eyes-10q_20190630.htm

 

 

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, 2019

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 Sight Medical Products, Inc.

(Exact name of Registrant as specified in its charter)

 

California

 

02-0692322

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

12744 San Fernando Road, Suite 400, Sylmar, CA 91342

(Address of principal executive offices, including zip code)

 

(818) 833-5000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    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 

 

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

EYES

 

NASDAQ

Warrants

 

EYESW

 

NASDAQ

 

 

 

 

 

As of August 6, 2019, the registrant had 124,586,323 shares of common stock, $0 par value per share and 61,459,657 warrants, outstanding.

 

 

 


 

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

 

FORM 10-Q

TABLE OF CONTENTS 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

3

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)

4

 

Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2019 and 2018 (unaudited)

5

 

Condensed Consolidated Statements of Stockholders’ Equity for each of the three-month periods ended during the six months ended June 30, 2019 and 2018 (unaudited)

6

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 3.

Defaults Upon Senior Securities

29

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

30

 

 

 

SIGNATURES

31

 

2


 

Part I. Financial Statements

Item 1. Financial Statements

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(in thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,161

 

 

$

4,471

 

Accounts receivable, net

 

 

629

 

 

 

504

 

Inventories, net

 

 

1,474

 

 

 

3,250

 

Prepaid expenses and other current assets

 

 

783

 

 

 

1,395

 

Total current assets

 

 

28,047

 

 

 

9,620

 

Property and equipment, net

 

 

993

 

 

 

1,025

 

Right-of-use assets

 

 

2,454

 

 

 

 

Deposits and other assets

 

 

26

 

 

 

37

 

Total assets

 

$

31,520

 

 

$

10,682

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,255

 

 

$

1,305

 

Accrued expenses

 

 

2,562

 

 

 

2,503

 

Accrued compensation expense

 

 

2,207

 

 

 

2,690

 

Accrued clinical trial expenses

 

 

1,038

 

 

 

933

 

Current operating lease liabilities

 

 

219

 

 

 

 

Contract liabilities

 

 

557

 

 

 

167

 

Total current liabilities

 

 

7,838

 

 

 

7,598

 

Long term operating lease liabilities

 

 

2,487

 

 

 

 

Total liabilities

 

 

10,325

 

 

 

7,598

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value, 10,000 shares authorized; none outstanding

 

 

 

 

 

 

Common stock, no par value; 300,000 shares authorized; shares issued and

   outstanding: 124,586 and 76,336 as of June 30, 2019 and December 31,

   2018, respectively

 

 

263,656

 

 

 

229,019

 

Additional paid-in capital

 

 

47,445

 

 

 

44,111

 

Accumulated other comprehensive loss

 

 

(574

)

 

 

(575

)

Accumulated deficit

 

 

(289,332

)

 

 

(269,471

)

Total stockholders’ equity

 

 

21,195

 

 

 

3,084

 

Total liabilities and stockholders’ equity

 

$

31,520

 

 

$

10,682

 

 

See accompanying notes.

3


 

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net sales

 

$

1,282

 

 

$

1,907

 

 

$

2,410

 

 

$

2,883

 

Cost of sales

 

 

933

 

 

 

836

 

 

 

1,664

 

 

 

1,504

 

Gross profit

 

 

349

 

 

 

1,071

 

 

 

746

 

 

 

1,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development, net of grants

 

 

3,436

 

 

 

2,422

 

 

 

5,619

 

 

 

4,895

 

Clinical and regulatory, net of grants

 

 

536

 

 

 

1,126

 

 

 

1,542

 

 

 

2,475

 

Selling and marketing

 

 

1,689

 

 

 

2,879

 

 

 

3,792

 

 

 

5,891

 

General and administrative

 

 

2,256

 

 

 

2,632

 

 

 

4,705

 

 

 

5,875

 

Restructuring charges

 

 

873

 

 

 

 

 

 

3,297

 

 

 

 

Total operating expenses

 

 

8,790

 

 

 

9,059

 

 

 

18,955

 

 

 

19,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(8,441

)

 

 

(7,988

)

 

 

(18,209

)

 

 

(17,757

)

Interest income

 

 

1

 

 

 

27

 

 

 

69

 

 

 

43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(8,440

)

 

$

(7,961

)

 

$

(18,140

)

 

$

(17,714

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

 

$

(0.07

)

 

$

(0.12

)

 

$

(0.16

)

 

$(0.29)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic and diluted

 

 

124,332

 

 

 

64,418

 

 

 

110,526

 

 

 

61,750

 

 

See accompanying notes.

