Quarterly Report (10-q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2022


o	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: 001-34703

Alimera Sciences, Inc.

(Exact name of registrant as specified in its charter)


Delaware		20-0028718
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6310 Town Square, Suite 400 Alpharetta, GA		30005
(Address of principal executive offices)		(Zip Code)

(678) 990-5740

(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 registered

Common Stock, $0.01 par value per share

ALIM

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

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 x No o

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 x No o

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	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

		Emerging growth company	o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 10, 2022, there were 7,008,482 shares of the registrant’s Common Stock issued and outstanding.

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ALIMERA SCIENCES, INC.

QUARTERLY REPORT ON FORM 10-Q

INDEX


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)	6
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	6
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021	7
Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021	8
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	9
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2022 and 2021	10
Notes to Condensed Consolidated Financial Statements	11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures about Market Risk	46
Item 4. Controls and Procedures	46

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3. Defaults Upon Senior Securities	47
Item 4. Mine Safety Disclosures	47
Item 5. Other Information	47
Item 6. Exhibits	48
Signatures	49

‎

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS

Various statements in this report of Alimera Sciences, Inc. (we, our, Alimera or the Company) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. These statements are subject to risks and uncertainties and are based on information currently available to our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “contemplates,” “predict,” “project,” “target,” “likely,” “potential,” “continue,” “ongoing,” “will,” “would,” “should,” “could,” or the negative of these terms and similar expressions or words, identify forward-looking statements. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements.

All written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please see, however, any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (SEC).

We encourage you to read the discussion and analysis of our financial condition and the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) contained in this Quarterly Report on Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, which we filed with the SEC on March 23, 2022 (the 2021 Form 10-K). We also encourage you to read Item 1A of Part 1 entitled “Risk Factors” of the 2021 Form 10-K, which contains a more detailed discussion of some of the risks and uncertainties associated with our business. In addition to the risks summarized below and in “Risk Factors” in the 2021 Form 10-K, other unknown or unpredictable factors also could affect our results. There can be no assurance that we will in fact achieve the actual results or developments we anticipate or, even if we do substantially realize them, that they will have the expected consequences to, or effects on, us. Therefore, we can give no assurances that we will achieve the outcomes stated in those forward-looking statements and estimates. Meaningful factors that could cause actual results to differ include:

Operational Risks

•our dependence on the commercial success of our only product, ILUVIEN;

•the competition we face, given that the number of competitive products is growing and our competitors include larger, more established, fully integrated pharmaceutical companies and biotechnology companies that have substantially greater capital resources, existing competitive products, larger research and development staffs and facilities, greater marketing capabilities, and greater experience in drug development and in obtaining regulatory approvals than we do;

•uncertainty associated with our ability to retain our current employees and to recruit and retain the new employees we need in the future, in particular a productive sales force;

•the possibility that the NEW DAY Study may (a) fail to demonstrate the efficacy of ILUVIEN as baseline therapy in patients with early diabetic macular edema (DME) or to generate data demonstrating the benefits of ILUVIEN when compared to the current leading therapy for DME, and (b) take longer or be more costly to complete than we currently anticipate;

•our possible inability to expand our portfolio of ophthalmic products;

•the negative effects of inflation, which may increase the compensation we must pay to retain and attract a high-quality workforce and is likely to increase our operational costs;

Manufacturing Risks

•our dependence on third-party manufacturers to manufacture ILUVIEN or any future products or product candidates in sufficient quantities and quality, in a timely manner (particularly during the COVID-19 pandemic), and at an acceptable price;

•the possibility that we may fail to plan appropriately to meet the demand of our customers for ILUVIEN, which could lead either to (a) ILUVIEN being out of stock or (b) our investment of a greater amount of cash in inventory than we need;

•the possibility that the issues affecting global supply chains may negatively impact our ability to source materials and components to make ILUVIEN or to deliver ILUVIEN into our current markets;

•uncertainty associated with manufacturing components and materials being superseded or becoming obsolete;

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•the possibility that staffing shortages at the third-party manufacturers where the ILUVIEN implant is made and the ILUVIEN applicator is assembled and packaged may lead to product shortages;

Financial Risks

•the possibility that we may not be able to refinance our $45.0 million Loan and Security Agreement with SLR Investment Corp. (SLR, f/k/a Solar Capital Ltd.) as Collateral Agent (Agent), and certain other lenders, including SLR in its capacity as a lender, dated December 31, 2019, as amended (the 2019 Loan Agreement) which would lead to a greater amount of cash being required to support its amortization on a monthly basis beginning on January 1, 2023;

•the possibility that we may be unable to pay the amounts due under the 2019 Loan Agreement, which on January 1, 2023 will begin to require amortization of principal, with principal payments of approximately $2,368,000 per month, plus interest;

•the possibility that we may fail to comply with the financial covenants the 2019 Loan Agreement, and in that event be unable to obtain a waiver from SLR for any resulting default;

•our possible need to raise additional financing, the terms of which may restrict our operations and, if the capital we raise is equity or a debt security that is convertible into equity, could dilute our stockholders’ investment;

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

•a slowdown or reduction in our sales due to, among other things, a reduction in end user demand, unexpected competition, regulatory issues or other unexpected circumstances, including unfavorable developments in the COVID-19 pandemic;

•the risk that the planned discontinuation of LIBOR and the replacement of LIBOR with another reference rate may lead to increased interest costs;

•the effects of inflation on the floating interest rate we pay under the 2019 Loan Agreement, which could cause our financing costs to increase materially and thus adversely affect our financial results;

•the possibility that we may see cost increases from our third-party manufacturers and suppliers resulting from increased inflation;

Risks Related to the COVID-19 Pandemic

•the adverse effects of the COVID-19 pandemic, and its unpredictable duration and severity in light of current and possible new variants, in the regions where we have customers, employees, distributors and where our third-party manufacturers source raw materials used in the manufacturing of ILUVIEN;

•the adverse effects of the COVID-19 pandemic on sales of ILUVIEN that have resulted and could again result from (a) limitations on in-person access to physicians for treatment imposed by governments or healthcare facilities and (b) the unwillingness of patients, many of whom suffer from diabetic macular edema or, in Europe and the U.K., non-infectious uveitis, to visit their physicians in person for fear of contracting the COVID-19 coronavirus;

•the financial uncertainty associated with the adverse effects of the COVID-19 pandemic and the duration and severity of those effects in light of current and possible new variants; if these adverse effects were to strengthen again in the future, they may (a) adversely affect our revenue, financial condition and cash flows, and (b) affect certain estimates we use to prepare our quarterly financial results, including impairment of intangible assets, the income tax provision and recoverability of certain receivables;

•the possibility that the manufacture or distribution of the ILUVIEN insert or applicator may be disrupted by government action related to COVID-19 or by the effect of the COVID-19 pandemic on our manufacturers’ or distributors’ workforces;

•the possibility that the restrictions placed on regulatory and pricing bodies will delay or defer market access for ILUVIEN as we seek to secure reimbursement;

•the possibility that the economic impact of the COVID-19 pandemic will lead to changes in reimbursement policies and reduce market access for ILUVIEN in countries where we sell ILUVIEN;

•the possibility of reduced efficiency and potential distractions of our employees resulting from the prolonged impact of the COVID-19 pandemic, and the resulting loss of productivity;

•the possibility that enrollment of patients in our NEW DAY Study may not occur as quickly as we anticipate;

•the possible delay in enrollment of patients in our pediatric study for non-infectious uveitis affecting the posterior segment of the eye (NIU-PS);

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Regulatory Risks

•uncertainty associated with our pursuit of reimbursement from local health authorities in certain countries for the recently obtained additional indication for ILUVIEN (for NIU-PS);

•delay in or failure to obtain regulatory approval and reimbursement of ILUVIEN or any future products or product candidates in additional markets where we do not currently sell ILUVIEN;

•uncertainty associated with our ability to meet any post market requirements for NIU-PS in the EEA;

•the possibility that our partner in the greater China market may fail to secure regulatory approval in the greater China market, which would have an adverse effect on our ability to receive our milestone payments under the Ocumension license agreement;

•uncertainty associated with our ability to successfully commercialize ILUVIEN following regulatory approval in additional markets; and

Intellectual Property Risks

•the possibility that we may be adversely affected by the expiration in the near-to medium-term of patents that protect key aspects of ILUVIEN.

