Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

As of November ~~12, 2019,~~10, 2020, the registrant had ~~124,598,198~~23,118,233 shares of common stock, $0no par value per share and ~~61,459,657~~7,682,244 warrants, ~~outstandin~~g.outstanding.

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,462		$	4,471		$	2,437		$	11,327
Accounts receivable, net		264			504			—			455
Inventories, net		1,264			3,250			—			1,029
Prepaid expenses and other current assets		366			1,395			872			299
Total current assets		20,356			9,620			3,309			13,110
Property and equipment, net		1,125			1,025			193			1,122
Right-of-use assets		2,399			—			—			2,342
Deposits and other assets		18			37			20			25
Total assets	$	23,898		$	10,682		$	3,522		$	16,599

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,126		$	1,305		$	285		$	1,093
Accrued expenses		2,082			2,503			1,260			1,889
Accrued compensation expense		2,461			2,690			393			2,698
Accrued clinical trial expenses		734			933			707			707
Current operating lease liabilities		228			—			—			237
Contract liabilities		554			167			335			335
Total current liabilities		7,185			7,598			2,980			6,959
Long term operating lease liabilities		2,427			—			—			2,365
Total liabilities		9,612			7,598			2,980			9,324
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value, 10,000 shares authorized; none outstanding		—			—			—			—
Common stock, no par value; 300,000 shares authorized; shares issued and outstanding: 124,598 and 76,336 as of September 30, 2019 and December 31, 2018, respectively		263,656			229,019
Common stock, no par value; 300,000 shares authorized; shares issued and outstanding: 23,118 and 15,643 as of September 30, 2020 and December 31, 2019, respectively								270,126			264,008
Additional paid-in capital		48,131			44,111			49,287			48,613
Accumulated other comprehensive loss		(585	)		(575	)		(498	)		(562	)
Accumulated deficit		(296,916	)		(269,471	)		(318,373	)		(304,784	)
Total stockholders’ equity		14,286			3,084			542			7,275
Total liabilities and stockholders’ equity	$	23,898		$	10,682		$	3,522		$	16,599

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Net sales	$	472		$	2,246		$	2,882		$	5,129		$	—		$	472		$	—		$	2,882
Cost of sales		364			1,784			2,028			3,287			—			364			—			2,028
Gross profit		108			462			854			1,842			—			108			—			854

Operating expenses:
Research and development, net of grants		3,379			2,672			8,998			7,567			279			3,379			4,489			8,998
Clinical and regulatory, net of grants		862			964			2,404			3,439			261			862			1,604			2,404
Selling and marketing		1,308			3,040			5,100			8,931			—			1,308			701			5,100
General and administrative		2,178			2,332			6,883			8,208			1,062			2,178			4,599			6,883
Restructuring charges		—			—			3,297			—			—			—			2,229			3,297
Total operating expenses		7,727			9,008			26,682			28,145			1,602			7,727			13,622			26,682

Loss from operations		(7,619	)		(8,546	)		(25,828	)		(26,303	)		(1,602	)		(7,619	)		(13,622	)		(25,828)
Interest income		35			24			104			67
Miscellaneous income (expense), net														(1	)		35			33			104

Net loss	$	(7,584	)	$	(8,522	)	$	(25,724	)	$	(26,236	)	$	(1,603	)	$	(7,584	)	$	(13,589	)	$	(25,724)

Net loss per common share – basic and diluted	$	(0.06	)	$	(0.12	)	$	(0.22	)	$ (0.41)			$	(0.07	)	$	(0.49	)	$	(0.69	)	$	(1.79)

Weighted average common shares outstanding – basic and diluted		124,592			68,763			115,266			64,113			23,118			15,574			19,714			14,408

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Net loss	$	(7,584	)	$	(8,522	)	$	(25,724	)	$	(26,236	)	$	(1,603	)	$	(7,584	)	$	(13,589	)	$	(25,724	)

Other comprehensive income (loss):
Foreign currency translation adjustments		(11	)		24			(10	)		(8	)		35			(11	)		64			(10	)
Comprehensive loss	$	(7,595	)	$	(8,498	)	$	(25,734	)	$	(26,244	)	$	(1,568	)	$	(7,595	)	$	(13,525	)	$	(25,734	)

Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) (unaudited)

Common Stock

Common Stock
Issuable

Additional
Paid-in

Accumulated
Other
Comprehensive

Accumulated

Total
Stockholders’

Shares

Amount

Shares

Amount

Capital

Loss

Deficit

Equity

Balance, December 31, 2017

57,630

$
202,156

82

$
153

$
40,522

$
(572
)

$
(234,377
)

$
7,882

Issuance of shares of common
   stock, net of issuance costs

2,224

3,992

—

—

—

—

—

3,992

Warrants exercise

5

7

—

—

—

—

—

7

Common stock issuance for
   services

—

—

34

65

—

—

—

65

Release of restricted stock units

12

—

—

—

—

—

—

—

Stock-based compensation
   expense

—

—

—

—

1,285

—

—

1,285

Exercise of common stock options

5

8

—

—

—

—

—

8

Net loss

—

—

—

—

—

—

(9,753
)

(9,753
)
Foreign currency translation
  adjustment

—

—

—

—

—

45

—

45

Balance, March 31, 2018

59,876

206,163

116

218

41,807

(527
)

(244,130
)

3,531

Issuance of shares of common
   stock, net of issuance costs

6,757

9,978

—

—

—

—

—

9,978

Issuance of common stock in
   connection with employee
   stock purchase plan

226

261

—

—

—

—

—

261

Common stock issued or
   issuable  for services

133

262

(116
)

(218
)

—

—

—

44

Release of restricted stock units

12

—

—

—

—

—

—

—

Stock-based compensation
   expense

—

—

—

—

627

—

—

627

Exercise of common stock options

71

141

—

—

—

—

—

141

Net loss

—

—

—

—

—

—

(7,961
)

(7,961
)
Foreign currency translation
  adjustment

—

—

—

—

—

(77
)

—

(77
)
Balance, June 30, 2018

67,075

216,805

—

—

42,434

(604
)

(252,091
)

6,544

Issuance of shares of common
   stock, net of issuance costs

3,225

4,969

—

—

—

—

—

4,969

Release of restricted stock units

12

—

—

—

—

—

—

—

Stock-based compensation
   expense

—

—

—

—

877

—

—

877

Net loss

—

—

—

—

—

—

(8,522
)

(8,522
)
Foreign currency translation
  adjustment

—

—

—

—

—

24

—

24

Balance, September 30, 2018

70,312

$
221,774

—

$
—

$
43,311

$
(580
)

$
(260,613
)

$
3,892

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance, December 31, 2018		9,542	$	229,019	$	44,111	$	(575	)	$	(269,471	)	$	3,084
Adoption of ASC Topic 842-Leases		—		—		—		—			(144	)		(144	)
Issuance of shares of common stock and warrants in connection with rights offering, net of issuance costs		5,976		34,399		—		—			—			34,399
Release of restricted stock units		6		—		—		—			—			—
Warrants modification (see note 7)		—		—		1,577		—		(1,577				—
Stock-based compensation expense		—		—		898		—		—				898
Net loss		—		—		—		—			(9,700	)		(9,700	)
Foreign currency translation adjustment		—		—		—		(8	)	—				(8	)
Balance, March 31, 2019		15,524		263,418		46,586		(583	)		(280,892	)		28,529

Issuance of common stock in connection with employee stock purchase plan		47		238		—		—			—			238
Release of restricted stock units		2		—		—		—			—			—
Stock-based compensation expense		—		—		859		—			—			859
Net loss		—		—		—		—			(8,440	)		(8,440	)
Foreign currency translation adjustment		—		—		—		9		—				9
Balance, June 30, 2019		15,573		263,656		47,445	(574				(289,332	)		21,195

Release of restricted stock units		2		—		—		—			—			—
Stock-based compensation expense		—		—		686		—			—			686
Net loss		—		—		—		—			(7,584	)		(7,584	)
Foreign currency translation adjustment		—		—		—		(11	)	—				(11	)
Balance, September 30, 2019		15,575	$	263,656	$	48,131	$	(585	)	$	(296,916	)	$	14,286

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’			Common Stock						Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity			Shares			Amount			Capital		Loss			Deficit			Equity(Deficiency)
Balance, December 31, 2018		76,336	$	229,019	$	44,111	$	(575	)	$	(269,471	)	$	3,084
Adoption of ASC Topic 842-Leases (see note 2)		—		—		—		—			(144	)		(144	)
Issuance of shares of common stock and warrants in connection with rights offering, net of issuance costs		47,812		34,399		—		—			—			34,399
Release of restricted stock units		50		—		—		—			—			—
Warrants modification (see note 7)		—		—		1,577		—			(1,577	)		—
Stock-based compensation expense		—		—		898		—			—			898
Net loss		—		—		—		—			(9,700	)	(9,700)
Foreign currency translation adjustment		—		—		—		(8	)		—			(8	)
Balance, March 31, 2019		124,198		263,418		46,586		(583	)		(280,892	)		28,529
Release of restricted stock units		12		—		—		—			—			—
Issuance of common stock in connection with employee stock purchase plan		376		238		—		—			—			238
Stock-based compensation expense		—		—		859		—			—			859
Net loss		—		—		—		—			(8,440	)		(8,440	)
Foreign currency translation adjustment		—		—		—		9			—			9
Balance, June 30, 2019		124,586		263,656		47,445		(574	)		(289,332	)		21,195
Balance, December 31, 2019																	15,643		$	264,008		$	48,613	$	(562	)	$	(304,784	)	$	7,275
Repurchase of fractional shares in connection with reverse stock split																	(2	)		(11	)		—		—			—			(11	)
Issuance of shares of common stock																	1			6			—		—			—			6
Release of restricted stock units		12		—		—		—			—			—			15			—			—		—			—			—
Stock-based compensation expense		—		—		686		—			—			686			—			—			279		—			—			279
Net loss		—		—		—		—			(7,584	)		(7,584	)		—			—			—		—			(8,886	)		(8,886	)
Foreign currency translation adjustment		—		—		—		(11	)		—			(11	)		—			—			—		19			—			19
Balance, September 30, 2019		124,598	$	263,656	$	48,131	$	(585	)	$	(296,916	)	$	14,286
Balance, March 31, 2020																	15,657			264,003			48,892		(543	)		(313,670	)		(1,318	)

Issuance of shares of common stock and warrants in connection with share offering, net of issuance costs																	7,500			6,393			280		—			—			6,673
Repurchase of ESPP shares as part of a rescission Offer																	(39	)		(270	)		—		—			—			(270	)
Stock-based compensation expense																	—			—			88		—			—			88
Net loss																	—			—			—		—			(3,100	)		(3,100	)
Foreign currency translation adjustment																	—			—			—		10			—			10
Balance, June 30, 2020																	23,118			270,126			49,260		(533	)		(316,770	)		2,083

Stock-based compensation expense																	—			—			27		—			—			27
Net loss																	—			—			—		—		(1,603		)		(1,603	)
Foreign currency translation adjustment																	—			—			—		35		—				35
Balance, September 30, 2020																	23,118		$	270,126		$	49,287	$	(498	)	$	(318,373	)	$	542

	Nine Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2020			2019
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net loss	$	(25,724	)	$	(26,236	)	$	(13,589	)	$	(25,724	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		293			329			148			293
Stock-based compensation		2,443			2,789			394			2,443
Bad debt recovery		—			(6	)
Non-cash lease expense		13			—			3			13
Inventory reserve		(793	)		171			—			(793	)
Restructuring charges-inventory impairment		2,587			—
Common stock issuance for services		—			109
Restructuring charges-inventory and fixed asset impairment								1,116			2,587
Changes in operating assets and liabilities:
Accounts receivable		240			639			461			240
Inventories		186			(1,082	)		218			186
Prepaid expenses and other assets		1,010			291			(568	)		1,010
Accounts payable		(178	)		795			(1,256	)		(178	)
Accrued expenses		(282	)		(447	)		64			(282	)
Accrued compensation expenses		(227	)		351			(2,360	)		(227	)
Accrued clinical trial expenses		(199	)		155			—			(199	)
Contract liabilities		388			63			—			388
Net cash used in operating activities		(20,243	)		(22,079	)		(15,369	)		(20,243	)
Cash flows from investing activities:
Sale of assets held for sale								398			—
Purchases of property and equipment		(394	)		(144	)		(331	)		(394	)
Net cash used in investing activities		(394	)		(144	)
Net cash provided by (used in) investing activities								67			(394	)
Cash flows from financing activities:
Net proceeds from sale of common stock and warrants		34,399			18,939
Proceeds from exercise of options, warrants and employee stock purchase plan options		238			417
Net proceeds from sale of common stock and/or warrants								6,679			34,399
Proceeds from employee stock purchase plan								—			238
Repurchase of ESPP shares and fractional shares in connection with reverse stock split								(281	)		—
Net cash provided by financing activities		34,637			19,356			6,398			34,637
Effect of exchange rate changes on cash and cash equivalents		(9	)		—			14			(9	)
Cash and cash equivalents:
Net increase (decrease)		13,991			(2,867	)		(8,890	)		13,991
Balance at beginning of period		4,471			7,839			11,327			4,471
Balance at end of period	$	18,462		$	4,972		$	2,437		$	18,462

Fair value of warrants issued in connection with issuance of common stock $280 $—

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

In 2007, Second Sight formed Second Sight Medical Products (Switzerland) Sàrl, initially to manage clinical trials ~~for its products in Europe,~~ and ~~later to manage~~ sales and marketing in Europe, the Middle East and ~~Asia-Pacific.~~Asia-Pacific, and more recently for the research of future technologies. As the laws of Switzerland require at least two corporate stockholders, Second Sight Medical Products (Switzerland) Sàrl is 99.5% owned directly by us and 0.5% owned by an executive of Second Sight as of September 30, ~~2019.~~2020. Accordingly, Second Sight Medical Products (Switzerland) Sàrl is considered 100% owned for financial statement purposes and is consolidated with Second Sight for all periods presented. In June 2020, we commenced a process to dissolve our Swiss subsidiary which is expected to take approximately one year.

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

Our first commercially approved product, the Argus^® II retinal prosthesis system (“Argus II”), entered clinical trials in 2006, received CE Mark approval for marketing and sales in the European Union (“EU”) in 2011, and received approval by the United States Food and Drug Administration (“FDA”) for marketing and sales in the United States in 2013. We began selling the Argus II in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we no longer market the Argus II and have ~~made~~focused all of our resources on the ~~decision~~development of Orion.

In March 2020, we were severely adversely impacted by the COVID-19 pandemic and its related effects on our ability to ~~maximize capital efficiency~~finance our planned activities. As a result, we significantly reduced our staff and expenses and conserved liquidity as we continue operations and explore strategic options. These options include securing additional funding and exploring business alternatives that may include partnering, acquiring, investing in or combining with ~~our Argus commercial and clinical activities and increase our investment~~businesses that may or may not be in a related industry. No assurances can be given that any of ~~resources with our Orion clinical and R&D programs. See Note 2 for discussion of Discontinued Operations.~~these initiatives will occur.

