Alimera Sciences(ALIM) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements of Alimera Sciences, Inc. for the period ended September 30, 2019, along with management's discussion and analysis of financial condition and results of operations, market risk disclosures, and controls and procedures Item 1. Financial Statements (unaudited) This section provides the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, cash flows, and changes in stockholders' equity, along with detailed notes explaining the company's accounting policies and specific financial items Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets provide a snapshot of the company's financial position as of September 30, 2019, compared to December 31, 2018, detailing assets, liabilities, and stockholders' (deficit) equity | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total Current Assets | $28,108 | $34,848 | -$6,740 | | Total Assets | $46,729 | $54,108 | -$7,379 | | Total Current Liabilities | $14,235 | $10,234 | +$4,001 | | Total Liabilities and Stockholders' (Deficit) Equity | $46,729 | $54,108 | -$7,379 | | Total Stockholders' (Deficit) Equity | -$6,476 | $2,722 | -$9,198 | - Cash and cash equivalents decreased from $13,043 thousand at December 31, 2018, to $7,903 thousand at September 30, 2019[10] - Accumulated deficit increased from $(377,127) thousand at December 31, 2018, to $(388,068) thousand at September 30, 2019[11] Condensed Consolidated Statements of Operations The Condensed Consolidated Statements of Operations present the company's financial performance for the three and nine months ended September 30, 2019, and 2018, highlighting revenue, expenses, and net loss | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Revenue | $12,850 | $11,137 | $36,595 | $31,484 | | Gross Profit | $11,271 | $10,172 | $32,242 | $28,502 | | Operating Expenses | $12,987 | $12,367 | $38,943 | $38,244 | | Net Loss from Operations | $(1,716) | $(2,195) | $(6,701) | $(9,742) | | Net Loss | $(3,140) | $(3,450) | $(10,941) | $(15,134) | | Net (Loss) Income Available to Stockholders | $(3,140) | $34,880 | $(10,941) | $23,196 | | Basic EPS | $(0.04) | $0.40 | $(0.15) | $0.26 | | Diluted EPS | $(0.04) | $0.39 | $(0.15) | $0.26 | - Net revenue increased by 16% for both the three and nine months ended September 30, 2019, compared to the prior year periods[14][112] - The prior year's net income available to stockholders was significantly impacted by a $38,330 thousand gain on extinguishment of preferred stock[14][70][124] Condensed Consolidated Statements of Comprehensive Loss The Condensed Consolidated Statements of Comprehensive Loss detail the net loss and other comprehensive loss components, primarily foreign currency translation adjustments, for the three and nine months ended September 30, 2019, and 2018 | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss | $(3,140) | $(3,450) | $(10,941) | $(15,134) | | Foreign currency translation adjustments | $(165) | $(27) | $(193) | $(134) | | Total Other Comprehensive Loss | $(165) | $(27) | $(193) | $(134) | | Comprehensive Loss | $(3,305) | $(3,477) | $(11,134) | $(15,268) | - Foreign currency translation adjustments contributed to other comprehensive loss in both periods, with a larger impact in 2019[16] Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows illustrate the sources and uses of cash for operating, investing, and financing activities for the nine months ended September 30, 2019, and 2018 | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,574) | $(12,213) | | Net cash used in investing activities | $(150) | $(174) | | Net cash (used in) provided by financing activities | $(200) | $975 | | Net change in cash and cash equivalents and restricted cash | $(5,141) | $(11,477) | | Cash and cash equivalents and restricted cash — End of period | $7,934 | $12,624 | - Net cash used in operating activities significantly decreased from $(12,213) thousand in 2018 to $(4,574) thousand in 2019[18][141] - Financing activities shifted from providing $975 thousand in 2018 (due to new debt issuance) to using $(200) thousand in 2019[18][143] Condensed Consolidated Statements of Changes in Stockholders' (Deficit) Equity This statement details the changes in each component of stockholders' (deficit) equity, including common stock, preferred stock, additional paid-in capital, common stock warrants, accumulated deficit, and accumulated other comprehensive loss, for the nine months ended September 30, 2019, and 2018 - Total stockholders' (deficit) equity decreased from $2,722 thousand at December 31, 2018, to $(6,476) thousand at September 30, 2019[11][20] - The accumulated deficit increased from $(377,127) thousand at December 31, 2018, to $(388,068) thousand at September 30, 2019, primarily due to net losses[11][20] - In 2018, a significant