UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022March 31, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File Number 001-36747
Second SightVivani Medical, Products, Inc.
(Exact name of Registrant as specified in its charter)
California | 02-0692322 | |
(State or other jurisdiction of
| (I.R.S. Employer Identification No.) |
13170 Telfair Avenue5858 Horton Street, SylmarSuite 280Emeryville, CA 9134294608
(Address of principal executive offices, including zip code)
((818)415) 833-5000506-8462
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which | ||
Common Stock | ||||
NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of August 8, 2022,May 10, 2023, the registrant had shares of common stock, no par value per share and 7,680,938 warrants, outstanding.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part PART I. Financial StatementsFINANCIAL STATEMENTS
Item 1. Financial Statements
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 56,377 | $ | 69,593 | $ | 38,073 | $ | 45,076 | ||||||||
Prepaid expenses and other current assets | 1,012 | 914 | 2,611 | 2,452 | ||||||||||||
Total current assets | 57,389 | 70,507 | 40,684 | 47,528 | ||||||||||||
Property and equipment, net | 103 | 117 | 1,111 | 1,182 | ||||||||||||
SAFE (see Note 1) | 8,000 | — | ||||||||||||||
Right-of-use assets | 140 | 228 | 1,148 | 779 | ||||||||||||
Restricted cash | 1,366 | 1,366 | ||||||||||||||
Deposits and other assets | 17 | 27 | 271 | 275 | ||||||||||||
Total assets | $ | 65,649 | $ | 70,879 | $ | 44,580 | $ | 51,130 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIE S AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 966 | $ | 519 | $ | 746 | $ | 1,177 | ||||||||
Accrued expenses | 796 | 548 | 2,114 | 2,358 | ||||||||||||
Litigation accrual | 1,675 | 1,675 | ||||||||||||||
Accrued compensation expense | 678 | 748 | 415 | 657 | ||||||||||||
Accrued clinical trial expenses | — | 462 | ||||||||||||||
Current operating lease liabilities | 151 | 185 | 913 | 955 | ||||||||||||
Total current liabilities | 2,591 | 2,462 | 5,863 | 6,822 | ||||||||||||
Long term operating lease liabilities | — | 52 | 349 | — | ||||||||||||
Total liabilities | 2,591 | 2,514 | 6,212 | 6,822 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Commitments and contingencies (Note 10) | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, | par value, shares authorized; outstanding— | — | ||||||||||||||
Common stock, | par value; shares authorized; shares issued and outstanding: as of June 30, 2022 and December 31, 2021347,940 | 347,940 | ||||||||||||||
Preferred stock, | par value, shares authorized; outstanding— | — | ||||||||||||||
Common stock, | par value; shares authorized; shares issued and outstanding: as of March 31, 2023 and as of December 31, 2022, respectively109,050 | 109,050 | ||||||||||||||
Additional paid-in capital | 49,415 | 49,389 | 8,378 | 8,009 | ||||||||||||
Accumulated other comprehensive loss | (424 | ) | (379 | ) | 44 | 35 | ||||||||||
Accumulated deficit | (333,873 | ) | (328,585 | ) | (79,104 | ) | (72,786 | ) | ||||||||
Total stockholders’ equity | 63,058 | 68,365 | 38,368 | 44,308 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 65,649 | $ | 70,879 | $ | 44,580 | $ | 51,130 |
SeeThe accompanying notes.notes are an integral part of these condensed consolidated financial statements.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended | Six Months Ended | Three Months Ended March 31, | ||||||||||||||||||||||
June 30, | June 30, | 2023 | 2022 | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Net sales | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Cost of sales | — | — | — | — | ||||||||||||||||||||
Gross profit | — | — | — | — | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development, net of grants | $ | 843 | $ | 695 | $ | 1,488 | $ | 1,029 | $ | 3,955 | $ | 2,679 | ||||||||||||
Clinical and regulatory, net of grants | 161 | 263 | 266 | 300 | ||||||||||||||||||||
General and administrative | 2,125 | 1,338 | 3,591 | 3,810 | ||||||||||||||||||||
General and administrative, net of grants | 2,646 | 1,228 | ||||||||||||||||||||||
Total operating expenses | 3,129 | 2,296 | 5,345 | 5,139 | 6,601 | 3,907 | ||||||||||||||||||
Loss from operations | (3,129 | ) | (2,296 | ) | (5,345 | ) | (5,139 | ) | (6,601 | ) | (3,907 | ) | ||||||||||||
Other income (expense), net | 53 | 2 | 57 | 2 | 283 | (17 | ) | |||||||||||||||||
Net loss | $ | (3,076 | ) | $ | (2,294 | ) | $ | (5,288 | ) | $ | (5,137 | ) | $ | (6,318 | ) | $ | (3,924 | ) | ||||||
Net loss per common share – basic and diluted | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.13 | ) | $ | (0.20 | ) | $ | (0.12 | ) | $ | (0.11 | ) | ||||||
Weighted average common shares outstanding – basic and diluted | 39,409 | 28,667 | 39,409 | 26,117 | 50,755 | 36,806 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss (unaudited)
(in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Net loss | $ | (3,076 | ) | $ | (2,294 | ) | $ | (5,288 | ) | $ | (5,137 | ) | $ | (6,318 | ) | $ | (3,924 | ) | ||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Other comprehensive loss: | ||||||||||||||||||||||||
Foreign currency translation adjustments | (32 | ) | 25 | (45 | ) | 61 | 9 | — | ||||||||||||||||
Comprehensive loss | $ | (3,108 | ) | $ | (2,269 | ) | $ | (5,333 | ) | $ | (5,076 | ) | $ | (6,309 | ) | $ | (3,924 | ) |
SeeThe accompanying notes to theare an integral part of these condensed consolidated financial statements.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited)
(in thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Loss | Deficit | Equity (Deficit) | |||||||||||||||||||
Balance, January 1, 2022 | 36,803 | $ | 54,649 | $ | 6,713 | $ | — | $ | (58,897 | ) | $ | 2,465 | ||||||||||||
Repurchase of common stock | 4 | — | — | — | — | — | ||||||||||||||||||
Options exercised | 24 | 1 | — | — | — | 1 | ||||||||||||||||||
Stock-based compensation expense | — | — | 340 | — | — | 340 | ||||||||||||||||||
Net loss | — | — | — | — | (3,924 | ) | (3,924 | ) | ||||||||||||||||
Balance, March 31, 2022 | 36,831 | $ | 54,650 | $ | 7,053 | $ | — | $ | (62,821 | ) | $ | (1,118 | ) |
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Loss | Deficit | Equity(Deficit) | |||||||||||||||||||
Balance, December 31, 2020 | 23,214 | $ | 270,126 | $ | 49,314 | $ | (448 | ) | $ | (319,664 | ) | $ | (672 | ) | ||||||||||
Issuance of shares of common stock in connection with private placement | 4,650 | 24,451 | — | — | — | 24,451 | ||||||||||||||||||
Warrants exercised | 44 | 15 | — | — | — | 15 | ||||||||||||||||||
Stock-based compensation expense | — | — | 19 | — | — | 19 | ||||||||||||||||||
Net loss | — | — | — | — | (2,843 | ) | (2,843 | ) | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | 36 | — | 36 | ||||||||||||||||||
Balance, March 31, 2021 | 27,908 | $ | 294,592 | $ | 49,333 | $ | (412 | ) | $ | (322,507 | ) | $ | 21,006 | |||||||||||
Issuance of shares of common stock in underwritten public offering | 11,500 | 53,338 | — | — | — | 53,338 | ||||||||||||||||||
Warrants exercised | 1 | 10 | — | — | — | 10 | ||||||||||||||||||
Stock-based compensation expense | — | — | 19 | — | — | 19 | ||||||||||||||||||
Net loss | — | — | — | — | (2,294 | ) | (2,294 | ) | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | 25 | — | 25 | ||||||||||||||||||
Balance, June 30, 2021 | 39,409 | $ | 347,940 | $ | 49,352 | $ | (387 | ) | $ | (324,801 | ) | $ | 72,104 | |||||||||||
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Loss | Deficit | Equity(Deficit) | |||||||||||||||||||
Balance, December 31, 2021 | 39,409 | $ | 347,940 | $ | 49,389 | $ | (379 | ) | $ | (328,585 | ) | $ | 68,365 | |||||||||||
Stock-based compensation expense | — | — | 13 | — | — | 13 | ||||||||||||||||||
Net loss | — | — | — | — | (2,212 | ) | (2,212 | ) | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | (13 | ) | — | (13 | ) | ||||||||||||||||
Balance, March 31, 2022 | 39,409 | $ | 347,940 | $ | 49,402 | $ | (392 | ) | $ | (330,797 | ) | $ | 66,153 | |||||||||||
Stock-based compensation expense | — | — | 13 | — | — | 13 | ||||||||||||||||||
Net loss | — | — | — | — | (3,076 | ) | (3,076 | ) | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | (32 | ) | — | (32 | |||||||||||||||||
Balance, June 30, 2022 | 39,409 | $ | 347,940 | $ | 49,415 | $ | (424 | ) | $ | (333,873 | ) | $ | 63,058 | |||||||||||
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
Balance, January 1, 2023 | 50,736 | $ | 109,050 | $ | 8,009 | $ | 35 | $ | (72,786 | ) | $ | 44,308 | ||||||||||||
Options exercised | 53 | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation expense | — | — | 369 | — | — | 369 | ||||||||||||||||||
Foreign currency adjustment | — | — | — | 9 | — | 9 | ||||||||||||||||||
Net loss | — | — | — | — | (6,318 | ) | (6,318 | ) | ||||||||||||||||
Balance, March 31, 2023 | 50,789 | $ | 109,050 | $ | 8,378 | $ | 44 | $ | (79,104 | ) | $ | 38,368 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SECOND SIGHTVIVANI MEDICAL, PRODUCTS, INC.