From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated from the sale of our Argus II product. Funding of our business since 2017 has been primarily provided by:

On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock ~~through our At Market Issuance Sales Agreement~~ ~~(the “Sales Agreement”)~~ ~~during the first quarter~~at an offering price of ~~2018 which provided~~$1.00 per share for aggregate net ~~cash~~ proceeds of ~~$4.0~~approximately $6.7 million.

commenced in January 2018. Our second year grant was recently approved under this grant. As of September 30, 2020 we recorded $0.6 million of deferred grant costs which will be offset with the related grant funds when received. During the nine months ended September 30, 2020, we received a total of $0.4 million of grant funds primarily from this grant.

On September 17, 2019, we received a $2.4 million, four-year grant from the National Institutes of Health (NIH) to develop spatial localization and mapping technology (“SLAM”). This grant involves a joint collaboration with the Johns Hopkins University Applied Physics Laboratory (APL), and is intended to speed the integration of SLAM into future generations of Orion. The goal is to give Orion users the ability to localize objects and navigate landmarks in unfamiliar surroundings in real time.

APL is the primary recipient of the grant. We have suspended our activities on the project until we clarify our future plans.

In a rights offering completed on February 22, 2019, we sold approximately ~~47.8~~5,976,000 million units, each priced at ~~$0.724~~$5.792 for ~~gross~~net proceeds of approximately ~~$34.6~~$34.4 million. Each unit consisted of one share and one immediately exercisable warrant having an exercise price of ~~$1.47~~$11.76 per share. Entities controlled by Gregg Williams, our Chairman of the Board of Directors, acquired approximately ~~41.4~~5,180,000 million units in the offering for an aggregate investment of approximately $30 million.

In November 2017, we entered into an At Market Issuance Sales Agreement (“Sales Agreement”) with B. Riley FBR Inc. and H.C. Wainwright & Co., LLC, as agents (“Agents”) pursuant to which we ~~may offer~~offered and ~~sell,~~sold, from time to time through either of the Agents, shares of our common stock having an aggregate offering price as set forth in the Sales Agreement and a related prospectus supplement filed with the SEC. We agreed to pay the Agents a cash commission of 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. During January and February 2018, we sold ~~2.2 million~~approximately 278,000 shares of common stock which provided net proceeds of $4.0 million under the Sales Agreement. NoDuring December 2019, we sold approximately 17,000 shares ~~have been sold since February 2018~~of common stock which provided net proceeds of $0.1 million under the Sales Agreement. In April 2020, we terminated the Sales Agreement with the Agents.

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

Our financial statements have been presented on the basis that our business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We are subject to the risks and uncertainties associated with a business with ~~one product line and limited commercial product revenues,~~no revenue that is developing a novel medical device, including limitations on our operating capital ~~resources and uncertain demand for our product.~~resources. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future.

WeAs more fully described in Note 9, we have been notified by the Nasdaq stock market regarding our non-compliance with the continued listing requirement on the Nasdaq capital market pursuant to its listing rules, and therefore we could be subject to delisting if we do not regain compliance within the compliance period (or the compliance period as may be extended).

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

Our independent registered public accounting firm, in its report on our 2019 consolidated financial statements, has raised substantial doubt about our ability to continue as a going concern.

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

These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and following the requirements of the United States Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In our opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, ~~2018,~~2019, contained in our Annual Report on Form 10-K filed with the SEC on March 19, ~~2019.~~2020. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

On December 31, 2019 we effected a reverse stock split of the outstanding shares of our no par value common stock and outstanding warrants to purchase our common stock by a ratio of 1-for-8 (1:8). The common stock and warrants began trading on the Nasdaq Capital Market on a split-adjusted basis on January 6, 2020.

The accompanying consolidated financial statements and notes thereto give retrospective effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable for common stock, restricted stock units, and per share amounts contained in our consolidated financial statements have been retrospectively adjusted.

~~Discontinued operations~~Segment Reporting. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. Our chief operating decision-maker reviews financial information presented on a consolidated basis. Accordingly, we consider ourselves to be in a single reporting segment, specifically the discovery, development and commercialization of visual prosthetics for profoundly blind individuals. We historically managed our Argus II and Orion programs on a consolidated basis within this single operating segment and do not assess the performance of our product lines or geographic regions on other measures of income or expense, such as program expense, operating income or net income. Our underlying technology consists of hardware components (implanted and wearable) and software. A vast majority of this underlying technology is shared between our Argus II and Orion branded systems. While we have ceased production and marketing the Argus II product indicated for individuals with retinitis pigmentosa, we are developing Orion as a next generation product with potential to treat a broader market of blind individuals, including the retinitis pigmentosa market.

Based upon our decision on May 10, 2019 to accelerate our transition to the Orion platform ~~we evaluated our accounting policies related to the disposition in accordance with ASC 205-20~~ ~~Discontinued Operations~~, and ~~assessed our long-lived assets for any indications that their carrying values may not be recoverable in accordance with ASC 360,~~ ~~Property, Plant, and Equipment, for any impairment. Based upon these reviews~~suspend production of Argus, we recorded impairment charges of $2.6 million related to inventory of Argus II in the nine months ended September 30, ~~2019, based on our plans to suspend production of Argus II.~~2019. As part of this transition we commenced a corporate restructuring plan to focus on development of Orion and other key research projects. ~~Specifically,~~On March 31, 2020, due to the COVID-19 pandemic and related inability to secure additional funding, we laid off the majority of our employees and reduced our operating expenses significantly to allow for our continuing business operations. Due to our focus on Orion and ~~personnel~~wind down of selling and marketing activities related to ~~commercial activities~~Argus II, we recorded further impairment charges to our inventory of $0.5 million and ~~production for the Argus II. We recognized approximately~~ $0.7 million ~~of pre-tax restructuring charges~~to our fixed assets used primarily for Argus activities. We also incurred $1.0 million in ~~the second quarter of fiscal year 2019 in connection with this restructuring, consisting of~~ severance payments and other ~~employee termination benefits, $0.4 million~~costs associated with the wind down, all of which ~~we have settled at~~were substantially paid by September 30, ~~2019 with substantially all of the remainder expected to be settled in cash by the end of 2019. Until Argus II operations cease, we~~2020. We continue to ~~present it as part~~advance the development of ~~continuing~~

~~operations. Based upon~~ our ~~review~~Orion technology and are exploring various strategic options, however we cannot assure that any of ~~the applicable accounting standards,~~these endeavors will yield satisfactory results or that we ~~determined that there was no impairment of any other assets.~~will be able to maintain our operations.

Our significant accounting policies are set forth in Note 2 of the financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~We adopted ASU No. 2016-02—Leases (Topic 842)~~, as amended, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the period of adoption without restating prior comparative periods which is the method we have chosen. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of right-of-use assets and operating lease liabilities of approximately $2.6 million and $2.8 million respectively, as of January 1, 2019. The difference of $0.2 million between the right-of-use assets and operating lease liabilities, net of the deferred tax impact, was recorded as an adjustment to accumulated deficit at January 1, 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

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

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

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

The following table shows our revenues by customer type during the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Direct customers	$	412	$	1,921	$	2,364	$	4,378	$	—	$	412	$	—	$	2,364
Indirect customers (distributors)		60		325		518		751		—		60		—		518
Total	$	472	$	2,246	$	2,882	$	5,129	$	—	$	472	$	—	$	2,882

During the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the following customers each comprised greater than 10% of our total revenues:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Customer 1		44	%		6	%		23	%		11	%		—	%		44	%		—	%		23	%
Customer 2		29	%		4	%		12	%		4	%		—	%		29	%		—	%		12	%
Customer 3		28	%		—	%		6	%		—	%		—	%		28	%		—	%		6	%
Customer 4		—	%		—	%		12	%		5	%		—	%		—	%		—	%		12	%
Customer 5		—	%		6	%		11	%		3	%		—	%		—	%		—	%		11	%
Customer 6		—	%		12	%		5	%		5	%
Customer 7		—	%		10	%		9	%		6	%
Customer 8		—	%		10	%		—	%		4	%

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the following customers each comprised greater than 10% of our total accounts receivable:

During the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, regional revenue based on customer locations which each comprised greater than 10% of our total revenues, consisted of the following:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Italy		44	%		6	%		23	%		11	%		—	%		44	%		—	%		23	%
China		29	%		4	%		12	%		4	%		—	%		29	%		—	%		12	%
United States		27	%		47	%		60	%		51	%		—	%		27	%		—	%		60	%
France		—	%		15	%		—	%		14	%
Canada		—	%		10	%		—	%		4	%

The accompanying condensed consolidated financial statements as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 include assets amounting to ~~$1.8~~$0.1 million and ~~$1.5~~$1.3 million, respectively, relating to operations of our subsidiary based in Switzerland. It is possible that unanticipated events in foreign countries could disrupt our operations.

The authoritative guidance with respect to fair value establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.

Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that we have the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.

Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.

Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

Cash equivalents, which includes money market funds, are the only financial instrument measured and recorded at fair value on our consolidated balance sheet, and they are valued using Level 1 inputs.

Assets measured at fair value on a recurring basis are as follows (in thousands):

	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
September 30, 2019 (unaudited):
September 30, 2020 (unaudited):
Money market funds	$	18,266	$	18,266	$	—	$	—	$	2,331	$	2,331	$	—	$	—
December 31, 2018:
December 31, 2019:
Money market funds	$	4,156	$	4,156	$	—	$	—	$	11,307	$	11,307	$	—	$	—

As of September 30, 2019 and December 31, 2018, the money market funds include $0.1 million and $0.2 million, respectively, held in a deposit account in Switzerland as security for the performance of contracts.

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
Raw materials	$	807		$	791		$	738		$	803
Work in process		1,854			3,055			1,477			1,716
Finished goods		2,174			2,089			816			2,069
		4,835			5,935			3,031			4,588
Allowance for excess and obsolete inventory and impairment charge		(3,571	)		(2,685	)		(3,031	)		(3,559	)
Inventories, net	$	1,264		$	3,250		$	—		$	1,029

We recorded $2.6 million as an impairment charge during the nine months ended September 30, 2019, related to our plans to suspend Argus II production. ~~See note 2~~We recorded further impairment charges to our inventory of $0.5 million in the first nine months of 2020. Additionally, finished goods inventory amounting to approximately $0.2 million that we expect to use for ~~further details.~~our future warranty claims has been offset with the warranty accrual which is included in accrued expenses.

	September 30,			December 31,			September 30,			December 31,
	2019			2018			2020			2019
Laboratory equipment	$	2,723		$	2,482		$	584		$	2,724
Computer hardware and software		1,590			1,456			69			1,672
Leasehold improvements		304			298			—			304
Furniture, fixtures and equipment		58			46			—			78
		4,675			4,282			653			4,778
Accumulated depreciation and amortization		(3,550	)		(3,257	)		(460	)		(3,656	)
Property and equipment, net	$	1,125		$	1,025		$	193		$	1,122

As a result of our decision to cease marketing of Argus II we recorded an impairment of $0.7 million related to our fixed assets used primarily for Argus activities. We sold a substantial number of our fixed assets for net proceeds of $0.4 million in July 2020.



Beginning balance as of December 31, 2018	$	167
Beginning balance as of December 31, 2019			$	335
Consideration received in advance of revenue recognition		387		—
Revenue recognized		—		—
Ending balance as of September 30, 2019	$	554
Ending balance as of September 30, 2020			$	335

A summary of activity of our warranty liabilities, which are included in accrued expenses, for the period ended September 30, 2020 is presented below:



Beginning balance as of December 31, 2018	$	181
Beginning balance as of December 31, 2019				$	117
Additions		—			—
Write-offs		(64	)		(117)
Ending balance as of September 30, 2019	$	117
Ending balance as of September 30, 2020				$	—

We lease certain office space and equipment for our use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease costs are recognized in the income statement over the lease term on a straight-line basis. Depreciation is computed using the straight-line method over the estimated useful life of the respective assets. Our operating lease for office space includes one option to renew, with a five year renewal term that can extend the lease term to 2027. The exercise of this lease renewal option is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Our

lease agreements do not contain any material residual value guarantees or restrictive covenants. As most of our leases do not provide an implicit rate, we used our estimated incremental borrowing rate of 10% based on the information available at commencement date in determining the present value of lease payments.

~~Lease~~On May 18, 2020 we entered into a Letter Agreement with Sylmar Biomedical Park, LLC (the “Landlord”), pursuant to which the parties agreed to accelerate the expiration dates of our existing leases (the “Leases”), to a date not later than June 18, 2020 (“Accelerated Termination Date”). We agreed to pay the Landlord (i) $210,730 to bring the Leases current (the “Owed Rent”) and to remit (ii) a one-time early termination fee in the amount of $150,000 (the “Early Termination Amount”). Prior to the early termination agreed in this letter we were obligated to pay aggregate base rent of approximately $0.9 million and common area maintenance expenses for the term remaining under the Leases through the respective expiration dates in February 2022 and April 2023. The Landlord acknowledged that as of the date of the Letter Agreement the Owed Rent and the Early Termination Amount constituted all amounts owing to the Landlord under the Leases. As a result of the letter agreement, we wrote down the right-of-use assets and extinguished related lease liabilities ~~consisted~~in the amounts of $2.3 million and $2.4 million, respectively. We paid an early termination fee of $150,000 which was expensed in our restructuring charges for the nine months ended September 30, 2020. Due to the termination of this lease there are no right-of-use assets or current or long term lease liabilities at September 30, 2020.

On July 7, 2020, we entered into a lease with Sylmar Biomedical Park, LLC, to lease a smaller portion of our present facility. The new lease allows us to significantly reduce our rent while maintaining operations and our current address. The term of the ~~following (in thousands):~~lease is from June 16, 2020 until December 31, 2020 and automatically renews monthly thereafter unless terminated by either party with 30 day notice. The monthly rent is $16,000 inclusive of a proportionate share of the building’s maintenance cost. The facility will support the Company’s current staff and operations, including continuation of its Orion early feasibility study, with six subjects at UCLA and Baylor College of Medicine, and other Orion research.

The components of lease expense for the three and nine months ended September 30, 2020 and 2019 were as follows (unaudited):

~~Minimum future payments under~~Cash paid for lease amounts included in the ~~Company’s leases at~~measurement of lease liabilities amounted to $275,000 and $357,000, respectively, during the nine months ended September 30, ~~2019~~2020 and ~~their application to the corresponding lease liabilities are as follows (unaudited):~~2019.

On June 4, 2019, our shareholders approved an amendment to our restated articles of incorporation increasing our authorized no par value shares of common stock from 200 million to 300 million shares.