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



	September 30,		December 31,
	2022		2021
	(In thousands, except share and per share data)
CURRENT ASSETS:
Cash and cash equivalents	$	5,514	$	16,510
Restricted cash		28		34
Accounts receivable, net		19,142		19,128
Prepaid expenses and other current assets		3,290		3,809
Inventory		1,786		2,679
Total current assets		29,760		42,160
NON-CURRENT ASSETS:
Property and equipment, net		2,446		2,783
Right of use assets, net		1,424		1,710
Intangible asset, net		9,446		10,897
Deferred tax asset		118		137
Warrant asset		235		833
TOTAL ASSETS	$	43,429	$	58,520
CURRENT LIABILITIES:
Accounts payable	$	8,706	$	8,706
Accrued expenses		3,661		3,617
Notes payable		21,316		—
Finance lease obligations		327		269
Total current liabilities		34,010		12,592
NON-CURRENT LIABILITIES:
Notes payable, net of discount		22,492		43,080
Other non-current liabilities		5,005		5,453
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT:
Preferred stock, $.01 par value — 10,000,000 shares authorized at September 30, 2022 and December 31, 2021:
Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at September 30, 2022 and December 31, 2021; liquidation preference of $24,000 at September 30, 2022 and December 31, 2021		19,227		19,227
Common stock, $.01 par value — 150,000,000 shares authorized, 6,998,023 shares issued and outstanding at September 30, 2022 and 6,935,154 shares issued and outstanding at December 31, 2021		70		69
Additional paid-in capital		378,005		377,229
Accumulated deficit		(411,608)		(397,281)
Accumulated other comprehensive loss		(3,772)		(1,849)
TOTAL STOCKHOLDERS’ DEFICIT		(18,078)		(2,605)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	43,429	$	58,520

See Notes to Unaudited Interim Condensed Consolidated Financial Statements (Interim Financial Statements).

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands, except share and per share data)
REVENUE:
PRODUCT REVENUE, NET	$	13,598	$	12,153	$	40,100	$	34,022
LICENSE REVENUE		—		—		—		11,048
NET REVENUE		13,598		12,153		40,100		45,070
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(2,006)		(1,689)		(5,852)		(5,064)
GROSS PROFIT		11,592		10,464		34,248		40,006
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		4,483		3,278		11,998		10,058
GENERAL AND ADMINISTRATIVE EXPENSES		3,352		2,808		9,537		9,577
SALES AND MARKETING EXPENSES		6,504		5,751		20,222		15,900
DEPRECIATION AND AMORTIZATION		664		649		2,023		1,920
OPERATING EXPENSES		15,003		12,486		43,780		37,455
(LOSS) INCOME FROM OPERATIONS		(3,411)		(2,022)		(9,532)		2,551
INTEREST EXPENSE AND OTHER		(1,500)		(1,360)		(4,247)		(4,050)
UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET		(67)		142		79		323
GAIN ON EXTINGUISHMENT OF DEBT		—		—		—		1,792
CHANGE IN FAIR VALUE OF WARRANT ASSET		(267)		(1,112)		(598)		(411)
NET (LOSS) INCOME BEFORE TAXES		(5,245)		(4,352)		(14,298)		205
INCOME TAX (PROVISION) BENEFIT		(12)		169		(29)		(471)
NET LOSS	$	(5,257)	$	(4,183)	$	(14,327)	$	(266)
NET LOSS PER SHARE — Basic and Diluted	$	(0.75)	$	(0.60)	$	(2.05)	$	(0.04)
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted		6,996,575		6,924,174		6,995,695		6,480,952

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands)
NET LOSS	$	(5,257)	$	(4,183)	$	(14,327)	$	(266)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments		(644)		(451)		(1,923)		(1,015)
TOTAL OTHER COMPREHENSIVE LOSS		(644)		(451)		(1,923)		(1,015)
COMPREHENSIVE LOSS	$	(5,901)	$	(4,634)	$	(16,250)	$	(1,281)

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended
	September 30,
	2022		2021
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(14,327)	$	(266)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,023		1,920
Non-cash consideration received as revenue		—		(973)
Unrealized foreign currency transaction gain, net		(79)		(323)
Amortization of debt discount and deferred financing costs		853		722
Stock-based compensation expense		723		758
Gain on extinguishment of debt		—		(1,792)
Change in fair value of warrant asset		598		411
Changes in assets and liabilities:
Accounts receivable		(963)		761
Prepaid expenses and other current assets		317		(158)
Inventory		739		395
Accounts payable		428		160
Accrued expenses and other current liabilities		249		561
Other long-term liabilities		(285)		(717)
Net cash (used in) provided by operating activities		(9,724)		1,459
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(171)		(500)
Net cash used in investing activities		(171)		(500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		40		10,042
Common stock issuance costs		—		(82)
Proceeds from exercise of stock options		15		42
Payment of finance lease obligations		(164)		(160)
Net cash (used in) provided by financing activities		(109)		9,842
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(998)		(485)
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(11,002)		10,316
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period		16,544		11,242
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	5,542	$	21,558
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	3,253	$	3,230
Cash paid for income taxes	$	224	$	47
Supplemental schedule of non-cash investing and financing activities:
Note payable end of term payment accrued but unpaid	$	2,250	$	2,250

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT



				Series A
				Convertible									Accumulated
	Common Stock			Preferred Stock			Additional		Common				Other
							Paid-In		Stock		Accumulated		Comprehensive
	Shares	Amount		Shares	Amount		Capital		Warrants		Deficit		Loss		Total
2021	(In thousands, except share data)
Balance, December 31, 2020	5,719,367	$	57	600,000	$	19,227	$	365,830	$	370	$	(392,909)	$	(553)	$	(7,978)
Issuance of common stock, net of issuance costs	45,000		1	—		—		—		—		—		—		1
Stock option exercises	58		—	—		—		—		—		—		—		—
Forfeitures of restricted stock	(10,933)		—	—		—		—		—		—		—		—
Stock-based compensation expense	—		—	—		—		262		—		—		—		262
Net loss	—		—	—		—		—		—		(3,648)		—		(3,648)
Foreign currency translation adjustments	—		—	—		—		—		—		—		(597)		(597)
Balance, March 31, 2021	5,753,492		58	600,000		19,227		366,092		370		(396,557)		(1,150)		(11,960)
Issuance of common stock, net of issuance costs	1,164,343		11	—		—		9,949		—		—		—		9,960
Stock option exercises	6,339		—	—		—		42		—		—		—		42
Stock-based compensation expense	—		—	—		—		251		—		—		—		251
Net income	—		—	—		—		—		—		7,565		—		7,565
Foreign currency translation adjustments	—		—	—		—		—		—		—		33		33
Balance, June 30, 2021	6,924,174		69	600,000		19,227		376,334		370		(388,992)		(1,117)		5,891
Issuance of common stock, net of issuance costs	3,000			—		—		—		—		—		—		—
Stock-based compensation expense	—		—	—		—		245		—		—		—		245
Net loss	—		—	—		—		—		—		(4,183)		—		(4,183)
Foreign currency translation adjustments	—		—	—		—		—		—		—		(451)		(451)
Balance, September 30, 2021	6,927,174	$	69	600,000	$	19,227	$	376,579	$	370	$	(393,175)	$	(1,568)	$	1,502