AND SUBSIDIARYSUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
(unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (5,288 | ) | $ | (5,137 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 31 | 39 | ||||||
Stock-based compensation | 26 | 38 | ||||||
Non-cash lease expense | 2 | 13 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other assets | (87 | ) | (515 | ) | ||||
Accounts payable | 433 | 169 | ||||||
Accrued expenses | 218 | 327 | ||||||
Accrued compensation expenses | (70 | ) | 234 | |||||
Accrued clinical trial expenses | (462 | ) | (131 | ) | ||||
Net cash used in operating activities | (5,197 | ) | (4,963 | ) | ||||
Cash flows from investing activities: | ||||||||
SAFE (see Note 1) | (8,000 | ) | — | |||||
Purchases of property and equipment | (18 | ) | — | |||||
Net cash used in investing activities | (8,018 | ) | — | |||||
Cash flows from financing activities: | ||||||||
Net proceeds from sale of common stock and exercise of warrants | — | 77,814 | ||||||
Repayment of debt | — | (2,200 | ) | |||||
Net cash provided by financing activities | — | 75,614 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (1 | ) | 17 | |||||
Cash and cash equivalents: | ||||||||
Net increase (decrease) | (13,216 | ) | 70,668 | |||||
Balance at beginning of period | 69,593 | 3,177 | ||||||
Balance at end of period | $ | 56,377 | $ | 73,845 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period ended for: | ||||||||
Interest | $ | — | $ | 135 |
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
(unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (6,318 | ) | $ | (3,924 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 108 | 83 | ||||||
Stock-based compensation | 369 | 340 | ||||||
Non-cash lease expense | (62 | ) | 27 | |||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other assets | (153 | ) | (61 | ) | ||||
Accounts payable | (429 | ) | 192 | |||||
Accrued compensation expenses | (243 | ) | — | |||||
Accrued expenses | (238 | ) | 167 | |||||
Net cash used in operating activities | (6,966 | ) | (3,176 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (37 | ) | (30 | ) | ||||
Net cash used in investing activities | (37 | ) | (30 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from SAFE note | — | 8,000 | ||||||
Net proceeds from sale of common stock and exercise of warrants | — | 1 | ||||||
Net cash provided by financing activities | — | 8,001 | ||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | ||||||
Cash, cash equivalents and restricted cash: | ||||||||
Net increase (decrease) | (7,003 | ) | 4,795 | |||||
Balance at beginning of period | 46,442 | 2,178 | ||||||
Balance at end of period | $ | 39,439 | $ | 6,973 | ||||
Non-cash investing and financing activities: | ||||||||
Establishment of operating right-of-use assets through operating lease obligations | $ | 668 | $ | — |
SeeThe accompanying notes are an integral part of these condensed consolidated financial statements..
VIVANI MEDICAL, INC.
SECOND SIGHT MEDICAL PRODUCTS, INC.
AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. | Organization and Business Operations |
Second SightVivani Medical, Products, Inc. (“Second Sight,Vivani,” the “Company,” “we,” “us,” “our” or similar terms) has developed, manufacturedis a preclinical stage biopharmaceutical company which develops miniaturized, subdermal implants utilizing its proprietary NanoPortal™ technology to enable long-term, near constant-rate delivery of a broad range of medicines to treat chronic diseases. Vivani uses this platform technology to develop and marketed implantable visual prosthetics thatpotentially commercialize drug implant candidates, alone or in collaboration with pharmaceutical company partners to address a leading cause of poor clinical outcomes in the treatment of chronic disease, medication non-adherence. For example, approximately 50% of patients treated for type 2 diabetes are intendednon-adherent to deliver useful artificial visiontheir medicines which can lead to blind individuals.poor clinical outcomes. We are developing a recognized global leader in neuromodulation devicesportfolio of miniature, sub-dermal drug implant candidates that, unlike most oral and injectable medicines, are designed with the goal of guaranteeing adherence by delivering therapeutic drug levels for blindness,up to 6 months or the life of the implant. In addition, by leveraging our proprietary NanoPortal implant technology we can design implants that deliver minimally fluctuating drug levels that may improve the tolerability profiles for certain medicines for which side effects are associated with fluctuating drug levels such as GLP-1 receptor agonists (GLP-1s).
In February 2022, we announced the signing of a definitive merger agreement between Nano Precision Medical, Inc. (“NPM”) and areSecond Sight Medical Products, Inc. (“Second Sight”), pursuant to which NPM became a wholly-owned subsidiary of Second Sight. On August 30, 2022, the merger closed and the combined company of Nano Precision Medical (“NPM” and Second Sight Medical Products (“SSMP)” was renamed Vivani Medical, Inc,
While the primary focus of Vivani is to develop and ultimately commercialize the drug implant business from legacy company NPM, Vivani’s new management team remains committed to developing new technologiesidentifying and exploring strategic options for the further advancement of the neuromodulation business of former legacy company Second Sight which includes development of its pioneering neurostimulation systems to treathelp patients recover critical body functions. On December 28, 2022, the broadest populationneuromodulation assets and certain of sight-impaired individuals.its liabilities were contributed to Cortigent, Inc. a newly formed wholly owned subsidiary of Vivani, in exchange for 20 million shares of common stock of Cortigent. In March 2023, Vivani announced the filing of a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) for the proposed initial public offering of Cortigent. Cortigent is expected to continue to be majority-owned by Vivani immediately following the initial public offering.