4


 

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(8,440

)

 

$

(7,961

)

 

$

(18,140

)

 

$

(17,714

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

9

 

 

 

(77

)

 

 

1

 

 

 

(32

)

Comprehensive loss

 

$

(8,431

)

 

$

(8,038

)

 

$

(18,139

)

 

$

(17,746

)

 

See accompanying notes.

5


 

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(in thousands)

 

 

 

Common Stock

 

 

Common Stock

Issuable

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2017

 

 

57,630

 

 

$

202,156

 

 

 

82

 

 

$

153

 

 

$

40,522

 

 

$

(572

)

 

$

(234,377

)

 

$

7,882

 

Issuance of shares of common

   stock, net of issuance costs

 

 

2,224

 

 

 

3,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,992

 

Warrants exercise

 

 

5

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Common stock issuance for

   services

 

 

 

 

 

 

 

 

34

 

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

65

 

Release of restricted stock units

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,285

 

 

 

 

 

 

 

 

 

1,285

 

Exercise of common stock options

 

 

5

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,753

)

 

 

(9,753

)

Foreign currency translation

  adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Balance, March 31, 2018

 

 

59,876

 

 

 

206,163

 

 

 

116

 

 

 

218

 

 

 

41,807

 

 

 

(527

)

 

 

(244,130

)

 

 

3,531

 

Issuance of shares of common

   stock, net of issuance costs

 

 

6,757

 

 

 

9,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,978

 

Issuance of common stock in

   connection with employee

   stock purchase plan

 

 

226

 

 

 

261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

261

 

Common stock issued or

   issuable  for services

 

 

133

 

 

 

262

 

 

 

(116

)

 

 

(218

)

 

 

 

 

 

 

 

 

 

 

 

44

 

Release of restricted stock units

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

627

 

 

 

 

 

 

 

 

 

627

 

Exercise of common stock options

 

 

71

 

 

 

141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

141

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,961

)

 

 

(7,961

)

Foreign currency translation

  adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(77

)

 

 

 

 

 

(77

)

Balance, June 30, 2018

 

 

67,075

 

 

$

216,805

 

 

 

 

 

$

 

 

$

42,434

 

 

$

(604

)

 

$

(252,091

)

 

$

6,544

 

6


 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2018

 

 

76,336

 

 

$

229,019

 

 

$

44,111

 

 

$

(575

)

 

$

(269,471

)

 

$

3,084

 

Adoption of ASC Topic 842-Leases

   (see note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(144

)

 

 

(144

)

Issuance of shares of common stock and

   warrants in connection with rights offering,

   net of issuance costs

 

 

47,812

 

 

 

34,399

 

 

 

 

 

 

 

 

 

 

 

 

34,399

 

Release of restricted stock units

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants modification (see note 7)

 

 

 

 

 

 

 

 

1,577

 

 

 

 

 

 

(1,577

)

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

898

 

 

 

 

 

 

 

 

 

898

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,700

)

 

(9,700)

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Balance, March 31, 2019

 

 

124,198

 

 

 

263,418

 

 

 

46,586

 

 

 

(583

)

 

 

(280,892

)

 

 

28,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Release of restricted stock units

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in connection with employee stock purchase plan

 

 

376

 

 

 

238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

238

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

859

 

 

 

 

 

 

 

 

 

859

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,440

)

 

 

(8,440

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Balance, June 30, 2019

 

 

124,586

 

 

$

263,656

 

 

$

47,445

 

 

$

(574

)

 

$

(289,332

)

 

$

21,195

 

 

See accompanying notes.