As of September 30, ~~2019~~2020 and ~~2018,~~2019, we excluded the potentially dilutive securities summarized below, which entitle the holders thereof to potentially acquire shares of common stock, from our calculations of net loss per share and weighted average common shares outstanding, as their effect would have been anti-dilutive (in thousands).

	September 30,				September 30,
	2019		2018		2020		2019
Common stock warrants issued to underwriter of initial public offering		802		802
Common stock warrants issued to underwriters						375		100
Common stock warrants issued in connection with March 2017 rights offering		13,647		13,647		1,706		1,706
Common stock warrants issued in connection with February 2019 rights offering		47,812		—		5,976		5,976
Common stock options		8,680		7,581		265		1,085
Restricted stock units		488		47		—		62
Employee stock purchase plan		456		191		—		56
		71,885		22,268		8,322		8,985

~~Warrants to purchase 47,812,371~~On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock ~~with~~at an ~~exercise~~offering price of ~~$1.47~~$1.00 per share ~~were issued in~~for aggregate net proceeds of approximately $6.7 million. Direct cost of this offering consisted of an 8.5% underwriting fee and reimbursable expenses of $90,000 and other costs incurred by us of $100,000. Also, for cash consideration of $100, we granted to the ~~rights offering completed in February 2019. The~~underwriters warrants ~~are listed for trading under the symbol “EYESW” on the NASDAQ Capital Market and expire on March 14, 2024.~~

~~At the Company’s discretion, the warrants are redeemable on 30 days’ notice (i) if, after March 14, 2019, the~~to purchase 375,000 shares of the Company’s common stock ~~are trading~~ at ~~$2.94~~an exercise price of $1.25 per share, which was 25 percent above the offering price to the investors. The warrant is exercisable, in whole or in part, for ~~15 consecutive trading~~a period commencing 180 days ~~and (ii) if all~~after the effective date of the ~~independent directors vote~~underwriting agreement (April 30, 2020) and ending on the fifth anniversary date of the effective date of the underwriting agreement. The fair value of these warrants, calculated using the Black-Scholes option-pricing model, was determined to be $280,000 ($0.75per share) using the following assumptions: expected term of 5.0 years, volatility of 94.0%, risk-free interest rate of 0.67% and expected dividend rate of 0.0%. The fair value of these warrants reduced the amounts included in ~~favor~~common stock from the offering and were offset by an increase in additional paid in capital.

On February 22, 2019, we completed a registered rights offering to existing stockholders in which we sold approximately 5,976,000 units at $5.792 per unit, which was the adjusted closing price of redeeming the warrants. Holders may be able to sell or exercise warrants prior to any announced redemption date and the Company will redeem outstanding warrants not exercised by the announced redemption date forour common stock on that date. Each Unit consisted of a ~~nominal amount~~share of ~~$0.01 per Warrant.~~

~~The net cash proceeds were allocated to the relative fair values of the~~our common stock and a warrant to purchase an additional share of our stock for $11.76. The warrants had a five-year life and trade on Nasdaq under the ~~date~~symbol EYESW.

On March 6, 2017, we completed a registered rights offering to existing stockholders in which we sold approximately 1,706,000 units at $11.76 per unit, which was the adjusted closing price of ~~issuance resulting in an allocation~~our common stock on that date. Each unit consisted of ~~$0.47 per~~a share ~~to the~~of our common stock and ~~$0.25 per~~a warrant to purchase an additional share toof our stock for $11.76. The warrants have a five-year life and have been approved for trading on Nasdaq under the ~~warrants. In calculating the fair value~~symbol EYESW. As of September 30, 2020, 632 of the warrants ~~using~~associated with the ~~Black-Scholes model, the assumptions included a risk free interest rate of 2.49%, expected volatility of 82% and expected life of 5.08 years, and a 0% dividend yield.~~rights offering had been exercised.

We extended the term of ~~13,647,286~~1.7 million warrants issued in our March 2017 rights offering ~~(“March 2017 Warrants”)~~ by approximately two years effective as of February 15, 2019 as part of our February 2019 rights offering. We determined the fair value of the March 2017 Warrants immediately before and after the modification. The fair value of the March 2017 Warrants after the modification was increased by approximately $1.6 million, resulting in an accounting adjustment to additional paid-in capital and accumulated deficit in the consolidated statements of shareholders’ equity. The assumptions used in the determination of fair value of the warrants before and after the extension included a risk free interest rate of 2.50% and 2.49%, expected volatility of 81% and 82%, and expected lives of 3.08 years and 5.08 years, respectively and 0% dividend yields for both.

A summary of warrants activity for the nine months ended September 30, ~~2019~~2020 is presented below (in thousands, except per share and contractual life data).

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)		Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)
Warrants outstanding as of December 31, 2018		14,449	$	2.01		3.10
Warrants outstanding as of December 31, 2019								7,682	$	11.76		4.21
Issued		47,812		1.47				375		1.25		4.60
Exercised		—						—
Forfeited or expired		—						—
Warrants outstanding as of September 30, 2019		62,261	$	1.60		4.40
Warrants exercisable as of September 30, 2019		62,261	$	1.60		4.40
Warrants outstanding as of September 30, 2020								8,057	$	11.27		3.51
Warrants exercisable as of September 30, 2020								8,057	$	11.27		3.51

The warrants outstanding as of September 30, ~~2019~~2020 had no intrinsic value.

A summary of stock option activity under our 2011 Equity Incentive Plan (“2011 Plan”) for the nine months ended September 30, ~~2019~~2020 is presented below (in thousands, except per share and contractual life data).

	Number of Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)		Number of Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)
Options outstanding as of December 31, 2018		7,120		$	3.83		6.81
Options outstanding as of December 31, 2019									984		$	21.78		7.70
Granted		2,600		$	0.77				228		$	5.49
Exercised		—		$					—		$
Forfeited or expired		(1,040	)	$	2.89				(957	)	$	19.75
Options outstanding as of September 30, 2019		8,680		$	3.03		7.28
Options exercisable as of September 30, 2019		4,385		$	4.62		5.88
Options outstanding as of September 30, 2020									255		$	14.85		6.46
Options exercisable as of September 30, 2020									177		$	18.99		5.32

The estimated aggregate intrinsic value of stock options exercisable as of September 30, ~~2019~~2020 was ~~approximately $14,000.~~zero. As of September 30, ~~2019,~~2020, there was ~~$3.2~~$0.3 million of total unrecognized compensation cost related to outstanding stock options that will be recognized over a weighted average period of ~~2.51~~3.06 years.

During the nine months ended September 30, ~~2019,~~2020, we granted stock options to purchase ~~2,600,042~~227,701 shares of common stock to certain ~~employees and directors.~~employees. The options are exercisable for a period of ten years from the date of grant at ~~prices ranging from $0.69~~$0.90 to ~~$1.00~~$5.98 per share, which was the fair value of our common stock on the respective grant dates. The options generally vest over a period of four years ~~with the exception of options issued in connection with director compensation which vest in approximately one year.~~. The fair value of these options, calculated using the Black-Scholes option-pricing model, was determined to be ~~$1.3~~$0.8 million ($~~0.44~~0.69 to ~~$0.65~~$4.05 per share) using the following assumptions: expected term of ~~5.5 to 6.08~~6.02 years, volatility of ~~72.0%~~78.0% to 96%, risk-free interest rate of ~~1.63%~~0.31% to ~~2.63%,~~1.50% and expected dividend rate of 0.0%.

During the three and nine months ended September 30, 2020, approximately 71,000 and 957,000 options were cancelled or expired resulting in a reduction of stock option expense of approximately $57,000 and $312,000, respectively.

The following table summarizes restricted stock unit (“RSU”) activity for the nine months ended September 30, ~~2019~~2020 (in thousands, except per share data):

	Number of Shares			Weighted Average Grant Date Fair Value Per Share		Number of Shares			Weighted Average Grant Date Fair Value Per Share
Outstanding as of December 31, 2018		35		$	12.43
Outstanding as of December 31, 2019							61		$	5.92
Awarded		527			0.75		—			—
Vested and released		(74	)		6.51		(15	)		5.92
Forfeited/canceled		—			—		(46	)		5.92
Outstanding as of September 30, 2019		488		$	0.74
Outstanding as of September 30, 2020							—		$	—

~~As of September 30, 2019, there was $0.3 million of total unrecognized compensation cost related to the outstanding RSUs that will be recognized over a weighted average period of 3.39 years.~~

During the nine months ended September 30, 2019, we awarded RSUs of 526,500 to certain employees. The fair value of these RSUs totaled $0.4 million. The RSUs generally vest over a four year period, and were awarded at the fair value of our common stock on the respective award dates.

We adopted an employee stock purchase plan in June 2015 for all eligible employees. At September 30, ~~2019~~2020 the ~~maximum~~available number of shares that may be issued under the plan is ~~2,050,000.~~77,031.

We completed our offer to rescind certain purchases of shares under our ESPP plan on May 27, 2020. We voluntarily offered to rescind the sale of shares of our common stock to employees who purchased those shares under the ESPP and to reimburse any losses upon the sale of our shares of our common stock for certain purchase periods because these shares may not have been exempt from registration under the Securities Act of 1933. The rescission of these share purchases resulted in the repurchase and cancelation of 39,467 shares of our common stock. The total cost for the repurchase of these shares and the reimbursement of any losses from the sale of such shares totaled approximately $270,000.

Stock-based compensation expense recognized for stock-based awards in the condensed consolidated statements of operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Cost of sales	$	43	$	74	$	133	$	201	$	—	$	43	$	—	$	133
Research and development		119		110		440		321		11		119		120		440
Clinical and regulatory		19		19		84		122		12		19		39		84
Selling and marketing		118		165		379		380		—		118		41		379
General and administrative		387		509		1,407		1,765		4		387		194		1,407
Total	$	686	$	877	$	2,443	$	2,789	$	27	$	686	$	394	$	2,443

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in Wuhan, China and has since spread globally. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, most states in the U.S., including California, where we are headquartered, have declared a state of emergency. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns.

In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to work remotely unless they cannot perform their essential functions remotely, and have also suspended all non-essential travel for our employees. While a significant number of our employees may be accustomed to working remotely or working with other remote employees, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, temporarily suspending travel and restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.

In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. For example, scheduled patient visits to our clinical sites at UCLA and Baylor were temporarily put on hold due to COVID-19. One site has since resumed visits and we are in the process of planning to resume patient visits with the other site. Both sites continue to see patients if needed for any potential medical issues that may arise including any suspected adverse events. In addition, the validation study for the revised FLORA assessment was paused due to travel requirements for its completion. Also, some of our suppliers of certain materials used in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for Orion. COVID-19 has and will continue to adversely affect global economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the continued global economic impact of the pandemic. We could experience further harm to our business and we cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change.

COVID-19 has directly and indirectly adversely affected Second Sight and will likely continue to do so for an uncertain period of time. In March and April 2020 we laid off a substantial majority of our employees as a result of COVID-19 and an inability to obtain financing. We retain twelve of our employees to oversee current operations. The cumulative effects of COVID-19 on the Company cannot be predicted at this time, but could include, without limitation:

By notice dated October 1, 2020 (“Notice”) Nasdaq advised us that for 30 consecutive business days preceding the date of the Notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued listing on the Nasdaq Capital Market (the “Minimum Bid Price Requirement”) as required by Nasdaq Listing Rules.

Under Nasdaq Listing Rule 5810(c)(3)(A), if during the 180 calendar day period following the date of the Notice (the “Compliance Period”), the closing bid price of our common stock is at or above $1.00 for a minimum of 10 consecutive business days, we will regain compliance with the Minimum Bid Price Requirement and our common stock will continue to be eligible for listing on Nasdaq absent noncompliance with any other requirement for continued listing.

If we do not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period (or the Compliance Period as may be extended) our common stock will be subject to delisting.

On July 23, 2020, Nasdaq notified us that we no longer met Listing Rule 5550(b)(2) (the “Rule”) requiring the Company to maintain a minimum market value of listed securities (“MVLS”) of $35 million. Nasdaq’s notice was based on a review of our MVLS for the prior 30 business days. Nasdaq’s notice also noted that we do not meet the requirements under Listing Rules 5550(b)(1) and 5550(b)(3) which require stockholders’ equity of at least $2.5 million, or net income from continuing operations of $500,000 in the most recently completed, or in two of the three most recently completed fiscal years. However, Nasdaq’s listing rules provide us a compliance period of 180 calendar days, or until January 19, 2021, in which to regain compliance.

In the event we do not regain compliance with the Rule prior to the expiration of the compliance period, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a Nasdaq Hearings Panel.

On July 21, 2020, Nasdaq notified us, based on our submitted information that the board of directors had appointed an independent director to our compensation committee, that we currently comply with Rule 5605(d)(2) (the “Rule”), and this matter is now closed.

As previously disclosed prior to that remediation, Nasdaq had notified us on June 2, 2020 that we did not comply with the compensation committee requirement for continued listing on Nasdaq set forth in the Rule.

Separately from the foregoing, Nasdaq had notified us on July 15, 2020 that we again qualified for a cure period to meet listing rules brought into question due to changes in the board of directors. We previously reported in Forms 8-K filed with the SEC regarding letters from Nasdaq dated April 15, 2020, June 1, 2020, and June 2, 2020.

As previously disclosed, Nasdaq notified us on April 15, 2020, after the appointment of Matthew Pfeffer, one of our then independent directors, as our acting Chief Executive Officer effective March 27, 2020, that we no longer complied with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605 (the “Listing Rules”). On June 1, 2020, Nasdaq notified us that following the resignation of William J. Link as a director effective May 31, 2020, our noncompliance with the Listing Rules was then due to more than one vacancy on our board and audit committee. As a result, Nasdaq advised the Company that we were no longer eligible for the cure period set forth in our Form 8-K filed June 4, 2020 and that a plan of compliance was required to be submitted to Nasdaq no later than July 16, 2020.

Our board of directors has concluded that our non-executive Chair, Gregg Williams, meets the criteria of an independent director and has appointed Mr. Williams to be a member of the Audit Committee as of June 22, 2020, as a result of which the Company has only one vacancy on its board and committees. In the July 15, 2020 letter, Nasdaq acknowledged our conclusion regarding Mr. Williams’ independent director status and appointment to the Audit Committee. As a result, Nasdaq confirmed that we again are eligible for the cure period provided in Nasdaq’s Listing Rules. As such, Nasdaq reiterated that consistent with Listing Rules 5605(b)(1)(A) and 5605(c)(4), our cure period to regain compliance is as follows:

Nasdaq requires us to submit documentation, including biographies of any new directors, evidencing compliance with the rules no later than as described above. If we do not regain compliance by the dates set forth above, Nasdaq will provide us written notification that our securities will be delisted, at which time we may appeal the delisting determination to a Nasdaq Hearing Panel.