gain on extinguishment of preferred stock of $38,330 thousand impacted the accumulated deficit[21][79] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and additional information regarding the figures presented in the condensed consolidated financial statements, covering the company's operations, accounting policies, specific assets, liabilities, and equity components Note 1. Nature of Operations This note describes Alimera Sciences, Inc. as a pharmaceutical company specializing in ophthalmic pharmaceuticals, primarily focused on diseases affecting the retina - Alimera Sciences, Inc. specializes in commercializing and developing ophthalmic pharmaceuticals, focusing on retinal diseases[23][106] - ILUVIEN® is the company's only product, authorized for diabetic macular edema (DME) in multiple countries (U.S., EEA, Australia, Canada, Middle East)[23][106] - ILUVIEN® also received an additional indication for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIPU) in EEA countries, with reimbursement efforts ongoing[23][106] Note 2. Basis of Presentation This note clarifies that the interim financial statements are unaudited and prepared in accordance with U.S. GAAP for interim reporting, emphasizing that they do not include all disclosures required for complete annual financial statements and that interim results may not predict full-year performance - Interim financial statements are unaudited and prepared under U.S. GAAP for interim information, not including all disclosures required for complete annual statements[26] - Interim financial results are not necessarily indicative of expected full-year results[26] Note 3. Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, which are consistent with those in its annual report, and details the adoption of new accounting standards related to leases (ASC 842), reclassification of tax effects (ASU 2018-02), and stock-based compensation (ASU 2018-07), as well as standards issued but not yet effective | Expense Category | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and Development Expenses | $113,000 | $397,000 | $421,000 | $811,000 | - The company adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing lease assets and liabilities on the balance sheet using a modified retrospective approach without restating comparative periods[28] - ASU 2018-02 (Reclassification of Certain Tax Effects) and ASU 2018-07 (Stock-based Compensation) were also adopted on January 1, 2019, with no material impact on financial statements[28] Note 4. Revenue Recognition This note details the company's revenue recognition policies, primarily from product sales to distributors, pharmacies, hospitals, and wholesalers - Revenue from product sales is recognized at a point in time when the customer obtains control, typically upon delivery[32] - Net sales price includes estimates for variable consideration such as statutory rebates, commercial rebates, product returns, and sales discounts[32] - As of September 30, 2019, $1,000,000 in milestone payments from a Canadian distributor had not been recognized as revenue and are included in other non-current liabilities[32] Note 5. Leases This note describes the company's accounting for leases under ASC 842, detailing the adoption of practical expedients, the classification of operating and finance leases, and the related balance sheet information, costs, and maturity schedules - The company adopted ASC 842 on January 1, 2019, electing practical expedients not to reassess initial direct costs, lease classification, or whether contracts contain leases[39] - Operating leases primarily consist of office space, with right-of-use assets of $1,162 thousand and total lease liabilities of $1,338 thousand as of September 30, 2019[40][41] - Finance leases primarily consist of office equipment and automobiles, with property and equipment (net) of $462 thousand and total lease liabilities of $390 thousand as of September 30, 2019[44][45] Note 6. Going Concern This note addresses the company's going concern status, highlighting recurring losses, negative cash flow, and accumulated deficit - The company has incurred recurring losses and negative cash flow from operations, with an accumulated deficit of $388,068 thousand as of September 30, 2019[50] - Substantial doubt exists about the company's ability to continue as a going concern within one year due to uncertainty regarding future revenues and the need for additional debt or equity financing[50] - The company must maintain compliance with debt covenants under its $40,000,000 Loan and Security Agreement[50] Note 7. Inventory This note provides a breakdown of the company's inventory, which includes component parts, work-in-process, and finished goods, as of September 30, 2019, and December 31, 2018 | Category | Sep 30, 2019 | Dec 31, 2018 | | :--------------- | :----------- | :----------- | | Component parts | $482 | $129 | | Work-in-process | $510 | $924 | | Finished goods | $650 | $1,352 | | Total Inventory | $1,642 | $2,405 | - Total inventory decreased from $2,405 thousand at December 31, 2018, to $1,642 thousand at September 30, 2019[52] - Component parts inventory increased, while work-in-process and finished goods decreased[52] Note 8. Intangible Asset This note details the company's intangible asset, primarily related to the EyePoint Milestone Payment for ILUVIEN® FDA approval - The intangible asset has a gross carrying amount of $25,000 thousand, amortized over approximately 13 years[54] - Amortization expense was approximately $489 thousand for both the three months and $1,451 thousand for the nine months ended September 30, 2019 and 2018, respectively[54] - The net book value of the intangible asset was $15,272 thousand as of September 30, 2019, down from $16,723 thousand at December 31, 2018[54] Note 9. Accrued Expenses This note provides a breakdown of the company's accrued expenses as of September 30, 2019, and December 31, 2018, including clinical investigator expenses, compensation, rebate reserves, and lease liabilities | Category | Sep 30, 2019 | Dec 31, 2018 | | :------------------------------------------ | :----------- | :----------- | | Accrued clinical investigator expenses | $886 | $781 | | Accrued compensation expenses | $1,829 | $1,427 | | Accrued rebate, chargeback and other revenue reserves | $583 | $346 | | Accrued lease liabilities | $449 | — | | Other accrued expenses | $169 | $1,089 | | Total accrued expenses | $3,916 | $3,643 | - Total accrued expenses increased from $3,643 thousand at December 31, 2018, to $3,916 thousand at September 30, 2019[57] - Accrued lease liabilities of $449 thousand were recognized in 2019 due to the adoption of ASC 842[57] Note 10. License Agreements This note details the company's license agreement with EyePoint Pharmaceuticals US, Inc. for ILUVIEN® technology, including the expansion of the license to include uveitis, the conversion to a royalty-based payment structure, and the remaining Future Offset for royalty reductions - The New Collaboration Agreement with EyePoint expanded the ILUVIEN® license to include uveitis (including NIPU) in Europe, the Middle East, and Africa[59][106] - The payment structure converted from a profit share to a royalty on global net revenues, increasing from 2% to 6% effective December 12, 2018, with an additional 2% for revenues exceeding $75,000,000 annually[59][106] - The company retained a Future Offset right to recover up to $15,000,000 of commercialization costs, with a balance of approximately $9,346,000 as of September 30, 2019, which will reduce future royalty payments[60][108] Note 11. Loan Agreements This note describes the company's debt agreements, including the payoff of the Hercules Loan Agreement in 2018 and the subsequent entry into a $40,000,000 Loan and Security Agreement with Solar Capital Ltd - The Hercules Loan Agreement was paid off on January 5, 2018, resulting in a loss on early extinguishment of debt of approximately $1,766 thousand[63][64][122] - On January 5, 2018, the company entered into a $40,000,000 Loan and Security Agreement with Solar Capital Ltd., maturing on July 1, 2022[67][141] - Interest on the Solar Capital loan is one-month LIBOR plus 7.65% per annum (approximately 10.1% as of September 30, 2019), with interest-only payments for the first 30 months[67] Note 12. Earnings (Loss) Per Share (EPS) This note explains the calculation of basic and diluted earnings per share (EPS) using the two-class method, considering preferred stockholders' participation in dividends but not losses | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :---------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $(0.04) | $0.40 | $(0.15) | $0.26 | | Diluted EPS | $(0.04) | $0.39 | $(0.15) | $0.26 | - Basic and diluted EPS for the three and nine months ended September 30, 2019, were $(0.04) and $(0.15), respectively[14][71][125] - For the three and nine months ended September 30, 2018, basic EPS was $0.40 and $0.26, and diluted EPS was $0.39 and $0.26, respectively, primarily due to a gain on extinguishment of preferred stock[14][71][125] Note 13. Preferred Stock This note details the company's Series A, Series B, and Series C Convertible Preferred Stock, describing their issuance, conversion rights, liquidation preferences, and the exchange of Series B for Series C Preferred Stock in 2018, which resulted in a significant gain - As of September 30, 2019, there were 600,000 shares of Series A Preferred Stock outstanding, convertible into common stock at $40.00 divided by $2.66 per share[10][75] - On September 4, 2018, all outstanding Series B Preferred Stock was exchanged for 10,150 shares of