
Options outstanding at period end		1,043,297	29.84		912,430	36.04
Options exercisable at period end		730,712	38.14		648,373	43.90
Weighted average per share fair value of options granted during the period	$	4.16		$	8.66

Three Months Ended June 30,
2019 2018
Options Weighted
Average
Exercise
Price Options Weighted
Average
Exercise
Price
Options outstanding at beginning of period 13,407,536
$ 2.48
12,343,820
$ 2.75
Grants 648,000
0.95
320,625
0.88
Forfeitures (372,827 ) 2.79
(149,795 ) 2.70
Exercises —
—
—
—
Options outstanding at period end 13,682,709
2.40
12,514,650
2.70
Options exercisable at period end 9,722,530
2.93
8,578,358
3.19
Weighted average per share fair value of options granted during the period $ 0.58
$ 0.56

The following table presents a summary of stock option activity for the six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


	Six Months Ended
	June 30,
	2020			2019
			Weighted			Weighted
			Average			Average
			Exercise			Exercise
	Options		Price ($)	Options		Price ($)
Options outstanding at beginning of period		871,472	35.46		830,100	39.41
Grants		196,281	6.72		121,536	13.5
Forfeitures		(24,456)	44.67		(39,206)	37.46
Exercises		—	—		—	—
Options outstanding at period end		1,043,297	29.84		912,430	36.04
Options exercisable at period end		730,712	38.14		648,373	43.90
Weighted average per share fair value of options granted during the period	$	4.17		$	8.37

Six Months Ended June 30,
2019 2018
Options Weighted
Average
Exercise
Price Options Weighted
Average
Exercise
Price
Options outstanding at beginning of period 12,447,355
$ 2.63
11,595,510
$ 2.90
Grants 1,822,750
0.90
1,553,625
1.10
Forfeitures (587,396 ) 2.50
(632,922 ) 2.43
Exercises —
—
(1,563 ) 1.06
Options outstanding at period end 13,682,709
2.40
12,514,650
2.70
Options exercisable at period end 9,722,530
2.93
8,578,358
3.19
Weighted average per share fair value of options granted during the period $ 0.56
$ 0.73

~~Table of Contents~~

~~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 June 30, ~~2019~~:2020:

Table of Contents



											Weighted
									Weighted		Average
									Average		Remaining		Aggregate
									Exercise		Contractual		Intrinsic
	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value		Shares		Price ($)		Term		Value ($)
					(In thousands)								(In thousands)
Outstanding	13,682,709	$	2.40	6.15 years	$	42		1,043,297		29.84		6.17 years		5
Exercisable	9,722,530	2.93		5.03 years	12			730,712		38.14		4.98 years		—
Outstanding, vested and expected to vest	13,190,204	2.45		6.04 years	37			1,003,528		30.65		6.05 years		4

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, ~~2018:~~2019:



					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price ($)		Term		Value ($)
							(In thousands)
Outstanding		871,472		35.46		5.83 years		4
Exercisable		674,952		41.25		5.04 years		—
Outstanding, vested and expected to vest		849,285		36.00		5.75 years		3

Shares
Weighted
Average
Exercise
Price

Weighted
Average
Remaining Contractual
Term

Aggregate
Intrinsic
Value
(In thousands)
Outstanding 12,447,355
$ 2.63
6.25 years $ —
Exercisable 9,138,544
3.09
5.37 years —
Outstanding, vested and expected to vest 12,044,311
2.67
6.16 years —

As of June 30, ~~2019, the Company was authorized to~~2020, 241,263 shares remain available for grant ~~stock options and restricted stock units (RSUs) to acquire up to an additional 7,142,000 shares~~ under the 2019 Omnibus Incentive Plan.

Employee Stock Purchase Plan

During the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded compensation expense related to its employee stock purchase plan of approximately ~~$4,000~~$17,000 and ~~$8,000,~~$4,000, respectively. During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded compensation expense related to its employee stock purchase plan of approximately $38,000 and $11,000, respectively.

Restricted Stock and ~~$18,000, respectively.~~

~~Table of Contents~~

~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Restricted Stock Units

A summary of ~~RSU~~restricted stock and restricted stock units (RSU) transactions under the plans are as follows:



	Three Months Ended
	June 30,
	2020				2019
			Weighted				Weighted
	Restricted		Average		Restricted		Average
	Stock & RSUs		Grant Date		Stock & RSUs		Grant Date
	RSUs		Fair Value ($)		RSUs		Fair Value ($)
Restricted stock & RSUs outstanding at beginning of period		30,086		3.12		32,029		12.90
Grants		—		—		4,734		14.85
Vested units		—		—		—		—
Forfeitures		—		—		—		—
Restricted stock & RSUs outstanding at period end		30,086		3.12		36,763		13.15


	Six Months Ended
	June 30,
	2020				2019
			Weighted				Weighted
	Restricted		Average		Restricted		Average
	Stock & RSUs		Grant Date		Stock & RSUs		Grant Date
	RSUs		Fair Value ($)		RSUs		Fair Value ($)
Restricted stock & RSUs outstanding at beginning of period		36,763		13.15		60,041		17.30
Grants		30,086		3.12		36,763		13.15

Table of Contents

Three Months Ended June 30,
2019 2018
RSUs Weighted Average Grant Date Fair Value RSUs Weighted Average Grant Date Fair Value
Restricted stock units outstanding at beginning of period 480,400
$ 0.86
1,039,370
$ 1.16
Grants 71,000
0.99
19,660
0.88
Vested units —
—
—
—
Forfeitures —
—
(44,300 ) 1.16
Restricted stock units outstanding at period end 551,400
0.88
1,014,730
1.15

Vested units	(36,763)	13.15	(59,341)	17.30
Forfeitures	—	—	(700)	17.40
Restricted stock & RSUs outstanding at period end	30,086	3.12	36,763	13.15

Six Months Ended June 30,
2019 2018
RSUs Weighted Average Grant Date Fair Value RSUs Weighted Average Grant Date Fair Value
Restricted stock units outstanding at beginning of period 900,252
$ 1.15
839,285
$ 1.21
Grants 551,400
0.88
1,080,830
1.15
Vested units (889,752 ) 1.15
(839,285 ) 1.21
Forfeitures (10,500 ) 1.16
(66,100 ) 1.16
Restricted stock units outstanding at period end 551,400
0.88
1,014,730
1.15

As of June 30, ~~2019,~~2020, there was approximately ~~$324,000~~$123,000 of total unrecognized compensation cost related to outstanding RSUs that ~~will be~~was recognized ~~through~~during the first quarter of 2020. Employee stock-based compensation expense related to restricted stock and RSUs recognized in accordance with ASC 718, Compensation - Stock Compensation (ASC 718) was ~~$99,000~~$21,000 and ~~$256,000~~$99,000 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Employee stock-based compensation expense related to RSUs recognized in accordance with ASC 718 was ~~$326,000~~$148,000 and ~~$587,000~~$326,000 for the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

~~Table of Contents~~

~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~15.~~

13. 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~~Company also applies the provisions for income ~~tax rate may differ from its estimated annual effective tax rate because~~taxes related to, among other things, 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.~~disclosure requirements. The Company’s ~~effective~~recorded liability for uncertain tax ~~rate for~~positions as of June 30, 2020 has increased by approximately $8,000 as compared to December 31, 2019. There has been no change to the ~~three~~Company’s policy that recognizes potential interest and penalties related to uncertain tax positions. The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. In addition to other provisions, the CARES Act contains modifications to Net Operating Loss (NOL) carryback rules. For the six months ended June 30, ~~2019 properly excluded~~2020, there was no impact to the tax benefits associated with year-to-date pre-tax losses generated in the U.S., Ireland and the Netherlands. Income tax positions are considered for uncertainty in accordance with ASC 740-10. The Company has recorded unrecognized tax benefitsprovision related to ~~research~~the CARES Act. We are currently evaluating the provisions of the CARES Act 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 remain subject to examination at the U.S. federal level between 2010 and 2017, and subject to examinations at various state levels between 2005 and 2017. 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., Ireland 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 allowancehow other elections may ~~be needed, which could materially~~ impact ~~the Company’s~~our financial position, ~~and~~ results of ~~operations.~~

operations, and disclosures, if needed.

At December 31, ~~2018,~~2019, the Company had U.S. federal NOL carry-forwards of approximately ~~$122,455,000~~$125,756,000 and state NOL carry-forwards of approximately ~~$153,333,000~~$172,993,000 available to reduce future taxable income. The Company’s U.S. federal NOL carry-forwards remain fully reserved as of June 30, ~~2019. If~~2020. Except for the NOLs generated after 2017, the U.S. federal NOLs not fully utilized ~~the federal NOL carry-forwards~~ will expire at various dates between 2029 and ~~2037 and the~~2037; most state NOL carry-forwards will expire at various dates between 2020 and ~~2037.~~

~~Sections 382~~2039. Under the Tax Cuts and ~~383~~Jobs Act of 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 IRC Section 382 (Section 382) (or comparable provisions of state law) if certain changes in ownership 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 determined that a Section 382 change in ownership occurred in late 2015. As a result of this change in ownership, the Company preliminarily estimated that approximately $18.6 million of the Company’s2017, U.S. federal NOLs and ~~approximately $382,000 of federal tax credits~~some state NOLs generated ~~prior to the change in ownership~~after 2017 will not be utilized in the future. The Company is currently in the process of refining and finalizing these calculations, and upon finalization, will determine if a write-off is necessary. The reduction to the Company’s NOL

~~Table of Contents~~

~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~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.~~

indefinitely.

As of December 31, ~~2018,~~2019, the Company had cumulative book losses in foreign subsidiaries of ~~$126,648,000.~~$134,379,000. 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.

~~Table of Contents~~

~~ALIMERA SCIENCES, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~16.~~

14. SEGMENT INFORMATION

During the three months ended June 30, 2019 and 2018, two customers within the U.S. segment that are large pharmaceutical distributors accounted for 67% and 73%, respectively, of the Company’s consolidated revenues. During the six months ended June 30, 2019 and 2018, these same two customers accounted for 59% and 72%, respectively, of the Company’s consolidated revenues. These same two customers within the U.S. segment accounted for approximately 75% and 73% of the Company’s consolidated accounts receivable at June 30, 2019 and at December 31, 2018, 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 gain 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 Company does not report balance sheet information by segment because the Company’s chief operating decision maker does not review that information.