 

7


 

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,140

)

 

$

(17,714

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

196

 

 

 

222

 

Stock-based compensation

 

 

1,757

 

 

 

1,912

 

Non-cash lease expense

 

 

10

 

 

 

 

Inventory reserve

 

 

(446

)

 

 

61

 

Restructuring charges-inventory impairment

 

 

2,587

 

 

 

 

Common stock issuance for services

 

 

 

 

 

109

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(122

)

 

 

1,100

 

Inventories

 

 

(364

)

 

 

(947

)

Prepaid expenses and other assets

 

 

585

 

 

 

161

 

Accounts payable

 

 

(49

)

 

 

471

 

Accrued expenses

 

 

192

 

 

 

(344

)

Accrued compensation expenses

 

 

(483

)

 

 

(162

)

Accrued clinical trial expenses

 

 

105

 

 

 

294

 

Contract liabilities

 

 

387

 

 

 

213

 

Net cash used in operating activities

 

 

(13,785

)

 

 

(14,624

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(164

)

 

 

(116

)

Net cash used in investing activities

 

 

(164

)

 

 

(116

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from sale of common stock and warrants

 

 

34,399

 

 

 

13,970

 

Proceeds from exercise of options, warrants and employee stock purchase plan options

 

 

238

 

 

 

417

 

Net cash provided by financing activities

 

 

34,637

 

 

 

14,387

 

Effect of exchange rate changes on cash and cash equivalents

 

 

2

 

 

 

(10

)

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Net increase (decrease)

 

 

20,690

 

 

 

(363

)

Balance at beginning of period

 

 

4,471

 

 

 

7,839

 

Balance at end of period

 

$

25,161

 

 

$

7,476

 

 

See accompanying notes.

8


 

SECOND SIGHT MEDICAL PRODUCTS, INC.

AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1. Organization and Business Operations

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

In 2007, Second Sight formed Second Sight Medical Products (Switzerland) Sàrl, initially to manage clinical trials for its products in Europe, and later to manage sales and marketing in Europe, the Middle East and Asia-Pacific. 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, 2019. 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 are currently developing the Orion® Visual Cortical Prosthesis System (“Orion”), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due to a wide range of causes, including glaucoma, diabetic retinopathy, optic nerve injury or disease, or forms of cancer and trauma. A feasibility study of the Orion device is currently underway at the Ronald Reagan UCLA Medical Center in Los Angeles (“UCLA”) and Baylor College of Medicine in Houston (“Baylor”).

Our commercially approved product, the Argus® II retinal prosthesis system (“Argus II”), entered clinical trials in 2006, received CE Mark approval for marketing and sales in the European Union (“EU”) in 2011, and received approval by the United States Food and Drug Administration (“FDA”) for marketing and sales in the United States in 2013. We began selling the Argus II in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we have made the decision to maximize capital efficiency with our Argus commercial and clinical activities and increase our investment of resources with our Orion clinical and R&D programs. See Note 2 for discussion of Discontinued Operations.

Liquidity and Going Concern

From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of convertible debt, research and clinical grants, and limited product revenue generated from the sale of our Argus II product. Funding of our business since 2018 has been provided by:

         

 

 

Issuance of common stock through our At Market Issuance Sales Agreement (the “Sales Agreement”) during the first quarter        of 2018 which provided net cash proceeds of $4.0 million.    

 

Issuance of common stock in securities purchase agreements in May, August, October and December 2018, which provided net cash proceeds of $22.0 million. 

 

Issuance of common stock and warrants in a rights offering in February 2019, which provided net cash proceeds of $34.4 million.

 

Revenue of $2.4 million for the six months ended June 30, 2019 and $6.9 million for the year ended December 31, 2018 generated by sales of our Argus II product.