Subject to completion of Cortigent’s initial public offering, Vivani intends to focus exclusively on further development of the drug implant business. Vivani plans to file an Investigational New Drug (IND) application with the US Food and Drug Administration to support a first in human (FIH) study with lead asset NPM-119 (GLP-1 implant). Following an acceptable IND submission, Vivani plans to initiate the FIH study, named LIBERATE-1, which is a Randomized, Phase 2, 12-week investigation of NPM-119 in patients with type 2 diabetes. The IND filing and the initiation of LIBERATE-1 remain on track to occur mid-2023.
Agreement and Plan of Merger with Nano Precision Medical, Inc.
As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on February 8, 2022, onOn February 4, 2022, Second Sight Medical Products, Inc. (“Second Sight”) entered into thean agreement and plan of merger (the “Merger Agreement”) with Nano Precision Medical, Inc., a California corporation (“NPM”),. The Merger was approved by the shareholders of Second Sight on July 27, 2022, and upon and subject toclosed on August 30, 2022. Upon consummation of the execution of a joinder,Merger, NPM Acquisition Corp., a California corporation andbecame a wholly-owned subsidiary of the Company (“Merger Sub”). PursuantSecond Sight. Concurrent with to the Merger, Agreement and subject to the terms and conditions set forth therein, NPM will merge with and into Merger Sub (the “Merger”), and upon consummation of the Merger, Merger Sub will cease to exist and NPM will become a wholly-owned subsidiary of the Company. Upon completion of the Merger and subject to shareholder approval, the Company will changeSecond Sight changed its name as the Companyto Vivani Medical, Inc. and NPM may agree in the future and changechanged its trading symbol asfrom EYES to VANI, and trades under the ticker VANI on the NASDAQ market. Certain investors and members of the NPM requests in writing following consultation with Nasdaq. Subject toboard of directors are also investors and members of the board of directors of Second Sight.
Under the terms and conditions of the Merger Agreement, if the Merger is completed, the securities of NPM will be converted into the right to receive an aggregate of approximately shares of the Company’sSecond Sight’s common stock (the “Merger Shares”) representing approximately 77.32% of the total issued and outstanding shares of common stock of the CompanySecond Sight on a fully converted basis, including, without limitation, giving effect to the conversion of all options, warrants, and any and all other convertible securities. The Merger will involve change of control and may be consummated only following the approval of the Company’s shareholders. The Companysecurities assuming net settlement. Second Sight filed a Registration Statement on Form S-4 on May 13, 2022, as amended, in connection with the Merger to register the Merger Shares, which registration statement is currently effective. The Company’s shareholders approved the Merger on July 27,merger shares effective June 24, 2022.
SAFE Agreement
On February 4, 2022, in connection with the Merger, Second Sight and NPM also entered into a Simple Agreement for Future Equity (“SAFE”) whereby Second Sight would provideprovided to NPM pending closing of the Merger, an investment advance of $8 million which, effective upon$8 million. The Merger Agreement provided that the termination dateSAFE would terminate if the Merger were to be successfully completed. Under the terms of the Merger Agreement withoutSAFE, upon successfully completion of the Merger will resulton August 30, 2022, the investment advance was eliminated. Under the accounting for a business combination, the $8 million adjusted the purchase consideration.
The Merger involved a change of control and was accounted for as a reverse merger in NPM’s issuingaccordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method of accounting, Second Sight was treated as the “acquired” company for financial reporting purposes with NPM as the acquirer. The assets acquired and liabilities assumed by NPM were recorded at fair value under Accounting Codification Standard (“ASC 805”), Business Combinations. Accordingly, on August 30, 2022 (the “Acquisition Date”), NPM (a calendar year-end entity) was deemed to have acquired 100% of the outstanding common shares and voting interest of Second Sight, Medical, Inc. The results of Second Sight’s operations have been included in the consolidated financial statements since that date.
The acquisition-date fair value of consideration transferred totaled $54.4 million, which consisted of the fair value of the common shares deemed issued to Second Sight that number of shares of NPM common stock which following that issuance will equal not less than 2.133%shareholders, was determined based on the per share closing price of the issuedCompany’s common shares on the acquisition date of $ .
The following table summarizes the fair values of the assets acquired and outstanding sharesliabilities assumed at the acquisition date (in thousands):
At August 30, 2022 | ||||
Cash | $ | 55,374 | ||
Property and equipment | 99 | |||
Prepaid expenses | 1,657 | |||
Right of use assets | 140 | |||
Other assets | 56 | |||
Total identifiable assets acquired | 57,326 | |||
Current liabilities | (3,913 | ) | ||
Right of use liabilities | (151 | ) | ||
Total liabilities assumed | 4,064 | |||
Net identifiable assets acquired | $ | 53,262 |
The SAFE loan of $8.0 million was cancelled in the Merger which adjusted the fair value of net assets acquired.
The following table summarizes the calculation of the gain on bargain purchase (in thousands):
Total consideration | $ | 54,385 | ||
SAFE loan forgiven | (8,000 | ) | ||
Less net identifiable assets acquired | (53,262 | ) | ||
Gain on bargain purchase | $ | 6,877 |
Because NPM common stock assuming exercise or conversionpurchased 100% of all outstanding vested and unvested options, warrants, and convertible securities. In the event NPM completes an equity financing at a lower valuation, Second Sight may be eligible to receive additional sharesand the fair value of NPM common stock as set forth inidentifiable assets acquired and liabilities assumed exceeded the SAFE. If the Merger is completed, the SAFE will terminate. The SAFE is classified as a marked-to-market asset pursuant to ASC 480, Distinguishing Liabilities from Equity, due to the potential variability at the time of share settlement. The carryingfair value of the SAFE asconsideration, we reassessed the recognition and measurement of June 30, 2022 was determined to approximate fair value due to proximity to the issuance dateidentifiable assets acquired and the significant probability of a successful merger.
Productliabilities assumed and Clinical Development Plans
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 glaucoma, diabetic retinopathy, optic nerve injury or diseaseconcluded that all acquired assets 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 anatomyassumed liabilities were properly recognized 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. We are conducting an Early Feasibility Study of the Orion device at the Ronald Reagan UCLA Medical Center in Los Angeles (“UCLA”) and Baylor College of Medicine in Houston (“Baylor”). Regularly scheduled visits at both sites were paused in mid-March 2020 due to the coronavirus outbreak, however visits at UCLA resumed mid-September 2020 and Baylor resumed in December 2020. Our 36-month results, all of which were measured after the study resumed, indicate to us that:
No peer-reviewed data is available yet for the Orion system. We are currently negotiating the clinical and regulatory pathway to commercialization with the FDA as part of the Breakthrough Devices Program.
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.
On February 26, 2021, the U.S. Food and Drug Administration (FDA) approved the Argus 2s Retinal Prosthesis System, a redesigned set of external hardware (glasses and video processing unit) initially for use in combination with previously implanted Argus II systems for the treatment of retinitis pigmentosa (RP). The Company expects that the Argus 2s will be adapted to be the external system for the next generation Orion Visual Cortical Prosthesis System currently under development. In addition to ergonomic improvements, the Argus 2s system offers significantly more processing power, potentially allowing for improved video processing.
Our principal offices are located in Los Angeles, California.
In 2007, Second Sight formed Second Sight Medical Products (Switzerland) Sàrl, initially to manage clinical trialsvaluation procedures and sales and marketing in Europe, the Middle East and Asia-Pacific, and more recently for the researchresulting measures were appropriate. As a result, we recognized a gain 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 June 30, 2022. Accordingly, Second Sight Medical Products (Switzerland) Sàrl is considered 100% owned for financial statement purposes and is consolidated with Second Sight for all periods presented. We have closed our foreign operations and expect final dissolution of this entity in 2023.
Market Development Plans
Orion. By further developing our visual cortical prosthesis, Orion, we believe we 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. 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, 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. An Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor College of Medicine. 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 and Baylor resumed in December 2020. Our 36-month results 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. No peer-reviewed data is available yet for the Orion system.
COVID-19 Pandemic$6.9 million.