Series C Convertible Preferred Stock, resulting in a $38,330 thousand gain on extinguishment of preferred stock[21][77][79] - Series C Preferred Stock has an aggregate stated value of $10,150,000 and is convertible into 10,150,000 shares of common stock at $1.00 per share, with certain conversion limitations[77] Note 14. Stock Incentive Plans This note provides information on the company's stock incentive plans, including stock options and restricted stock units (RSUs) - Stock option compensation expense was approximately $408 thousand and $1,470 thousand for the three and nine months ended September 30, 2019, respectively[81] - As of September 30, 2019, total unrecognized compensation cost for non-vested stock options was $2,321 thousand, expected to be recognized over 2.33 years[81] - RSU compensation expense was $90 thousand and $416 thousand for the three and nine months ended September 30, 2019, respectively[91] Note 15. Income Taxes This note discusses the company's income tax policies, including the recognition of deferred tax assets and liabilities, the use of a valuation allowance due to historical operating losses, and the impact of IRC Sections 382 and 383 on NOL carry-forwards - The company records a valuation allowance against its net deferred tax asset due to recurring operating losses, making realization uncertain[93][95] - As of December 31, 2018, the company had federal NOL carry-forwards of approximately $122,455 thousand and state NOL carry-forwards of approximately $153,333 thousand[95] - A Section 382 ownership change in late 2015 preliminarily estimated that approximately $18.6 million of federal NOLs and $382 thousand of federal tax credits generated prior to the change will not be utilized[95] Note 16. Segment Information This note provides financial information by segment (U.S., International, and Other), detailing net revenue, cost of goods sold, gross profit, and operating expenses for each, as evaluated by the chief operating decision maker - The company operates in three segments: U.S., International, and Other, with performance evaluated primarily on segment loss from operations[100][128] - Two U.S. customers accounted for 68% and 62% of consolidated revenues for the three and nine months ended September 30, 2019, respectively[99][108] | Segment | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | U.S. | $8,692 | $8,492 | $22,778 | $23,096 | | International | $4,158 | $2,645 | $13,817 | $8,388 | | Other | $— | $— | $— | $— | | Consolidated | $12,850 | $11,137 | $36,595 | $31,484 | Note 17. Subsequent Events This note discloses significant events that occurred after the reporting period, including a purchase agreement with Lincoln Park Capital Fund, LLC for up to $20,000,000 of common stock and stockholder approval for a potential reverse stock split - On October 24, 2019, the company entered into a purchase agreement with Lincoln Park Capital Fund, LLC, allowing it to sell up to $20,000,000 of common stock over 36 months[104][141] - Lincoln Park made an initial purchase of 2,000,000 shares at $0.50 per share for $1,000,000 on October 28, 2019[104][141] - Stockholders authorized the board to effect a reverse stock split (one-for-five to one-for-30) by May 4, 2020, to regain Nasdaq compliance[104][152][153] - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and do not include all disclosures required for complete annual financial statements[26] - Financial results for any interim period are not necessarily indicative of expected full-year results[26] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the three and nine months ended September 30, 2019, compared to the prior year Overview This overview introduces Alimera Sciences, Inc. as a pharmaceutical company focused on retinal diseases, with ILUVIEN® as its sole product - Alimera Sciences specializes in ophthalmic pharmaceuticals for retinal diseases, with ILUVIEN® as its only product[106] - ILUVIEN® is approved for DME in the U.S., EEA, and other regions, and for NIPU in EEA countries, with ongoing reimbursement efforts[106] - The company markets ILUVIEN® directly in some countries and through distributors in others, with recent pricing approval for NIPU in Germany[106][108] Results of Operations This section analyzes the company's consolidated financial results for the three and nine months ended September 30, 2019, compared to 2018, detailing changes in net revenue, cost of goods sold, gross profit, and various operating expenses, leading to the net loss Net Revenue Net revenue increased by 16% for both the three and nine months ended September 30, 2019, primarily due to growth in the international segment, including both distributor and direct sales, partially offset by a slight decrease in the U.S. segment for the nine-month period - Net revenue increased by