Table of Contents

The following table presents a summary of the Company’s reporting segments for the three months ended June 30, ~~2019~~2020 and ~~2018:~~2019:



	Three Months Ended								Three Months Ended
	June 30, 2020								June 30, 2019
	U.S.		International		Other		Consolidated		U.S.		International		Other		Consolidated
	(In thousands)
NET REVENUE	$	3,420	$	6,618	$	—	$	10,038	$	7,320	$	3,535	$	—	$	10,855
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(423)		(1,062)		—		(1,485)		(808)		(366)		—		(1,174)
GROSS PROFIT		2,997		5,556		—		8,553		6,512		3,169		—		9,681
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		1,098		664		48		1,810		1,630		1,090		114		2,834
GENERAL AND ADMINISTRATIVE EXPENSES		1,943		838		194		2,975		2,150		946		579		3,675
SALES AND MARKETING EXPENSES		3,207		1,100		75		4,382		4,217		1,779		112		6,108
DEPRECIATION AND AMORTIZATION		—		—		685		685		—		—		654		654
OPERATING EXPENSES		6,248		2,602		1,002		9,852		7,997		3,815		1,459		13,271
SEGMENT (LOSS) INCOME FROM OPERATIONS		(3,251)		2,954		(1,002)		(1,299)		(1,485)		(646)		(1,459)		(3,590)
OTHER INCOME AND EXPENSES, NET		—		—		(1,242)		(1,242)		—		—		(1,187)		(1,187)
NET LOSS BEFORE TAXES							$	(2,541)							$	(4,777)

‎

Three Months Ended
June 30, 2019 Three Months Ended
June 30, 2018
U.S. International Other Consolidated U.S. International Other Consolidated
(In thousands)
NET REVENUE $ 7,320
$ 3,535
$ —
$ 10,855
$ 7,799
$ 2,918
$ —
$ 10,717
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION (808 ) (366 ) —
(1,174 ) (656 ) (257 ) —
(913 )
GROSS PROFIT 6,512
3,169
—
9,681
7,143
2,661
—
9,804

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 1,630
1,090
114
2,834
1,602
954
221
2,777
GENERAL AND ADMINISTRATIVE EXPENSES 2,150
946
579
3,675
1,866
723
640
3,229
SALES AND MARKETING EXPENSES 4,217
1,779
112
6,108
4,142
1,493
291
5,926
DEPRECIATION AND AMORTIZATION —
—
654
654
—
—
650
650
OPERATING EXPENSES 7,997
3,815
1,459
13,271
7,610
3,170
1,802
12,582
SEGMENT LOSS FROM OPERATIONS (1,485 ) (646 ) (1,459 ) (3,590 ) (467 ) (509 ) (1,802 ) (2,778 )
OTHER INCOME AND EXPENSES, NET —
—
(1,187 ) (1,187 ) —
—
(1,146 ) (1,146 )
NET LOSS BEFORE TAXES $ (4,777 ) $ (3,924 )

Table of Contents

~~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, 2020 and 2019:


	Six Months Ended								Six Months Ended
	June 30, 2020								June 30, 2019
	U.S.		International		Other		Consolidated		U.S.		International		Other		Consolidated
	(In thousands)
NET REVENUE	$	10,487	$	14,086	$	—	$	24,573	$	14,086	$	9,659	$	—	$	23,745
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(1,182)		(2,230)		—		(3,412)		(1,493)		(1,281)		—		(2,774)
GROSS PROFIT		9,305		11,856		—		21,161		12,593		8,378		—		20,971
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		3,020		1,557		116		4,693		3,057		2,261		243		5,561
GENERAL AND ADMINISTRATIVE EXPENSES		3,915		1,775		466		6,156		4,084		1,933		1,051		7,068
SALES AND MARKETING EXPENSES		7,487		2,392		175		10,054		8,258		3,484		279		12,021
DEPRECIATION AND AMORTIZATION		—		—		1,339		1,339		—		—		1,306		1,306
OPERATING EXPENSES		14,422		5,724		2,096		22,242		15,399		7,678		2,879		25,956
SEGMENT (LOSS) INCOME FROM OPERATIONS		(5,117)		6,132		(2,096)		(1,081)		(2,806)		700		(2,879)		(4,985)
OTHER INCOME AND EXPENSES, NET		—		—		(2,615)		(2,615)		—		—		(2,484)		(2,484)
NET LOSS BEFORE TAXES							$	(3,696)							$	(7,469)

During the three months ended June 30, 2020 and 2019, 2 customers within the U.S. segment that are large pharmaceutical distributors accounted for 34% and ~~2018:~~67%, respectively, of the Company’s consolidated revenues. During the six months ended June 30, 2020 and 2019, these 2 customers within the U.S. segment accounted for 43% and 59%, respectively, of the Company’s consolidated revenues. These same 2 customers within the U.S. segment accounted for approximately 55% and 68% of the Company’s consolidated accounts receivable at June 30, 2020 and at December 31, 2019, respectively.

Table of Contents

Six Months Ended
June 30, 2019 Six Months Ended
June 30, 2018
U.S. International Other Consolidated U.S. International Other Consolidated
(In thousands)
NET REVENUE $ 14,086
$ 9,659
$ ��
$ 23,745
$ 14,604
$ 5,743
$ —
$ 20,347
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION (1,493 ) (1,281 ) —
(2,774 ) (1,369 ) (648 ) —
(2,017 )
GROSS PROFIT 12,593
8,378
—
20,971
13,235
5,095
—
18,330

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 3,057
2,261
243
5,561
3,242
1,904
453
5,599
GENERAL AND ADMINISTRATIVE EXPENSES 4,084
1,933
1,051
7,068
4,159
1,630
1,295
7,084
SALES AND MARKETING EXPENSES 8,258
3,484
279
12,021
8,514
2,771
610
11,895
DEPRECIATION AND AMORTIZATION —
—
1,306
1,306
—
—
1,299
1,299
OPERATING EXPENSES 15,399
7,678
2,879
25,956
15,915
6,305
3,657
25,877
SEGMENT (LOSS) INCOME FROM OPERATIONS (2,806 ) 700
(2,879 ) (4,985 ) (2,680 ) (1,210 ) (3,657 ) (7,547 )
OTHER INCOME AND EXPENSES, NET —
—
(2,484 ) (2,484 ) —
—
(4,061 ) (4,061 )
NET LOSS BEFORE TAXES $ (7,469 ) $ (11,608 )

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~~provided in the sections entitled “Risk Factors” in our most recent annual report on Form 10-K, our most recent Form 10-Q and in Part II, Item 1A of this report below. 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 report above.

Alimera Sciences, Inc., and its subsidiaries (we, our ~~Alimera~~ or ~~the Company)~~us), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We presently focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people ~~in our aging populations.~~

globally. Our only ~~commercial~~ product is ILUVIEN^®, which has received marketing authorization and reimbursement approval in the U.S., Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Kuwait, Lebanon, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, the United Arab Emirates and the United Kingdom. In the U.S., Canada, Kuwait, Lebanon and the United Arab Emirates, ILUVIEN is indicatednumerous countries 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~~addition, ILUVIEN has received marketing authorization ~~it is indicated~~in 16 European countries and has obtained reimbursement approval in two countries, Germany and the U.K., for the ~~treatment of vision impairment associated with DME considered insufficiently responsive to available therapies.~~

~~In addition, as explained in the following paragraph, ILUVIEN is now indicated for~~ prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment (NIU-PS).

We market ILUVIEN directly in the U.S., Germany, the U.K., Portugal, Austria and Ireland. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Belgium, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand, Canada and several countries in the Middle East.

As of June 30, 2020, we have recognized sales of ILUVIEN to our international distributors in the Middle East, France, Italy and Spain.

Where We Market ILUVIEN to Treat DME

ILUVIEN has received marketing authorization for the use of ILUVIEN to treat DME for the indications and in the countries shown in the following table:


Indication for the Treatment of DME	Countries Where ILUVIEN Has Received Marketing Authorization to Treat DME		Countries Where ILUVIEN Has Received Reimbursement Approval to Treat DME	Countries Where ILUVIEN is Currently Marketed to Treat DME
Treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure		U.S., Australia, Canada, Kuwait, Lebanon and the United Arab Emirates	U.S., Kuwait, Lebanon and the United Arab Emirates	U.S., Kuwait, Lebanon and the United Arab Emirates
Treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies		The United Kingdom (U.K.), Germany, France, Italy, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg	The U.K., Germany, France, Italy, Spain, Portugal, Ireland and Austria	The U.K., Germany, France, Italy, Spain, Portugal, Ireland and Austria

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Where We Market ILUVIEN to Treat Recurrent NIU-PS

ILUVIEN has received marketing authorization for the use of ILUVIEN to treat NIU-PS for the indications and in the countries shown in the following table:

Indication for the

Treatment of NIU-PS

Countries

Where ILUVIEN Has

Received Marketing Authorization

to Treat NIU-PS

Countries

Where ILUVIEN Has

Received Reimbursement Approval to Treat NIU-PS

Countries Where

ILUVIEN is

Currently Marketed

to Treat NIU-PS

The prevention of relapse in recurrent NIU-PS

The U.K., Germany, France, Spain, Portugal, Ireland, Austria, Belgium, Denmark, Norway, Finland, Sweden, Poland, Czech Republic, the Netherlands and Luxembourg

The U.K. and Germany

Effects of the ~~eye (NIPU)~~COVID-19 Pandemic

The unprecedented and adverse effects of the COVID-19 pandemic, and its unpredictable duration, in the ~~EEA countries~~regions where we have ~~satisfied~~customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues and may in the ~~country’s labeling requirements. As~~future have an adverse effect on our liquidity and financial condition. These adverse effects of the ~~date~~pandemic on us have resulted from the following, among other factors. Governments and private parties imposed limitations on in-person access to physicians, which adversely affects us in at least two ways. First, these limitations can affect patient access to treatment. Because ILUVIEN is administered only by an injection into the eye, telemedicine is not a viable substitute when administration of treatment is required. Second, limitations on in-person access to physicians also makes it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about ILUVIEN.

Our business is also negatively affected by patients’ concerns in the current environment. Prior to the pandemic, most of our ILUVIEN sales were driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that health authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many of those patients are unwilling to visit their physicians in person (even if otherwise permitted) due to their fear of contracting the COVID-19 pandemic.

In addition to the effects of limitations on in-person access to physicians, limitations on travel within and between the countries in which we market and sell ILUVIEN, as well as various types of “shelter in place” orders, has curtailed our in-person marketing activities.

These limitations and other effects of the COVID-19 pandemic had an adverse impact on our revenues late in the first quarter and throughout the second quarter. We expect these factors to continue to adversely impact our revenue, but the extent and duration of that impact is uncertain at this ~~filing,~~time. Depending on the duration of these limitations and other effects of the COVID-19 pandemic, our liquidity and financial condition may be adversely affected in the future as well.

In response to these developments, we have ~~satisfied~~implemented measures to mitigate the ~~labeling requirements~~impact of the pandemic on our financial position and operations. These measures include the following:

•We have managed our cost structure, minimizing all non-payroll spending where possible to mitigate our anticipated loss of revenue and conserve our cash.

•We have decreased our external spending on commercial and medical affairs activities related to the promotion of ILUVIEN.

•Because we believe that our employees are critical to both (a) serving our customers and patients as the pandemic-related restrictions are lifted in the ~~United Kingdom~~coming weeks and ~~expect~~months, and (b) realizing the long-term value of ILUVIEN, we have maintained our staffing levels and do not currently have any plans to ~~comply~~reduce them.

License Agreement with the local labeling requirements of other EEA countries, but timelines for satisfying individual country requirements vary. 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.

EyePoint Pharmaceuticals US, Inc.

In July 2017, we amended and restated our license agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), formerly known as pSivida US, Inc., which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, we

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have rights to the technology underlying ILUVIEN ~~now includes~~for the treatment of uveitis, including ~~NIPU,~~NIU-PS, in Europe, the Middle East and Africa. In December 2017, we filed an application for a new indication for ILUVIEN for the treatment of NIPU in the 17 EEA countries where ILUVIEN is currently approved for the treatment of DME. In March 2019, we received the Final Variation Assessment Report (FVAR) for ILUVIEN from the Medicines and Healthcare products Regulatory Agency of the United Kingdom (MHRA) based on our submission to the MHRA through the Mutual Recognition Procedure. Under that procedure, the United Kingdom has acted as the Reference Member State and prepared an assessment report to share with the 16 other countries in the EEA in which we applied for an additional indication. The FVAR states that ILUVIEN is approved for the additional indication for prevention of relapse in NIPU. In June 2019, the United Kingdom's National Institute for Health and Care Excellence (NICE) recommended funding for ILUVIEN for NIPU. In the United Kingdom, a NICE recommendation for funding signifies that the country’s National Health Service (NHS) will pay for ILUVIEN prescriptions for the treatment of NIPU as part of its offering. Timing for receiving funding for ILUVIEN for NIPU, if received at all, in the other EEA countries in which we have applied for the additional indication can vary. The reimbursement process in each EEA country usually starts after we have satisfied the labeling requirements of each individual country.

The New Collaboration Agreement converted our previous 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. The royalty amount increased to 6% as of December 12, 2018. 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 30, 2020, we recognized approximately $401,000 and $982,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2020, approximately $401,000 of this royalty expense was included in our accounts payable. In comparison, during the three and six months ended June 30, 2019, we recognized approximately $434,000 and $950,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization. As of June 30, 2019, approximately $434,000 of this royalty expense was included in our accounts payable. During the three and six months ended June 30, 2018, we recognized approximately $218,000 and $411,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization.