We are requiring our employees to adhere to the local and state guidelines regarding the COVID-19 pandemic, and use their best judgement to work remotely or workrecognized $0.7 million of acquisition related costs that were expensed in the office. While many of our employeestwelve months ended December 31, 2022. These costs are accustomed to working remotely, much of our workforce has not historically been remote. Although we continue to monitorincluded in the situationconsolidated income statement in the line item entitled “General and may adjust our current policies as more information and public health guidance becomes available, 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.administrative costs.”
In addition, our clinical trials havePro forma consolidated net loss as if Second Sight had been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials were paused, 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. Also, some of our suppliers of certain materials usedincluded in the development of our product candidates are located in areas impacted by COVID-19 which could limit our ability to obtain sufficient materialsconsolidated results was $6.1 million for our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets, and may result 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 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 pandemic or a similar health epidemic is highly uncertain and subject to change.three months ended March 31, 2022.
Liquidity
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 salewarrants. The completion of our Argus II product. We have funded our business since 2020 primarily through the following transactions:
We were awarded areverse merger with Second Sight Medical Products, Inc. provided $1.653.3 million grant (with the intent to fundin net assets including approximately $6.455.4 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 grant of $ was approved on April 6, 2021 and our third year grant of $1.4 million was approved on May 12, 2021 and the fourth year grant of $1.1 million was approved on July 18, 2022. cash.
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 no revenue that is developing a novel medical device,devices, including limitations on our operating capital 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.
On March 31, 2020, due We estimate that currently available cash will provide sufficient funds to enable the COVID-19 pandemic and related inabilityCompany to secure additional funding, we laid offmeet its planned obligations into the majoritysecond half of our employees and reduced our operating expenses significantly to allow for our continuing business operations. We continue to advance the development of our Orion technology and are exploring various strategic options for this technology. 2024.
2. Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation
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, 2021, contained in2022, included within our Annual Report on Form 10-K filed with the SEC on March 29, 2022.31, 2023. 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.
Income taxes - interim periods
In calculating the provision for interim income taxes, in accordance with ASC 740, Income Taxes, an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period.
Use of estimates
The preparation of financial statements requires management to make a number of estimates and assumptions related to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the period. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Some of the more significant estimates include the purchase price of net assets acquired in the Merger, useful lives of long-lived assets, the fair value of equity-based compensation and evaluation of going concern. Actual results could differ materially from those estimates.
Basic net income/loss per share is computed using net income/loss from operations divided by the weighted-average number of shares of common stock outstanding during the period.
Diluted net income/loss per share represents net income/loss from operations divided by the weighted- average number of common shares outstanding during the period, including all potentially dilutive common stock equivalents. Common stock equivalents consist of shares subject to warrants and share-based awards with exercise prices less than the average market price of common stock for the period, to the extent their inclusion would be dilutive.
Schedule of net loss per share
March 31, 2023 | March 31, 2022 | |||||||
Shares underlying warrants outstanding | 10,311 | 9,074 | ||||||
Shares underlying stock options outstanding | 6,055 | 4,583 |
The shares underlying the SAFE obligation were issuable only if the Merger were to be terminated. These contingently issuable shares were excluded from the dilutive computation because conversion was not “probable” as defined in the accounting literature. However, if the evaluation met the probability threshold, the shares would be excluded from diluted EPS since their inclusion would have an anti-dilutive effect.
Significant Accounting Policies
Our significant accounting policies are set forth in Note 2 of theour financial statements infor the year ended December 31, 2022, included within our Annual Report on Form 10-K forfiled with the year ended DecemberSEC on March 31, 2021.2023.
Recently Issued Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting standards, if adopted, will have a material effect on the financial statements.
3. Concentration of Risk
Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of cash and money market funds. We maintain cash and money market funds with financial institutions that we deem reputable.
Foreign Operations
The accompanying condensed consolidated financial statements as of June 30, 2022 and DecemberMarch 31, 20212023, include gross assets amounting to $0.1 million and $0.1 million, respectively, relating to operations of our subsidiary based in Switzerland.
4. Fair Value Measurements
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 basednon-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 | |||||||||||||
June 30, 2022 (unaudited): | ||||||||||||||||
Money market funds | $ | 56,338 | $ | 56,338 | $ | — | $ | — | ||||||||
December 31, 2021: | ||||||||||||||||
Money market funds | $ | 69,487 | $ | 69,487 | $ | — | $ | — |
Schedule of Money Market Funds at their Level within the Fair Value Hierarchy
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
March 31, 2023 (unaudited): | ||||||||||||||||
Money market funds | $ | 36,527 | $ | 36,527 | $ | — | $ | — | ||||||||
December 31, 2022: | ||||||||||||||||
Money market funds | $ | 44,417 | $ | 44,417 | $ | — | $ | — |
5. Selected Balance Sheet Detail
Property and equipment
Property and equipment consisted of the following (in thousands)::
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Laboratory equipment | $ | 584 | $ | 584 | ||||
Computer hardware and software | 100 | 82 | ||||||
684 | 666 | |||||||
Accumulated depreciation and amortization | (581 | ) | (549 | ) | ||||
Property and equipment, net | $ | 103 | $ | 117 |
Contract Liabilities
Contract liabilities which are included in accrued expenses consisted of the following (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
Equipment | $ | 3,557 | $ | 3,520 | ||||
Furniture and fixtures | 10 | 10 | ||||||
Software | 51 | 51 | ||||||
Leasehold improvements | 12 | 12 | ||||||
3,630 | 3,593 | |||||||
Accumulated depreciation and amortization | (2,519 | ) | (2,411 | ) | ||||
Property and equipment, net | $ | 1,111 | $ | 1,182 |
Beginning balance as of December 31, 2021 | $ | 335 | ||
Consideration received in advance of revenue recognition | — | |||
Revenue recognized | — | |||
Ending balance as of June 30, 2022 | $ | 335 |
Product Warranties
A summary of activity of our warranty liabilities, which are included in accrued expenses, for the six month period ended June 30, 2022 is presented below:
Beginning balance as of December 31, 2021 | $ | 50 | ||
Additions | — | |||
Settlements | — | |||
Adjustments and other | — | |||
Ending balance as of June 30, 2022 | $ | 50 |
Right-of-use assets and operating lease liabilities
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. 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.
On January 22, 2021,February 1, 2023, we entered into a lease agreement, effective FebruaryMarch 1, 20212023, to sub-leasesublease office space to replace ourCortigent’s existing headquarters. We will payOur rental payments amount to $17,00022,158 per month increasing to $17,500 per month on February 1, 2022, plus operating expenses, to lease 17,29014,823 square feet of office space at 13170 Telfair Avenue, Sylmar CA 91342. Additionally, we received full rent abatement for March 2021, and half rent abatement for March 2022. 27200 Tourney Road, Valencia, California 91355.The sub-lease is forhas a term of two years and two months. Neither we nor any affiliates are related to, or otherwise have any other relationship with,We also entered into a lease for storage space on January 25, 2023, in the other parties, other than the lease.same building at a cost of $6,775 per month for a term of two years and one month.
Schedule of right of use assets and operating lease liabilties
Assets | Classification | June 30, 2022 | December 31, 2021 | |||||||
Non-current assets | Right-of-use assets | $ | 140 | $ | 228 | |||||
Liabilities | ||||||||||
Current | Current operating lease liabilities | $ | 151 | $ | 185 | |||||
Long term | Long term operating lease liabilities | $ | — | $ | 52 |
Assets | Classification | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | |||||||
Non-current assets | Right-of-use assets | $ | 1,148 | $ | 779 | |||||
Liabilities | ||||||||||
Current | Current operating lease liabilities | $ | 913 | $ | 955 | |||||
Long term | Long term operating lease liabilities | $ | 349 | $ | — |
Schedule of lease liabilities
For the three | For the three | For the six | For the six | |||||||||||||
months ended | months ended | months ended | months ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cash paid for operating lease liabilities | $ | 49 | $ | 51 | 92 | 68 | ||||||||||
For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | |||||||
Cash paid for operating lease liabilities in thousands: | $ | 377 | $ | 221 |
Rent expense, including common area maintenance charges, was $49,0000.3 million and $27,0000.2 and $98,000 and $49,000million during the three and six-monththree-month periods ended June 30,March 31, 2023 and 2022, and 2021, respectively.