approximately $1.8 million (16%) to $12.9 million for the three months ended September 30, 2019[112] - Net revenue increased by approximately $5.1 million (16%) to $36.6 million for the nine months ended September 30, 2019[112] - International segment revenue increases (approx. $900k for 3 months, $3.2M for 9 months from distributors; approx. $600k for 3 months, $2.2M for 9 months from direct sales) were the primary drivers[112] Cost of Goods Sold, Excluding Depreciation and Amortization, and Gross Profit Cost of goods sold increased significantly due to higher royalty expenses from an increased royalty percentage payable to EyePoint - Cost of goods sold (excluding D&A) increased by approximately $630 thousand (65%) for the three months and $1.4 million (47%) for the nine months ended September 30, 2019[114] - The increase in cost of goods sold was primarily due to an increased royalty percentage payable to EyePoint on global net revenue[114] - Gross profit increased by approximately $1.1 million (11%) to $11.3 million for the three months and $3.7 million (13%) to $32.2 million for the nine months ended September 30, 2019[114] Research, Development and Medical Affairs Expenses Research, development, and medical affairs expenses remained relatively stable for the three-month period and slightly decreased for the nine-month period, primarily focused on supporting ILUVIEN® and compliance with regulatory requirements - Expenses were approximately $2.8 million for both three-month periods ended September 30, 2019 and 2018[115] - Expenses decreased by approximately $100 thousand (1%) to $8.3 million for the nine months ended September 30, 2019[115] - These expenses are primarily for ILUVIEN® support, personnel, medical affairs, and regulatory compliance[115] General and Administrative Expenses General and administrative expenses decreased for both the three and nine-month periods, mainly due to lower personnel costs, although the nine-month period saw an offset from increased professional fees and logistics costs related to Brexit preparation - Expenses decreased by approximately $300 thousand (9%) to $3.1 million for the three months ended September 30, 2019, primarily due to lower personnel costs[116] - Expenses decreased by approximately $300 thousand (3%) to $10.2 million for the nine months ended September 30, 2019, with a $1.1 million decrease in personnel costs partially offset by a $700 thousand increase in professional fees and Brexit-related logistics costs[116] Sales and Marketing Expenses Sales and marketing expenses increased for both periods, driven by higher personnel costs (including refilling vacant territories) and increased marketing costs, particularly for the direct-to-patient advertising pilot program - Expenses increased by approximately $900 thousand (16%) to $6.4 million for the three months ended September 30, 2019[119] - Expenses increased by approximately $1.1 million (6%) to $18.5 million for the nine months ended September 30, 2019[119] - Key drivers were increases in personnel costs (approx. $570k for 3 months) and marketing costs (approx. $350k for 3 months, $790k for 9 months), including a direct-to-patient advertising pilot program[119] Operating Expenses Total operating expenses increased for both the three and nine-month periods, primarily due to higher sales and marketing expenses, partially offset by decreases in general and administrative and research and development expenses - Total operating expenses increased by approximately $600 thousand (5%) to $13.0 million for the three months ended September 30, 2019[120] - Total operating expenses increased by approximately $700 thousand (2%) to $38.9 million for the nine months ended September 30, 2019[120] - The increase was mainly driven by sales and marketing expenses, partially offset by decreases in G&A and R&D[120] Interest Expense and Other Interest expense and other remained stable for the three-month period and slightly increased for the nine-month period, primarily consisting of interest and amortization of deferred financing costs and debt discounts related to the Solar Capital loan - Interest expense and other was approximately $1.2 million for both three-month periods ended September 30, 2019 and 2018[121] - Interest expense and other increased by approximately $200 thousand (6%) to $3.7 million for the nine months ended September 30, 2019[121] - These expenses are primarily associated with the 2018 Loan Agreement with Solar Capital[121] Loss on early extinguishment of debt The company recorded a loss of approximately $1.8 million for the nine months ended September 30, 2018, due to the refinancing of the Hercules Loan Agreement with the new Solar Capital loan - A loss of approximately $1.8 million on early extinguishment of debt was recorded for the nine months