Following the signing of the New Collaboration Agreement, we retained a right to offset $15.0 million of future royalty ~~payments.~~payments (the Future Offset). In March 2019, pursuant to the New Collaboration Agreement, we forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for ~~NIPU~~NIU-PS in the ~~United Kingdom.~~U.K. As of June 30, ~~2019,~~2020, the balance of the Future Offset was approximately ~~$9,603,000.~~$8,367,000. (See Note 109 of our notes to the accompanying ~~unaudited interim condensed consolidated financial statements and notes thereto (Interim~~Interim Financial ~~Statements).~~Statements.)

We commercially market ILUVIEN in the U.S., Germany, the United Kingdom, Portugal, Austria and Ireland. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement or sales and marketing support for ILUVIEN in France, Italy, Spain, Australia, New Zealand, Canada and several countries in the Middle East. In 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 2017. Our Spanish distributor began selling on a named patient basis in 2017 and upon receiving reimbursement, plans a full-scale launch in 2019. Our French distributor received pricing and reimbursement approval in March 2019 for ILUVIEN for DME and began selling in April 2019. Our Canadian distributor is currently pursuing reimbursement. As

Sources of ~~June 30, 2019, we have recognized sales of ILUVIEN to the Company’s international distributors in the Middle East, France, Italy and Spain.~~

We commenced operations in June 2003. Since our inception we have incurred significant losses. As of June 30, 2019, we had accumulated a deficit of $384.9 million. We expect to incur additional expenses as we:

~~continue the commercialization of ILUVIEN in the U.S. and EEA, where we sell direct;~~

~~continue to seek regulatory approval of ILUVIEN for other indications and in other jurisdictions;~~

~~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, 2019, we had approximately $12.2 million in cash and cash equivalents.~~

Revenues

Our revenues for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019 were generated from product sales primarily in the U.S., Germany and the ~~United Kingdom.~~U.K. In the U.S., two large pharmaceutical distributors accounted for ~~67%~~34% and ~~73%~~67% of our consolidated revenues for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~59%~~43% and ~~72%~~59% of our consolidated revenues for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, 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 sell to distributors, these distributors maintain inventory levels of ILUVIEN and sell to their customers.

Reverse Stock Split Effective November 14, 2019

On November 14, 2019, we filed a certificate of amendment to our restated certificate of incorporation with the Secretary of State of the State of Delaware, which effected a one-for-15 reverse stock split (the “reverse split”) of our issued and outstanding shares of common stock at 5:01 PM Eastern Time on that date. As a result of the reverse split, every 15 shares of common stock issued and outstanding were converted into one share of common stock.

First Amendment to 2019 Solar Capital Loan Agreement

On May 1, 2020, we entered into a First Amendment (the Amendment) to our $45,000,000 Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital, as Agent, and the parties signing the Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). For a summary of the terms of the Amendment, see “Liquidity and Capital Resources – Indebtedness – Loans from Solar Capital.”

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Results of Operations


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020			2019
	(In thousands, except share and per share data)
NET REVENUE	$	10,038	$	10,855	$	24,573	$	23,745
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(1,485)		(1,174)		(3,412)		(2,774)
GROSS PROFIT		8,553		9,681		21,161		20,971
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		1,810		2,834		4,693		5,561
GENERAL AND ADMINISTRATIVE EXPENSES		2,975		3,675		6,156		7,068
SALES AND MARKETING EXPENSES		4,382		6,108		10,054		12,021
DEPRECIATION AND AMORTIZATION		685		654		1,339		1,306
OPERATING EXPENSES		9,852		13,271		22,242		25,956
NET LOSS FROM OPERATIONS		(1,299)		(3,590)		(1,081)		(4,985)
INTEREST EXPENSE AND OTHER		(1,351)		(1,236)		(2,643)		(2,464)
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET		109		49		28		(20)
NET LOSS BEFORE TAXES		(2,541)		(4,777)		(3,696)		(7,469)
PROVISION FOR TAXES		(5)		(261)		(48)		(332)
NET LOSS	$	(2,546)	$	(5,038)	$	(3,744)	$	(7,801)
NET LOSS PER COMMON SHARE — Basic and diluted	$	(0.51)	$	(1.06)	$	(0.75)	$	(1.65)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING — Basic and diluted		5,030,833		4,732,687		5,005,777		4,724,417

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In thousands, except share and per share data)
NET REVENUE $ 10,855
$ 10,717
$ 23,745
$ 20,347
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION (1,174 ) (913 ) (2,774 ) (2,017 )
GROSS PROFIT 9,681
9,804
20,971
18,330

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 2,834
2,777
5,561
5,599
GENERAL AND ADMINISTRATIVE EXPENSES 3,675
3,229
7,068
7,084
SALES AND MARKETING EXPENSES 6,108
5,926
12,021
11,895
DEPRECIATION AND AMORTIZATION 654
650
1,306
1,299
OPERATING EXPENSES 13,271
12,582
25,956
25,877
NET LOSS FROM OPERATIONS (3,590 ) (2,778 ) (4,985 ) (7,547 )

INTEREST EXPENSE AND OTHER (1,236 ) (1,178 ) (2,464 ) (2,329 )
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET 49
32
(20 ) 34
LOSS ON EARLY EXTINGUISHMENT OF DEBT —
—
—
(1,766 )
NET LOSS BEFORE TAXES (4,777 ) (3,924 ) (7,469 ) (11,608 )
PROVISION FOR TAXES (261 ) (76 ) (332 ) (76 )
NET LOSS $ (5,038 ) $ (4,000 ) $ (7,801 ) $ (11,684 )
NET LOSS PER SHARE — Basic and diluted $ (0.07 ) $ (0.06 ) $ (0.11 ) $ (0.17 )
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted 70,990,340
70,022,100
70,866,285
69,952,940

Net Revenue

~~We began generating revenue from ILUVIEN in 2013.~~

Revenue from our U.S. distributors and revenue from our partners in the markets in our international segment where we do not sell direct fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.

Net revenue ~~increased~~decreased by approximately ~~$200,000,~~$900,000, or 2%8%, to approximately $10.0 million for the three months ended June 30, 2020, compared to approximately $10.9 million for the three months ended June 30, ~~2019, compared to approximately $10.7 million for the three months ended June 30, 2018.~~2019. The ~~increase~~decrease was primarily attributable to a ~~$600,000~~ revenue decrease of $3.9 million in our U.S. business related to the impact of the COVID-19 pandemic. This decrease was offset by a $3.1 million increase in our international segment ~~including an increase~~as a result of sales in the ~~international markets where we sell to distributors, partially offset~~U.K. and Germany for our posterior uveitis indication and by ~~a $500,000 revenue decrease~~increased shipments in our ~~U.S. segment, which is partly attributable to turnover in our U.S. sales force.~~

international distributor markets.

Net revenue increased by approximately ~~$3.4~~$900,000, or 4%, to approximately $24.6 million ~~or 17%,~~for the six months ended June 30, 2020, compared to approximately $23.7 million for the six months ended June 30, ~~2019, compared to approximately $20.3 million for the six months ended June 30, 2018.~~2019. The increase was primarily attributable to a ~~revenue~~$4.4 million increase in our international segment ~~including increases~~as a result of ~~approximately $1.7 million~~sales in the U.K. and Germany for our posterior uveitis indication and by increased shipments in our international ~~markets where we sell direct and $2.2 million in the international markets where we sell to distributors, partially~~distributor markets. This was offset by a ~~$500,000 revenue~~$3.6 million decrease in our U.S. ~~segment, which is partly attributable~~business related to ~~turnover in our U.S. sales force.~~

the impact of the COVID-19 pandemic.

Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit

Gross profit is affected by costs of goods sold, which includes ~~(a)~~ costs of manufactured goods sold and ~~(b)~~royalty payments to EyePoint ~~in the form of royalty payments~~ under the New Collaboration Agreement. Additionally, cost of goods sold from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to ~~the distributor.~~

our international distributors. Further, cost of goods sold associated with sales in our international markets where we sell to distributors is a higher percentage of revenue.

Cost of goods sold, excluding depreciation and amortization, increased by approximately ~~$290,000,~~$300,000, or ~~32%~~25%, to approximately $1.5 million for the three months ended June 30, 2020, compared to approximately $1.2 million for the three months ended June 30, ~~2019, compared to approximately $910,000 for the three~~

~~months ended June 30, 2018.~~ 2019. The increase was primarily attributable to ~~an increase in our royalty expense on our global net revenue.~~increased sales.

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Cost of goods sold, excluding depreciation and amortization, increased by approximately ~~$800,000,~~$600,000, or ~~40%~~21%, to approximately $3.4 million for the six months ended June 30, 2020, compared to approximately $2.8 million for the six months ended June 30, ~~2019, compared to approximately $2.0 million for the six months ended June 30, 2018.~~2019. The increase was primarily attributable to ~~an increase in our royalty expense on our global net revenue.~~

increased sales.

Gross profit decreased by approximately ~~$100,000,~~$1.1 million, or 1%11%, to approximately $8.6 million for the three months ended June 30, 2020, compared to approximately $9.7 million for the three months ended June 30, ~~2019, compared to approximately $9.8 million~~2019. Gross margin was 85% and 89% for the three months ended June 30, ~~2018. Gross~~2020 and 2019, respectively. The decrease in gross margin was ~~89% and 91% for the three months ended June 30, 2019 and 2018, respectively.~~

primarily affected by sales to our international distributors.

Gross profit increased by approximately ~~$2.7~~$200,000, or 1%, to approximately $21.2 million ~~or 14%,~~for the six months ended June 30, 2020, compared to approximately $21.0 million for the six months ended June 30, ~~2019, compared to approximately $18.3 million~~2019. Gross margin was 86% and 88% for the six months ended June 30, ~~2018. Gross~~2020 and 2019, respectively. The decrease in gross margin was ~~88% and 90% for the six months ended June 30, 2019 and 2018, respectively.~~

primarily affected by sales to our international distributors.

Research, Development and Medical Affairs Expenses

Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and ~~includes~~include clinical trials costs, salaries and related expenses for research, ~~and~~ development and medical affairs personnel, ~~including medical sales liaisons,~~as well as costs related to the provision of medical affairs support, ~~including~~such as scientific advisory boards, symposia development for physician education, and costs related to compliance with FDA, ~~EEA~~European Medicines Agency or other regulatory requirements. We expense both internal and external development costs as they are incurred.

Research, development and medical affairs expenses ~~were~~decreased by approximately ~~$2.8~~$1.0 million, or 36%, to approximately $1.8 million for ~~both~~ the three months ended June 30, ~~2019~~2020, compared to approximately $2.8 million for the three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $360,000 in personnel costs, including international vacant positions, global bonus expenses and ~~2018.~~

global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $300,000 in scientific communications expenses, $180,000 in travel expenses and $130,000 in consultant costs.

Research, development and medical affairs expenses ~~were~~decreased by approximately ~~$5.6~~$900,000, or 16%, to approximately $4.7 million for ~~both~~ the six months ended June 30, ~~2019~~2020, compared to approximately $5.6 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $440,000 in personnel costs, including international vacant positions, global bonus expenses and ~~2018.~~

global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $340,000 in scientific communications expenses and $170,000 in travel expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, legal, information technology and human resources. Other significant costs include facilities costs and professional fees for accounting and legal services. 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~~decreased by approximately ~~$500,000,~~$700,000, or ~~16%~~19%, to approximately $3.0 million for the three months ended June 30, 2020, compared to approximately $3.7 million for the three months ended June 30, ~~2019, compared to approximately $3.2 million for the three months ended June 30, 2018.~~2019. The ~~increase~~decrease was primarily attributable to ~~increases~~decreases of approximately $210,000 in global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $170,000 in international severance expenses incurred in 2019 and $160,000 in professional ~~fees and logistics costs, some of which are attributable to Brexit preparation.~~

fees.