            

In November 2017, we entered into an At Market Issuance Sales Agreement with B. Riley FBR Inc. and H.C. Wainwright & Co., LLC, as agents (“Agents”) pursuant to which we may offer and sell, from time to time through either of the Agents, shares of our common stock having an aggregate offering price as set forth in the Sales Agreement and a related prospectus supplement filed with the SEC. We agreed to pay the Agents a cash commission of 3.0% of the aggregate gross proceeds from each sale of shares under the Sales Agreement. During January and February 2018, we sold 2.2 million shares of common stock which provided net proceeds of $4.0 million under the Sales Agreement. No shares have been sold since February 2018 under the Sales Agreement.

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

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

Our financial statements have been presented on the basis that our business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We are subject to the risks and uncertainties associated with a business with one product line and limited commercial product revenues, including limitations on our operating capital resources and uncertain demand for our product. 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 do not have sufficient funds to support our operations for the next 12 months from the date of issuance of these financial statements. Accordingly, these and other related factors raise substantial doubt about our ability to continue as a going concern. We anticipate that we will seek to additionally fund our operations through public or private equity or debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or any other approved product candidates, or we may be unable to expand our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations. The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

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. Certain prior year amounts have been reclassified to conform to the current year presentation. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2018, contained in our Annual Report on Form 10-K filed with the SEC on March 19, 2019. 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.

Significant Accounting Policies

 

    

Discontinued operations

 

       Based upon our decision on May 10, 2019 to accelerate our transition to the Orion platform, we evaluated our accounting policies related to the disposition in accordance with ASC 205-20 Discontinued Operations, and assessed our long-lived assets for any indications that their carrying values may not be recoverable in accordance with ASC 360, Property, Plant, and Equipment, for any impairment. Based upon these reviews we recorded in March, 2019 an impairment charge of $2.4 million related to inventory of Argus II based on our plans to suspend production of Argus II. As part of this transition we commenced a corporate restructuring plan to focus on development of Orion and other key research projects. Specifically, we reduced expenses and personnel related to commercial activities and production for the Argus II. We recognized approximately $0.7 million of pre-tax restructuring charges in the second quarter of fiscal year 2019 in connection with this restructuring, consisting of severance and other employee termination benefits, substantially all of which are expected to be settled in cash during the next two quarters of 2019. In addition we incurred an additional $0.2 million impairment charge related to inventory in the three months ended June 30, 2019. Until Argus II operations cease, we continue to present it as part of continuing operations. Based upon our review of the applicable accounting standards we determined that there was no impairment of any other assets.

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

Recently Adopted Accounting Pronouncements

We adopted ASU No. 2016-02—Leases (Topic 842), as amended, as of January 1, 2019, using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at the period of adoption without

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restating prior comparative periods which is the method we have chosen. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of right-of-use assets and operating lease liabilities of approximately $2.6 million and $2.8 million respectively, as of January 1, 2019. The difference of $0.2 million between the right-of-use assets and operating lease liabilities, net of the deferred tax impact, was recorded as an adjustment to accumulated deficit at January 1, 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

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

3. Concentration of Risk

Credit Risk

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

Customer Concentration

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

The following table shows our revenues by customer type during the three and six months ended June 30, 2019 and 2018:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Direct customers

 

$

1,006

 

 

$

1,798

 

 

$

1,952

 

 

$

2,456

 

Distributors

 

 

276

 

 

 

109

 

 

 

458

 

 

 

427

 

Total

 

$

1,282

 

 

$

1,907

 

 

$

2,410

 

 

$

2,883

 

 

During the three and six months ended June 30, 2019 and 2018, the following customers each comprised greater than 10% of our total revenues:

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Customer 1

 

 

26

%

 

 

%

 

 

14

%

 

 

%

Customer 2

 

 

21

%

 

 

%

 

 

11

%

 

 

4

%

Customer 3

 

 

13

%

 

 

7

%

 

 

14

%

 

 

10

%

Customer 4

 

 

13

%

 

 

%

 

 

7

%

 

 

3

%

Customer 5

 

 

10

%

 

 

15

%

 

 

16

%

 

 

15

%

Customer 6

 

 

10

%

 

 

%

 

 

10

%

 

 

%

Customer 7

 

 

%

 

 

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