ended September 30, 2018[122] - This loss resulted from refinancing the Hercules Loan Agreement with the 2018 Loan Agreement with Solar Capital[122] Basic and Diluted Net Income (Loss) Applicable to Common Stockholders per Share of Common Stock Basic and diluted EPS were negative for both periods in 2019, reflecting net losses, while 2018 saw positive EPS primarily due to a significant gain on extinguishment of preferred stock | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :---------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $(0.04) | $0.40 | $(0.15) | $0.26 | | Diluted EPS | $(0.04) | $0.39 | $(0.15) | $0.26 | - Net income available to stockholders for 2018 was primarily driven by a $38,330 thousand gain on extinguishment of preferred stock[124] - Approximately 34.7 million common stock equivalent securities were anti-dilutive and excluded from diluted EPS in 2019, compared to 14.0 million in 2018[126] | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Revenue | $12,850 | $11,137 | $36,595 | $31,484 | | Gross Profit | $11,271 | $10,172 | $32,242 | $28,502 | | Operating Expenses | $12,987 | $12,367 | $38,943 | $38,244 | | Net Loss from Operations | $(1,716) | $(2,195) | $(6,701) | $(9,742) | | Net Loss | $(3,140) | $(3,450) | $(10,941) | $(15,134) | | Basic EPS | $(0.04) | $0.40 | $(0.15) | $0.26 | | Diluted EPS | $(0.04) | $0.39 | $(0.15) | $0.26 | - Net revenue increased by 16% for both the three and nine months ended September 30, 2019, primarily driven by the international segment[112] - Net loss from operations improved for both periods in 2019 compared to 2018[112] Results of Operations - Segment Review This section provides a detailed review of the financial performance of the U.S., International, and Other segments, focusing on net revenue, cost of goods sold, and operating expenses, and how these contribute to segment loss or income from operations U.S. Segment The U.S. segment experienced a slight revenue increase for the three-month period but a decrease for the nine-month period, despite an increase in end-user demand - U.S. net revenue increased by $200 thousand (2%) to $8.7 million for the three months ended September 30, 2019[130] - U.S. net revenue decreased by $300 thousand (1%) to $22.8 million for the nine months ended September 30, 2019, despite a 2% increase in end-user demand (units)[132] - Cost of goods sold increased by 39% for three months and 19% for nine months, primarily due to higher royalty expense to EyePoint[130][132] International Segment The International segment showed strong revenue growth for both periods, driven by increased sales to distributors and direct sales in Europe - International net revenue increased by $1.6 million (62%) to $4.2 million for the three months and $5.4 million (64%) to $13.8 million for the nine months ended September 30, 2019[133][135] - Cost of goods sold increased by 132% for three months and 111% for nine months, due to increased unit sales and higher royalty expense to EyePoint[133][135] - General and administrative expenses increased by $500 thousand (21%) for nine months, partly due to professional fees and logistics costs related to Brexit preparation[135] Other Segment The Other segment primarily accounts for non-cash items such as stock-based compensation and depreciation and amortization, which are not allocated to the U.S. or International segments for management evaluation - The Other segment includes non-cash items like stock-based compensation and depreciation and amortization, which are not used by the chief operating decision maker to evaluate U.S. and International segments[137] - Stock-based compensation expense decreased by approximately $500 thousand (50%) for the three months and $1.5 million (44%) for the nine months ended September 30, 2019[138] - Depreciation and amortization increased by approximately $30 thousand (5%) for the three months and $100 thousand (5%) for the nine months ended September 30, 2019[139] - The company's chief operating decision maker evaluates segments based on net loss from operations, adjusted for non-cash items like stock-based compensation and D&A[128][137] - Activity-based costing methods are used to allocate certain operating expenses to segments[128] Liquidity and Capital Resources The company has a history of losses and negative cash flow, with $7.9 million in cash as of September 30, 2019 - The company has an accumulated deficit of $388.1 million and recurring losses and negative cash flow from operations[141] - As of September 30, 2019, cash and cash equivalents were approximately $7.9 million[141] - The company will likely need additional capital to fund ILUVIEN® commercialization and has entered a $20 million common stock purchase agreement with Lincoln Park Capital Fund, LLC[141] Contractual Obligations and