General and administrative expenses ~~were~~decreased by approximately ~~$7.1~~$900,000, or 13%, to approximately $6.2 million for ~~both~~ the six months ended June 30, 2020, compared to approximately $7.1 million for the six months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $410,000 in global stock-based compensation expenses as a result of the fair value of outstanding unvested options decreasing, $170,000 in international severance expense incurred in 2019, $170,000 in professional fees and ~~2018.~~

$110,000 in travel expenses.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of third-party service 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.~~ILUVIEN in countries where we have not previously sold ILUVIEN or are marketing it for a different indication. Other costs include professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.

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Sales and marketing expenses ~~increased~~decreased by approximately ~~$200,000,~~$1.7 million, or 3%28%, to approximately $4.4 million for the three months ended June 30, 2020, compared to approximately $6.1 million for the three months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases of approximately ~~$5.9~~$1.0 million ~~for~~in marketing costs related to cost controls put in place during the three months ended June 30, ~~2018. The increase was primarily attributable to increases~~2020 as a result of the COVID-19 pandemic, the absence in ~~marketing costs associated with~~2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and ~~market access costs.~~

$550,000 in travel expenses.

Sales and marketing expenses ~~increased~~decreased by approximately ~~$100,000,~~$1.9 million, or 1%16%, to approximately $10.1 million for the six months ended June 30, 2020, compared to approximately $12.0 million for the six months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases of approximately ~~$11.9~~$1.5 million ~~for~~in marketing costs related to cost controls put in place during the ~~six~~three months ended June 30, ~~2018.~~

2020 as a result of the COVID-19 pandemic, the absence in 2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and $400,000 in travel expenses.

Operating Expenses

As a result of the increases and decreases in various expenses described above, total operating expenses ~~increased~~decreased by approximately ~~$700,000,~~$3.4 million, or 6%26%, to approximately $9.9 million for the three months ended June 30, 2020, compared to approximately $13.3 million for the three months ended June 30, ~~2019, compared to approximately $12.6 million for the three months ended June 30, 2018.~~2019. The ~~increase~~decrease was primarily attributable to andecreases of approximately ~~$500,000 increase~~$1.7 million in sales and marketing expenses, $1.0 million in research, development and medical affairs expenses and $700,000 in general and administrative expenses as described above.

As a result of the increases and ~~a $200,000 increase~~decreases in ~~sales and marketing expenses.~~

~~Total~~various expenses described above, total operating expenses ~~increased~~decreased by approximately ~~$100,000,~~$3.8 million, or ~~0.4%~~15%, to approximately $22.2 million for the six months ended June 30, 2020, compared to approximately $26.0 million for the six months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases of approximately $1.9 million in sales and marketing expenses, $900,000 in research, development and medical affairs expenses and $900,000 in general and administrative expenses as described above.

Interest Expense and Other

Interest Expense and Other increased by approximately $200,000, or 17%, to approximately ~~$25.9~~$1.4 million for the ~~six~~three months ended June 30, ~~2018. The increase was primarily attributable~~2020, compared to ~~an approximately $100,000 increase in sales and marketing expenses.~~

~~Interest Expense and Other~~

~~Interest expense and other was~~ approximately $1.2 million for the three months ended June 30, 2019 and 2018. Interest expense and other increased by approximately $200,000, or 9%, to approximately $2.5 million for the six months ended June 30, 2019, compared to approximately $2.3 million for the six months ended June 30, 2018.2019. For these periods, interest expense consisted primarily of interest and amortization of deferred financing costs and debt discounts associated with our outstanding debt under the 2018 and 2019 Solar Loan ~~Agreement~~Agreements with Solar Capital. As discussed in Note 1110 of our notes to Interim Financial Statements, we entered into ~~a new loan facility with~~the 2018 Solar ~~Capital~~Loan Agreement on January 5, 2018, ~~and~~which we refinanced with the ~~Hercules~~2019 Solar Loan Agreement ~~with the proceeds.~~

~~Loss~~ on ~~early extinguishment of debt~~

~~We recorded a loss on early extinguishment of debt of~~December 31, 2019.

Interest Expense and Other increased by approximately ~~$1.8~~$100,000, or 4%, to approximately $2.6 million for the six months ended June 30, ~~2018 as a result of refinancing~~2020, compared to approximately $2.5 million for the ~~Hercules Loan Agreement by entering into the 2018 Loan Agreement with Solar Capital on January 5, 2018.~~

six months ended June 30, 2019.

Basic and Diluted Net Income (Loss) Applicable to Common Stockholders per Share of Common Stock

We follow FASB Accounting Standards Codification, Earnings Per Share (ASC 260), which requires the reporting of both basic and diluted earnings per share. Because our preferred stockholders participate in dividends equally with common stockholders (if we were to declare and pay dividends), ~~the Company uses~~we use the two-class method to calculate EPS. However, our preferred stockholders are not contractually obligated to share in losses.

Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either classified as participating and do not share in losses or would have been anti-dilutive, were approximately ~~35,202,328~~2,471,266 for the three and six months ended June 30, 2020, respectively, and 2,347,076 for the three and six months ended June 30, 2019, ~~and 32,772,750 for the three and six months ended June 30, 2018. Potentially dilutive common stock equivalents were excluded from the diluted earnings per share denominator for all periods~~respectively.

Table of net loss because of their anti-dilutive effect. Therefore, for the three and six months ended June 30, 2019 and 2018, the weighted average shares used to calculate both basic and diluted loss per share are the same.Contents

Results of Operations - Segment Review

The following selected unaudited financial and operating data are derived from our Interim Financial Statements. The results and discussions that follow reflect how executive management monitors the performance of our reporting segments.

We have three segments: U.S., International and Other. Each segment is separately managed and is evaluated primarily upon segment gain or loss from operations. Non-cash items including stock-based compensation expense, depreciation and 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 ~~2019~~2020 or ~~2018.~~

2019.

U.S. Segment



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020			2019
	(In thousands)
NET REVENUE	$	3,420	$	7,320	$	10,487	$	14,086
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(423)		(808)		(1,182)		(1,493)
GROSS PROFIT		2,997		6,512		9,305		12,593
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		1,098		1,630		3,020		3,057
GENERAL AND ADMINISTRATIVE EXPENSES		1,943		2,150		3,915		4,084
SALES AND MARKETING EXPENSES		3,207		4,217		7,487		8,258
OPERATING EXPENSES		6,248		7,997		14,422		15,399
SEGMENT LOSS FROM OPERATIONS	$	(3,251)	$	(1,485)	$	(5,117)	$	(2,806)

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In thousands)
NET REVENUE $ 7,320
$ 7,799
$ 14,086
$ 14,604
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION (808 ) (656 ) (1,493 ) (1,369 )
GROSS PROFIT 6,512
7,143
12,593
13,235

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 1,630
1,602
3,057
3,242
GENERAL AND ADMINISTRATIVE EXPENSES 2,150
1,866
4,084
4,159
SALES AND MARKETING EXPENSES 4,217
4,142
8,258
8,514
OPERATING EXPENSES 7,997
7,610
15,399
15,915
SEGMENT LOSS FROM OPERATIONS $ (1,485 ) $ (467 ) $ (2,806 ) $ (2,680 )

U.S. Segment - three months ended June 30, ~~2019~~2020 compared to the three months ended June 30, ~~2018~~

2019

Net revenue. Net revenue decreased by approximately ~~$500,000,~~$3.9 million, or 6%53%, to approximately ~~$7.3~~$3.4 million for the three months ended June 30, ~~2019,~~2020, compared to approximately ~~$7.8~~$7.3 million for the threemonths ended June 30, 2019. Net revenue during the three months ended June 30, ~~2018. The decrease~~2020 was ~~primarily attributable to a decrease in end user demand, which represents units purchased~~negatively affected by ~~physicians and pharmacies~~the impact from ~~our distributors, partly due to turnover in our U.S. sales force. End user demand decreased by approximately 4% to 917 units for~~ the ~~three months ended June 30, 2019, compared to 955 units for the three months ended June 30, 2018.~~

COVID-19 pandemic.

Cost of goods sold, excluding depreciation and amortization.Cost of goods sold, excluding depreciation and amortization, ~~increased~~decreased by approximately ~~$150,000,~~$390,000, or ~~23%~~48%, to approximately $420,000 for thethree months ended June 30, 2020, compared to approximately $810,000 for the three months ended June 30, ~~2019,~~2019. The decrease was primarily attributable to decreased sales due to the COVID-19 pandemic.

Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $500,000, or 31%, to approximately $1.1 million for the three monthsended June 30, 2020, compared to approximately ~~$660,000~~$1.6 million for the three months ended June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily attributable to ~~royalties paid on ILUVIEN.~~

~~Research, development~~decreases of $270,000 in scientific communications expenses and ~~medical affairs~~$110,000 in travel expenses.

General and administrative expenses. General and administrative expenses~~. Research, development and medical affairs expenses was~~ decreased by approximately ~~$1.6~~$300,000, or 14%, to approximately $1.9 million for ~~both~~ the three months ended June 30, ~~2019 and 2018.~~

~~General and administrative expenses.~~ ~~General and administrative expenses increased by approximately $300,000, or 16%,~~ 2020, comparedto approximately $2.2 million for the three months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases in professional fees, shareholder relations costs and travel expenses.

Sales and marketing expenses. Sales and marketing expenses decreased by approximately $1.0 million, or 24%, to approximately ~~$1.9~~$3.2 million for the three months ended June 30, ~~2018. The increase was primarily attributable~~2020, compared to ~~an increase of approximately $360,000 in professional fees offset with a decrease of $130,000 in personnel costs.~~

~~Sales and marketing expenses. Sales and marketing expenses increased by approximately $100,000, or 2%, to~~ approximately $4.2 million for the three months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases of approximately ~~$4.1 million for~~$520,000 in marketing costs related to cost controls put in place during the three months ended June 30, ~~2018.~~2020 as a result of the COVID-19 pandemic, the absence in 2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and $460,000 in travel expenses.

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U.S. Segment - six months ended June 30, ~~2019~~2020 compared to the six months ended June 30, ~~2018~~

2019

Net revenue. Net revenue decreased by approximately ~~$500,000,~~$3.6 million, or 3%26%, to approximately ~~$14.1~~$10.5 million for the six months ended June 30, ~~2019,~~2020, compared to approximately ~~$14.6~~$14.1 million for the sixmonths ended June 30, 2019. Net revenue during the six months ended June 30, ~~2018. However, end user demand, which represents units purchased~~2020 was negatively affected by ~~physicians and pharmacies from our distributors, increased 3%~~the COVID-19 pandemic, as well as a temporary shortage in stock of ILUVIEN in the ~~six months ended June 30, 2019, increasing to 1,856 units compared to 1,806 units in the six months ended June 30, 2018.~~

first quarter.

Cost of goods sold, excluding depreciation and amortization.Cost of goods sold, excluding depreciation and amortization, ~~increased~~decreased by approximately ~~$100,000,~~$300,000, or 7%20%, to approximately $1.2 million for thesix months ended June 30, 2020, compared to approximately $1.5 million for the six months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to ~~approximately $1.4 million for the six months ended June 30, 2018.~~

decreased sales.

Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $100,000, or 3%, to approximately $3.0 million for the six monthsended June 30, 2020, compared to approximately $3.1 million for the six months ended June 30, ~~2019, compared~~2019.

General and administrative expenses. General and administrative expenses decreased by approximately $200,000, or 5%, to approximately ~~$3.2~~$3.9 million for the six months ended June 30, ~~2018.~~

~~General and administrative expenses.~~ ~~General and administrative expenses decreased by approximately $100,000, or 2%,~~ 2020, comparedto approximately $4.1 million for the six months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases in shareholder relations costs.

Sales and marketing expenses. Sales and marketing expenses decreased by approximately $800,000, or 10%, to approximately ~~$4.2~~$7.5 million for the six months ended June 30, ~~2018.~~

~~Sales and marketing expenses. Sales and marketing expenses decreased by approximately $200,000, or 2%,~~2020, compared toapproximately $8.3 million for the six months ended June 30, ~~2019, compared to approximately $8.5 million for the six months ended June 30, 2018.~~2019. The decrease was primarily attributable to ~~a decrease~~decreases of approximately ~~$410,000~~$780,000 in ~~personnel~~marketing costs related to cost controls put in place during the three months ended June 30, 2020 as a result of the COVID-19 pandemic, the absence in 2020 of the expenses we incurred in 2019 for the launch of our direct-to-patient advertising pilot program in the U.S. and approximately $280,000 in travel expenses. These decreases were offset by an increase of approximately ~~$170,000~~$440,000 in ~~marketing costs.~~

personnel costs, as we had refilled previously vacant territories in the second half of 2019 and had little turnover in staffing levels during 2020 even during the COVID-19 pandemic.