~~Twenty-two~~Ten oppositions ~~have been~~ filed by ~~third-parties~~Pixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned ~~or exclusively licensed~~ by us. We have filed one opposition that is currently pending in the European Patent Office challenging the validity of a patent owned by Pixium Vision. The outcome of the challenges isare not ~~certain. However,~~certain, however, if successful, they may affect our ability to block competitors from utilizing ~~some of~~ our patented ~~technology in Europe.~~technology. We ~~do not~~ believe a successful challenge will not have a material effect on our ability to manufacture and sell our products, or otherwise have a material effect on our operations.

~~On August 22, 2019,~~ By letters received on June 23, 2020 and July 21, 2020 counsel for a participant in the Orion Early Feasibility Study has alleged claims against the Company for breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, promissory estoppel and negligent infliction of emotional distress. Counsel in addition has alleged that Second Sight ~~and Pixium Vision SA concluded~~has violated the protocol established by the FDA for good clinical practice within this industry. As full compensation for damages arising from these claims the Company was presented with a ~~settlement agreement resolving all advertising disputes between~~demand for payment of $3,000,000. The Company believes that the ~~companies. The agreement provides that all litigation is withdrawn and costs~~claims asserted are ~~shared. The settlement~~without merit. Although the Company does not ~~address~~believe a lawsuit will be filed imminently, the ~~patent opposition proceedings, between the companies,~~claim is in the ~~European Patent Office.~~early stage and no assurance can be given that this matter will not result in litigation. To the extent a lawsuit is filed, the Company intends to vigorously defend it.

We are party to litigation arising in the ordinary course of business. It is our opinion that the outcome of such matters will not have a material effect on our results of operations, however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other ~~factors.~~factors

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

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited ~~2018~~2019 financial statements and related notes included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”) on March 19, ~~2019.~~2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our products, plans and strategy for our business and related financing, contains forward-looking statements that involve risks and uncertainties, including statements regarding our expected financial results in future periods. The words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “projects,” “will,” “would,” “strategy” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, liquidity, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals, insurance reimbursements and product ~~launches.~~launches, our financing plans and future capital requirements,the materially adverse impact of the recent COVID-19 coronavirus pandemic and related public health measures on our business. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. You should read “Risk Factors” in Part II, Item 1A of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We assume no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect actual outcomes.

Second Sight Medical Products, Inc. (NASDAQ: EYES) develops ~~manufactures and markets~~ implantable visual prosthetics that are intended to deliver useful artificial vision to blind individuals. We are a recognized global leader in neuromodulation devices for blindness, and are committed to developing new technologies to treat the broadest populations of sight-impaired individuals.

Leveraging our 20 years of experience in neuromodulation for vision, we are developing the Orion^® Visual Cortical Prosthesis System (“Orion”), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due to a wide range of causes, including RP, glaucoma, diabetic retinopathy, optic nerve injury or disease and eye injury. Orion is intended to convert images captured by a miniature video camera mounted on glasses into a series of small electrical pulses. The device is designed to bypass diseased or injured eye anatomy and to transmit these electrical pulses wirelessly to an array of electrodes implanted on the surface of the brain’s visual cortex, where it is intended to provide the perception of patterns of light. AWe are conducting a six-subject Early Feasibility Study of the Orion device ~~is currently underway~~ at the Ronald Reagan UCLA Medical Center in Los Angeles (“UCLA”) and Baylor College of Medicine in Houston (“Baylor”). Although regularly scheduled visits are on hold due to the coronavirus outbreak, sites continue to see patients if needed for any potential medical issues that may arise including any suspected adverse events. Our 12 month results for ~~five of~~ the ~~six~~ subjects ~~and six month results for the sixth subject (who will reach his 12 month mark in January 2020)~~ indicate to us that:

Our principal offices are located in Los Angeles, California. ~~We also have an office in Lausanne, Switzerland, that manages our commercial and clinical operations in Europe, the Middle East and Asia.~~

Our ~~current~~first commercially approved product, the Argus^® II Retinal Prosthesis System (“Argus II”), treats outer retinal degenerations, such as retinitis pigmentosa, also referred to as RP. The Argus II was the only retinal prosthesis approved in the United States by the Food and Drug Administration (“FDA”), and was the first approved retinal prosthesis in the world. RP is a hereditary disease, affecting an estimated 1.5 million people worldwide including about 100,000 people in the United States, that causes a progressive degeneration of the light-sensitive cells of the retina, leading to significant visual impairment and ultimately blindness. ~~The Argus II is the only retinal prosthesis approved in the United States by the Food and Drug Administration (“FDA”), and was the first approved retinal prosthesis in the world.~~ A subset of these patients would be eligible for the Argus II since the approved baseline vision for the Argus II is worse than legally blind (20/200). We commissioned 3^rd party market research to estimate the size of the RP market that resulted in an estimate of approximately 1,500 patients in the US with advanced RP that could be treated with the Argus II given the eligibility criteria of our label.

The Argus II system provides an artificial form of vision that differs from the vision of people with normal sight. It does not restore normal vision and there is no evidence that it can slow or reverse the progression of the disease. The majority of patients receive a significant benefit from the Argus II, however results can vary and some patients report receiving little or no benefit. By creating an artificial form of useful vision in patients who otherwise have total sight loss, the Argus II can provide benefits that include:

We began selling the Argus II System in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we ~~made~~no longer market the ~~decision in 2018 to maximize capital efficiency with our~~ Argus ~~commercial~~II and ~~clinical activities and increase our investment of resources with our Orion clinical and R&D programs. In October 2018, we announced a restructuring~~have focused all of our international commercial activities and personnel. This restructuring resulted in a decision to no longer support new implants of Argus II in Turkey, Iran, Singapore and Russia. We retained a team that continues to support existing Argus II patients and Centers of Excellence in all markets. We recognized approximately $0.6 million of pre-tax restructuring charges in the fourth quarter of fiscal year 2018 in connection with this restructuring, consisting of severance and other employee termination benefits, substantially all of which were settled in cash during the fourth quarter of 2018.

~~Based~~resources on ~~assessments of~~ the development of our Orion technology and Orion’s positive results in our Early Feasibility Study of the six subjects implanted with the Orion at UCLA and Baylor, on May 10, 2019 our Board approved an acceleration of our transition from the Argus II to the Orion platform so we may more rapidly implement our strategy of treating blindness domestically and worldwide with the Orion technology. As a result, we have or will:

We expect to realize selling and marketing expense savings of approximately $5.3 million for the year ended December 31, 2019 as compared to the same period in 2018. We also expect revenue to decline as we sell through our existing inventory. We expect approximately $4.9 million of annual expense related to our manufacturing capacity to be reported as additional R&D expense in future quarters.Orion.

We are ~~actively developing~~also researching multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the ~~Argus II or~~ Orion user experience. In most cases, we collaborate with 3^rd party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we ~~are currently researching~~believe will be complimentary to our products include: eye tracking, object recognition and localization, thermal imaging and depth-based decluttering.

In March 2020, we were severely adversely impacted by the unprecedented economic shock caused by the COVID-19 pandemic and its related effects on our ability to secure financing for our planned activities. As a result, we significantly reduced our staff and expenses and conserved liquidity as we continue operations and explore strategic options. These options include securing additional funding and exploring business alternatives that may include partnering, acquiring, investing in or combining with businesses that may or may not be in a related industry. We ~~expect~~are actively seeking opportunities to develop partnerships or collaborations with others to advance ~~several~~further Orion development, conduct pivotal trials and bring the product to market for the treatment of blindness. No assurances can be given that any of these ~~technologies~~initiatives will occur.

In early March 2020, we commenced clinical validation activities for the FLORA-20 instrument, the primary efficacy endpoint we have selected for our future pivotal clinical trial of Orion. In mid-March 2020, our validation activities were suspended as a result of public health concerns and related social distancing due to COVID-19. We are in the process of evaluating when activities related to the ~~point~~validation study can be resumed.

On March 27, 2020, the Board of ~~having prototype eyewear suitable~~Directors appointed Matthew Pfeffer, a member of our Board and Chairman of the Audit Committee of the Board, as acting Chief Executive Officer.

In furtherance of our decision to withdraw Argus II from the market, we have terminated two post-market studies for ~~clinical testing~~Argus II in Germany and the U.S., terminated an extended non-significant risk study in the U.S. for Argus 2s, and suspended our technical support of Argus II worldwide. We have not yet formally withdrawn our submission to the FDA for market approval of the Argus 2s wearables system while we evaluate our strategic options.

In May 2020, we completed an underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate gross proceeds of $7.5 million, and net proceeds of approximately $6.7 million after deducting underwriting discounts, commissions and other offering expenses. Based on our current plans, we believe the financing provides sufficient working capital to sustain ongoing operations into the first quarter of 2021.

In May 2020, we entered into a Letter Agreement with Sylmar Biomedical Park, LLC (the “Landlord”) to terminate our facility leases in which we agreed to vacate the premises by June 18, 2020 and pay $210,730 to bring our leases current and pay a one-time early termination fee of $150,000. Prior to the early termination, we were obligated to pay aggregate base rent of approximately $0.9 million and common area maintenance expenses for the respective remaining terms of our leases in February 2022 and April 2023.

In June 2020, we commenced a process to dissolve our Swiss subsidiary which is expected to take approximately one year.

On July 7, 2020, we entered into a lease with Sylmar Biomedical Park, LLC, to lease a smaller portion of our present facility. The new lease allows us to significantly reduce our rent while maintaining operations and our current address. The term of the lease is from June 16, 2020 until December 31, 2020 and automatically renews monthly thereafter unless terminated by either party with 30 day notice. The monthly rent is $16,000 inclusive of a proportionate share of the building’s maintenance cost. The prior rent was $38,000, plus a proportionate share of the building’s maintenance cost, which averaged approximately $20,000 per month in 2019. The facility will support the Company’s current staff and operations, including continuation of its Orion early feasibility study, with six subjects at UCLA and Baylor College of Medicine, and other Orion research.

As of ~~September 30, 2019, after more than 20 years~~November 10, 2020, we have twelve employees including five whom we have rehired to refocus on the advancement of ~~research~~Orion and ~~development, more than $250 million of investment and over $37 million of grants awarded in support of~~sustain our ~~technology development, we employ over 105 people in the development (research, engineering and clinical), manufacture, and commercialization of the Argus II System and future products such as Orion.~~ongoing operations.

From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated byfrom the sale of our Argus II ~~System.~~product. Funding of our business since 2017 has been primarily provided by:

We received an award for $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and approval) from the National Institutes of Health (NIH) to fund the “Early Feasibility Clinical Trial of a Visual Cortical Prosthesis” that commenced in January 2018. Our second year award of $1.4 million was recently approved under this grant. As of September 30, 2020 we recorded $0.6 million of deferred grant costs which will be offset with the related grant funds when received. During the nine months ended September 30, 2020, we received a total of $0.4 million of grant funds primarily from this grant.

On September 17, 2019, we received a $2.4 million, four-year grant from the National Institutes of Health (NIH) to develop spatial localization and mapping technology (“SLAM”). This grant involves a joint collaboration with the Johns Hopkins University Applied Physics Laboratory, and is intended to speed the integration of SLAM into future generations of Orion. The goal is to give Orion users the ability to localize objects and navigate landmarks in unfamiliar surroundings in real time. APL is the primary recipient of the grant. We have suspended our activities on the project until we clarify our future plans.

In a rights offering completed on February 22, 2019 we sold approximately ~~47.8 million~~5,976,000 units, each priced at ~~$0.724~~$5.792 for net cash proceeds of approximately $34.4 million. Each unit consisted of one share and one immediately exercisable warrant having an exercise price of ~~$1.47~~$11.76 per share. Entities controlled by Gregg Williams, our Chairman of the Board of Directors, acquired approximately ~~41.4 million~~5,180,000 units in the offering for an aggregate investment of approximately $30 million.

In November 2017, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley FBR Inc. and H.C. Wainwright & Co., LLC, as agents (“Agents”) pursuant to which we ~~may offer~~offered and ~~sell,~~sold, from time to time through either of the Agents, shares of our common stock having an aggregate offering price as set forth in the Sales Agreement and a related prospectus supplement filed with the SEC. We agreed to pay the Agents a cash commission of 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. During January and February 2018, we sold ~~2.2 million~~278,000 shares of common stock for additional net proceeds of $4.0 million under the Sales Agreement. NoDuring December 2019, we sold approximately 17,000 shares ~~have been sold since February 2018~~of common stock which provided net proceeds of $0.1 million under the Sales Agreement. ~~We utilized these proceeds to further develop and enhance our products, support operations and for general corporate purposes.~~This agreement was terminated in April 2020.

We are subject to the risks and uncertainties associated with a business with ~~one product line and diminishing commercial product revenues, including limitations on our operating capital resources and uncertain demand for our product.~~no revenue that is developing a novel medical device. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future. Based on our current plans, we do not have sufficient funds to continue operating our business at current levels for at least twelve months from the date of issuance of this report. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured. However, our operating plan may change as a result of many factors currently unknown to us, and we ~~may~~will need to seek additional funds ~~sooner than planned,~~during that period, through public or private equity offerings or debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs, or ~~any other approved product candidates, or~~ we may be unable to expand or maintain our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which could materially and adversely affect our business, financial condition and results of operations.

~~Obtaining reimbursement from governmental and private insurance companies is critical~~Accordingly, these factors among others raise substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm, in its report on our ~~commercial success. Due~~2019 consolidated financial statements, has raised substantial doubt about our ability to the price of the Argus II system, our sales would be limited without the availability of third party reimbursement. In the US, coding, coverage, and payment are necessary for the surgical procedure and Argus II system to be reimbursed by payers. Coding has been established for the device and the surgical procedure. The same will be required for Orion. Coverage and payment vary by payer. The majority of Argus II patients are eligible for Medicare, and coverage is primarily provided through traditional Medicare, sometimes referred tocontinue as ~~Medicare Fee-for-Service (“FFS”) or Medicare Advantage. A small percentage of patients are covered by commercial insurers.~~

Within Europe, Argus II obtained reimbursement approval or funding in Germany (NUB Innovation Funding Program), France (Forfait Innovation Funding Program), and one region of Italy (Regional Funding). We were in the process of obtaining reimbursement through the Commissioning through Evaluation (“CtE”) program in England and discontinued these efforts in connection with our restructuring of the Argus II program. If Argus II was still available, the Forfait Innovation Funding Program and CtE program could have resulted in permanent national funding for Argus II assuming positive outcomes in the program, especially in France where we were in the final stages of reimbursement review process.

Currently, we are in process of evaluating potential reimbursement pathways for Orion in the US market. Compared to Argus II, which is largely catering to the Medicare patient population, Orion is expected to address a patient population with diverse and more balanced payer mix due to our potential indications profile and expected younger patient population, on average. As Orion is a part of the FDA’s Breakthrough Devices program, we are closely evaluating a variety of fast track reimbursement programs, including recent encouraging announcements from CMS proposing modernization of payment policies for medical devices that meet FDA’s

Breakthrough Devices designation. During the second half of 2019, we also approached some commercial payers and CMS to get their feedback to ensure our overall reimbursement strategy for Orion therapy will cater to their key data requirements.going concern.