2022
Balance, December 31, 2021	6,935,154	$	69	600,000	$	19,227	$	377,229	$	—	$	(397,281)	$	(1,849)	$	(2,605)
Issuance of common stock, net of issuance costs	57,500		1	—		—		—		—		—		—		1
Stock-based compensation expense	—		—	—		—		312		—		—		—		312
Net loss	—		—	—		—		—		—		(5,955)		—		(5,955)
Foreign currency translation adjustments	—		—	—		—		—		—		—		(356)		(356)
Balance, March 31, 2022	6,992,654		70	600,000		19,227		377,541		—		(403,236)		(2,205)		(8,603)
Issuance of common stock, net of issuance costs	10,307		—	—		—		39		—		—		—		39
Forfeitures of restricted stock	(7,500)		—	—		—		—		—		—		—		—
Stock-based compensation expense	—		—	—		—		267		—		—		—		267
Net loss	—		—	—		—		—		—		(3,115)		—		(3,115)
Foreign currency translation adjustments	—		—	—		—		—		—		—		(923)		(923)
Balance, June 30, 2022	6,995,461		70	600,000		19,227		377,847		—		(406,351)		(3,128)		(12,335)
Stock option exercises	2,562		—	—		—		15		—		—		—		15
Stock-based compensation expense	—		—	—		—		143		—		—		—		143
Net loss	—		—	—		—		—		—		(5,257)		—		(5,257)
Foreign currency translation adjustments	—		—	—		—		—		—		—		(644)		(644)
Balance, September 30, 2022	6,998,023	$	70	600,000	$	19,227	$	378,005	$	—	$	(411,608)	$	(3,772)	$	(18,078)

See Notes to Interim Financial Statements.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

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

The Company presently focuses on diseases affecting the retina, because the Company believes these diseases are not well treated with current therapies and affect millions of people globally. The Company’s only product is ILUVIEN^® (fluocinolone acetonide intravitreal implant) 0.19 mg, which has received marketing authorization and reimbursement in 24 countries for the treatment of diabetic macular edema (DME). In the U.S. and certain other countries outside Europe, ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. In addition, ILUVIEN has received marketing authorization in 17 European countries and reimbursement in five countries for the prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment (NIU-PS).

The Company markets ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Ireland, and has made ILUVIEN available in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler. In addition, the Company has entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand and several countries in the Middle East. In addition, the Company has granted an exclusive license to Ocumension Therapeutics for the development and commercialization of the Company’s 0.19mg fluocinolone acetonide intravitreal injection in China, East Asia and the Western Pacific.

Effects of the COVID-19 Pandemic

The public health crisis caused by the COVID-19 pandemic and the measures taken by governments, businesses, and the public at large to limit the COVID-19 pandemic’s spread have had, and the Company expects will continue to have to some degree, certain negative effects on, and present certain risks to, the Company’s business. These limitations and other effects of the COVID-19 pandemic had an adverse impact on the Company’s revenues beginning late in the first quarter of 2020, and this adverse impact has continued to a lesser degree through the date of this report in some of the Company’s key markets in Europe that have now begun to recover. As the COVID-19 pandemic continued, the Company’s liquidity and financial condition were adversely affected as well. These COVID-19 pandemic-related factors may continue to adversely affect the Company’s revenue, liquidity and financial condition, and the extent and duration of that effect is uncertain, particularly if SARS-CoV-2 variants emerge that may increase the transmissibility of the coronavirus or be more deadly, or both. This uncertainty could in the future affect certain estimates the Company uses to prepare its quarterly financial results, including impairment of intangible assets, the income tax provision and realizability of certain receivables and the prospective compliance with the Company’s covenants in its loan agreement.

In response to the COVID-19 pandemic, the Company has implemented measures to mitigate the impact of the pandemic on its financial position and operations. The Company is continuing to monitor the effects of the SARS-CoV-2 variants and to increase its engagement with its customers to mitigate any loss of revenue in the affected markets.

2. BASIS OF PRESENTATION

The Company has prepared the accompanying unaudited interim condensed consolidated financial statements and notes thereto (Interim Financial Statements) in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, these Interim Financial Statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying Interim Financial Statements reflect all adjustments, which include normal recurring adjustments, necessary to present fairly the Company’s interim financial information.

The accompanying Interim Financial Statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 and related notes included in the Company’s Annual Report on Form 10-K for the year

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ended December 31, 2021, which was filed with the SEC on March 23, 2022 (the 2021 Form 10-K). The financial results for any interim period are not necessarily indicative of the expected financial results for the full year.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Financial Statements included in the 2021 Form 10-K.

Adoption of New Accounting Standard

In August 2020, the FASB issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This standard simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard requires entities to provide expanded disclosures about the terms and features of convertible instruments and amends certain guidance in Accounting Standards Codification (ASC) 260 on the computation of EPS for convertible instruments and contracts on an entity’s own equity. The standard became effective for the Company on January 1, 2022. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Accounting Standards Issued but Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the current incurred loss impairment methodology for financial assets measured at amortized cost with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information, including forecasted information, to develop credit loss estimates. The standard becomes effective for the Company on January 1, 2023. The Company does not anticipate the adoption of this ASU will have a material impact on its financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The standard is available until December 31, 2022. The Company does not anticipate the adoption of this ASU will have a material impact on the Company’s financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this ASU require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC 606). The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company does not anticipate the adoption of this ASU will have a material impact on its financial statements.

4. REVENUE RECOGNITION

Overview

The Company recognizes revenue when a customer obtains control of the related good or service. The amount recognized reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following steps as outlined in the guidance: (1) identify the contract with the customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when the entity satisfies a performance obligation. At the inception of a contract, the contract is evaluated to determine if it falls within the scope of ASC 606, followed by the Company’s assessment of the goods or services promised within each contract, assessment of whether the promised good or service is distinct and determination of the performance obligations. The Company then recognizes revenue based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions related to the performance obligations.

Net Product Sales

The Company sells its products to major pharmaceutical distributors, pharmacies, hospitals and wholesalers (collectively, its Customers). In addition to distribution agreements with Customers, the Company enters into arrangements with healthcare providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products. The Company recognizes revenues from product sales at a point in time when the Customer obtains control, typically upon delivery. The Company accrues for fulfillment costs when the related revenue is recognized. Taxes collected from Customers relating to product sales and remitted to governmental authorities are excluded from revenues.

Estimates of Variable Consideration

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for reserves related to statutory rebates to State Medicaid and other government agencies; commercial rebates and fees to Managed Care Organizations (MCOs), Group Purchasing Organizations (GPOs), distributors, and specialty pharmacies; product returns; sales discounts (including trade discounts); distributor costs; wholesaler chargebacks; and allowances for patient assistance programs relating to the Company’s sales of its products.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales. Management’s estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and Customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period. If actual results vary, the Company may adjust these estimates, which could have an effect on earnings in the period of adjustment.

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

Consideration Payable to Customers

Distribution service fees are payments issued to distributors for compliance with various contractually-defined inventory management practices or services provided to support patient access to a product. Distribution service fees reserves are based on the terms of each individual contract and are classified within accrued expenses and are recorded as a reduction of revenue.