International Segment



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)
NET REVENUE	$	6,618	$	3,535	$	14,086	$	9,659
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(1,062)		(366)		(2,230)		(1,281)
GROSS PROFIT		5,556		3,169		11,856		8,378
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		664		1,090		1,557		2,261
GENERAL AND ADMINISTRATIVE EXPENSES		838		946		1,775		1,933
SALES AND MARKETING EXPENSES		1,100		1,779		2,392		3,484
OPERATING EXPENSES		2,602		3,815		5,724		7,678
SEGMENT LOSS FROM OPERATIONS	$	2,954	$	(646)	$	6,132	$	700

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In thousands)
NET REVENUE $ 3,535
$ 2,918
$ 9,659
$ 5,743
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION (366 ) (257 ) (1,281 ) (648 )
GROSS PROFIT 3,169
2,661
8,378
5,095

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES 1,090
954
2,261
1,904
GENERAL AND ADMINISTRATIVE EXPENSES 946
723
1,933
1,630
SALES AND MARKETING EXPENSES 1,779
1,493
3,484
2,771
OPERATING EXPENSES 3,815
3,170
7,678
6,305
SEGMENT INCOME (LOSS) FROM OPERATIONS $ (646 ) $ (509 ) $ 700
$ (1,210 )

International Segment - three months ended June 30, ~~2019~~2020 compared to the three months ended June 30, ~~2018~~

2019

Net revenue. Net revenue increased by approximately ~~$600,000,~~$3.1 million, or ~~21%~~89%, to approximately ~~$3.5~~$6.6 million for the three months ended June 30, ~~2019,~~2020, compared to approximately ~~$2.9~~$3.5 million for the threemonths ended June 30, ~~2018.~~2019. The increase was primarily attributable to sales of our posterior uveitis indication in the U.K. and Germany and increased business in our international markets where we sell to distributors. Net revenue decreased by approximately $2.6 million, or 43%, to approximately $3.5 million for the three months ended June 30, 2019, compared to $6.1 million for the three months ended March 31, 2019. The decrease was primarily attributable to the timing and size of our international distributor ordering patterns, which can vary materially from quarter to quarter. For example, net revenue for the three months ended June 30, 2019 was adversely affected by initial orders related to our expansion into Spain and France during the three months ended March 31, 2019.

markets.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately ~~$110,000,~~$730,000, or ~~42%~~197%, to approximately $1.1 million forthe three months ended June 30, 2020, compared to approximately $370,000 for the three months ended June 30, ~~2019, compared to approximately $260,000 for the three months ended June 30, 2018.~~2019. The increase was primarily attributable to our increased sales. As noted above, cost of goods sold associated with sales in our international ~~net~~markets where we sell to distributors is a higher percentage of revenue.

Research, development and medical affairs expenses. Research, development and medical affairs expenses ~~increased~~decreased by approximately ~~$150,000,~~$440,000, or ~~16%~~40%, to approximately $660,000 for the three monthsended June 30, 2020, compared to approximately $1.1 million for the

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three months ended June 30, 2019. The decrease was primarily attributable to decreases of approximately $280,000 in personnel and travel expenses, including vacant positions and bonus expenses.

General and administrative expenses. General and administrative expenses decreased by approximately $110,000, or 12%, to approximately $840,000 for the three months ended June 30, 2020, compared toapproximately $950,000 for the three months ended June 30, 2019. The decrease was primarily attributable to a decrease in severance expenses resulting from costs incurred in 2019.

Sales and marketing expenses. Sales and marketing expenses decreased by approximately $700,000, or 39%, to approximately $1.1 million for the three months ended June 30, ~~2019,~~2020, compared to ~~approximately $950,000 for the three months ended June 30, 2018. The increase was primarily related to an increase of approximately $130,000 in personnel costs.~~

~~General and administrative expenses.~~ General and administrative expenses increased by approximately $230,000, or 32%, to approximately $950,000 for the three months ended June 30, 2019, compared to approximately $720,000 for the three months ended June 30, 2018. The increase was primarily attributable to an increase of approximately $240,000 in logistics costs, some of which are attributable to Brexit preparation.

~~Sales and marketing expenses. Sales and marketing expenses increased by approximately $300,000, or 20%, to~~ approximately $1.8 million for the three months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases of approximately ~~$1.5 million for~~$530,000 in marketing costs related to cost controls put in place during the three months ended June 30, ~~2018. The increase was primarily attributable to an increase~~2020 as a result of ~~approximately $250,000~~the COVID-19 pandemic and $130,000 in ~~marketing~~market access costs.

International Segment - six months ended June 30, ~~2019~~2020 compared to the six months ended June 30, ~~2018~~

2019

Net revenue. Net revenue increased by approximately ~~$4.0~~$4.4 million, or ~~70%~~45%, to approximately ~~$9.7~~$14.1 million for the six months ended June 30, ~~2019,~~2020, compared to approximately ~~$5.7~~$9.7 million for the sixmonths ended June 30, ~~2018.~~2019. The increase was primarily attributable to sales ~~increases~~ of ~~$2.2 million in markets where we sell to distributors and $1.7 million~~our posterior uveitis indication in the ~~markets~~U.K. and Germany and increased business in ~~Europe where we sell direct. The increase was primarily attributable to the timing and size of~~ our ~~international~~ distributor ordering patterns, which can vary materially from period to period. For example, net revenue for the six months ended June 30, 2019 was significantly higher due to initial orders related to our expansion into Spain and France during the three months ended March 31, 2019.

markets.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately ~~$650,000,~~$900,000, or ~~100%~~69%, to approximately $2.2 million forthe six months ended June 30, 2020, compared to approximately $1.3 million for the six months ended June 30, ~~2019, compared to approximately $650,000 for the six months ended June 30, 2018.~~2019. The increase was primarily attributable to our increased sales. As noted above, cost of goods sold associated with sales in ~~both the markets where we sell direct and the~~our international markets where we sell to ~~distributors.~~

distributors is a higher percentage of revenue.

Research, development and medical affairs expenses. Research, development and medical affairs expenses ~~increased~~decreased by approximately ~~$400,000,~~$700,000, or ~~21%~~30%, to approximately $1.6 million for the six monthsended June 30, 2020, compared to approximately $2.3 million for the six months ended June 30, ~~2019,~~2019. The decrease was primarily attributable to decreases of approximately $310,000 in personnel and travel expenses, including vacant positions and bonus expenses, and $210,000 in costs associated with our 5-year open label registry study as it nears completion.

General and administrative expenses. General and administrative expenses decreased by approximately $100,000, or 5%, to approximately $1.8 million for the six months ended June 30, 2020, compared toapproximately $1.9 million for the six months ended June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily attributable to ~~increases of approximately $260,000~~a decrease in ~~personnel~~severance expenses resulting from costs incurred in 2019.

Sales and ~~$100,000 in costs associated with our ongoing clinical studies.~~

~~General~~marketing expenses. Sales and ~~administrative expenses.~~ ~~General and administrative~~marketing expenses ~~increased~~decreased by approximately ~~$300,000,~~$1.1 million, or ~~19%~~31%, to approximately ~~$1.9~~$2.4 million for the six months ended June 30, ~~2019,~~2020, compared to approximately $1.6 million for the six months ended June 30, 2018. The increase was primarily attributable to increases of approximately $260,000 in logistics costs and $120,000 in professional fees, some of which are attributable to Brexit preparation.

~~Sales and marketing expenses. Sales and marketing expenses increased by approximately $700,000, or 25%, to~~ approximately $3.5 million for the six months ended June 30, ~~2019, compared~~2019. The decrease was primarily attributable to decreases of approximately ~~$2.8 million for~~$720,000 in marketing costs related to cost controls put in place during the ~~six~~three months ended June 30, ~~2018. The increase was primarily attributable to increases~~2020 as a result of ~~approximately $280,000 in personnel costs, $260,000 in marketing costs and $160,000~~the COVID-19 pandemic, $240,000 in market access ~~costs.~~

costs and $120,000 in travel expenses.

Other Segment



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(In thousands)
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES	$	48	$	114	$	116	$	243
GENERAL AND ADMINISTRATIVE EXPENSES		194		579		466		1,051
SALES AND MARKETING EXPENSES		75		112		175		279
DEPRECIATION AND AMORTIZATION		685		654		1,339		1,306
OPERATING EXPENSES		1,002		1,459		2,096		2,879
SEGMENT LOSS FROM OPERATIONS	$	(1,002)	$	(1,459)	$	(2,096)	$	(2,879)

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
(In thousands)
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES $ 114
$ 221
$ 243
$ 453
GENERAL AND ADMINISTRATIVE EXPENSES 579
640
1,051
1,295
SALES AND MARKETING EXPENSES 112
291
279
610
DEPRECIATION AND AMORTIZATION 654
650
1,306
1,299
OPERATING EXPENSES 1,459
1,802
2,879
3,657
SEGMENT LOSS FROM OPERATIONS $ (1,459 ) $ (1,802 ) $ (2,879 ) $ (3,657 )

Our CEO, who is our chief operating decision maker manages and evaluates our U.S. and International segments based on net gain or 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, development and medical affairs expenses, general and administrative expenses, and sales and marketing expenses are classified within the Other segment within our Interim Financial Statements.

~~Within the respective financial statement line items included~~

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Operating expenses in the Other segment ~~stock-based compensation expense, collectively,~~ decreased by approximately ~~$570,000,~~$500,000, or ~~48%~~33%, to ~~$630,000 for the three months ended June 30, 2019, compared to approximately $1.2~~$1.0 million for the three months ended June 30, ~~2018. Stock-based~~2020, compared to approximately $1.5 million for the three months ended June 30, 2019. This decrease is primarily attributable to a decrease of $310,000 in global stock-based compensation expenses and $170,000 in international severance expense ~~collectively,~~incurred in 2019. Operating expenses in the Other segment decreased by approximately ~~$1.0 million,~~$800,000, or ~~42%~~28%, to ~~$1.4~~$2.1 million for the six months ended June 30, ~~2019,~~2020, compared to approximately ~~$2.4~~$2.9 million for the six months ended June 30, ~~2018.~~

~~Additionally, within general~~2019. This decrease is primarily attributable to a decrease of $640,000 in global stock-based compensation expenses and ~~administrative expenses for the three and six months ended June 30, 2019, we had an increase of approximately $175,000 of non-cash accrued~~$170,000 in international severance ~~expenses.~~

~~Depreciation and amortization was approximately $650,000 for both the three months ended June 30, 2019 and 2018, and approximately $1.3 million for both the six months ended June 30, 2019 and 2018.~~

expense incurred in 2019.

Liquidity and Capital Resources

Overview

Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit in stockholders’ equity of ~~$384.9~~$391.3 million through June 30, ~~2019.~~2020.

As explained above in “Effects of the COVID-19 Pandemic,” the unprecedented and adverse effects of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues. Depending on the duration of the pandemic and the success of our strategy to conserve our cash and otherwise mitigate the impact of the pandemic, the pandemic may have an adverse effect on our liquidity and financial condition in the future as well. We expect that the pandemic may continue to adversely affect our operations. As a result, it is difficult to project the extent of that impact now and as this situation continues to evolve.

Since January 2018, we have funded our operations through the ~~public~~2018 and ~~private placement~~2019 Solar Loan Agreements described below and a small offering of common ~~stock, convertible preferred stock, warrants,~~stock. In April 2020, we obtained a loan under the ~~sale of certain assets~~Paycheck Protection Program established as part of the ~~non-prescription business~~Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. Our loans do not include a revolving loan feature and have been fully advanced by the respective lenders. We currently have no additional borrowing capacity, and the 2019 Solar Loan Agreement generally prohibits any additional debt unless we obtain the prior consent of Solar Capital. Currently, we cannot access the equity markets without severe dilution to our current stockholders.