Orion. By further developing our visual cortical prosthesis, Orion, we believe we ~~will~~may be able to significantly expand our market to include nearly all profoundly blind individuals. The only notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable (including RP) or age-related macular degeneration (“AMD”). We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, ~~3rd~~third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligible for the Orion based on our clinical trials and the associated results.

Our objective in designing and developing the Orion visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. A six-subject Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor. Regularly scheduled visits at both sites were placed on hold in mid-March due to Covid-19, however visits at UCLA resumed mid-September 2020. Regularly scheduled visits at Baylor are still on hold but the site is preparing to resume the study soon. Our 12 month results for ~~five of~~ the six subjects ~~and six month results for the sixth subject show~~indicate a good safety profile with encouraging efficacy data and benefits in helping subjects perform their daily living tasks. We believe these data are encouraging and support advancement of Orion into a larger pivotal clinical study. Early promising results are not necessarily indicative of results which may be obtained in large clinical trials. No assurance can be given that we will achieve similar results in our larger Orion clinical trials. ~~See Risk Factors in Item 1A below.~~ No peer-reviewed data is available yet for the Orion system.

In November 2017, the FDA granted Breakthrough Devices Program designation for the Orion. This designation is given to a few select medical devices in order to provide more effective treatment of life-threatening or irreversibly debilitating diseases or conditions. This program is intended to help patients have more timely access to these medical devices by expediting their development, assessment, and review. ~~With this designation,~~

In accordance with local and state guidelines regarding the COVID-19 pandemic, we ~~believe~~are requiring all of our employees to work remotely unless they cannot perform their essential functions remotely, and have also suspended all non-essential travel for our employees. While many of our employees are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitor the ~~Orion will~~situation and may adjust our current policies as more information and public health guidance becomes available, temporarily suspending travel and restricting the ability to do business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.

In addition, our clinical trials have been affected by the ~~following advantages during~~COVID-19 outbreak. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the ~~FDA review process:~~

~~We expect that inclusion~~the ways in ~~the Breakthrough Devices Program may shorten the timeline required to bring the Orion to market~~which health epidemics such as ~~a commercial product. We also are currently evaluating~~COVID-19 could adversely impact our pivotal trial design for Orion and expect to reach consensus with the FDA on design specifics during 2019. Major elements of our clinical trial design include the number of patients, study duration, and the endpoints suitable for assessing visual function, functional vision and quality of life. We have reached agreement with FDA on the primary effectiveness endpoint, pending validation of an assessment we have developed for the purpose. We anticipate completing the validation study in the first half of 2020. We are currently working with FDA on alignment on a primary safety endpoint and confirmation of a sample size. While negotiations with the FDA are ongoing,business. Although we are ~~evaluating two different paths for Orion. The first path is a Premarket Approval, or PMA, track. The projected start~~continuing to monitor and assess the effects of the ~~pivotal trial is still not determined pending resolution of various aspects~~COVID-19 pandemic on our business, the ultimate impact of the ~~pivotal study~~COVID-19 pandemic or a similar health epidemic is highly uncertain and ~~post approval requirements. Depending on~~subject to change. See the ~~timing~~Risk Factors section for further discussion of the ~~pivotal study, it is~~ possible that we would expand our Early Feasibility Study in order to collect additional data before proceeding to a pivotal trial. The second path would involve first obtaining a Humanitarian Device Exemption approval, or HDE, followed by a PMA. This path would become preferable if the PMA requirements push the startimpact of the pivotal study too far into the future. Given that an HDE approval requires the demonstration of probable benefit rather than the PMA standard of effectiveness, we believe that we could start a study to support HDE approval much sooner than a pivotal study. In parallel to seeking an HDE approval, we would continue negotiations with the Agency as well as preparations to start a pivotal study.

~~Argus II.~~ The Argus II is currently approved for RP patients with bare or no light perception in the US, and in Europe for severe to profound vision loss due to outer retinal degeneration, such as from RP, choroideremia, and other similar conditions. The number of people who are legally blind due to RP is estimated to be about 25,000 in the US, 42,000 in Europe, and about 375,000 total worldwide. A subset of these patients would be eligible for the Argus II since the approved baseline vision for the Argus II is worse

~~than legally blind (20/200). We commissioned 3~~^rd party market research for the size of the RP market that resulted in an estimate of approximately 1,500 patients in the US with advanced RP that could be treated with the Argus II given the eligibility criteria ofCOVID-19 pandemic on our ~~label.~~business.

Given the limited addressable market of Argus II, we made the decision to maximize capital efficiency with our Argus II commercial and clinical activities and increase our investment of resources with our Orion clinical and R&D programs. As a result, we expect to suspend production activities related to Argus II, sell through our remaining inventory and reduce our commercial activities related to Argus II. We remain committed to supporting existing Argus II users and intend to pursue regulatory approvals for our new externals, Argus 2s.

The preparation of our condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) and the requirements of the United States Securities and Exchange Commission require management to make estimates, assumptions and ~~assumptions~~judgments that affect the amounts, liabilities, revenue and expenses reported in the financial statements and the notes to the financial statements.On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. Our chief operating decision-maker reviews financial information presented on a consolidated basis. Accordingly, we consider ourselves to be in a single reporting segment, specifically the discovery, development and commercialization of visual prosthetics for profoundly blind individuals. We ~~adopted ASU No. 2016-02—Leases (Topic 842)~~,historically managed our Argus II and Orion programs on a consolidated basis within this single operating segment and do not assess the performance of our product lines or geographic regions on other measures of income or expense, such as ~~amended,~~program expense, operating income or net income. Our underlying technology consists of hardware components (implanted and wearable) and software. A vast majority of this underlying technology is shared between our Argus II and Orion branded systems. While we have ceased marketing the Argus II product indicated for individuals with retinitis pigmentosa, we are developing Orion as a next generation product with potential to treat a broader market of ~~January 1, 2019, using~~blind individuals, including the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.retinitis pigmentosa market.

Adoption of the new standard resulted in the recording of right-of-use assets and operating lease liabilities of approximately $2.6 million and $2.8 million respectively, as of January 1, 2019. The difference of $0.2 million between the right-of-use assets and operating lease liabilities, net of the deferred tax impact, was recorded as an adjustment to accumulated deficit at January 1, 2019. The standard did not materially impact our consolidated net loss and had no impact on cash flows.

Based upon our decision on May 10, 2019 to accelerate our transition to the Orion platform ~~we evaluated our accounting policies related to the disposition in accordance with ASC 205-20~~ ~~Discontinued Operations~~, and ~~assessed our long-lived assets for any indications that their carrying values may not be recoverable in accordance with ASC 360,~~ ~~Property, Plant, and Equipment, for any impairment. Based upon these reviews~~suspend production of Argus, we recorded ~~in the nine months ended September 30, 2019~~ impairment charges of $2.6 million related to inventory of Argus II ~~based~~in the nine months ended September 30, 2019. As part of this transition we commenced a corporate restructuring plan to focus on development of Orion and other key research projects. On March 31, 2020, due to the COVID-19 pandemic and related inability to secure additional funding, we laid off the majority of our ~~plans~~employees and reduced our operating expenses significantly to ~~suspend production~~allow for our continuing business operations. Due to our focus on Orion and wind down of ~~Argus II. Specifically, we reduced expenses~~selling and ~~personnel~~marketing activities related to ~~commercial activities~~Argus II, we recorded further impairment charges to our inventory of $0.5 million and ~~production for the Argus II. We recognized approximately~~ $0.7 million ~~of pre-tax restructuring charges~~to our fixed assets used primarily for Argus activities. We also incurred $0.2 million in ~~the second quarter of fiscal year 2019~~material and overhead costs associated with Argus II and $0.8 million in ~~connection with this restructuring, consisting of~~ severance payments and other ~~employee termination benefits, $0.4 million~~costs associated with the wind down, all of which ~~has been settled at~~were substantially paid by September 30, ~~2019 with substantially all~~2020. We continue to advance the development of ~~the remainder expected~~our Orion technology and are exploring various strategic options, however we cannot assure that any of these endeavors will yield satisfactory results or that we will be able to ~~be settled in cash by the end of 2019. Based upon~~maintain our ~~review of the applicable accounting standards we determined that there was no impairment of any other assets.~~operations.

There have been no other material changes to our critical accounting policies during the nine months ended September 30, ~~2019.~~2020.

Net sales. Our net sales ~~are derived~~consists of revenue primarily from the sale of our Argus II ~~product.~~product which is no longer marketed. We ~~began selling~~do not expect future revenues from the sale of Argus II in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. In May 2019, we decided to accelerate our transition to the Orion platform. As a result, we expect to suspend production related to Argus II and sell through our remaining inventory.II.

Cost of sales. Cost of sales includes the salaries, benefits, material, overhead, third party costs, warranty, charges for excess and obsolete inventory, and other costs required to make the Argus II system at our Los Angeles, California facility. Our product involves technologically complex materials and processes. We expect to record cost of sales for any remaining Argus II inventory that we sell and a majority of our expenses related to our production capabilities and fixed overhead to be reported as research and development expense in future periods. We record cost of sales when products are implanted, which may differ from the period we are able to record revenue. Such timing differences may cause our reported results of operations to be difficult to compare from period to period.

Operating Expenses. We generally recognize our operating expenses as incurred in four general operational categories: research and development, clinical and regulatory, sales and marketing, and general and administrative. Our operating expenses also include a non-cash component related to the amortization of stock-based compensation for research and development, clinical and regulatory, sales and marketing, and general and administrative personnel. ~~From time to time we~~We have received grants from institutions or agencies, such as the National Institutes of Health, to help fund the some of the cost of our development efforts. We have recorded the amount of funding received from these grants as reductions to operating expenses.

Comparison of the Three Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

We implanted ~~a total of four~~no Argus II products during the third quarter of ~~2019 and 20~~2020 compared to four in the third quarter of ~~2018.~~2019. All ~~four~~of the implants in the third quarter of 2019 were in Europe, the Middle East and Asia (collectively, “EMEA”).

Net Sales. There were no net sales in the third quarter of ~~2019 while eleven implants were in EMEA in the third quarter of 2018.~~

In North America, there were no implants in the third quarter of 2019 while there were nine implants in the third quarter of the prior year. Of these, there were seven implants in the U.S. and two implants in Canada in the third quarter of 2018.

~~Net Sales. Net sales were $0.5 million in the third quarter of 2019~~2020 as compared to ~~$2.2~~$0.5 million in the same period in ~~2018, a decrease of $1.7 million or 79%.~~2019. Revenue was recognized for four units in the third quarter of ~~2019 while 22 units were recognized in the third quarter of 2018.~~2019. Revenue recognized per implant was approximately $118,000 in the third quarter of ~~2019 and was $102,000 in same period of 2018.~~2019. We do not expect ~~our net sales to decline as we sell through our existing inventory~~future revenues from the sale of Argus II.

Cost of sales. ~~Cost~~There were no cost of sales ~~was~~in the third quarter of 2020 as compared to $0.4 million in the third quarter of ~~2019 as compared to $1.8 million in the third quarter of 2018.~~2019. Cost of sales in the third quarter of 2019 ~~consists~~consisted primarily of ~~the cost of products implanted of $0.2 million and unabsorbed production costs of approximately $0.2 million. In the third quarter of 2018, the cost of sales included approximately $1.7 million for~~ the cost of products implanted and unabsorbed production ~~costs plus an adjustment of $0.1 million for an increase in the reserve for~~costs.

excess inventory. We expect to record cost of sales for any remaining Argus II inventory that we sell and a majority of our expenses related to our production capabilities and fixed overhead to be reported as research and development expense in future periods.

Research and development expense. Research and development expense ~~increased~~decreased by ~~$0.7~~$3.1 million, or ~~26%~~92%, ~~from $2.7~~to $0.3 million in the third quarter of ~~2018 to~~2020 from $3.4 million in the third quarter of 2019. The costs ~~increased~~decreased from the prior ~~year~~period due primarily to costs incurred for internally produced prototypes. We expect our research and development expenses to increase in future periods as we accelerate our transition to the Orion platform, including costs previously related to ~~production activities such as facilities~~our reduction in force and ~~personnel that will be transitioning to Orion~~significantly curtailed activity while we reevaluate our development ~~activities.~~plans.

Clinical and regulatory expense. Clinical and regulatory expense decreased ~~$0.1~~$0.6 million, or ~~11%~~70%, ~~from $1.0~~to $0.3 million in the third quarter of ~~2018 to~~2020 from $0.9 million in the third quarter of 2019. This decrease is attributable to decreased costs associated with the Orion feasibility study. We expect clinical and regulatory costs to increase ~~in the future as~~once we ~~conduct additional clinical trials~~are able to ~~assess new products such as~~resume our Orion development and ~~related enhancements to~~resume our ~~user experience.~~Early Feasibility Study but will currently continue at a reduced level until that point.

Selling and marketing expense. Selling and marketing expense decreased ~~$1.7~~$1.3 million, or ~~57%~~100%, ~~from $3.0 million~~to zero in the third quarter of ~~2018 to~~2020 from $1.3 million in the third quarter of 2019. This decrease in costs was primarily driven by our elimination of commercial activities related to Argus II and the resulting decreased use of outside services, supplies, reduced headcount and related compensation expense.

General and administrative expense. General and administrative expense decreased $1.1 million, or 51%, to $1.1 million in the third quarter of 2020 from $2.2 million in the same period of 2019. This decrease is primarily attributable to lower compensation costs primarily due to reduced staffing. We expect general and administrative expenses to remain at these levels until such time as we are able to resume our development activities related to Orion.

We implanted no Argus II products during the first nine months of 2020 compared to 25 in the first nine months of 2019. Twelve of the implants in the first nine months of 2019 were in Europe, the Middle East and Asia (collectively, “EMEA”) while the remainder were in the U.S.

Net Sales. There were no net sales in the first nine months of 2020 as compared to $2.9 million in the same period in 2019. Revenue was recognized for 23 units in the first nine months of 2019. Revenue recognized per implant was approximately $125,000 in the first nine months of 2019. We do not expect future revenues from the sale of Argus II.

Cost of sales. There were no cost of sales in the first nine months of 2020 as compared to $2.0 million in the first nine months of 2019. Cost of sales in the first nine months of 2019 consisted primarily of the cost of products implanted and unabsorbed production costs.

Research and development expense. Research and development expense decreased by $4.5 million, or 50%, to $4.5 million in the first nine months of 2020 from $9.0 million in the first nine months of 2019. The costs decreased from the prior period due primarily to costs related to our reduction in force and significantly curtailed activity while we reevaluate our development plans.

Clinical and regulatory expense. Clinical and regulatory expense decreased $0.8 million, or 33%, to $1.6 million in the first nine months of 2020 from $2.4 million in the first nine months of 2019. This decrease is attributable to decreased costs associated with the Orion feasibility study. We expect clinical and regulatory costs to increase once we are able to resume our Orion development and our Early Feasibility Study but will currently continue at a reduced level until that point.