Product Returns

The Company’s policies provide for product returns in the following circumstances: (a) expiration of shelf life on certain products; (b) product damaged while in the Customer’s possession; and (c) following product recalls. Generally, returns for expired product are accepted three months before and up to one year after the expiration date of the related product, and the related product is destroyed after it is returned. The Company may either refund the sales price paid by the Customer by issuing a credit or exchange the returned product for replacement inventory. The Company typically does not provide cash refunds. The Company estimates the proportion of recorded revenue that will result in a return by considering relevant factors, including historical returns experience, the estimated level of inventory in the distribution channel, the shelf life of products and product recalls, if any.

The estimation process for product returns involves, in each case, several interrelating assumptions, which vary for each Customer. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue from product sales in the period the related revenue is recognized, and because this returned product cannot be resold, there is no corresponding asset for product returns. To date, product returns have been minimal.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

License Revenue

The Company enters into agreements in which it licenses certain rights to its products to partner companies that act as distributors. The terms of the license agreement may include payment to the Company of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. The Company recognizes revenue from upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer.

The Company will recognize sales-based milestone payments as revenue upon the achievement of the cumulative sales amount specified in the contract in accordance with ASC 606. For those milestone payments which are contingent on the occurrence of particular future events, the Company determines that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the expected value method. As such, the Company assesses each milestone to determine the probability of and substance behind achieving each milestone. Given the inherent uncertainty associated with these future events, the Company will not recognize revenue from such milestones until there is a high probability of occurrence, which typically occurs near or upon achievement of the event.

Customer Payment Obligations

The Company receives payments from its Customers based on billing schedules established in each contract, which vary across the Company’s markets, but generally range between 30 to 150 days. Occasionally, the Company extends the timing of its receipt of payment from the Company’s international Customers. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation is that the Customer will pay for the product or services in one year or less of receiving those products or services.

5. LEASES

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

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

Operating Leases

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Supplemental balance sheet information as of September 30, 2022 and December 31, 2021 for the Company’s operating leases is as follows:



	September 30,		December 31,
	2022		2021
	(In thousands)
NON-CURRENT ASSETS:
Right of use assets, net	$	1,424	$	1,710
Total lease assets	$	1,424	$	1,710
CURRENT LIABILITIES:
Accrued expenses	$	588	$	220
NON-CURRENT LIABILITIES:
Other non-current liabilities		2,360		2,735
Total lease liabilities	$	2,948	$	2,955

The Company’s operating lease cost for the three and nine months ended September 30, 2022 was $136,000 and $408,000, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations. The Company’s operating lease cost for the three and nine months ended September 30, 2021 was $117,000 and $352,000, respectively, and is included in general and administrative expenses in its condensed consolidated statement of operations.

As of September 30, 2022, a schedule of maturity of lease liabilities under all of the Company’s operating leases is as follows:


Years Ending December 31	(In thousands)
2022 (remaining)	$	58
2023		678
2024		654
2025		474
2026		488
Thereafter		1,555
Total		3,907
Less amount representing interest		(959)
Present value of minimum lease payments		2,948
Less current portion (as a portion of accrued expenses)		(588)
Non-current portion (as a portion of other non-current liabilities)	$	2,360

Cash paid for operating leases was $193,000 during the nine months ended September 30, 2022. No right-of-use assets were obtained in connection with operating leases for the three and nine months ended September 30, 2022. Cash paid for operating leases was $588,000 during the nine months ended September 30, 2021. No right-of-use assets were obtained in connection with operating leases for the nine months ended September 30, 2021.

As of September 30, 2022, the weighted average remaining lease terms of the Company’s operating leases was 6.9 years. The weighted average discount rate used to determine the lease liabilities was 9.5%.

Finance Leases

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Supplemental balance sheet information as of September 30, 2022 and December 31, 2021 for the Company’s finance leases is as follows:



	September 30,		December 31,
	2022		2021
	(In thousands)
NON-CURRENT ASSETS:
Property and equipment, net	$	252	$	392
Total lease assets	$	252	$	392
CURRENT LIABILITIES:
Finance lease obligations	$	327	$	269
NON-CURRENT LIABILITIES:
Other non-current liabilities		81		225
Total lease liabilities	$	408	$	494

Depreciation expense associated with property and equipment under finance leases was approximately $59,000 and $94,000 for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense associated with property and equipment under finance leases was approximately $214,000 and $303,000 for the nine months ended September 30, 2022 and 2021, respectively. Interest expense associated with finance leases was $10,000 and $14,000 for the three months ended September 30, 2022 and 2021, respectively. Interest expense associated with finance leases was $31,000 and $46,000 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, a schedule of maturity of lease liabilities under finance leases, together with the present value of minimum lease payments, is as follows:



Years Ending December 31	(In thousands)
2022 (remaining)	$	155
2023		266
2024		38
2025		12
Total		471
Less amount representing interest		(63)
Present value of minimum lease payments		408
Less current portion		(327)
Non-current portion	$	81

Cash paid for finance leases was $164,000 during the nine months ended September 30, 2022. No property or equipment was obtained in exchange for finance leases during the three and nine months ended September 30, 2022.

As of September 30, 2022, the weighted average remaining lease terms of the Company’s finance leases was 0.6 years. The weighted average discount rate used to determine the finance lease liabilities was 9.5%.

6. GOING CONCERN

The accompanying Interim Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Interim Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.

To date, the Company has incurred recurring losses and has accumulated a deficit of $411,608,000 from inception through September 30, 2022. As of September 30, 2022, the Company had approximately $5,514,000 in cash and cash equivalents.

Further, the Company must maintain compliance with the debt covenants of its $45,000,000 Loan and Security Agreement dated December 31, 2019 with SLR Investment Corp., as amended (the 2019 Loan Agreement; see Note 10). Additionally, amortization of principal under the 2019 Loan Agreement is currently scheduled to begin on January 1, 2023, with payments of approximately $2,368,000

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

per month, plus interest. The Company is seeking to refinance this loan by December 31, 2022, before the amortization payments begin. In management’s opinion, the uncertainty regarding future revenues raises substantial doubt about the Company’s ability to continue as a going concern without access to additional debt and/or equity financing over the course of the next twelve months.

The Company met the trailing six-month revenue covenant included in the 2019 Loan Agreement for the six-month periods ended March 31, 2022, June 30, 2022 and September 30, 2022, and the Company expects to comply with the revenue covenant at the next reportable date, which is December 31, 2022, and through one year after the filing date of this Quarterly Report on Form 10-Q, although the Company can give no assurances in that regard. Due primarily to the remaining uncertainty surrounding the COVID-19 pandemic, it is possible that the Company will fail to comply with the revenue covenant.

If the Company (a) fails to comply with the revenue covenant or (b) lacks the cash to make and therefore fails to make the required amortization payments that commence on January 1, 2023, and in either event the lenders do not provide a consent and waiver, acceleration of the maturity of the loan is one of the remedies available to the lenders. If the lenders accelerate the maturity of the loan, the Company would be forced to find alternative financing or enter into an alternative agreement with the lenders. The Company cannot be sure that alternative financing will be available when needed or that, if available, the alternative financing could be obtained on terms that are not significantly detrimental to the Company or its stockholders.

To meet the Company’s future working capital needs, the Company will need to raise additional debt or equity financing and refinance the 2019 Loan Agreement. While the Company from time to time has been able to raise additional capital through issuance of equity and/or debt financing, the Company cannot guarantee that it will be able to maintain debt compliance, raise additional equity, contain or reduce expenses, or increase revenue. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern within one year after these Interim Financial Statements are issued.