On July 9, 2020, we announced the initiation of the NEW DAY study, a randomized, controlled, multi-center clinical trial designed to generate prospective data for ILUVIEN 0.19 mg as a first-line baseline therapy in patients diagnosed with DME and demonstrate ILUVIEN’s advantages over the current standard of care (anti-VEGF injections). We estimate we will incur approximately $13.5 million in expenses over the next three to four years associated with the NEW DAY Study. We expect to fund these costs with existing resources, cash flow from operations and the redeployment of other clinical spending.

Under our 2012 agreement with Flextronics International, Ltd. (Flextronics), Flextronics agreed to manufacture the component parts of the ILUVIEN applicator for us at its facility located near Tijuana, Mexico. We purchased certain equipment for Flextronics’ facility that Flextronics uses solely to manufacture the components of the ILUVIEN applicator for us. During 2019, Flextronics gave us 18 months’ notice to terminate the existing manufacturing agreement, which will terminate on September 30, 2020. We have identified an alternative manufacturer and are currently negotiating a final agreement to allow the transfer of equipment and qualification of the new facility, which is located in Pennsylvania. We currently expect to incur approximately $400,000 of capital expenditures associated with the new facility through February 2021, when we ~~were previously engaged and certain debt facilities.~~

expect the new facility to be fully operational. We expect the capital expenditures to be one-time costs. Flextronics is manufacturing a safety stock of the components of the ILUVIEN applicator, which will cause some of the manufacturing costs for the components to be accelerated into the third quarter of 2020, with no production of these parts occurring in the fourth quarter.

Indebtedness

Loans from Solar Capital. On January 5, 2018, we entered into ~~the~~a $40.0 million Loan and Security Agreement (the 2018 Solar Loan Agreement) with Solar Capital Ltd. (Solar Capital) and other lenders.Under the 2018 Solar Loan Agreement, ~~with Solar Capital. Under this agreement,~~ we borrowed the entire $40.0 million as a term loan that ~~matures~~was scheduled to mature on July 1, ~~2022.~~2022 (the 2018 Solar Loan). We used the proceeds of the 2018 Solar Loan to refinance the then outstanding loan under our previous loan agreement with Hercules Capital, Inc. and to pay closing expenses associated with the 2018 Solar Loan Agreement.

On December 31, 2019, we refinanced the 2018 Solar Loan Agreement ~~to repay~~by entering into a $45.0 million Loan and Security Agreement (the 2019 Solar Loan Agreement) with Solar Capital as Collateral Agent (Agent), and the ~~Hercules~~parties signing the 2018 Solar Loan Agreement from time to time as Lenders, including Solar Capital in its capacity as a Lender (collectively, the Lenders). Under the 2019 Solar Loan Agreement, we borrowed $42.5 million on December 31, 2019 and ~~pay related expenses.~~$2.5 million on February 21, 2020 (the 2019 Solar Loan). The 2019 Solar Loan matures on July 1, 2024. We used the initial proceeds of the 2019 Solar Loan to pay off the 2018 Solar Loan, along with related

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prepayment, legal and other fees and expenses totaling approximately $2.3 million, which included $2.2 million in fees to Solar Capital. We expect to use the remaining ~~loan~~ proceeds ~~in 2018~~of the 2019 Solar Loan to provide additional working capital for general corporate ~~purposes. (See Note 11~~purposes, and those proceeds are part of the cash and cash equivalents described below.

On May 1, 2020, we entered into a First Amendment (the Amendment) to the 2019 Solar Loan Agreement. The Amendment, among other things:

(a)eliminated the previous requirement that the following covenant (the Revenue Covenant) be measured at June 30, 2020 and September 30, 2020: we shall not permit revenues (under U.S. GAAP) from the sale of ILUVIEN in the ordinary course of business to third party customers, on a trailing six-month basis, to be less than a specified minimum revenue amount for each such date;

(b)requires that the Revenue Covenant be measured at November 30, 2020 and specifies a new minimum revenue amount in that regard;

(c)requires that the Revenue Covenant be measured at December 31, 2020 and specifies a new minimum revenue amount in that regard; and

(d)requires that the Revenue Covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our ~~notes~~projected revenues in accordance with an annual plan we submit to ~~Interim Financial Statements.)~~

Agent by January 15th of such year, such plan to be approved by our board of directors and Agent in its sole discretion.

The Amendment also adds the following new minimum liquidity requirement that became effective on May 1, 2020 and will continue until we notify Agent that we have met the Revenue Covenant at November 30, 2020: we shall not permit the aggregate amount of unrestricted cash and cash equivalents to be less than the sum of (i) $8,500,000 plus (ii) the amount of our accounts payable that have not been paid within 90 days from the invoice date of the relevant account payable.

Paycheck Protection Program Loan. On April 22, 2020, we received approximately $1.8 million in support (the PPP Loan) from the U.S. federal government under the Paycheck Protection Programestablished as part of the CARES Act. The PPP Loan is unsecured and is evidenced by a note (the Note) in favor of HSBC Bank USA, National Association (HSBC) as the lender and is governed by a loan agreement with HSBC.

The interest rate on the Note is 1.0% per annum. The Note has a two-year term and is payable in 18 equal monthly payments of principal and interest beginning on the 180th day following the disbursement of the loan proceeds, subject to forgiveness as described below. The Paycheck Protection Program provides a mechanism for forgiveness of up to the full amount borrowed as long as we use the loan proceeds during the 24-week period following disbursement for eligible purposes as described in the CARES Act and related guidance. We used all of the proceeds from the PPP Loan to pay expenses during the applicable period that we believe were for eligible purposes. On July 21, 2020, we submitted an application to HSBC for forgiveness of the PPP Loan. As of the date of this filing, the application is still pending review. To the extent any or all of the PPP Loan is not forgiven, we will be required to repay the PPP Loan on the terms described above.

Current Cash Position

As of June 30, ~~2019,~~2020, we had approximately $13.5 million in cash and cash equivalents, an increase of $1.3 million from the $12.2 million in cash and cash ~~equivalents. Due to the limited revenue generated by ILUVIEN to date,~~equivalents that we reported as of March 31, 2020. In April 2020, we received approximately $1.8 million PPP Loan. We may ~~have~~need to raise additional capital to fund our business strategy, including the continued commercialization of ~~ILUVIEN. If~~ILUVIEN and the retention of our current employees and staff. In response to the effects of the COVID-19 pandemic, we ~~are unable~~have adjusted, and we expect to ~~raise additional financing, we will need~~continue to adjust, our commercial ~~plans so that we can~~spending to continue to operate with our existing cash resources. The actual amount of funds that we ~~will~~may need will depend on many factors, some of which are beyond our control. See “Effects of the COVID-19 Pandemic” in this Item 2 above for an explanation of our strategy to conserve our cash and otherwise mitigate the impact of the pandemic on our financial position and operations.

We ~~may need funds sooner than~~cannot ensure that our commercial spending controls will be effective or will continue to be effective throughout the currently ~~anticipated.~~

unknown duration of the pandemic. We cannot be sure that additional financing will be available when needed or that, if available, the additional financing ~~would~~could be obtained on terms ~~favorable~~that are not significantly detrimental 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, we may not be successful in obtaining those agreements, or in receiving milestone or royalty payments under them. If we were to attempt to raise additional funds through debt financing, (a) the terms of the debt may involve significant cash payment obligations as well as

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covenants and specific financial ratios that may restrict our ability to ~~commercialize ILUVIEN or any future products or product candidates or operate~~achieve our ~~business;~~business strategy; and (b) we would be required to obtain the permission or participation of Solar Capital, which we might not be able to obtain. Our capital raising efforts may be hindered by the fact that we are currently not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1), which could ultimately lead to our delisting from Nasdaq if we are unable to regain compliance. See Part II, Item 1A, Risk Factors. Our recurring losses and any potential needs to raise capital create substantial doubt about our ability to continue as a going concern for the next 12 months following the issuance of the financial ~~statements.~~

statements for the filing of this Form 10-Q.

Sources and Uses of Cash for the six months ended June 30, 2020 compared to the six months ended June 30, 2019

For the six months ended June 30, 2020, cash provided by our operations was approximately $220,000. The cash provided by our operations was primarily due to our net loss of $3.7 million, offset by $1.3 million of non-cash depreciation and amortization, $760,000 of non-cash stock-based compensation expense and $480,000 of non-cash interest expense associated with the amortization of our debt discount. Further reducing cash from operations was a $2.8 million net decrease in accounts payable, accrued expenses and other current liabilities, a $580,000 increase in inventory, a $290,000 decrease in long-term liabilities and a $240,000 increase in prepaid expenses and other current assets. These were offset by a $5.3 million decrease in accounts receivable.

For the six months ended June 30, 2019, cash used in our operations was approximately $680,000. The cash used in our operations was primarily due to our net loss of $7.8 million and an increase in prepaid expenses and other current assets of $960,000, offset by a $3.3 million decrease in accounts receivable, $1.4 million of non-cash stock-based compensation expense, $1.3 million for non-cash depreciation and amortization and a $930,000 net increase in accounts payable, accrued expenses and other current liabilities. Cash used in operations for the six months ended June 30, 2019 was further offset by a $430,000 increase in other long-term liabilities, $420,000 for non-cash interest expense associated with the amortization of our debt discount and $260,000 of inventory.

For the six months ended June 30, ~~2018,~~2020, net cash used in our ~~operations~~investing activities was ~~$8.4 million. The cash used in our operations~~approximately $220,000, which was ~~primarily~~ due to ~~our net loss~~the purchase 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~~property 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.

equipment.

For the six months ended June 30, 2019, net cash used in our investing activities was approximately $40,000.

For the six months ended June 30, ~~2018,~~2020, net cash ~~used in~~provided by our ~~investing~~financing activities was approximately ~~$120,000,~~$4.0 million, which ~~was~~is primarily due to borrowing the ~~purchase~~remaining $2.5 million under the 2019 Solar Loan Agreement and receiving the $1.8 million PPP Loan, offset by $230,000 of ~~property and equipment, primarily the purchase~~payments of ~~additional software.~~

finance lease obligations.

For the six months ended June 30, 2019, net cash used in our financing activities was approximately $140,000, which is primarily due to payments of finance lease obligations.

For the six months ended June 30, 2018, net cash provided by our financing activities was approximately $1.2 million, which is primarily due to entering into the $40.0 million 2018 Loan Agreement with Solar Capital, offset by paying off the $35.0 million Hercules Loan Agreement and payment of related debt costs of $3.7 million.

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, ~~2018,~~2019, filed with the SEC on ~~February 25, 2019.~~

March 2, 2020.

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 to 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.

Impact of Recent Accounting Pronouncements

See Note 3 of our notes to Interim Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and expected effects on results of operations and financial condition, if known.

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

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ITEM 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, ~~2019.~~

2020.

Changes in Internal Control over Financial Reporting

We have implemented new internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard related to leases on our financial statements as a result of its adoption on January 1, 2019.

There ~~have~~has been no ~~other changes~~change in ~~our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect,~~ our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the six months ended June 30, ~~2019~~2020 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

We are not a party to any material pending legal proceedings, and management is not aware of any contemplated proceedings by any governmental authority against us.

ITEM 1A.Risk Factors

In our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the SEC on ~~February 25, 2019,~~March 2, 2020, we identify under Item 1A of Part I important factors that 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. Except as described below and in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, there have been no material changes in our risk factors after the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019. However, the risks described in our Form 10-K and Forms 10-Q 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.

You should read the following information in conjunction with the Interim Financial Statements and related notes in Part I, Item 1, Financial Information 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.”

The COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business, and such impacts may have an adverse effect on our results of operations, financial condition and cash flows.