6.Equity Securities
Potentially Dilutive Common Stock Equivalents
June 30, | ||||||||
2022 | 2021 | |||||||
Common stock warrants issued to underwriter | 10 | 10 | ||||||
Common stock warrants issued in rights offerings | 7,681 | 7,681 | ||||||
Common stock options | 180 | 182 | ||||||
7,871 | 7,873 |
shares were deemed issued for the merger acquisition.
7. Warrants
On February 22, 2019, we completed a registered rights offeringNPM, prior to existing stockholders in which we sold approximately units at $ per unit, which was the adjusted closing price of our common stock on that date. Each Unit consisted of a share of ourMerger, issued common stock and a warrantwarrants (collectively, the “unit” or “units”) in 2019, 2020 and 2021 for $ per unit. Outstanding warrants of to purchase an additionalcommon stock are shown in the table below and generally expire 5 years from the date of issuance at $ per share, are transferable into one share of ourcommon stock for $.and may be exercised on a cashless basis. The warrants have a five-year lifequalified for an exception to derivative accounting and, trade on Nasdaq underaccordingly, their value was not bifurcated from the symbol EYESW.total purchase price.
On March 6, 2017, we completed a registered rights offering to existing stockholdersSecond Sight warrants of were outstanding and are convertible into shares in which we sold approximately units at $11.76 per unit, which was the adjusted closing price of our common stock on that date. Each unit consisted of a share of our comm on stocktable below and a warrant to purchase an additional share of our stock for $. The warrants had a five-year life but were extended to expire in February, 2024 to coincide with the February 22, 2019 warrants.
As a componentconverted as part of the funding underwriting fee of our May 5, 2020 public underwriting offer, we granted Merger for Vivani warrants at anon a like for-like basis. The weighted average exercise price of these warrants is $ which expire on May 5, 202535.24. At June 30, 2022,Of this total warrants are convertible into shares and are tradeable on the open market. Under accounting standards in a business combination, these warrants were measured at fair value as of the Merger date; however, the warrants are still outstanding.were substantially out-of-the-money and were assigned no value.
A summary of warrantswarrant activity for the sixthree months ended June 30, 2022March 31, 2023 is presented below (in thousands, except per share and contractual life data)data).
Number of Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
Warrants outstanding as of December 31, 2021 | 7,691 | $ | 11.75 | 2.21 | ||||||||
Issued | — | 0 | — | |||||||||
Exercised | — | |||||||||||
Forfeited or expired | — | |||||||||||
Warrants outstanding as of June 30, 2022 | 7,691 | $ | 11.75 | 1.71 | ||||||||
Warrants exercisable as of June 30, 2022 | 7,691 | $ | 11.75 | 1.71 |
Summary of Warrant Activity
Number of Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
Warrants outstanding as of December 31, 2022 | 10,311 | $ | 11.13 | 2.31 | ||||||||
Issued | — | |||||||||||
Exercised | — | |||||||||||
Forfeited or expired | — | |||||||||||
Warrants outstanding as of March 31, 2023 | 10,311 | $ | 11.13 | 2.06 | ||||||||
Warrants exercisable as of March 31, 2023 | 10,311 | $ | 11.13 | 2.06 |
The warrants outstanding as of June 30, 2022March 31, 2023, had $ in intrinsic value.
8. Stock-Based Compensation
Number of Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
Options outstanding as of December 31, 2021 | 182 | $ | 15.68 | 6.59 | ||||||||
Granted | — | $ | — | |||||||||
Exercised | 0 | $ | 0 | |||||||||
Forfeited or expired | (2 | ) | $ | 40.00 | ||||||||
Options outstanding, vested and expected to vest as of June 30, 2022 | 180 | $ | 15.47 | 6.15 | ||||||||
Options exercisable as of June 30, 2022 | 155 | $ | 17.39 | 5.91 |
Summary of Stock Option Activity
Number of Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
Options outstanding as of December 31, 2022 | 5,272 | $ | 3.07 | 7.15 | ||||||||
Granted | 993 | $ | 1.22 | |||||||||
Exercised | (91 | ) | $ | 0.43 | ||||||||
Forfeited or expired | (119 | ) | $ | 2.93 | ||||||||
Options outstanding, vested and expected to vest as of March 31, 2023 | 6,055 | $ | 2.81 | 7.26 | ||||||||
Options exercisable as of March 31, 2023 | 3,784 | $ | 3.30 | 6.16 |
The estimated aggregate intrinsic value of stock options exercisable as of June 30, 2022March 31, 2023, was $ . As of June 30, 2022,March 31, 2023, there was $ million of total unrecognized compensation cost related to outstanding stock options that will be recognized over a weighted average period of years.
We adopted an employeeDuring the quarter ended March 31, 2023, we granted stock options to purchase plan shares of common stock to certain employees and board members. The options are exercisable for a period of from the date of grant at a weighted average price of $ per share, which was calculated at the fair value of our common stock on the respective grant date. The options generally vest over a period of . The fair value of these options, calculated using the Black-Scholes option-pricing model, was determined to be $ using the following assumptions: expected term of to years, volatility of %, risk-free interest rate of % to %, and expected dividend rate of .0%.We also granted RSU’s (as defined below) during the quarter.
Summary of Restricted Stock Unit
Number of Shares | Weighted Average Grant Date Fair Value Per Share | |||||||
Outstanding as of December 31, 2022 | — | $ | — | |||||
Awarded | 403 | 0.93 | ||||||
Vested and released | — | — | ||||||
Forfeited/canceled | — | — | ||||||
Outstanding as of March 31, 2023 | 403 | $ | 0.93 |
As of March 31, 2023, there was $
million of total unrecognized compensation cost related to the outstanding RSUs that will be recognized over a weighted average period of years.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Research and development | $ | 5 | $ | 5 | $ | 10 | $ | 10 | ||||||||
Clinical and regulatory | 3 | 9 | 6 | 18 | ||||||||||||
General and administrative | 5 | 5 | 10 | 10 | ||||||||||||
Total | $ | 13 | $ | 19 | $ | 26 | $ |
Stock-based Compensation Expense
Three Months Ended March 31, | ||||||||
2023 | 2022 | |||||||
Research and development | $ | 248 | $ | 190 | ||||
General and administrative | 121 | 150 | ||||||
Total | $ | 369 | $ | 340 |
9. Risk and Uncertainties
COVID-19 has directly and indirectly adversely affected Second Sight and will likely continue to do so for an uncertain period of time.
15
9. | Risk and Uncertainties |
We are asking our employees to adhere to local and state guidelines regarding the COVID-19 pandemic and use their best judgement to work remotely or work in the office. 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 situationongoing COVID-19 global pandemic which has resulted in travel and may adjust our current policies as more informationother restrictions to reduce the spread of the disease. We presently are not experiencing any significant disruptions from the ongoing COVID-19 pandemic. All clinical and publicchemistry, manufacturing and control activities are currently active.
The safety, health guidance becomes available, restrictingand well-being of all patients, medical staff and internal and external teams is the abilityparamount and primary focus. As the pandemic and its resulting restrictions evolve in jurisdictions across the country, the potential exists for further disruptions to doprojected timelines. We are in close communication with clinical teams and key vendors and are prepared to take action should the pandemic worsen and impact the business in person may create operational or other challenges, any of which could harm our business, financial condition and results of operations.the future.