Selling and marketing expense. Selling and marketing expense decreased $4.4 million, or 86%, to $0.7 million in the first nine months of 2020 from $5.1 million in the first nine months of 2019. This decrease in costs was primarily driven by our elimination of commercial activities related to Argus II and the resulting decreased use of outside services, supplies, reduced headcount and related compensation expense. We expect selling and marketing expense to decrease as we ~~reduce our~~no longer market Argus II ~~commercial activities~~ and ~~sell through our existing inventory.~~are focused on Orion development.

General and administrative expense. General and administrative expense decreased ~~$0.1~~$2.3 million, or 7%33%, ~~from $2.3~~to $4.6 million in the ~~third quarter~~first nine months of ~~2018 to $2.2~~2020 from $6.9 million in the same period of 2019. This decrease is primarily attributable to ~~$0.1 million in~~ lower compensation costs primarily due to reduced staffing. We expect general and administrative expenses to remain ~~consistent during the remainder of 2019.~~

~~We implanted a total of 25 Argus II products during the first nine months of 2019 and 53 in the first nine months of 2018. Of~~at these ~~twelve implants~~levels until such time as were ~~in Europe, the Middle East and Asia (collectively, “EMEA”) in the first nine months of 2019 while 25 implants were in EMEA in the first nine months of 2018.~~

In North America, there were 13 implants in the first nine months of 2019 while there were 28 implants in the first nine months of the prior year. Of these, all the implants were in the U.S. in the first nine months of 2019 while 24 were in the U.S. in the first nine months of 2018 along with four implants in Canada.

~~Net Sales. Net sales were $2.9 million in the first nine months of 2019 as compared~~are able to ~~$5.1 million in the same period in 2018, a decrease of $2.2 million or 44%. Revenue was recognized for 23 units in the first nine months of 2019 as compared~~resume our development activities relating to 48 units in the first nine months of 2018. Revenue recognized per implant was approximately $125,000 in the first nine months of 2019 and was $107,000 in same period of 2018. We expect our net sales to decline as we sell through our existing inventory of Argus II.

~~Cost of sales.~~ Cost of sales was $2.0 million in the first nine months of 2019 as compared to $3.3 million in the first nine months of 2018. Cost of sales in the first nine months of 2019 consists primarily of the cost of products implanted of $1.3 million and unabsorbed production costs of $0.7 million. In the first nine months of 2018, the cost of sales included approximately $3.1 million for the cost of products implanted and unabsorbed production costs plus an increase of $0.2 million in the reserve for excess inventory. We expect to record cost of sales for any remaining Argus II inventory that we sell and a majority of our expenses related to our production capabilities and fixed overhead to be reported as research and development expense in future periods.

~~Research and development expense.~~ Research and development expense, net of funding received from grants, increased by $1.4 million, or 19%, from $7.6 million in the first nine months of 2018 to $9.0 million in the first nine months of 2019. In the first nine months of 2019 we utilized $0.4 million of grant funds to offset costs as compared to $0.2 million in 2018. The costs before the grant revenue offset increased from the prior year primarily due to increased headcount and costs for internally produced prototypes. We expect our research and development expenses to increase in future periods as we accelerate our transition to the Orion platform, including costs previously related to production activities such as facilities and personnel that will be transitioning to Orion development activities.

~~Clinical and regulatory expense.~~ Clinical and regulatory expense, net of funding received from grants, decreased $1.0 million, or 30%, from $3.4 million in the first nine months of 2018 to $2.4 million in the first nine months of 2019. This decrease is primarily attributable to decreased costs associated with the Orion feasibility study of $0.7 million and offset costs from grants of $0.5 million. We expect clinical and regulatory costs to increase in the future as we conduct additional clinical trials to assess new products such as Orion and related enhancements to our user experience.

~~Selling and marketing expense.~~ Selling and marketing expense decreased $3.8 million, or 43%, from $8.9 million in the first nine months of 2018 to $5.1 million in the first nine months of 2019. This decrease in costs was primarily driven by our reduced

commercial activities related to Argus II and the resulting decreased use of outside services, reduced headcount and related compensation expenses. We expect selling and marketing expense to decrease as we reduce our Argus II commercial activities and sell through our existing inventory.

~~General and administrative expense.~~ General and administrative expense decreased $1.3 million, or 16%, from $8.2 million in the first nine months of 2018 to $6.9 million in the same period of 2019. This decrease is primarily attributable to $0.7 million in lower compensation costs primarily due to cancelled stock option grants and reduced staffing. Outside service costs and patent costs were both reduced by $0.2 million and travel costs were reduced by $0.1 million. We expect general and administrative expenses to remain consistent during the remainder of 2019.Orion.

Restructuring charges. We recorded a non-cash restructuring charge of $2.6 million in the first nine months of 2019 to our reserve for excess and obsolete inventory in connection with our plans to suspend Argus II production. In addition, we recognized $0.7 million of pre-tax restructuring charges in the ~~second quarter~~first nine months of ~~fiscal year~~ 2019 consisting of severance and other employee termination ~~benefits, $0.4~~benefits. We recorded non-cash restructuring charges of $1.2 million in the first nine months of 2020 comprised of $0.5 million to fully reserve our inventory in connection with our decision to no longer market Argus II and $0.7 million to write-down our fixed assets that are not directly involved in the development of Orion and $0.2 million in material and overhead costs associated with Argus II and $0.8 million cash charge for severance compensation and other associated costs all of which was substantially settled atby September 30, ~~2019, with substantially all of the remainder expected to be settled in cash during the last quarter of 2019.~~2020.

Our financial statements have been presented on the basis that our business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We are subject to the risks and uncertainties associated with a business with ~~one product line and limited commercial product revenues,~~no revenue that is developing a novel medical device, including limitations on our operating capital resources and uncertain demand for our products. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future.

On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.7 million. We believe the financing provides sufficient working capital to sustain ongoing operations into the first quarter of 2021.

In a rights offering completed on February 22, 2019, we sold approximately ~~47.8 million~~5,976,000 units, each priced at ~~$0.724~~$5.792 for net cash proceeds of approximately $34.4 million. Each unit consisted of one share and one immediately exercisable warrant having an exercise price of ~~$1.47~~$11.76 per share. Entities controlled by Gregg Williams, our Chairman of the Board of Directors, acquired approximately ~~41.4 million~~5,180,000 units in the offering for an aggregate investment of approximately $30 million. The expiration date of the warrants issued pursuant to this rights offering is March 14, 2024, and the expiration date of all previously outstanding warrants listed for trading under the symbol “EYESW” were extended to March 14, 2024.

We do not have sufficient funds to support our operations for the next 12 months from the date of issuance of this report. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Conducting clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete and we may never generate the necessary data or results required to obtain marketing approval. We do not expect revenues until we are successful in completing the development and obtaining marketing approval for ~~Argus II to decrease as we sell through our remaining inventory and~~Orion. We expect expenses to increase in connection with our ongoing activities, particularly as we continue clinical trials of Orion, initiate new research and development projects and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for Orion, we expect to incur significant additional expenses related to sales, marketing, distribution and other commercial infrastructure to commercialize such product. In addition, our product candidates, if approved, may not achieve commercial success. We incur significant costs associated with operating as a public company in a regulated industry.

Until such time, if ever, we can generate substantial product revenues, we anticipate that we will seek to fund our operations through public or private equity or debt financings, grants, collaborations, strategic partnerships or other sources. Accordingly, these factors among others raise substantial doubt about our ability to continue as a going concern. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity, or convertible debt or other equity-linked securities, the ownership interests of some or all of our common stockholders will be diluted,the holders of new equity securities may have priority rights over our existing stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If adequate funds are not available, we may be required to further curtail operations significantly or to obtain funds by entering into agreements on unattractive terms. If, for example, we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us.Our inability to raise capital could have a material adverse effect on our business, financial condition and results of operations. Our independent registered public accounting firm, in its report on our 2019 consolidated financial statements, has raised substantial doubt about our ability to continue as a going concern.

Cash and cash equivalents ~~increased~~decreased by ~~$14.0~~$8.9 million from ~~$4.5~~$11.3 million as of December 31, ~~2018~~2019 to ~~$18.5~~$2.4 million as of September 30, ~~2019.~~2020. Working capital was ~~$13.2~~$0.3 million as of September 30, ~~2019,~~2020, as compared to ~~$2.0~~$6.2 million as of December 31, ~~2018, an increase~~2019, a decrease of ~~$11.2~~$5.9 million. We use our cash and cash equivalents and working capital to fund our operating activities.

During the first nine months of 2020, we used $15.4 million of cash in operating activities, consisting primarily of a net loss of $13.6 million, and a net change in operating assets and liabilities of $3.5 million, offset by non-cash charges which provided cash of $1.7 million for depreciation and amortization of property and equipment, stock-based compensation, change in right of use assets and impairment charges. During the first nine months of 2019, we used $20.2 million of cash in operating activities, consisting primarily of a net loss of $25.7 million, offset by non-cash charges ~~which provided cash~~ of $4.5 million for depreciation and amortization of property and equipment, stock-based compensation, change in right of use assets ~~excess inventory reserve, impairment charge~~ and ~~by a net change~~

in operating assets and liabilities which provided cash of $1.0 million. During the first nine months of 2018, we used $22.1 million of cash in operating activities, consisting primarily of a net loss of $26.2 million, offset by non-cash charges which provided cash of $3.4 million for depreciation and amortization of property and equipment, stock-based compensation, bad debt recovery, excess inventory reserve and common stock issuable and by a net change in operating assets and liabilities ~~which provided cash~~ of ~~$0.7~~$1.0 million.

Cash ~~used for~~provided by investing activities in the first nine months of ~~2019~~2020 was ~~$394,000~~$67,000 consisting of proceeds of $398,000 received in the sale of property and ~~was $144,000 in~~equipment offset by equipment purchases of $331,000. In the first nine months of ~~2018 both for the~~2019 we used $394,000 to purchase of property and equipment.

Financing activities provided $6.4 million of cash in the first nine months of 2020 consisting of $6.7 of net proceeds from the sale of common stock offset by the use of $281,000 for the repurchase of partial shares in connection with our reverse stock split and our rescission purchase of our ESPP shares. Financing activities provided $34.6 million of cash in the first nine months of 2019 consisting of ~~$34.4 million of net proceeds from~~ the ~~rights offering and $0.2 million from employee stock plan purchases. Financing activities provided $19.4 million of cash in the first nine months of 2018 consisting of $19.0~~$34.4 million in net proceeds from the sale of common stock and ~~$0.4 million from the exercise of options and~~ warrants and $238,000 in proceeds from our employee stock ~~plan purchases.~~

~~We do~~At September 30, 2020, we did not have any transactions, obligations or relationships that constitute off-balance sheet arrangements.

The primary objective of our investment activities is to maintain the safety of principal and preserve liquidity without incurring significant risk. We invest cash in excess of our current needs in money market funds. As of September 30, ~~2019,~~2020, our investments consisted solely of money market funds.

~~During the nine months ended September 30, 2019, approximately 63% of our revenue was denominated in U.S. dollars and 37% in Euros.~~ The majority of our operating expenses were denominated in U.S. dollars. We have not entered into foreign currency forward contracts to hedge our operating expense exposure to foreign currencies, but we may do so in the future.

Our management, including our Acting Chief Executive Officer (“CEO”) and our Chief ~~Financial~~Accounting Officer (“~~CFO”~~CAO”), evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2019.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. As of September 30, ~~2019,~~2020, based on the evaluation of these disclosure controls and procedures, our CEO and ~~CFO~~CAO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal control over financial reporting during the ~~quarter~~nine months ended September 30, ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are updating our internal control environment to address changes in our risks in financial reporting to accommodate our reductions in operating activities, reductions in staffing levels, and segregation of duties. Such changes may result in new or reduced controls.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

~~Twenty-two~~Ten oppositions ~~have been~~ filed by ~~third parties~~Pixium Vision are pending in the European Patent Office, each challenging the validity of a European patent owned ~~or exclusively licensed~~ by us. We have filed one opposition that is currently pending in the European Patent Office challenging the validity of a patent owned by Pixium Vision. The outcome of the challenges isare not ~~certain. However,~~certain, however, if successful, they may affect our ability to block competitors from utilizing ~~some of its~~our patented ~~technology in Europe.~~technology. We ~~do not~~ believe a successful challenge will not have a material effect on our ability to manufacture and sell our products, or otherwise have a material effect on our operations.

~~On August 22, 2019,~~By letters received June 23, 2020 and July 21, 2020 counsel for a participant in the Orion Early Feasibility Study has alleged claims against the Company for breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, promissory estoppel and negligent infliction of emotional distress. Counsel in addition has alleged that Second Sight ~~and Pixium Vision SA concluded~~has violated the protocol established by the FDA for good clinical practice within this industry. As full compensation for damages arising from these claims the Company was presented with a ~~settlement agreement resolving all advertising disputes between~~demand for payment of $3,000,000. The Company believes that the ~~companies. The agreement provides that all litigation is withdrawn and costs~~claims asserted are ~~shared. The settlement~~without merit. Although the Company does not ~~address~~believe a lawsuit will be filed imminently, the ~~patent opposition proceedings, between the companies,~~claim is in the ~~European Patent Office.~~ early stage and no assurance can be given that this matter will not result in litigation. To the extent a lawsuit is filed, the Company intends to vigorously defend it.

~~We are party~~From time to ~~litigation arising~~time, we may be involved in a variety of legal proceedings and claims relating to securities laws, product liability, patent infringement, contract disputes, employment matters and other matters relating to various claims that arise in the ~~ordinary~~normal course of ~~business.~~ our business in addition to governmental and other regulatory investigations and proceedings. It is our opinion that the outcome of such matters will not have a material adverse effect on our results of operations, however, the results of litigation, proceedings, disputes and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

~~Although we believe that~~Investing in our ~~strategy to (i) leverage proven Argus II technology to develop~~common stock involves a high degree of risk. You should consider carefully the ~~Orion visual cortical prosthesis~~risks and ~~(ii) significantly expand our addressable market to include a portion~~uncertainties described below, together with all of the ~~almost 6 million patients who are blind from eye trauma, optic nerve disease and injury, diabetic retinopathy, glaucoma and~~ other ~~untreatable causes is more likely to address a better and faster way to treat many causes of blindness,~~information in this Quarterly Report, including ~~the Retinitis Pigmentosa population, we will incur material near term losses, market uncertainty and~~ our ~~stock may experience significant fluctuations as we make the transition from the Argus II to Orion.~~

Based on assessments of the development of our Orion technology and the positive results in an early feasibility study of the six subjects implanted with the Orion at UCLA Medical Center and Baylor College of Medicine, in May 2019, our Board approved an acceleration of our transition from the Argus II to the Orion platform so we may more rapidly implement our strategy of treating blindness domestically and worldwide. As a result, we will or have:

Our decision to accelerate Orion development will likely cause physicians or individuals who are eligible for Argus II to delay implantation of Argus II in favor of Orion which will adversely affect our Argus II sales and results of operations.