7. INVENTORY

Inventory consisted of the following:



	September 30,		December 31,
	2022		2021
	(In thousands)
Component parts (1)	$	123	$	200
Work-in-process (2)		600		1,416
Finished goods		1,063		1,063
Total Inventory	$	1,786	$	2,679

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

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

8. INTANGIBLE ASSET

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

The gross carrying amount of the intangible asset is $25,000,000, which is being amortized over approximately 13 years from the payment date. The amortization expense related to the intangible asset was approximately $489,000 for both the three months ended September 30, 2022 and 2021, respectively. The amortization expense related to the intangible asset was approximately $1,451,000 for both

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the nine months ended September 30, 2022 and 2021, respectively. The net book value of the intangible asset was $9,446,000 and $10,897,000 as of September 30, 2022 and December 31, 2021, respectively.

The estimated future amortization expense as of September 30, 2022 for the remaining periods in the next five years and thereafter is as follows:



Years Ending December 31	(In thousands)
2022 (remaining)	$	489
2023		1,940
2024		1,946
2025		1,940
2026		1,940
Thereafter		1,191
Total	$	9,446

9. LICENSE AGREEMENTS

EyePoint Agreement

In February 2005, the Company entered into an agreement with EyePoint (formerly known as pSivida US, Inc.) for the use of fluocinolone acetonide (FAc) in EyePoint’s proprietary insert technology. This agreement was subsequently amended a number of times (as amended, the EyePoint Agreement). The EyePoint Agreement provides the Company with a worldwide exclusive license to utilize certain underlying technology used in the development and commercialization of ILUVIEN.

In July 2017, the Company amended and restated its EyePoint license agreement, which was made effective July 1, 2017 (the New Collaboration Agreement). Under the New Collaboration Agreement, the Company has the right to the technology underlying ILUVIEN for the treatment of (a) human eye diseases, including uveitis, in Europe, the Middle East, and Africa, and (b) human eye diseases other than uveitis worldwide. The New Collaboration Agreement converted the Company’s previous profit share obligation to a royalty payable on global net revenues of ILUVIEN.

Following the signing of the New Collaboration Agreement, the Company retained a right to recover up to $15,000,000 of commercialization costs that were incurred prior to profitability of ILUVIEN and to offset a portion of future payments owed to EyePoint with these accumulated commercialization costs, referred to as the Future Offset. Due to the uncertainty of future net profits, the Company has fully reserved the Future Offset in the accompanying Interim Financial Statements. In March 2019, pursuant to the New Collaboration Agreement, the Company forgave $5,000,000 of the Future Offset in connection with the approval of ILUVIEN for NIU-PS in the U.K. As of September 30, 2022, the balance of the Future Offset was approximately $7,099,000.

During the three and nine months ended September 30, 2022 and 2021, the Company’s net royalty expense payable to EyePoint was 5.2%, which was reduced from 6% due to the recoverable balance of the Future Offset. The Company will be required to pay an additional 2% royalty on future global net revenues and other related consideration in excess of $75,000,000 in any year. During the three and nine months ended September 30, 2022, the Company recognized approximately $705,000 and $2,080,000, respectively, of royalty expense, which is included in cost of goods sold, excluding depreciation and amortization. As of September 30, 2022, approximately $705,000 of this royalty expense was included in the Company’s accounts payable. During the three and nine months ended September 30, 2021, the Company recognized approximately $628,000 and $2,232,000 of royalty expense, respectively, which is included in cost of goods sold, excluding depreciation and amortization.

Ocumension License Agreement

On April 14, 2021, the Company entered into an exclusive license agreement (the License Agreement) with Ocumension (Hong Kong) Limited (“Ocumension HK”), a wholly owned subsidiary of Ocumension Therapeutics, for the development and commercialization under Ocumension HK’s own brand name(s), either directly or through its affiliates or approved third-party sublicensees, of the Company’s 190 microgram fluocinolone acetonide intravitreal implant in applicator (the “Product”; currently marketed in the United States, Europe, and the Middle East as “ILUVIEN®”) for the treatment and prevention of eye diseases in humans, other than uveitis, in a specified territory. The

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

“Territory” is defined as the People’s Republic of China, including Hong Kong SAR and Macau SAR, region of Taiwan, South Korea, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

The Company received a nonrefundable upfront payment of $10,000,000 from Ocumension HK and may in the future receive additional sales-based milestone payments totaling up to $89,000,000 upon the achievement by Ocumension HK of certain specified sales milestones during the term of the License Agreement. The Company’s receipt of future milestone payments depends upon whether Ocumension HK is able to successfully complete product development and commercialization in the Territory, which requires, among other things, obtaining necessary regulatory approvals and appropriate reimbursement pricing in the various countries and jurisdictions in the Territory, a process that may take several years. During the nine months ended September 30, 2021, the Company recognized $11,048,000 in license revenue from the Ocumension transaction (including the value of a warrant subscription agreement, which Alimera received as consideration, for Alimera to purchase 1,000,000 shares of Ocumension Therapeutics during a period of four years), in accordance with ASC 606, Revenue from Contracts with Customers, with the remaining approximate $300,000 in consideration classified as deferred revenue that will be recognized over the remaining term of the license agreement once Ocumension begins to sell products.

The term of the License will continue (a) until the 10th anniversary of the latest first commercial sale of the Product in any country or jurisdiction in the Territory or (b) for as long as Ocumension HK is commercializing the Product in any part of the Territory, whichever is later. The term is subject to the Company’s right to partially terminate the Agreement beginning on the 10th anniversary of the effective date with respect to any country or jurisdiction in the Territory in which Ocumension has not achieved at the time of termination first commercial sale and is not continuing to commercialize the Product. Ocumension will purchase Product from the Company at a fixed transfer price without royalty obligation on future sale (other than milestone payments as described above). Ocumension HK is responsible for all costs of development and commercialization in the Territory.

When the Company entered into the license agreement, it also entered into a share purchase agreement and a warrant subscription agreement (warrant agreement), which are discussed in Note 16.

10. LOAN AGREEMENTS

Loan Agreements with SLR Investment Corp. (formerly named Solar Capital Ltd.)

As of January 5, 2018, the Company entered into a $40,000,000 loan and security agreement with Solar Capital Ltd., as Collateral Agent, and the parties signatory thereto from time to time as Lenders, including Solar Capital Ltd. in its capacity as a Lender (the 2018 Loan Agreement). On December 31, 2019, the Company refinanced the 2018 Loan Agreement by entering into a $45,000,000 loan and security agreement (as amended, the 2019 Loan Agreement) with Solar Capital Ltd., as Collateral Agent, and the parties signing the Loan Agreement from time to time as Lenders, including Solar Capital Ltd. in its capacity as a Lender (collectively, the Lenders). Under the 2019 Loan Agreement, the Company borrowed $42,500,000 on December 31, 2019 and borrowed the remaining $2,500,000 on February 21, 2020. The two borrowings under the 2019 Loan Agreement totaled $45,000,000 and are referred to as the SLR Loan, given that Solar Capital Ltd. changed its name to SLR Investment Corp. (SLR) in February 2021. The SLR Loan matures on July 1, 2024. The Company used the initial proceeds of the SLR Loan to pay off the outstanding loan under the 2018 Loan Agreement, along with related prepayment, legal and other fees and expenses of approximately $2,300,000, which included $2,200,000 in fees to SLR.