The public health crisis caused by the COVID-19 pandemic and the measures being taken by governments, health authorities, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and we expect will continue to have, certain negative effects on, and present certain risks to, our business including the following:

•We have experienced a decrease in sales of ILUVIEN in the U.S. and in our international markets that have been affected by the COVID-19 pandemic resulting from, among other things:

•Governments and private parties have imposed limitations on in-person access to physicians, which can (and in certain instances already have):

◦affect patient access to treatment, given that ILUVIEN is administered only by an injection into the eye, which means telemedicine is not a viable substitute; and

◦make it difficult or impossible for our sales representatives (including those employed by our distributors) to meet with retina specialists and their staff to educate them about the benefits of ILUVIEN and to provide support for insurance pre-certifications.

•Our business is also negatively affected by patient behavior in the current environment. Most of our ILUVIEN sales are driven by the use of ILUVIEN to treat diabetic macular edema, or DME. Given that governmental authorities have cited diabetes as a factor that places a person at higher risk for severe illness from the COVID-19 pandemic, many of those patients are or may be unwilling to visit their physicians in person (even if otherwise permitted) due to their fear of contracting the COVID-19 pandemic.

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These limitations had an adverse impact on our revenues late in the first quarter of 2020 and throughout the second quarter. We ~~received notice~~expect these factors to continue to adversely impact our revenue, but the extent and duration of that impact is uncertain at this time. If the COVID-19 pandemic intensifies (as is currently the case in ~~June 2019~~the Southern portion of the U.S. from ~~The Nasdaq Stock Market (“Nasdaq”) that~~coast to coast), its duration is longer than we ~~failed~~expect or if a second pandemic follows after initial resolution, its negative effect on our sales and thus our liquidity and financial condition could be more prolonged and may be severe. Financial uncertainty associated with the adverse effects of the COVID-19 pandemic, and the duration of those effects, could have an impact in future periods on certain estimates used in the preparation of our quarterly financial results, including impairment of intangible assets, the income tax provision and realizability of certain receivables.

Other effects or possible effects of the COVID-19 pandemic on us include:

•Limitations on travel within and between the countries in which we market and sell ILUVIEN, as well as various types of “shelter in place” orders, have curtailed our in-person marketing activities, which have in turn contributed to lower sales of ILUVIEN.

•As a result of the COVID-19 pandemic, including related governmental guidance or directives, we required almost all office-based employees, including almost all employees based at our headquarters in Georgia, to work remotely for some or all of the second quarter. While most of our personnel in our headquarters have returned to work in the office, we may in the future experience reductions in productivity and disruptions to our business routines if remote work requirements are reinstated in Georgia.

•We may fail to maintain or modify as necessary our internal controls over financial reporting in an environment in which (a) many of our employees are working remotely and (b) we or our distributors have been and may be required to modify our standard business processes to take into account the current environment in light of the pandemic. If we fail to maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

•We may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a greater amount of cash in inventory than we need. Either event could have an adverse effect on our results of operations, financial condition and cash flows.

•As the result of lower sales of ILUVIEN, we may fail to comply with financial covenants in our $45.0 million 2019 Solar Loan Agreement, as amended, that are based on (a) minimum trailing six months’ revenues as of November 30, 2020 and the ~~Nasdaq Global Market’s~~end of each calendar quarter thereafter and (b) a minimum ~~bid~~liquidity requirement ~~because~~that took effect on May 1, 2020. If an event of default under the 2019 Solar Loan Agreement occurs, Solar Capital may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to raise additional financing, renegotiate the 2019 Solar Loan Agreement on terms less favorable to us or immediately cease operations. Any declaration by Solar Capital of an event of default could significantly harm our business and prospects and could cause the price of our common stock ~~price was below $1.00 per common share~~to decline significantly after we publicly disclose that event in an SEC filing. Further, if we are liquidated, Solar Capital’s right to repayment would be senior to the rights of our stockholders.

We may not be entitled to forgiveness of our PPP Loan.

In April 2020, we received proceeds of approximately $1.8 million from a loan under the PPP of the CARES Act, which we used to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures in April 2022 and bears annual interest at a rate of 1.0%.

Commencing October 2020 and subject to prior forgiveness of all or part of the PPP Loan, we are required to pay HSBC equal monthly payments of principal and interest based on the principal amount outstanding on the PPP Loan as of October 2020, plus interest outstanding at the end of the six-month deferment period, and taking into account any reductions in the principal amount due to forgiveness, if any. Interest accrued during the six-month deferment period will be capitalized as principal. Under the CARES Act, loan forgiveness is generally available for ~~30 consecutive business days.~~the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the 24-week period beginning on the date the lender makes the first disbursement of the PPP Loan. We ~~have~~will be required to repay any portion of the outstanding principal that is not ~~regained compliance~~forgiven, along with ~~Nasdaq’s minimum bid requirement,~~accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven by the SBA.

We must replace our third-party manufacturer of certain component parts of the ILUVIEN injector, and we may be unable to ~~do so. If~~replace that third party on favorable terms in a timely manner, or at all.

On March 28, 2019 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 (dated April 1, 2019) from Flextronics Medical Sales and Marketing, Ltd. (Flextronics) that it intends to terminate the Manufacturing Services Agreement dated March 2, 2012 between us and Flextronics for the manufacture of certain component parts of the ILUVIEN injector (the Flextronics Agreement). Based on ~~June 3, 2019, from Nasdaq~~Flextronics’ notice, the Flextronics Agreement will

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terminate on September 30, 2020. In the notice, Flextronics stated that asit is available to work with us and will continue to supply product during the notice period.

We have identified an alternative manufacturer with which we have entered into a statement of ~~May 31, 2019,~~work for the ~~closing bid price for our common stock~~transition and are currently negotiating a final agreement on the ~~Nasdaq Global Market was below $1.00 for~~manufacturing contract and the ~~last 30 consecutive business days~~component pricing. However, unless and ~~that, as~~until we transition to a result, we were not in compliance with the minimum bid price requirement under Nasdaq Listing Rule 5450(a)(1). This is the third notice of noncompliance with the minimum bid price requirement that we have received since June 2018. The notice stated that pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we will have 180 calendar days, until December 2, 2019, to regain compliance. For us to regain compliance with the minimum bid price requirement, our common stock must have a closing bid price of $1.00 or more for 10 consecutive business days. Under certain circumstances, however, to ensure that a company can sustain long-term compliance, Nasdaq may require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than 10 consecutive business days before determining that the company complies. Our common stock is continuing to trade on Nasdaq under the symbol ALIM during this 180-day period.

If we do not regain compliance during the initial 180-day compliance period, we may be eligible for an additional 180-day compliance period to regain compliance if we elect to transfer to the Nasdaq Capital Market. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price requirement, and we would need to provide written notice of our intention to cure the deficiency during the second compliance period. If it appears to Nasdaq that we will not be able to cure the deficiency or we are otherwise not eligible, however, Nasdaq would notify us that our securities would be subject to delisting. If we were to receive such a notification, we could appeal Nasdaq’s determination to delist our securities, butreplacement manufacturer, there can be no ~~assurance Nasdaq would grant our request for continued listing.~~

~~We intend to regain compliance with~~assurances that manufacturing of the ~~minimum bid price requirement to allow for continued listing on the Nasdaq Global Market, including seeking to transfer to the Nasdaq Capital Market~~affected parts will be performed timely and ~~thereby qualify for another 180-day compliance period if are unable to regain compliance by December 2, 2019. We cannot provide any assurances, however,~~effectively or that we will be able to ~~regain compliance, including, if necessary, transferring~~transition to a new manufacturer in a timely and effective manner. Significant disruption in this transition, or unanticipated costs related to the Nasdaq Capital Market to qualify for an additional 180-day compliance period. This statement of our intention to regain compliance with the minimum bid price requirement, including, if necessary, transferring to the Nasdaq Capital Market, is a forward-looking statement. We may not regain compliance, and actual results could differ materially from those projected in our forward-looking statements. Meaningful factors that could cause actual results to differ include our inability to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the minimum bid price requirement.

~~The delisting of our shares from the Nasdaq Global Market~~transition, could materially ~~reduce the liquidity~~and adversely affect our business, financial condition and results of operations. Additionally, if we are unable to transition manufacturing to a new vendor in a timely fashion or without disruption to our ~~common stock and have an~~operations, we could experience a material adverse effect on ~~its market price. A delisting could also make it more difficult for us to obtain financing through the sale~~our business, financial condition and cash flows, and results of ~~our equity. Any such sale~~operations.

‎

Table of ~~equity would likely be more dilutive to our current shareholders than would be the case if our shares were listed.~~Contents

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.

‎

~~None.~~

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ITEM 6.Exhibits


Exhibit Number		Description
~~Exhibit~~ ~~Number~~ 3.1		~~Description~~

~~3.1~~		Restated Certificate of Incorporation of Registrant, as amended on various dates (filed as Exhibit 3.1 to the Registrant’s ~~Quarterly~~Annual Report on Form ~~10-Q,~~10-K, as filed on ~~November 9, 2018,~~March 2, 2020, and incorporated herein by reference).
3.2
~~3.2~~		Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit ~~3.1~~3.2 to the Registrant’s Annual Report on Form 10-K, as filed on March 2, 2020 and incorporated herein by reference).
10.14.D		Consent to Loan and Security Agreement dated as of April 21, 2020 by and among the Registrant, Solar Capital Ltd., as collateral agent, and the Lenders parties thereto, including Solar Capital Ltd. in its capacity as a Lender (filed as Exhibit 10.14.D to the Registrant’s Current Report on Form 8-K, as filed on ~~November 5, 2015~~April 23, 2020 and incorporated herein by reference).
10.14.E#
~~10.58~~		~~Amended~~First Amendment to Loan and ~~Restated Employment~~Security Agreement dated as of ~~January 2, 2019,~~May 1, 2020, by and ~~between Alimera Sciences, Inc.~~among the Registrant, Solar Capital Ltd., as Collateral Agent, and ~~Richard S. Eiswirth, Jr.~~the parties signatory thereto as Lenders, including Solar in its capacity as a Lender (filed as Exhibit ~~10.58~~10.14.E to the Registrant’s Current Report on Form 8-K, as filed on May ~~8, 2019~~1, 2020 and incorporated herein by reference).
10.16
~~10.59~~		~~Amended and Restated Employment Agreement,~~U.S. Small Business Administration Note dated April 21, 2020 of the Registrant in favor of HSBC Bank USA, National Association as ~~of January 2, 2019, by and between Alimera Sciences, Inc. and J. Philip Jones~~the Lender (filed as Exhibit ~~10.59~~10.16 to the Registrant’s Current Report on Form 8-K, as filed on ~~May 8, 2019~~April 23, 2020 and incorporated herein by reference).
10.17
~~10.60~~		~~Alimera Sciences, Inc. 2019 Omnibus Incentive Plan~~Loan Agreement dated April 21, 2020 between HSBC Bank USA, National Association and the Registrant (filed as Exhibit ~~10.60~~10.17 to the Registrant’s Current Report on Form 8-K, as filed on ~~June 19, 2019~~April 23, 2020 and incorporated herein by reference).
31.1*
~~10.61~~		Form of Stock Option Agreement under the Alimera Sciences, Inc. 2019 Omnibus Incentive Plan (filed as Exhibit 10.61 to the Registrant’s Current Report on Form 8-K, as filed on June 19, 2019 and incorporated herein by reference).

31.1*		Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
31.2*		Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
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		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
~~101.INS+~~ 104		Cover Page Interactive Data File (Embedded within the Inline 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.~~

*	~~Filed herewith.~~

+	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 amendeddocument and ~~otherwise is not subject to liability under these sections.~~included in Exhibit 101).

*Filed herewith.

#Certain confidential information contained in this agreement has been omitted because it is not material and would be competitively harmful if publicly disclosed.

†Management contracts and compensatory plans and arrangements.