As a result of this transition from Argus II, our future success will depend on the further development, regulatory approval and commercialization of the Orion product. Although we believe this more rapid changeover and implementation of our long term strategy for treating blindness by Orion will provide us a sizable, commercially sustainable domestic and worldwide market for our products, in the near term we will incur significant losses, market volatility and regulatory uncertainty, including uncertainty associated with pricing and reimbursement coverage with no current assurance of market acceptance. No assurance can be given that this strategy will achieve domestic and regulatory approvals or result in commercial viability of our products or our company.

If our development activity, regulatory efforts and substantial investments related to Orion do not result in a commercial product or if our company never achieves profitability or positive free cash flow, our stock price will decline, we will not be able to sustain operations and our stockholders may incur a complete loss of their investment in our company.

Our revenues for Argus II have decreased and we expect that they will continue to decrease as we sell through our remaining inventory and that our expenses will increase in connection with our ongoing activities, particularly as we expand and continue clinical trials of Orion, initiate new research and development projects and seek marketing approval for the Orion and any product candidates that we successfully develop. In addition, if we obtain marketing approval for Orion, we expect to continue incurring significant additional expenses related to sales, marketing, distribution and other commercial infrastructure to commercialize that product. Nevertheless no assurance can be given that Orion will achieve commercial success or result in profitable operations, in which case investors may lose all or substantially all of their investment in our company.

The CE marking regulations in the European Union are subject to a significant effort to strengthen the regulatory regime for medical devices which, if adopted, will make the approval process more time consuming and costly for us to obtain access to and continue to market within the European markets.

We are subject to an annual audit of compliance with the rules necessary to support our CE Mark. In April 2017 the European Commission published a new regulatory scheme that imposes significant additional obligations on medical device companies. As such, devices with a current CE marking, such as the Argus II, will have to comply with additional, more challenging regulatory obligations. The changes being made to the regulations include stricter requirements for clinical evidence and pre-market assessment of safety and performance, new classifications to indicate risk levels, requirements for third party testing by government accredited groups for some types of medical devices, and tightened and streamlined quality management system assessment procedures. With the additional provisions adopted by the European Parliament, the European Medicines Agency (EMA) may be involved in regulation of some types of medical devices in the qualification and monitoring of notified bodies (NBs), and enhancing the roles of other bodies, including a new Medical Devices Coordination Group (MDCG). The European Parliament’s revisions also impose enhanced competence requirements for NBs and “special notified bodies” (SNBs) for specific categories of devices, such as implantable devices. These changes are anticipated to result in stricter conformity assessment procedures. The medical device industry anticipates that there will be significant changes under these initiatives to the regulation of medical devices which will increase the time and costs for obtaining CE marking after May 2020. A grace period of four years provides medical device companies the opportunity to be compliant with the new standard before May 2024. We anticipate being audited to this new standard by 2024.

Our CE Mark registration must be renewed on a periodic basis. Our CE Mark registration for the Argus II system expired on September 1, 2019. We commenced our recertification audit in June 2019 and expect to receive a recertification through May 2024. No assurance can be made that we will receive recertification. We currently have limited inventory of Argus II placed in the EU market prior to September 1, 2019, and anticipate being able to maintain our Argus II support outside the United States. Further, the Medical Device Single Audit Program (MDSAP) is a new multi-national standard adopted by Australia, Brazil, Canada, Japan and the United States. MDSAP may impose a higher compliance burden than CE Mark through more rigorous audit requirements. In connection with our strategic decision to accelerate Orion development, we decided not to pursue MDSAP compliance during 2019 and will suspend our commercial activities for Argus II in Canada until further notice. We believe we are able to support current Argus II users through Health Canada’s special access program, but no assurance of approval can be made.

We are increasingly dependent on sophisticated information technology systems, including systems from third parties, and if we fail to properly maintain the integrity of our data or if our products do not operate as intended, our business could be materially and adversely affected.

We are increasingly dependent on sophisticated information technology systems for our products and infrastructure, and we rely on these information technology systems, including technology from third party vendors, to process, transmit and store electronic information in our day-to-day operations. We continuously monitor, upgrade and expand the systems we operate to improve information systems capabilities. Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop or contract new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, and the increasing need to protect patient and customer information. In addition, third parties may attempt to hack into our products or systems and may obtain data relating to patients with our products or proprietary information. If we fail to maintain or protect our information systems and data integrity with cyber security effectively, we could lose existing customers, have difficulty attracting new customers, have problems in determining product cost estimates and establishing appropriate pricing, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, have regulatory sanctions, fines, or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach, or suffer other adverse consequences. There can be no assurance that our process of upgrading and expanding our information systems capabilities, protecting and enhancing our systems including cyber security methods, and developing new systems to keep pace with continuing changes in information processing technology will be successful or that additional systems issues will not arise in the future. Our products contain hardware and software protections which are intended to prevent unauthorized access or control of our implanted device. However, if an unauthorized user is able to breach our controls and gain access to one of our devices implanted in a patient, serious harm, injury and/or death may result. Any significant breakdown, intrusion, interruption, corruption, or destruction of these systems, as well as any data breaches, could have a material adverse effect on our ~~business.~~

business, financial condition, results of operations and prospects. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, results of operations and prospects. In addition, the impact of COVID-19 and any worsening of the economic environment may exacerbate the risks described below, any of which could have a material impact on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

~~Our product candidates may cause undesirable side effects or have~~In addition to other ~~properties that could delay or prevent their regulatory approval, limit~~information set forth in this report, you should carefully consider the ~~commercial profile of an approved label, or result~~risk factors discussed under the “Risk Factors” section included in ~~significant negative consequences following marketing approval, if any.~~

~~In order to obtain marketing approval for Orion we must demonstrate~~our 2019 Annual Report on Form 10-K, which was filed with the ~~safety~~SEC on March 19, 2020 and ~~efficacy of Orion through clinical trials~~as amended on Form 10-K/A and filed with the SEC on April 28, 2020, as well as those risk factors contained in our prospectus supplement dated April 30, 2020 as filed with the SEC on May 1, 2020. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K, as amended, our Quarterly Report on Form 10-Q for the six months ended June 30, 2020 filed with the SEC on August 13, 2020 and our prospectus supplement.

Since we have incurred material operating losses yearly since inception and have no current revenue producing operations, it is difficult to evaluate the future of our business.

To date, since eliminating commercial activities concerning our Argus II production and marketing efforts in 2019 our operations on a consolidated basis have consisted of the continued development and clinical studies of our Orion-focused technologies and implementation of the early parts of our business plan relating to the Orion. We have incurred significant operating losses in each year since our inception and we will continue to incur additional ~~supporting data. If Orion is associated with undesirable side effects in clinical trials or~~losses for the next several years. In addition, our losses may be greater than expected and our operating results may suffer. We have ~~characteristics that are unexpected,~~limited historical financial data upon which we may ~~need~~base our projected revenue and base our planned operating expenses. Our limited operating history makes it difficult to ~~interrupt, delay~~evaluate our technology or abandon Orion’s development, cause it to have reduced functionality, or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. We are conducting at UCLAprospective operations and Baylor a six subject initial feasibility clinical study of Orion, but we cannot guarantee that any positive results in this limited trial will successfully translate to a pivotal clinical trial. It is not uncommon to observe results in human clinical trials that are unexpected based on limited trials testing, and many product candidates fail in large clinical trials despite promising limited clinical trial results. Moreover, clinical data is often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain marketing approval for their products. No assurance can be given that we will not encounter similar results in our Orion trials.business prospects.

Human subjects in our clinical trials may suffer significant adverse events, tolerability issues or other side effects associated with the surgical implantation, chronic implantation, and chronic use of the Orion device. These events include, but are not limited to, the following (events that are also anticipated during or following explantation of the Orion device are identified withThe COVID-19 pandemic has had an asterisk (*)): intracranial hemorrhage*; subcutaneous hematoma*; vascular injury causing stroke or hemorrhage (e.g. injury to the superior sagittal sinus or posterior cerebral artery perforators)*; hydrocephalus*; intracranial hypotension or cerebrospinal fluid (CSF) leak*; headache or pain in the head, including deep pain*; tingling at the implant site*; brain edema*; infection*; meningitis*; implant site pain, swelling, discharge or effusion*; suture-related complications or stitch abscess*; skin erosion on and/or around the implant site; adverse tissue reaction to the implant; tissue damage at the implant/explant site*; cranial defect/bone damage*; decline in residual vision*; dizziness/syncope*; foreign body sensation at the implant site*; activation of motor or sensory neurons (e.g., muscle twitch); clinically symptomatic seizure*; development of epilepsy; coma*; death*; psychiatric events, including but not limited to mood changes, depression, suicidality, and psychosis*; neurological deficit, including but not limited to language (dysphemia), dysesthesias, paresis, paresthesia, visual field, motor deficit (including apraxia), and memory impairment*; drug hypersensitivity, adverse drug reaction, or therapeutic agent toxicity*; events related to any surgery and general anesthesia including cardiac risks, including stroke/transient ischemic attack, arrhythmia, cardiac arrest, and myocardial infarction*, venous thromboembolic (VTE) disease*; pneumonia*, urinary tract infection*, post-operative delirium*, postoperative constipation*, post-operative vomiting or nausea*, or post-operative fever*; injuries due to falls or bumps; skin irritation or burns; Orion system failure or malfunction; array migration; damage to the Orion electronics case; device interaction including the Orion device may interfere with the proper functioning of other electronic devices and emissions from other electronic equipment may interfere with the proper functioning of the Orion device; and (explant only) inability to remove all or part of the Orion device due to fibrosis or other reason.

No assurance can be given that we will not encounter adverse events in our Orion trials. The observed efficacy and extent of light perception and vision restoration for subjects implanted with Orion in our feasibility study may not be maintained over the long term, or may not be observed in a larger pivotal clinical trial. If general clinical trials of Orion fail to demonstrate efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of Orion.

For example, in June 2018, one subject in our Early Feasibility Study for Orion (“EFS”) experienced a seizure while in the clinic when we were evaluating a specific video stimulation algorithm. The seizure resolved quickly with medication and the subject was released from the clinic without need for hospitalization or further treatment. The subject was allowed to continue using the Orion device after the serious adverse event was reviewed by a safety committee for the study and clinicians at the implanting institution.

In addition, in January 2019 we observed higher impedance levels on 11 of 60 electrodes with the first EFS subject implanted with the Orion device in January 2018. As a result, some of these electrodes no longer generate a phosphene, or observable spot of light, for the subject. The subject continues to use the device and is continuing to participate in the clinical study. Mechanical and software safeguards are built into the device to avoid excessive electrical stimulation and, as a result, the higher impedance levels do not pose any known safety risks to the subject. Given the pattern of high impedances, we took the precaution of disabling half of the electrodes on the array to ensure that other potentially affected electrodes are not used. Root cause(s) for the higher impedance levels cannot be conclusively determined while the device remains implanted but could include any combination of the following: potential manufacturing defects, damage due to improper or excessive handling of the device, materials chosen for the design, and related processes. The first subject has been implanted with the device for 21 months, four subjects have been implanted for 17-19 months, and one subject for nine months. We currently have no indication that the issue exists with any of the Orion devices implanted in each of the other five EFS subjects. Prior to initiation of EFS, we subjected six Orion implants to accelerated aging tests and had no failures for what was the equivalent of up to 6.5 years.

In October 2019, we also observed changes to impedances (higher and lower) on most electrodes with the sixth EFS subject implanted with the device in January 2019. These impedance changes were coincident with a loss of most perception from the device, though there is no indication of a medical adverse event or a device defect. When examined again in November 2019 this sixth EFS subject showed improved perception and more normal impedances. We are currently investigating the possible root cause(s) for these changes, which may or may not be device related (i.e., may be subject related) and may or may not be permanent.

We cannot provide any assurance that we will not experience similar or other issues with any of the implanted Orion devices, be able to determine the root cause of the issue or to ascertain whether the issue is isolated or systemic in nature. Additional testing, investigation, design changes or mitigation activities may delay our plans to conduct additional clinical studies for Orion and/or our marketing approval and may have a material adverse effect on our ~~business.~~business and results of operations and is expected to continue to have further adverse effects, which could be material, on our business, results of operations, financial condition, liquidity, and capital investments.

~~If device defects,~~In accordance with local and state guidelines regarding the COVID-19 pandemic, we are requiring all of our employees to work remotely unless they cannot perform their essential functions remotely, and have also suspended all non-essential travel for our employees. While a significant ~~adverse events~~number of our employees may be accustomed to working remotely or working with other remote employees, much of our workforce has not historically been remote. Although we continue to monitor the situation and may adjust our current policies as more information and public health guidance becomes available, temporarily suspending travel and restricting the ability to do business in person may create operational or other ~~side effects are observed in~~challenges, any of our future clinical trials, we may have difficulty recruiting subjects to the clinical trial, subjects may drop out of our trial, or we may be required to abandon the trial or our development efforts of that product candidate altogether. We, the FDA or other applicable regulatory authorities may suspend clinical trials of Orion at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks. Devices developed in the prosthesis industry that initially showed promise in early-stage studies have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude Orion from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its actual or perceived safety and tolerability profile. Any of these developmentswhich could ~~materially~~ harm our business, financial condition and ~~prospects.~~results of operations.

~~Should Orion obtain marketing approval,~~In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials have been delayed, for example, due to prioritization of hospital resources toward the COVID-19 outbreak, travel restrictions imposed by governments, and the inability to access sites for initiation and monitoring. For example, scheduled patient visits to our clinical sites at UCLA and Baylor were temporarily put on hold due to COVID-19. Visits have resumed at one site and we are in the process of planning to resume patient visits with the other site. Both sites continue to see patients if needed for any potential medical issues that may arise including any suspected adverse ~~effects associated with it may also develop after such approval and could lead~~events. In addition, the validation study for the revised FLORA assessment was paused due to travel requirements for ~~conducting additional clinical safety trials, placing additional warnings~~its completion. Also, some of our suppliers of certain materials used in the ~~labeling, imposing significant restrictions on Orion, or withdrawing~~development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materials for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our product candidates, if approved, and impact our operating results. Even after the ~~Orion from~~COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business as a result of the ~~market while~~continued global economic impact of the pandemic. We could experience further incurring attendant costs of explants and exposure to litigation. We cannot predict whether Orion will cause significant adverse effects in humans that would preclude or lead to the revocation of regulatory approval. However, any such event, were it to occur, would cause substantial harm to our business and ~~financial condition~~we cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to monitor and ~~would~~assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change.