In addition, our clinical trials have been affected by the COVID-19 outbreak. Patient visits in ongoing clinical trials were paused, 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. 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 our product candidates. COVID-19 has and will continue to adversely affect global economies and financial markets and may result 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 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 pandemic or a similar health epidemic is highly uncertain and subject to change.
10. Commitments and Contingencies
Clinical Trial Agreements
Based upon FDA approval of Argus II, which was obtained in February 2013, we were required to collect follow-up data from subjects enrolled in our pre-approval trial for a period of up to ten years post-implant, which was extended through the year 2019. This requirement to collect follow-up data was halted in 2020 with FDA approval. In addition, we conducted three post-market studies to comply with U.S. FDA, French, and European post-market surveillance regulations and requirements and are conducting an early feasibility clinical study of Orion. We have contracted with various universities, hospitals, and medical practices to provide these services. Payments are based on procedures performed for each subject and are charged to clinical and regulatory expense as incurred. Total amounts charged to expense for the three months ended March 31, 2023 were $26,000.
Lease Agreement
Vivani entered into a triple net lease agreement for a single building with 43,645 square feet of space in Alameda, California on November 21, 2022. The stated term of the lease commences on June 1, 2023 and terminates on September 30, 2033, ten years and 4 months. Payments increase annually from $2,676,311 to $3,596,784, or 124 payments less the first four which are abated, totaling approximately $31 million. Vivani will be responsible for insurance, property taxes and CAM charges. Vivani was required to deposit $1.4 million to guarantee a letter of credit to secure the lease and this amount is included in long-term assets on the balance sheet at March 31, 2023. The current lease expires on September 30, 2023.
Litigation, Claims and Assessments
Three oppositions filed by Pixium Vision SA (“Pixium”) are pending in the European Patent Office, each challenging the validity of a European patent owned by us. The outcomes of the challenges are not certain, however, if successful, they may affect our ability to block competitors from utilizing our patented 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.
As described in the Company’s 10-K for the year ended December 31, 2020, the Company had entered into a Memorandum of Understanding (“MOU”) for a proposed business combination with Pixium. In response to a press release by Pixium dated March 24, 2021, and subsequent communications between us and Pixium, our Board of Directors determined that the business combination with Pixium was not in the best interest of our shareholders. On April 1, 2021, we gave notice to Pixium that we were terminating the MOU between the parties and seeking an amicable resolution of termination amounts that may be due, however no assurance can be given that an amicable resolution will be reached. We accrued $1,000,000 of liquidated damages as contemplated by the MOU in accounts payable as of March 31, 2021, and remitted that amount to Pixium in April 2021. Pixium indicated that it considered this termination wrongful, rejected the Company’s offers, but retained the $1,000,000 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, and currently claimsclaim damages of approximately €5.1 million or about $5.25.6 million at current exchange rates.million. We believe we have fulfilled our obligations to Pixium with the liquidated damages payment of $1,000,000 and thus$1,000,000.On December 9, 2022, the Company doesreceived notice that the Paris Commercial Court has rendered its judgement, including finding that the Company’s termination of the MOU was not believe any further loss accrual is necessary.
valid. In November 2020, we andthe judgement, the Company was ordered to pay to Pixium retained Oppenheimer & Co. Inc. as placement agentthe amount of €2,500,000 minus a €947,780 credit for the $1,000,000 already paid for, a proposed private placementnet amount payable of securities in connection withapproximately €1,552,220. The Company may appeal the Business Combination. On April 1, 2021, we received an invoicedecision within three months from Oppenheimerthe date of service which was February 28, 2023. The Company recorded a charge of $1,675,000 for more than $1.86 millionthe year ended December 31, 2022, related to this matter but plans to raise any and all legal challenges to this preliminary judgement. This amount includes a requested commission of 6.5% on $27.9 million raised in the private placement. We believe that claims for payment presented by this invoice are without merit.
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.
10. Subsequent Events
The 2022 Annual Meeting of Shareholders of Second Sight Medical Products Inc. was held on July 27, 2022. Holders of 27,621,649 shares of Second Sight’s common stock were represented at the meeting in person or by proxy, constituting a quorum. A proposal to approve the transactions contemplated by the Agreement and Plan of Merger, dated February 4, 2022, by and between the Company and Nano Precision Medical, Inc., a California corporation (“NPM”), pursuant to which NPM will merge with and into NPM Acquisition Corp., a California corporation and a wholly-owned subsidiary of the Company, with NPM surviving as a wholly-owned subsidiary of the Company was approved.
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 2021 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 29, 2022.10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect toourproducts,plansand 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, our financing plans and future capital requirements, and statements regarding the anticipated or projected impact of our merger with NPM (as defined below), if and when occurs, on our business, results of operations, financial condition or prospects, 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. 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.
Overview
Second SightVivani Medical, Products, Inc. (“Second Sight,Vivani,” the “Company,” “we,” “us,” “our” or similar terms) has developed, manufacturedis a preclinical stage biopharmaceutical company which develops miniaturized, subdermal implants utilizing its proprietary NanoPortal™ technology to enable long-term, near constant-rate delivery of a broad range of medicines to treat chronic diseases. Vivani uses this platform technology to develop and marketed implantable visual prosthetics thatpotentially commercialize drug implant candidates, alone or in collaboration with pharmaceutical company partners to address a leading cause of poor clinical outcomes in the treatment of chronic disease, medication non-adherence. For example, approximately 50% of patients treated for type 2 diabetes are intendednon-adherent to deliver useful artificial visiontheir medicines which can lead to blind individuals.poor clinical outcomes. We are developing a recognized global leader in neuromodulation devicesportfolio of miniature, sub-dermal drug implant candidates that, unlike most oral and injectable medicines, are designed with the goal of guaranteeing adherence by delivering therapeutic drug levels for blindness and are committedup to developing new technologies to treat6 months or the broadest population 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 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 surfacelife of the brain’s visual cortex, where it is intended to provideimplant. In addition, by leveraging our proprietary NanoPortal implant technology we can design implants that deliver minimally fluctuating drug levels that may improve the perception of patterns of light. Wetolerability profiles for certain medicines for which side effects are conducting an Early Feasibility Study of the Orion device at the Ronald Reagan UCLA Medical Center in Los Angeles (“UCLA”) and Baylor College of Medicine in Houston (“Baylor”). Regularly scheduled visits at both sites were paused in mid-March 2020 due to the coronavirus outbreak, however visits at UCLA resumed mid-September 2020 and Baylor resumed in December 2020. Our 36-month results, all of which were measured after the study resumed, indicate to us that:
No peer-reviewed data is available yet for the Orion system. We are currently negotiating the clinical and regulatory pathway to commercializationassociated with the FDAfluctuating drug levels such as part of the Breakthrough Devices Program.GLP-1 receptor agonists (GLP-1s).
In November 2017,February 2022, we announced the FDA granted Breakthrough Devices Program designationsigning of a definitive merger agreement between Nano Precision Medical, Inc. (“NPM”) and Second Sight Medical Products, Inc. (“Second Sight”), pursuant to which NPM became a wholly-owned subsidiary of Second Sight. On August 30, 2022, the merger closed and the combined company of Nano Precision Medical (“NPM” and Second Sight Medical Products (“SSMP)” was renamed Vivani Medical, Inc,
While the primary focus of Vivani is to develop and ultimately commercialize the drug implant business from legacy company NPM, Vivani’s new management team remains committed to identifying and exploring strategic options for the Orion. This designation is given to a few select medical devices in order to provide more effective treatmentfurther advancement of life-threatening or irreversibly debilitating diseases or conditions. This program is intendedthe neuromodulation business of former legacy company Second Sight which includes development of its pioneering neurostimulation systems to help patients have more timely accessrecover critical body functions. On December 28, 2022, the neuromodulation assets and certain of its liabilities were contributed to these medical devicesCortigent, Inc. a newly formed wholly owned subsidiary of Vivani, in exchange for 20 million shares of common stock of Cortigent. In March 2023, Vivani announced the filing of a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) for the proposed initial public offering of Cortigent. Cortigent is expected to continue to be majority-owned by expediting their development, assessment, and review.Vivani immediately following the initial public offering.