₊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 ~~6, 2019~~4, 2020	By:	/s/ Richard S. Eiswirth, Jr.
		Richard S. Eiswirth, Jr.
		President and Chief Executive Officer
		(Principal Executive Officer)

August 4, 2020	By:
~~August 6, 2019~~	~~By:~~	/s/ J. Philip Jones
		J. Philip Jones
		Chief Financial Officer
		(Principal Financial and Accounting Officer)


Delaware		20-0028718
~~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)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	ALIM	The Nasdaq Stock Market LLC (Nasdaq Global Market)



Large accelerated filer	o	Accelerated filer	x

Non-accelerated filer	o	Smaller reporting company	x

		Emerging growth company	o



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)	4 5
Condensed Consolidated Balance Sheets as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019	4 5
Condensed Consolidated Statements of Operations for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	5 6
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	6 7
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019	7 8
Condensed Consolidated ~~Statement~~Statements of Changes in ~~Equity~~Stockholders’ Deficit	8 9
Notes to Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk	46 37
Item 4. Controls and Procedures	47 38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	48 39
Item 1A. Risk Factors	49 39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	50 42
Item 3. Defaults Upon Senior Securities	50 42
Item 4. Mine Safety Disclosures	50 42
Item 5. Other Information	50 42
Item 6. Exhibits	51 43
Signatures	52 44



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


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


•	~~uncertainty regarding our ability to achieve profitability and positive cash flow through the commercialization of ILUVIEN~~^® ~~in the U.S., the European Economic Area (EEA) and other regions of the world where we sell ILUVIEN;~~



	June 30, 2019			December 31, 2018
	(In thousands, except share and per share data)
CURRENT ASSETS:
Cash and cash equivalents	$	12,157		$	13,043
Restricted cash	32			32
Accounts receivable, net	13,892			17,259
Prepaid expenses and other current assets	2,691			2,109
Inventory (Note 7)	2,141			2,405
Total current assets	30,913			34,848
NON-CURRENT ASSETS:
Property and equipment, net	1,095			1,355
Right of use assets, net	1,299			—
Intangible asset, net (Note 8)	15,761			16,723
Deferred tax asset	1,174			1,182
TOTAL ASSETS	$	50,242		$	54,108
CURRENT LIABILITIES:
Accounts payable	$	7,875		$	6,355
Accrued expenses (Note 9)	3,468			3,643
Finance lease obligations	247			236
Total current liabilities	11,590			10,234
NON-CURRENT LIABILITIES:
Note payable (Note 11)	38,288			37,873
Finance lease obligations — less current portion	172			305
Other non-current liabilities	3,874			2,974
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ (DEFICIT) EQUITY:
Preferred stock, $.01 par value — 10,000,000 shares authorized at June 30, 2019 and December 31, 2018:
Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $24,000 at June 30, 2019 and December 31, 2018	19,227			19,227
Series C Convertible Preferred Stock, 10,150 authorized issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $10,150 at June 30, 2019 and December 31, 2018	11,117			11,117
Common stock, $.01 par value — 150,000,000 shares authorized, 71,000,495 shares issued and outstanding at June 30, 2019 and 70,078,878 shares issued and outstanding at December 31, 2018	710			701
Additional paid-in capital	347,524			346,108
Common stock warrants	3,707			3,707
Accumulated deficit	(384,928		)	(377,127		)
Accumulated other comprehensive loss	(1,039		)	(1,011		)
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY	(3,682		)	2,722
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	50,242		$	54,108



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(In thousands, except share and per share data)
NET REVENUE	$	10,855		$	10,717		$	23,745		$	20,347
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION	(1,174		)	(913		)	(2,774		)	(2,017		)
GROSS PROFIT	9,681			9,804			20,971			18,330

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES	2,834			2,777			5,561			5,599
GENERAL AND ADMINISTRATIVE EXPENSES	3,675			3,229			7,068			7,084
SALES AND MARKETING EXPENSES	6,108			5,926			12,021			11,895
DEPRECIATION AND AMORTIZATION	654			650			1,306			1,299
OPERATING EXPENSES	13,271			12,582			25,956			25,877
NET LOSS FROM OPERATIONS	(3,590		)	(2,778		)	(4,985		)	(7,547		)

INTEREST EXPENSE AND OTHER	(1,236		)	(1,178		)	(2,464		)	(2,329		)
UNREALIZED FOREIGN CURRENCY GAIN (LOSS), NET	49			32			(20		)	34
LOSS ON EARLY EXTINGUISHMENT OF DEBT	—			—			—			(1,766		)
NET LOSS BEFORE TAXES	(4,777		)	(3,924		)	(7,469		)	(11,608		)
PROVISION FOR TAXES	(261		)	(76		)	(332		)	(76		)
NET LOSS	(5,038		)	(4,000		)	(7,801		)	(11,684		)
NET LOSS PER SHARE — Basic and diluted	$	(0.07	)	$	(0.06	)	$	(0.11	)	$	(0.17	)
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted	70,990,340			70,022,100			70,866,285			69,952,940



	Common Stock			Series A Convertible Preferred Stock			Series B Convertible Preferred Stock			Series C Convertible Preferred Stock			Additional Paid-In Capital			Common Stock Warrants		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid-In Capital			Common Stock Warrants		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
2019	(In thousands, except share data)
Balance, December 31, 2018	70,078,878	$	701	600,000	$	19,227	—	$	—	10,150	$	11,117	$	346,108		$	3,707	$	(377,127	)	$	(1,011	)	$	2,722
Issuance of common stock, net of issuance costs	889,752	9		—	—		—	—		—	—		(9		)	—		—			—			—
Stock-based compensation	—	—		—	—		—	—		—	—		770			—		—			—			770
Net loss	—	—		—	—		—	—		—	—		—			—		(2,763		)	—			(2,763		)
Foreign currency translation adjustments	—	—		—	—		—	—		—	—		—			—		—			(83		)	(83		)
Balance, March 31, 2019	70,968,630	$	710	600,000	$	19,227	—	$	—	10,150	$	11,117	$	346,869		$	3,707	$	(379,890	)	$	(1,094	)	$	646
Issuance of common stock, net of issuance costs	31,865	—		—	—		—	—		—	—		—			—		—			—			—
Stock-based compensation	—	—		—	—		—	—		—	—		655			—		—			—			655
Net loss	—	—		—	—		—	—		—	—		—			—		(5,038		)	—			(5,038		)
Foreign currency translation adjustments	—	—		—	—		—	—		—	—		—			—		—			55			55
Balance, June 30, 2019	71,000,495	$	710	600,000	$	19,227	—	$	—	10,150	$	11,117	$	347,524		$	3,707	$	(384,928	)	$	(1,039	)	$	(3,682	)

2018
Balance, December 31, 2017	69,146,381	$	691	600,000	$	19,227	8,416	$	49,568	—	$	—	$	341,622		$	3,707	$	(399,074	)	$	(821	)	$	14,920
Issuance of common stock, net of issuance costs	839,285	9		—	—		—	—		—	—		(9		)	—		—			—			—
Exercise of stock options	1,563	—		—	—		—	—		—	—		2			—		—			—			2
Stock-based compensation	—	—		—	—		—	—		—	—		1,207			—		—			—			1,207
Net loss	—	—		—	—		—	—		—	—		—			—		(7,684		)	—			(7,684		)
Foreign currency translation adjustments	—	—		—	—		—	—		—	—		—			—		—			106			106
Balance, March 31, 2018	69,987,229	$	700	600,000	$	19,227	8,416	$	49,568	—	$	—	$	342,822		$	3,707	$	(406,758	)	$	(715	)	$	8,551
Issuance of common stock, net of issuance costs	51,182	—		—	—		—	—		—	—		(9		)	—		—			—			(9		)
Stock-based compensation	—	—		—	—		—	—		—	—		1,209			—		—			—			1,209



Years Ending December 31	(In thousands)
2019 (remaining)	$	281
2020	569
2021	456
2022	156
2023	156
Thereafter	156
Total	1,774
Less amount representing interest	(278		)
Present value of minimum lease payments	1,496
Less current portion	(446		)
Non-current portion	$	1,050



	Three and Six Months Ended June 30,
	2019	2018
Series A convertible preferred stock	9,022,556	9,022,556
Series B convertible preferred stock	—	8,416,251
Series C convertible preferred stock	10,150,000	—
Common stock warrants	1,795,663	1,795,663
Stock options	13,682,709	12,514,650
Restricted stock units	551,400	1,023,630
Total	35,202,328	32,772,750



	Three Months Ended June 30,
	2019					2018
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Options outstanding at beginning of period	13,407,536			$	2.48	12,343,820			$	2.75
Grants	648,000			0.95		320,625			0.88
Forfeitures	(372,827		)	2.79		(149,795		)	2.70
Exercises	—			—		—			—
Options outstanding at period end	13,682,709			2.40		12,514,650			2.70
Options exercisable at period end	9,722,530			2.93		8,578,358			3.19
Weighted average per share fair value of options granted during the period	$	0.58				$	0.56



	Six Months Ended June 30,
	2019					2018
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Options outstanding at beginning of period	12,447,355			$	2.63	11,595,510			$	2.90
Grants	1,822,750			0.90		1,553,625			1.10
Forfeitures	(587,396		)	2.50		(632,922		)	2.43
Exercises	—			—		(1,563		)	1.06
Options outstanding at period end	13,682,709			2.40		12,514,650			2.70
Options exercisable at period end	9,722,530			2.93		8,578,358			3.19
Weighted average per share fair value of options granted during the period	$	0.56				$	0.73



	Three Months Ended June 30, 2019												Three Months Ended June 30, 2018
	U.S.			International			Other			Consolidated			U.S.			International			Other			Consolidated
	(In thousands)
NET REVENUE	$	7,320		$	3,535		$	—		$	10,855		$	7,799		$	2,918		$	—		$	10,717
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION	(808		)	(366		)	—			(1,174		)	(656		)	(257		)	—			(913		)
GROSS PROFIT	6,512			3,169			—			9,681			7,143			2,661			—			9,804

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES	1,630			1,090			114			2,834			1,602			954			221			2,777
GENERAL AND ADMINISTRATIVE EXPENSES	2,150			946			579			3,675			1,866			723			640			3,229
SALES AND MARKETING EXPENSES	4,217			1,779			112			6,108			4,142			1,493			291			5,926
DEPRECIATION AND AMORTIZATION	—			—			654			654			—			—			650			650
OPERATING EXPENSES	7,997			3,815			1,459			13,271			7,610			3,170			1,802			12,582
SEGMENT LOSS FROM OPERATIONS	(1,485		)	(646		)	(1,459		)	(3,590		)	(467		)	(509		)	(1,802		)	(2,778		)
OTHER INCOME AND EXPENSES, NET	—			—			(1,187		)	(1,187		)	—			—			(1,146		)	(1,146		)
NET LOSS BEFORE TAXES										$	(4,777	)										$	(3,924	)



	Six Months Ended June 30, 2019												Six Months Ended June 30, 2018
	U.S.			International			Other			Consolidated			U.S.			International			Other			Consolidated
	(In thousands)
NET REVENUE	$	14,086		$	9,659		$	��		$	23,745		$	14,604		$	5,743		$	—		$	20,347
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION	(1,493		)	(1,281		)	—			(2,774		)	(1,369		)	(648		)	—			(2,017		)
GROSS PROFIT	12,593			8,378			—			20,971			13,235			5,095			—			18,330

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES	3,057			2,261			243			5,561			3,242			1,904			453			5,599
GENERAL AND ADMINISTRATIVE EXPENSES	4,084			1,933			1,051			7,068			4,159			1,630			1,295			7,084
SALES AND MARKETING EXPENSES	8,258			3,484			279			12,021			8,514			2,771			610			11,895
DEPRECIATION AND AMORTIZATION	—			—			1,306			1,306			—			—			1,299			1,299
OPERATING EXPENSES	15,399			7,678			2,879			25,956			15,915			6,305			3,657			25,877
SEGMENT (LOSS) INCOME FROM OPERATIONS	(2,806		)	700			(2,879		)	(4,985		)	(2,680		)	(1,210		)	(3,657		)	(7,547		)
OTHER INCOME AND EXPENSES, NET	—			—			(2,484		)	(2,484		)	—			—			(4,061		)	(4,061		)
NET LOSS BEFORE TAXES										$	(7,469	)										$	(11,608	)