COVID-19 has directly and indirectly adversely affected Second Sight and will likely continue to do so for an uncertain period of time. In March and April 2020 we laid off a substantial majority of our employees as a result of COVID-19 and an inability to obtain financing. We retain approximately twelve of our employees to oversee current operations. The cumulative effects of COVID-19 on the Company cannot be predicted at this time, but could include, without limitation:

Our research and development efforts remain subject to all of the risks associated with the development of new technology. Our Orion technology, though based on our FDA approved Argus II is not yet fully developed. Development of the underlying technology, including the further development and refinement of our Orion technology, may be affected by unanticipated technical or other problems, among other development and research issues, and the possible insufficiency of funds needed in order to complete development of these products or devices. Regulatory and clinical hurdles or challenges also may result in delays and cause us to incur additional expenses that may increase our need for capital and result in additional losses. If we cannot complete, or if we experience significant delays in developing our technology, applications or products for use by those patients who can benefit from vision restoration, particularly after incurring significant expenditures, our business may fail and investors may lose the ~~diversion~~entirety of ~~our management’s attention.~~their investment.

~~If we fail to maintain~~We are currently not in compliance with Nasdaq listing ofstandards. If our common stock ~~on a national securities exchange,~~is delisted, the market price and liquidity of our common stock and our ability to ~~access the~~raise additional capital ~~markets may~~would be ~~harmed.~~adversely impacted.

~~Although~~Our common stock and warrants are currently listed on Nasdaq. Continued listing of a security on Nasdaq is conditioned upon compliance with various continued listing standards. On July 23, 2020 Nasdaq notified us that we no longer meet Listing Rule 5550(b)(2) requiring us to maintain a minimum market value of listed securities (“MVLS”) of $35 million. The notice was based on a review of our MVLS for the past 30 business days. Nasdaq also noted us that we do not meet the requirements under Listing Rules 5550(b)(1) and 5550(b)(3) which require stockholders’ equity of at least $2.5 million, or net income from continuing operations of $500,000 in the most recently completed or in two of the three most recently completed fiscal years, respectively. However, Nasdaq’s listing rules provide us a compliance period of 180 calendar days, or until January 19, 2021, in which to regain compliance.

If at any time during this compliance period our MVLS closes at $35 million or more for a minimum of ten consecutive business days, Nasdaq will provide written confirmation of compliance and the matter will be closed. In the event we do not regain compliance with the Rule prior to the expiration of the compliance period, we will receive written notification that our securities are subject to delisting. At that time, we may appeal the delisting determination to a Nasdaq Hearings Panel.

On July 21, 2020 Nasdaq notified us, based on the information that our board of directors had appointed an independent director to our compensation committee, that it has determined that we comply with Rule 5605(d)(2) and this matter is now closed. On July 15, 2020, Nasdaq notified us that we again qualified for a cure period to meet listing rules brought into question due to changes in our board of directors. We previously reported regarding letters from Nasdaq dated April 15, 2020, June 1, 2020, and June 2, 2020.

As previously disclosed, Nasdaq notified us on April 15, 2020, that due to the appointment of one of our independent directors as the acting Chief Executive Officer effective March 27, 2020, we no longer complied with Nasdaq’s independent director and audit committee requirements as set forth in Listing Rule 5605. On June 1, 2020, Nasdaq notified us that following the resignation of William J. Link as a director effective May 31, 2020, our noncompliance with the Listing Rules was then due to more than one vacancy on our board and audit committee. As a result, Nasdaq advised us that we were no longer eligible for the cure period set forth in our Form 8-K filed June 4, 2020 and that a plan of compliance was required to be submitted no later than July 16, 2020.

Our board of directors concluded that our non-executive Chair, Gregg Williams, meets the criteria of an independent director and has appointed Mr. Williams to be a member of the Audit Committee as of June 22, 2020, as a result of which we have only one vacancy on our board and committees. In the July 15, 2020 letter, Nasdaq acknowledged our conclusion regarding Mr. Williams’ independent director status and appointment to the Audit Committee. As a result, we are again eligible for the cure period provided in Nasdaq’s Listing Rules. As such, Nasdaq reiterated that consistent with Listing Rules 5605(b)(1)(A) and 5605(c)(4), the Company’s cure period to regain compliance is as follows:

Under Nasdaq Listing Rule 5810(c)(3)(A), if during the 180 calendar day period following the date of the Notice (the “Compliance Period”), the closing bid price of our common stock is at or above $1.00 for a minimum of 10 consecutive business days, will regain compliance with the Minimum Bid Price Requirement and our common stock will continue to be eligible for listing on Nasdaq absent noncompliance with any other requirement for continued listing.

If we do not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period, under Nasdaq Listing Rule 5810(c)(3)(A)(ii), if on the last day of the Compliance Period we are in compliance with the market value of publicly held shares requirement for continued listing, as well as all other continued listing requirements, if we cannot demonstrate compliance with Nasdaq’s minimum $1.00 bid price per share requirement by January 20, 2020, Nasdaq will proceed with their process of delisting our securities. While we intend to maintain thestandards for initial listing of our common stock on Nasdaq (other than the bid price requirement), we may be eligible for ~~trading on~~additional time if we also provide written notice to Nasdaq of our intention to cure the deficiency during a ~~national securities exchange, there can~~second compliance period at which point Nasdaq may grant us an additional 180 days to regain compliance with the Minimum Bid Price Requirement.

If we do not regain compliance with the Minimum Bid Price Requirement by the end of the Compliance Period (or the Compliance Period as may be ~~no assurance that we~~extended) our common stock will be ~~able~~subject to ~~do so without effecting a reverse split of our common stock.~~delisting.

If our common stock iswere to be delisted from a national securities exchange trading in our shares may likely be reduced or impaired, not only in the number of shares which could be purchased and sold, but also through possible delays in the timing of market transactions. We may also experience a reduction in our coverage by security analysts, a more limited following at investor conferences and by the news media, thereby resulting in lower demand for our shares, adverse publicity and a reduced interest in our company from investors, analysts and other market participants.

Securities that delist from national securities exchanges may continue to trade on the over-the-counter market but are generally less liquid than investments in securities trading on a national securities exchange. In addition, theNasdaq, trading of our common ~~shares~~stock most likely would be conducted in the over–the–counter market on an electronic bulletin board established for unlisted securities such as the ~~over-the-counter markets could have other negative implications, including~~OTCQX Market, OTCQB Market. Such trading would likely reduce the ~~potential loss~~market liquidity of ~~confidence in us by suppliers, customers and employees and the loss of institutional investor interest in~~ our common ~~shares. These circumstances~~stock. As a result, an investor could ~~further depress~~find it more difficult to dispose of, or obtain accurate quotations for the ~~trading~~ price of, our common ~~shares~~stock. Many brokerage firms are reluctant to recommend low–priced stocks to their clients. Moreover, various regulations and policies restrict the ability of stockholders to borrow

against or “margin” low–priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low–priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker–dealers by these requirements could ~~also have a long-term adverse effect on~~discourage broker–dealers from facilitating trades in our ~~ability to raise capital~~common stock, which could ~~impair~~severely limit the market liquidity of the stock and the ability of investors to trade our common stock. As a result, the ability of our stockholders to ~~fund Orion development through commercialization.~~

Ifresell their shares of common stock, and the price at which they could sell their shares, could be adversely affected. The delisting of our common stock cease to be listed on a national exchange we will not be subject to compliance with rules requiring the adoption of certain corporate governance measures and as a result our stockholders may experience reduced protections.

~~Each of the New York Stock Exchange and the~~from Nasdaq Stock Market LLC require the implementation of various measures relating to corporate governance for listed companies. These quantitative and qualitative measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those stock exchanges. While we have adopted these measures, we will not be required to comply with many of the corporate governance provisions if our common stock is not listed on a national securities exchange. As a result, if we cease to be listed on national exchange and elect to cease compliance with any of the corporate governance measures required by national exchanges, our stockholders may lose protections afforded to listed companies.

If shares of our common stock cease to be listed on a national exchange they will become subject to the “penny stock” rules of the SEC and the trading market in our securities may become limited, which will make transactions in our stock cumbersome and may reduce the value of an investment in the stock.

~~Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security~~ ~~that is no longer trading on a national exchange and~~ has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

~~The broker or dealer must~~would also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for ~~investors~~us to ~~dispose of our common stock and cause a decline in the market value of our common stock.~~raise additional capital.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

If shares of our common stock cease to be listed on a national exchange our securities will not be eligible for federal preemption rights and could be subject to state “blue sky” laws which may affect our capabilities of raising capital.

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether securities will be registered or exempt from registration under the laws of any state. If our securities cease to be listed on the national exchange, a determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our common stock. Registering or qualifying shares with states can be time consuming. Compliance and regulatory costs may vary from state to state and may adversely affect future financings and our ability to raise capital.

If our common stock is delisted from national exchange some institutional investors may not be allowed to purchase our shares and may be required to liquidate their current positions in our stock which could negatively affect the price and volatility of our shares.

Institutional investors may be restricted by their investment policies from investing in shares of companies that are not listed on a national exchange and may be required to liquidate their positions if our securities are delisted from a national exchange. Liquidations, should they occur, may increase volatility and cause wide fluctuations and further declines in the prices of our securities.

Delisting of our common stock from national exchange can cause material dilution of our stock in future financings which can erode shareholder value.

If we are not able to maintain listing of our securities on Nasdaq, the trading prices of our securities may decline and we may need to sell larger amounts of our securities to obtain needed operating capital, possibly at prices which are at further discounts to the market or upon other terms that are less favorable to us, subjecting our shareholders to material dilution and losses to their investment.

We incorporate herein by reference the risk factors described in our Annual Report on Form 10-K, including those risk factors which are updated, expanded or otherwise modified by this report with respect to our transitioning from a reliance on Argus II to a reliance on our new Orion development program, as filed with the Securities and Exchange Commission on March 19, 2019.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Deficiency) for each of the three-month periods ended during the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2928

Item 4.	Controls and Procedures	2928

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	3029

Item 1A.	Risk Factors	3029

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3532

Item 3.	Defaults Upon Senior Securities	3532

Item 4.	Mine Safety Disclosures	3532

Item 5.	Other Information	3532

Item 6.	Exhibits	3633

SIGNATURES		3734



~~Assets~~	~~Classification~~	~~September 30,~~ ~~2019~~
~~Non-current assets~~	~~Right-of-use assets~~	$	~~2,399~~
~~Liabilities~~
~~Current~~	~~Current operating lease liabilities~~	$	~~228~~
~~Long term~~	~~Long term operating lease liabilities~~	~~$ 2,427~~



	For the three months ended September 30, 2019	For the nine months ended September 30, 2019
Lease expense:
Operating lease expense	$ 123		$ 370
Short-term lease expense	—		—
Total lease expense	$ 123		$ 370

Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	357

For operating lease:
Weighted average remaining lease term (in years)		7.3
Weighted average discount rate		10	%

	Common Stock				Common Stock Issuable						Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Loss			Deficit			Equity
Balance, December 31, 2017		57,630	$	202,156		82		$	153		$	40,522	$	(572	)	$	(234,377	)	$	7,882
Issuance of shares of common stock, net of issuance costs		2,224		3,992		—			—			—		—			—			3,992
Warrants exercise		5		7		—			—			—		—			—			7
Common stock issuance for services		—		—		34			65			—		—			—			65
Release of restricted stock units		12		—		—			—			—		—			—			—
Stock-based compensation expense		—		—		—			—			1,285		—			—			1,285
Exercise of common stock options		5		8		—			—			—		—			—			8
Net loss		—		—		—			—			—		—			(9,753	)		(9,753	)
Foreign currency translation adjustment		—		—		—			—			—		45			—			45
Balance, March 31, 2018		59,876		206,163		116			218			41,807		(527	)		(244,130	)		3,531
Issuance of shares of common stock, net of issuance costs		6,757		9,978		—			—			—		—			—			9,978
Issuance of common stock in connection with employee stock purchase plan		226		261		—			—			—		—			—			261
Common stock issued or issuable for services		133		262		(116	)		(218	)		—		—			—			44
Release of restricted stock units		12		—		—			—			—		—			—			—
Stock-based compensation expense		—		—		—			—			627		—			—			627
Exercise of common stock options		71		141		—			—			—		—			—			141
Net loss		—		—		—			—			—		—			(7,961	)		(7,961	)
Foreign currency translation adjustment		—		—		—			—			—		(77	)		—			(77	)
Balance, June 30, 2018		67,075		216,805		—			—			42,434		(604	)		(252,091	)		6,544
Issuance of shares of common stock, net of issuance costs		3,225		4,969		—			—			—		—			—			4,969
Release of restricted stock units		12		—		—			—			—		—			—			—
Stock-based compensation expense		—		—		—			—			877		—			—			877
Net loss		—		—		—			—			—		—			(8,522	)		(8,522	)
Foreign currency translation adjustment		—		—		—			—			—		24			—			24
Balance, September 30, 2018		70,312	$	221,774		—		$	—		$	43,311	$	(580	)	$	(260,613	)	$	3,892

	September 30, ~~2019~~2020			December 31, ~~2018~~ 2019
Customer 1		97	%		—	%
~~Customer 2~~		—	%		5597	%
~~Customer 3~~		—	%		22	%
~~Customer 4~~		—	%
	21	%

Beginning balance as of December 31, 2019	$	1,575
Additions		—
Settlements		(618)
Adjustments and other		—
Total		957
Less: Finished goods inventory expected to be used for future warranty claims		(236)
Ending balance as of September 30, 2020	$	721

Assets	Classification	December 31, 2019
Non-current assets	Right-of-use assets		$	2,342
Liabilities
Current	Current operating lease liabilities		$	237
Long term	Long term operating lease liabilities		$	2,365

	Discounted lease liability payments		Payments due under lease agreements
2019 (remaining three months)	$	53	$	120
2020		237		491
2021		278		505
2022		322		521
2023		352		516
Thereafter		1,413		1,704
Total	$	2,655	$	3,857

Exhibit No.		Exhibit Description


31.1		Certification of Principal Executive Officer of Second Sight Medical Products, Inc. pursuant to Section 302 of Sarbanes-Oxley Act of 2002.*

31.2		Certification of Principal Financial and Accounting Officer of Second Sight Medical Products, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certifications of Principal Executive Officer and Principal Financial and Accounting Officer of Second Sight Medical Products, Inc. pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS		XBRL Instant Document.*

101.SCH		XBRL Taxonomy Extension Schema Document.*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

Name	Title	Date

/s/ J~~onathan~~ W~~ill~~ McG~~uire~~Matthew Pfeffer	Acting Chief Executive Officer and Director	November ~~14 , 2019~~12, 2020
~~Jonathan Will McGuire~~Matthew Pfeffer	(Principal Executive Officer)

/s/ J~~ohn~~ ~~T. Blake~~Edward J. Sedo	Acting Chief ~~Financial~~Accounting Officer	November ~~14 , 2019~~12, 2020
~~John T. Blake~~Edward J. Sedo	(Principal Financial and Accounting Officer)