On February 26, 2021,Subject to completion of Cortigent’s initial public offering, Vivani intends to focus exclusively on further development of the U.S.drug implant business. Vivani plans to file an Investigational New Drug (IND) application with the US Food and Drug Administration (FDA) approvedto support a first in human (FIH) study with lead asset NPM-119 (GLP-1 implant). Following an acceptable IND submission, Vivani plans to initiate the Argus 2s Retinal Prosthesis System, a redesigned set of external hardware (glasses and video processing unit) initially for use in combination with previously implanted Argus II systems for the treatment of retinitis pigmentosa (RP). The Company expects that the Argus 2s will be adapted to be the external system for the next generation Orion Visual Cortical Prosthesis System currently under development. In addition to ergonomic improvements, the Argus 2s system offers significantly more processing power, potentially allowing for improved video processing.
Market Development Plans
Orion. By further developing our visual cortical prosthesis, Orion, we believe we 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,FIH study, named LIBERATE-1, which is rare. However,a randomized, Phase 2, 12-week investigation 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. 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, third party market research, and physician feedback. We currently estimate over 500,000 individualsNPM-119 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 individualspatients 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 trialstype 2 diabetes. The IND filing and the associated results.
Our objective in designing and developing the Orion visual prosthesis system isinitiation of LIBERATE-1 remain on track to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. An Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor College of Medicine. 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 and Baylor resumed in December 2020. Our 36 month results 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 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. No peer-reviewed data is available yet for the Orion system.
occur mid-2023.
Liquidity
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 salewarrants. The completion of our Argus II product. We have funded our business since 2020 primarily through the following transactions:reverse merger with Second Sight Medical Products, Inc. provided $53.3 million in net assets including approximately $55.4 million in cash.
We wereSecond Sight was awarded a $1.6$6.4 million NIH five-year grant (with the intent to fund $6.4 million over five years subject to annual review and approval)reviews) 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. The fifth and final year grant of $1.4$1.0 million was approved on April 6, 2021, our third year grant of $1.4 million was approved on May 12, 2021 and our fourth year grant of $1.1 million was approved on July 18, 2022.in March 2023.
We are subject to the risks and uncertainties associated with a business with no revenue that is developing a novel pharmaceutical product candidates and medical device.devices candidates. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future. We expect our operating expenses to increase significantly as we continue our business operations, particularly as we prepare to and initiate our planned clinical trial of NPM-119 and conduct our other research and development activities. Our financial statements have been presented on the basis that our business is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. To finance our operations, we will need to raise additional capital, which cannot be assured. Our operating plan may change as a result of many factors currently unknown to us, and we will need to seek additional funds 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 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. We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations into the second half of 2024.
Merger Agreement
As discussed in the Notes to Condensed Consolidated Financial Statements of the Company, on February 4, 2022, the Company entered the Merger Agreement. On May 13, 2022, the Company filed a Registration Statement on Form S-4 (the “Registration Statement”) with the SEC in connection with the contemplated Merger, which is currently effective. Shareholders of the Company approved the Merger on July 27, 2022, and the merger is anticipated to bewas completed in August 2022. We encourage you to review the final proxy statement/prospectus filed with the SEC on June 24, 2022 for more information about the contemplated Merger.
Safe Agreement
On February 4, 2022, and in connection with the Merger, discussed in Note 1,Second Sight and NPM and SSMPalso entered into an agreementa Simple Agreement for Future Equity (“SAFE”) whereby SSMP would provideSecond Sight provided to NPM pending closing of the Merger an investment advance of $8 million, which effective upon the termination date ofmillion. If the Merger Agreementwere to be terminated without completion, of the Merger, will result in NPM’s issuingNPM would issue to SSMPSecond Sight that number of shares of NPM Capital Stock which following that issuance willcommon stock equal to not less than 2.133% of the issued and outstanding shares of NPM capitalcommon stock assuming exercise or conversion of all outstanding vested and unvested options, warrants, and convertible securities.
In The agreement provided that the event NPM completes an equity financing within one year from the date of termination of the merger at a lower valuation, SSMP may be eligible to receive additional shares of NPM capital stock as set forth in the SAFE. IfSAFE would terminate if the Merger is completed,were to be successfully completed.
Under the SAFE will terminate. The SAFE is classified as a marked-to-market asset pursuant to ASC 480, Distinguishing Liabilities from Equity, due to the potential variability at the time of share settlement. The carrying valueterms of the SAFE, asupon successfully completion of Junethe Merger on August 30, 2022, the investment advance was determined to approximate fair value due to proximity toeliminated. Under the issuance date and current probability ofaccounting for a successful merger.business combination, the $8 million adjusted the purchase consideration.
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Critical Accounting Policies and Estimates
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 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, 2021.
There have been no other material changes to our critical accounting policies during the sixthree months ended June 30, 2022.March 31, 2023.
Results of Operations
Operating Expenses. We generally recognize our operating expenses as incurred in threetwo general operational categories: research and development clinical and regulatory 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 and general and administrative personnel. 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.
● | Research and development expenses consist primarily of employee compensation and consulting costs related to the design, development, and enhancements of our current and potential future products, |
● | General and administrative expenses consist primarily of salaries and related expenses for executive, legal, finance, human resources, information technology and administrative personnel, as well as recruiting and professional fees, patent filing and annuity costs, insurance costs and other general corporate expenses, including rent. |
Comparison of the Three Months Ended June 30,March 31, 2023 and 2022 and 2021
Research and development expense. Research and development expense increased by $0.1$1.3 million, or 21%48%, to $0.8$4.0 million in the secondfirst quarter of 20222023 from $0.7$2.7 million in the secondfirst quarter of 2021.2022. The costs increased due to costs of our acquired company Second Sight being included from the merger acquisition date of August 30, 2022. This inclusion increased usethese costs for the quarter by $0.6 million. The remainder of outside services and additional salaries as we restart our curtailed activity.the increase was primarily due to subdermal drug implants development costs.
Clinical and regulatory expense. Clinical and regulatory expense decreased $0.1 million, or 39%, to $0.2 million in the second quarter of 2022 from $0.3 million in the second quarter of 2021. This decrease is attributable to decreased costs associated with outside services primarily from patient studies.
General and administrative expense. General and administrative expense increased $0.8$1.4 million, or 59%115%, to $2.1$2.6 million in the secondfirst quarter of 20222023 from $1.3$1.2 million in the same period of 2021.2022. This increase is primarily attributable to increased legal costs associated with the current merger agreement.
Comparisoninclusion of the Six Months Ended June 30, 2022 and 2021
Research and development expense. Research and development expense increased by $0.5 million, or 45%, to $1.5our acquired company Second Sight which totaled $1.1 million in the first sixquarter of 2023. Approximately $0.1 million of costs were incurred related to the Cortigent IPO in the quarter.
Other income. Other income was impacted by the merger acquisition of cash which increased our interest income for the three months of 2022 from $1.0 million inended March 31, 2023 as compared to the same period of 2021. The costs increased due to increased use of outside services and increased salaries as we restart our curtailed activity.in 2022 before the merger.
Clinical and regulatory expense. Clinical and regulatory expense decreased $34,000, or 11%, to $266,000 in the first six months of 2022 from $300,000 in the same period of 2021. This decrease is attributable to decreased costs associated with outside services primarily from patient studies.