2018 Exit Fee Agreement

Notwithstanding the repayment of the outstanding loan under the 2018 Loan Agreement with part of the SLR Loan, the Company remains obligated to pay additional fees under the Exit Fee Agreement (2018 Exit Fee Agreement) dated as of January 5, 2018 by and among the Company, SLR, as Agent, and the Lenders. The 2018 Exit Fee Agreement survived the termination of the 2018 Loan Agreement upon the repayment of the outstanding loan under the 2018 Loan Agreement and has a term of 10 years. The Company is obligated to pay up to, but no more than, $2,000,000 in fees under the 2018 Exit Fee Agreement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Specifically, the Company is obligated to pay an exit fee of $2,000,000 on a “change in control” (as defined in the 2018 Exit Fee Agreement). To the extent that the Company has not already paid the $2,000,000 fee, the Company is also obligated to pay a fee of $1,000,000 on achieving each of the following milestones:

• first, if the Company achieves revenues of $80,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured on a trailing 12-month basis during the term of the agreement, tested at the end of each month; and

• second, if the Company achieves revenues of $100,000,000 or more from the sale of its ILUVIEN product in the ordinary course of business to third party customers, measured in the same manner.

2019 Exit Fee Agreement

The Company is also obligated to pay additional fees under the Exit Fee Agreement dated as of December 31, 2019 by and among the Company, SLR as Agent, and the Lenders (2019 Exit Fee Agreement). The 2019 Exit Fee Agreement will survive the termination of the 2019 Loan Agreement and has a term of 10 years. The Company will be obligated to pay a $675,000 exit fee upon the occurrence of an exit event, which generally means a change in control, as defined in the 2019 Exit Fee Agreement.

First Amendment to 2019 Loan Agreement

On May 1, 2020, the Company entered into a First Amendment (the First Amendment) to the 2019 Loan Agreement. The First Amendment also included revised covenants that applied to the Company’s financial performance during 2020, all of which were met. The First Amendment, among other things, required that a revenue covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with a plan the Company submitted to the Collateral Agent in February 2021, and with such plan to be approved by the Company’s board of directors (the Board) and SLR in its sole discretion.

Second Amendment to 2019 Loan Agreement

On March 30, 2021, the Company entered into a Second Amendment (the Second Amendment) to the 2019 Loan Agreement. The Second Amendment, among other things:

(a)reflected the Collateral Agent’s consent to the Company’s delivery of Board-approved annual financial projections for 2021 by April 1, 2021 (which the Company delivered in a timely manner);

(b)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2021, that the Company must achieve for each such period (the Revenue Covenant);

(c)required that the Revenue Covenant be tested at March 31, 2022 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with an annual plan that the Company must submit to the Collateral Agent by January 15th of such year, such plan to be approved by the Board and the Collateral Agent in its sole discretion; and

(d)provided that in future years the Company must deliver to the Collateral Agent and the Lenders as soon as available after approval thereof by the Board, but no later than the earlier of (x) 15 days after such approval and (y) February 28 of such year, the Company’s annual financial projections for the entire current fiscal year as approved by the Board; provided that any revisions to such projections approved by the Board shall be delivered to the Collateral Agent and the Lenders no later than seven days after such approval.
‎

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Third Amendment to 2019 Loan Agreement

On February 22, 2022, the Company entered into a Third Amendment to the 2019 Loan Agreement (the Third Amendment), which, among other things:

(a)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2022, that the Company must achieve for each such period (the Revenue Covenant);

(b)consented to maintaining a lower minimum revenue amount under the Revenue Covenant for the trailing six-month period ended December 31, 2021 than previously required under the 2019 Loan Agreement (and waived any event of default that may have occurred or may be deemed to have occurred as a result of the Company’s lower revenue amount for that period); and

(c)required that the Revenue Covenant be tested at March 31, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of the Company’s projected revenues in accordance with an annual plan that the Company must submit to the Collateral Agent by January 15 of such year, such plan to be thereafter approved by the Board and the Collateral Agent in its sole discretion no later than February 28 of such year.

Interest on the 2019 Loan Agreement is payable at the greater of (i) one-month LIBOR or (ii) 1.78%, in either case plus 7.65% per annum. As of September 30, 2022, the interest rate under the 2019 Loan Agreement was 10.28%. The 2019 Loan Agreement provides for interest only payments until January 1, 2023.

The Company’s operations and thus its net product revenues were adversely affected by the COVID-19 pandemic, and this adverse impact has continued to a lesser degree through the date of this report in some of the Company’s key markets in Europe that have now begun to recover. During each of the six months ended September 30, 2021 and December 31, 2021, the Company did not generate sufficient revenue to meet the trailing six-month Revenue Covenant included in the 2019 Loan Agreement. For each such six-month period, the Lenders provided a consent that permitted the Company not to maintain the Revenue Covenant as of September 30, 2021 and December 31, 2021, respectively, and waived any event of default that may have occurred or may have been deemed to have occurred. The Company was in compliance with the Revenue Covenant as of March 31, 2022, June 30, 2022 and September 30, 2022, and the Company expects to comply with the Revenue Covenant at the next reportable date, which is December 31, 2022, although the Company can give no assurances in that regard. See Note 6.

Modification of Debt

In accordance with the guidance in ASC 470-50, Debt, the Company entered into and accounted for the First Amendment, the Second Amendment and the Third Amendment as modifications and expensed, as they were incurred, legal costs associated with third parties as costs of the modifications. The Company did not capitalize any additional costs associated with the Amendments.

Paycheck Protection Program Loan

On April 22, 2020, the Company received a $1,778,000 loan (the PPP Loan) under the Paycheck Protection Program established by the U.S. Small Business Administration as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP Loan was unsecured and was evidenced by a note in favor of HSBC Bank USA, National Association (HSBC) as the lender. On July 21, 2020, the Company submitted an application to HSBC for forgiveness of the PPP Loan. The PPP Loan was forgiven in its entirety, including interest, on April 16, 2021. As a result of forgiveness, the Company recognized a gain on extinguishment of debt of $1,792,000 during the nine months September 30, 2021.

Fair Value of Debt

The weighted average interest rates of the Company’s notes payable approximate the rate at which the Company could obtain alternative financing. Therefore, the carrying amount of the notes approximated their fair value at September 30, 2022 and December 31, 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. LOSS PER SHARE (EPS)

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

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

Common stock equivalent securities that would potentially dilute basic EPS in the future, but were not included in the computation of diluted EPS because they were either not classified as participating or would have been anti-dilutive, were as follows:




	September 30,
	2022		2021
Series A convertible preferred stock		601,504		601,504
Common stock warrants		—		30,582
Stock options		1,294,895		1,081,238
Total		1,896,399		1,713,324

12. PREFERRED STOCK

Series A Convertible Preferred Stock

As of September 30, 2022, there were 600,000 shares of Series A Convertible Preferred Stock issued and outstanding.

13. EQUITY INCENTIVE PLANS

Under the Company’s 2019 Omnibus Incentive Plan (the 2019 Plan), the Compensation Committee of the Board is authorized to grant equity-based incentive awards that include stock options, restricted stock units and shares of restricted stock to officers, directors, employees and contractors. Equity-based awards are also outstanding under the Company’s 2010 Equity Incentive Plan, although no new awards can be granted under that plan. The Company also has an employee stock purchase plan.