Commitments There have been no material changes to the company's contractual obligations and commitments outside the ordinary course of business since its Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes to contractual obligations and commitments since the December 31, 2018, Annual Report on Form 10-K[144] Off-Balance Sheet Arrangements The company does not have any relationships with unconsolidated entities or financial partnerships that would constitute off-balance sheet arrangements - The company does not engage in off-balance sheet arrangements with unconsolidated entities or financial partnerships[145] - Guarantees are entered into in the ordinary course of business for the performance of the company and its subsidiaries[145] Impact of Recent Accounting Pronouncements This section refers to Note 3 of the Interim Financial Statements for a description of recent accounting pronouncements, their expected adoption dates, and anticipated effects on financial statements - Refer to Note 3 for details on recent accounting pronouncements, adoption dates, and expected financial impacts[146] - The company incurred significant losses since inception, with an accumulated deficit of $388.1 million as of September 30, 2019[108][141] - Future operations will require additional expenses for ILUVIEN® commercialization, regulatory approvals, and clinical development of future products[109] - The company's ability to raise additional capital is crucial, especially given non-compliance with Nasdaq listing requirements[141] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is not required for smaller reporting companies, and therefore, no disclosures are provided regarding quantitative and qualitative market risk - Not required for smaller reporting companies[148] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2019, concluding they were effective - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2019[148] - New internal controls were implemented to evaluate contracts and assess the impact of the new lease accounting standard (ASC 842)[149] - No other material changes to internal control over financial reporting occurred during the period[149] PART II. OTHER INFORMATION This section provides additional non-financial information, including legal proceedings, updated risk factors, details on equity securities, defaults, mine safety, other information, and a list of exhibits Item 1. Legal Proceedings The company is not currently involved in any material pending legal proceedings, and management is unaware of any contemplated proceedings by governmental authorities - No material pending legal proceedings[152] - Management is unaware of any contemplated governmental proceedings[152] Item 1A. Risk Factors This section updates the risk factors from the company's Annual Report on Form 10-K, primarily focusing on the company's non-compliance with Nasdaq Global Market's continuing listing requirements - The company received notices from Nasdaq for failing to comply with the minimum bid price ($1.00) and Market Value of Listed Securities ($50,000,000) requirements[152][154] - Failure to regain compliance could lead to delisting from the Nasdaq Global Market, reducing stock liquidity, market price, and institutional investor interest[152][154] - Stockholders approved a proposal for a reverse stock split (one-for-five to one-for-30) by May 4, 2020, to help regain compliance with the bid price rule[152][153] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item states that there were no unregistered sales of equity securities or use of proceeds to report for the period - None to report[156] Item 3. Defaults Upon Senior Securities This item indicates that there were no defaults upon senior securities to report for the period - None to report[156] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[156] Item 5. Other Information This item states that there is no other information to report for the period - None to report[156] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, registration rights agreements, compensation programs, purchase agreements, and certifications required by the Sarbanes-Oxley Act - Includes Restated Certificate of Incorporation, Amended and Restated Bylaws, and amendments[158] - Lists the Registration Rights Agreement and Purchase Agreement with Lincoln Park Capital Fund, LLC[158] - Contains certifications of the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act[158] Signatures This section contains the required signatures of the registrant's authorized officers, specifically the President and Chief Executive Officer, and the Chief Financial Officer, certifying the filing of the report - Report signed by Richard S. Eiswirth, Jr., President and Chief Executive Officer[159] - Report signed by J. Philip Jones, Chief Financial Officer[159]