General and administrative expense. General and administrative expense decreased $0.2 million, or 6%, to $3.6 million in the first six months of 2022 from $3.8 million in the same period of 2021. This decrease is attributable to the termination fee associated with our termination of the MOU which occurred in the first six months of 2021 partially offset by increased legal costs associated with the current merger agreement.
Liquidity and Capital Resources
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 no revenue that is developing a novel pharmaceutical product candidates and medical device candidates, 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.
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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 Orion.our products. We expect expenses to increase in connection with our ongoing activities, particularly as we continueinitiate clinical trials, of Orion, initiate new research and development projects and seek marketing approval for any product candidates that we successfully develop. In particular, we expect to incur increased expenses as we initiate our planned Phase 2 clinical trial of NPM-119, for which we plan to file an IND with the FDA. 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. 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, 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.
Cash, and cash equivalents and restricted cash decreased by $13.2$7.0 million from $69.6$46.4 million as of December 31, 20212022 to $56.4$39.4 million as of June 30, 2022.March 31, 2023. Working capital was $54.8$34.9 million as of June 30, 2022, asMarch 31, 2023 compared to $68.0$40.7 million as of December 31, 2021,2022, a decrease of $13.2 million primarily as a result of the funding of the SAFE agreement and the current period operating loss.$5.8 million. We use our cash and cash equivalents and working capital to fund our operating activities.
Material Cash Requirements for Known Contractual and Other Obligations
The Merger Agreement as amended provides for the aggregate amount of cash, cash equivalents, and marketable securities of the Company being not less than $63 million less the amount of any advances made to NPM for working capital, in order to consummate the Merger. To date, the Company made an investment advance to NPM in the amount of $8 million under the SAFE, thereby having decreased the available cash requirement of the Merger Agreement to $55 million. The Company currently anticipates that it will be able to satisfy the available cash requirement of the Merger Agreement.
Cash Flows from Operating Activities
During the first sixthree months of 2022,ended March 31, 2023, we used $5.2$7.0 million of cash in operating activities, consisting primarily of a net loss of $5.3$6.3 million offset byand a net changeincrease in net operating assets and liabilities of $0.1 million. During the first six months of 2021, we used $4.9$1.1 million, of cash in operating activities, consisting primarily of a net loss of $5.1 million,partially offset by non-cash charges which provided cash of $0.1$0.4 million for depreciation and amortization of property and equipment, stock-based compensation and change in right of use assetsassets. During the three months ended March 31, 2022, we used $3.2 million of cash in operating activities, consisting primarily of a net loss of $3.9 million, offset by non-cash charges which provided cash of $0.4 million for depreciation and amortization of property and equipment, stock-based compensation, change in right of use and partially offset by a net changedecrease in net operating assets and liabilities of $0.1$0.3 million.
Cash Flows from Investing Activities
Cash used for investing activities in the first sixthree months ofended March 31, 2023 and 2022 was $8,018,000 and was zero in the first six months of 2021. The $18,000minimal for both periods. In 2023 $37,000 was used for the purchase of property and equipment and $8.0 millionequipment. In 2022, $30,000 was used for our SAFE agreement.the purchase of property and equipment.
Cash Flows from Financing Activities
Financing activities was zero in the three months ended March 31, 2023. Financing activities provided zero cash in the first six months of 2022. Financing activities provided $75.6$8.0 million of cash in the first sixthree months of 2021 $77.8 millionended March 31, 2022 from the salefunding of common stock offset by $2.2 million for repayment of debt.the SAFE agreement.
Off-Balance Sheet Arrangements
At June 30, 2022,As of March 31, 2023, we did not have any transactions, obligations or relationships that constitute off-balance sheet arrangements.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Interest Rate Sensitivity
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 June 30, 2022,March 31, 2023, our investments consisted solely of money market funds.
Exchange Rate Sensitivity
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.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, including our Acting Chief Executive Officer (“CEO”) and our Acting Chief AccountingFinancial Officer (“CAO”CFO”), evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. 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 June 30, 2022,March 31, 2023, based on the evaluation of these disclosure controls and procedures, our CEO and CAOCFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the six monthsquarter ended June 30, 2022,March 31, 2023, 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.
Inherent Limitations on Effectiveness of 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.
PART II-OTHER INFORMATION
Item 1. | Legal Proceedings |
Three oppositions filed by Pixium Vision SA (“Pixium”) are pending in the European Patent Office, each challenging the validity of a European patent owned by us.Second Sight. The outcomes of the challenges are not certain, however, if successful, they may affect our ability to block competitors from utilizing our patented technology. We 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.
As described in the Company’s 10-K for the year ended December 31, 2020, the Company had entered into a Memorandum of Understanding (“MOU”) for a proposed business combination with Pixium.Pixium Vision SA (“Pixium”). In response to a press release by Pixium dated March 24, 2021, and subsequent communications between us and Pixium, our Board of Directors determined that the business combination with Pixium was not in the best interest of our shareholders. On April 1, 2021, we gave notice to Pixium that we were terminating the MOU between the parties and seeking an amicable resolution of termination amounts that may be due, however no assurance can be given that an amicable resolution will be reached. We accrued $1,000,000 of liquidated damages as contemplated by the MOU in accounts payable as of March 31, 2021 and remitted that amount to Pixium in April 2021. Pixium indicated that it considered this termination wrongful, rejected the Company’s offers, but retained the $1,000,000 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, and currently claim damages of approximately €5.1 million or about $5.2 million at current exchange rates.$5.6 million. We believe we have fulfilled our obligations to Pixium with the liquidated damages payment of $1,000,000 and thus$1,000,000. On December 9, 2022, the Company doesreceived notice that the Paris Commercial Court has rendered its judgement, including finding that the Company’s termination of the MOU was not believe any further loss accrual is necessary.
valid. In November 2020, we andthe judgement, the Company was ordered to pay to Pixium retained Oppenheimer & Co. Inc. as placement agentthe amount of €2,500,000 minus a €947,780 credit for the $1,000,000 already paid for, a proposed private placementnet amount payable of securities in connection withapproximately €1,552,220. The Company may appeal the Business Combination. On April 1, 2021, we received an invoicedecision within three months from Oppenheimerthe date of service which was February 28, 2023. The Company recorded a charge of $1,675,000 for more than $1.86 million. This amount includes a requested commission of 6.5% on $27.9 million raised in the private placement. We believe that claims for payment presented byyear ended December 31, 2022 related to this invoice are without merit.matter but plans to raise any and all legal challenges to this preliminary judgement.
From time to 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 normal course of 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.
Item 1A. | Risk Factors |
Our business is subject to numerous material and other risks. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Form 10-Q, including our consolidated financial statements and the related notes, and in our other filings with the SEC. If any of the stated risks actually occur, our business, prospects, operating results, and financial condition could suffer materially. In such event, the trading price of our common stock could decline and you might lose all or part of your investment. The material risks associated with our business were most recently discussed in our Form 10-K that we filed on March 31, 2023. There have been no material changes from the risk factors previously disclosed in the Company’s 2021 Annual Report on Form 10-K, filed with the SEC on March 29, 2022. For risk factors concomitant to the Merger, please review the Registration Statement. such filing.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
NoneNone.
Item 3. | Defaults upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
EXHIBIT INDEX
Exhibit No. | Exhibit Description | |
3.3 | Second Amendment to Restated Articles of Incorporation of the Registrant (incorporated byreference to Exhibit 3.1 in the Company’s Current Report on Form8-K filed with the SEC on January3, 2020) |
31.1 | Certification of Principal Executive Officer of |
31.2 | Certification of Principal Financial and Accounting Officer of |
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.* | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
* |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Name | Title | Date | ||
/s/ | ||||
(Principal Executive Officer) | ||||
/s/ | ||||
(Principal Financial and Accounting Officer) |
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