Stock Options

During the three months ended September 30, 2022 and 2021, the Company recorded compensation expense related to stock options of approximately $134,000 and $207,000, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded compensation expense related to stock options of approximately $653,000, and $666,000, respectively. As of September 30, 2022, the total unrecognized compensation cost related to non-vested stock options granted was $1,295,000 and is expected to be recognized over a weighted average period of 2.61 years. The following table presents a summary of stock option activity for the three months ended September 30, 2022 and 2021:



	Three Months Ended
	September 30,
	2022			2021
			Weighted			Weighted
			Average			Average
			Exercise			Exercise
	Options		Price ($)	Options		Price ($)
Options outstanding at beginning of period		1,310,465	19.39		1,087,464	23.46
Grants		600	6.75		9,350	8.52

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Forfeitures and expirations		(13,608)	16.69		(15,376)	21.85
Exercises		(2,562)	5.85		—	—
Options outstanding at period end		1,294,895	19.44		1,081,438	23.36
Options exercisable at period end		921,965	25.04		780,062	29.61
Weighted average per share fair value of options granted during the period	$	4.58		$	5.67

The following table provides presents a summary of stock option activity for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended
	September 30,
	2022			2021
			Weighted			Weighted
			Average			Average
			Exercise			Exercise
	Options		Price ($)	Options		Price ($)
Options outstanding at beginning of period		1,075,795	23.35		939,379	26.72
Grants		285,850	4.96		222,650	5.63
Forfeitures		(64,188)	20.46		(74,194)	14.15
Exercises		(2,562)	5.85		(6,397)	6.59
Options outstanding at period end		1,294,895	19.44		1,081,438	23.36
Options exercisable at period end		921,965	25.04		780,062	29.61
Weighted average per share fair value of options granted during the period	$	3.32		$	3.65

The following table provides additional information related to outstanding stock options as of September 30, 2022:



					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price ($)		Term		Value ($)
							(In thousands)
Outstanding		1,294,895		19.44		5.88 years		80
Exercisable		921,965		25.04		4.74 years		47
Outstanding, vested and expected to vest		1,247,077		19.98		5.76 years		75

The following table provides additional information related to outstanding stock options as of December 31, 2021:



					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price ($)		Term		Value ($)
							(In thousands)
Outstanding		1,075,795		23.35		5.56 years		21
Exercisable		809,837		28.76		4.57 years		5
Outstanding, vested and expected to vest		1,043,347		23.88		5.46 years		19

As of September 30, 2022, 704,785 shares remain available for grant under the 2019 Plan.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Stock

The following table presents a summary of restricted stock activity for the three months ended September 30, 2022 and 2021:



	Three Months Ended
	September 30,
	2022				2021
			Weighted				Weighted
			Average				Average
			Grant Date				Grant Date
	Shares		Fair Value ($)		Shares		Fair Value ($)
Restricted stock outstanding at beginning of period		86,563		4.98		46,250		5.65
Grants		—		—		3,000		8.59
Vested units		—		—		—		—
Forfeitures		—		—		—		—
Restricted stock outstanding at period end		86,563		4.98		49,250		5.83

The following table presents a summary of restricted stock activity for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended
	September 30,
	2022				2021
			Weighted				Weighted
			Average				Average
			Grant Date				Grant Date
	Shares		Fair Value ($)		Shares		Fair Value ($)
Restricted stock outstanding at beginning of period		46,250		5.65		30,086		3.12
Grants		57,500		4.96		55,500		5.73
Vested units		(9,687)		5.01		(25,403)		3.12
Forfeitures		(7,500)		8.93		(10,933)		4.20
Restricted stock outstanding at period end		86,563		4.98		49,250		5.83

Employee stock-based compensation expense related to restricted stock recognized in accordance with ASC 718, Compensation - Stock Compensation (ASC 718) was $0 and $23,000 for the three months ended September 30, 2022 and 2021, respectively. Employee stock-based compensation expense related to restricted stock recognized in accordance with ASC 718 was $46,000 and $58,000 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the total unrecognized compensation cost related to restricted stock was $363,000 and is expected to be recognized over a weighted average period of 2.94 years.

Employee Stock Purchase Plan

During the three months ended September 30, 2022 and 2021, the Company recorded compensation expense related to its employee stock purchase plan of approximately $9,000, and $15,000, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded compensation expense related to its employee stock purchase plan of approximately $24,000 and $34,000, respectively.

14. INCOME TAXES

In accordance with ASC 740, Income Taxes, the Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities at the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a valuation allowance against its net deferred tax asset to reduce the net carrying value to an amount that is more likely than not to be realized. At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimate reflects, among other items, the Company’s best estimate of operating results and foreign currency exchange rates.

The Company also applies the provisions for income taxes related to, among other things, accounting for uncertain tax positions and disclosure requirements. There has been no change to the Company’s policy that recognizes potential interest and penalties related to

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

uncertain tax positions. The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world.

For the nine months ended September 30, 2022, the Company has not recorded income tax expense or benefit. The Company has incurred losses in all material jurisdictions for the current quarter. No tax benefit is expected to be realized for the losses in the United States and the United Kingdom due to the ongoing losses and valuation allowances in these jurisdictions. Tax expense or benefit for income and losses in other jurisdictions (Ireland, Germany, and Portugal) are immaterial for the quarter.

At December 31, 2021, the Company had U.S. federal NOL carry-forwards of approximately $143,200,000 and state NOL carry-forwards of approximately $106,700,000 available to reduce future taxable income. The Company’s U.S. federal NOL carry-forwards remain fully reserved as of September 30, 2022. Except for the NOLs generated after 2017, the U.S. federal NOLs not fully utilized will expire at various dates between 2029 and 2038; most state NOL carry-forwards will expire at various dates between 2021 and 2041. Under the Tax Cuts and Jobs Act of 2017, U.S. federal NOLs and some state NOLs generated after 2017 will carryforward indefinitely.

As of December 31, 2021, the Company’s U.K. subsidiary is in a net deferred tax asset position primarily due to the step up in tax basis for intangible assets created by the transfer of intellectual property from the Netherlands to the U.K. Based upon the expected pattern of reversal of deferred taxes, it is not more likely than not that these deferred tax assets will be realized. As such, a full valuation allowance is placed against the net deferred tax assets of the U.K. subsidiary. The Company’s Irish subsidiary has a deferred tax asset for net operating loss carryforwards. The Company expects this net operating loss carryforward to be fully realizable in the future based upon the Company’s control of the transfer pricing arrangements. A valuation allowance is not recorded on the deferred tax assets of the Ireland subsidiary. Deferred tax considerations for all other foreign entities are immaterial to the financial statements.

The Company anticipates that its foreign subsidiaries will be profitable and have earnings in the future. Once the foreign subsidiaries have earnings, the Company intends to indefinitely reinvest in its foreign subsidiaries all undistributed earnings and original investments in such subsidiaries. As a result, the Company does not expect to record deferred tax liabilities in the future related to excesses of book over tax basis in the stock of its foreign subsidiaries in accordance with ASC 740-30-25.

Tax years from 2018 to 2020 remain subject to examination in California, Georgia, Kentucky, Tennessee, Texas and on the federal level, with the exception of the assessment of NOL carry-forwards available for utilization, which can be examined for all years since 2009. The statute of limitations on these years will close when the NOLs expire or when the statute closes on the years in which the NOLs are utilized.

15. SEGMENT INFORMATION

During the three months ended September 30, 2022 and 2021, two customers within the U.S. segment that are large pharmaceutical distributors accounted for 65% and 57%, respectively, of the Company’s consolidated product revenues. During the nine months ended September 30, 2022 and 2021, two customers within the U.S. segment that are large pharmaceutical distributors accounted for 62% and 54%, respectively, of the Company’s consolidated product revenues. These same two customers within the U.S. segment accounted for approximately 68% and 64% of the Company’s consolidated accounts receivable at September 30, 2022 and at December 31, 2021, respectively.

During the first quarter of 2021, the Chief Executive Officer (CEO), who is the chief operating decision maker, changed the manner in which the chief operating decision maker monitors performance, aligns strategies and allocates resources, which resulted in a change in the operating segments. The Company’s operations are now managed as three operating segments: U.S., International and Operating Cost. The Company determined that each of these operating segments represented a reportable segment. Previously, the Company was managed as two operating segments: U.S. and International. In monitoring performance, aligning strategies and allocating resources, the chief operating decision maker manages and evaluates the Company’s U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, the Company classifies within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.

The Company’s U.S. and International segments represent the sales and marketing, general and administrative and research and

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development.

Each of the Company’s U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to the Company’s consolidated totals. The Company does not report balance sheet information by segment because the chief operating decision maker does not review that information. The Company allocates certain operating expenses among its reporting segments based on activity-based costing methods. These activity-based costing methods require the Company to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment.

The following tables present a summary of the Company’s reporting segments for the three months ended September 30, 2022 and 2021:



	Three Months Ended
	September 30, 2022
	U.S.		International		Operating Cost		Other		Consolidated
	(In thousands)
REVENUE:
PRODUCT REVENUE, NET	$	8,920	$	4,678	$	—	$	—	$	13,598
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(1,057)		(949)		—		—		(2,006)
GROSS PROFIT		7,863		3,729		—		—		11,592
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		1,229		942		2,353		(41)		4,483
GENERAL AND ADMINISTRATIVE EXPENSES		367		434		2,417		134		3,352
SALES AND MARKETING EXPENSES		4,439		1,873		142		50		6,504
DEPRECIATION AND AMORTIZATION		—		—		—		664		664
OPERATING EXPENSES		6,035		3,249		4,912		807		15,003
SEGMENT INCOME (LOSS) FROM OPERATIONS		1,828		480		(4,912)		(807)		(3,411)
OTHER INCOME AND EXPENSES, NET		—		—		—		(1,834)		(1,834)
NET LOSS BEFORE TAXES									$	(5,245)



	Three Months Ended
	September 30, 2021
	U.S.		International		Operating Cost		Other		Consolidated
	(In thousands)
REVENUE:
PRODUCT REVENUE, NET	$	6,917	$	5,236	$	—	$	—	$	12,153
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(830)		(859)		—		—		(1,689)
GROSS PROFIT		6,087		4,377		—		—		10,464
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		1,042		979		1,221		36		3,278
GENERAL AND ADMINISTRATIVE EXPENSES		224		6		2,429		149		2,808
SALES AND MARKETING EXPENSES		3,943		1,610		138		60		5,751
DEPRECIATION AND AMORTIZATION		—		—		—		649		649
OPERATING EXPENSES		5,209		2,595		3,788		894		12,486
SEGMENT INCOME (LOSS) FROM OPERATIONS		878		1,782		(3,788)		(894)		(2,022)
OTHER INCOME AND EXPENSES, NET		—		—		—		(2,330)		(2,330)
NET LOSS BEFORE TAXES									$	(4,352)

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables present a summary of the Company’s reporting segments for the nine months ended September 30, 2022 and 2021:



	Nine Months Ended
	September 30, 2022
	U.S.		International		Operating Cost		Other		Consolidated
	(In thousands)
REVENUE:
PRODUCT REVENUE, NET	$	24,783	$	15,317	$	—	$	—	$	40,100
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(2,932)		(2,920)		—		—		(5,852)
GROSS PROFIT		21,851		12,397		—		—		34,248
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		3,680		2,665		5,612		41		11,998
GENERAL AND ADMINISTRATIVE EXPENSES		878		1,326		6,810		523		9,537
SALES AND MARKETING EXPENSES		13,739		5,932		392		159		20,222
DEPRECIATION AND AMORTIZATION		—		—		—		2,023		2,023
OPERATING EXPENSES		18,297		9,923		12,814		2,746		43,780
SEGMENT INCOME (LOSS) FROM OPERATIONS		3,554		2,474		(12,814)		(2,746)		(9,532)
OTHER INCOME AND EXPENSES, NET		—		—		—		(4,766)		(4,766)
NET LOSS BEFORE TAXES									$	(14,298)



	Nine Months Ended
	September 30, 2021
	U.S.		International		Operating Cost		Other		Consolidated
	(In thousands)
REVENUE:
PRODUCT REVENUE, NET	$	18,352	$	15,670	$	—	$	—	$	34,022
LICENSE REVENUE		—		11,048		—		—		11,048
NET REVENUE		18,352		26,718		—		—		45,070
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(2,285)		(2,779)		—		—		(5,064)
GROSS PROFIT		16,067		23,939		—		—		40,006
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		2,641		3,005		4,343		69		10,058
GENERAL AND ADMINISTRATIVE EXPENSES		694		1,064		7,311		508		9,577
SALES AND MARKETING EXPENSES		10,889		4,407		423		181		15,900
DEPRECIATION AND AMORTIZATION		—		—		—		1,920		1,920
OPERATING EXPENSES		14,224		8,476		12,077		2,678		37,455
SEGMENT INCOME (LOSS) FROM OPERATIONS		1,843		15,463		(12,077)		(2,678)		2,551
OTHER INCOME AND EXPENSES, NET		—		—		—		(2,346)		(2,346)
NET INCOME BEFORE TAXES									$	205

16. OTHER AGREEMENTS WITH OCUMENSION

Share Purchase Agreement

On April 14, 2021, the Company entered into a Share Purchase Agreement with Ocumension Therapeutics, pursuant to which the Company offered and sold to Ocumension 1,144,945 shares of common stock (the “Shares”), at a purchase price of $8.734044 per Share. The number of Shares sold was equal to 19.9% of the number of shares of common stock outstanding immediately before the closing.

The aggregate gross proceeds from the sale of the Shares were $10,000,000. The Company has used and intends to continue to use the net proceeds from the sale of the Shares to continue to commercialize ILUVIEN® and for general corporate purposes, which may include working capital, capital expenditures, other clinical trial expenditures, acquisitions of new technologies, products or businesses in ophthalmology, and investments.

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pursuant to the Share Purchase Agreement and subject to certain limited exceptions, Ocumension is prohibited from selling, transferring, or otherwise disposing of the Shares for a year following the closing date.

Ocumension is entitled to certain purchase rights if the Company elects to offer or sell new securities in either a private or public offering.

Warrant Subscription Agreement

On April 14, 2021, the Company entered into the warrant agreement with Ocumension Therapeutics pursuant to which Ocumension agreed to issue to the Company 1,000,000 non-transferable warrants granting the Company the right for a period of four years to subscribe to up to an aggregate of 1,000,000 shares of Ocumension stock at the subscription price of HK$23.88 per warrant share (or US$3.07 per warrant share as converted to U.S. Dollars at the exchange rate on April 9, 2021 of 0.12853 U.S. Dollars per HK$), subject to adjustment. (The converted rate is for illustrative purposes only; if the Company exercises the warrants, it will pay the subscription price of HK$23.88 per warrant share in HK$.) The warrants were issued on August 13, 2021, pursuant to the terms of the warrant agreement. The warrants are not and will not be listed on any stock exchange.

‎

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ALIMERA SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. FAIR VALUE

The Company applies ASC 820, Fair Value Measurements, in determining the fair value of certain assets and liabilities. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Currently, the only asset being valued in this manner is the warrant agreement with Ocumension Therapeutics described in the previous paragraph.

In determining fair value, the Company uses various valuation approaches. The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability, (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The following fair value tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis:



	September 30, 2022
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Warrant asset (1)	$	—	$	235	$	—	$	235
Assets measured at fair value	$	—	$	235	$	—	$	235



	December 31, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Warrant asset (1)	$	—	$	833	$	—	$	833
Assets measured at fair value	$	—	$	833	$	—	$	833

(1) The Company uses the Black-Scholes pricing model and assumptions that consider, among other variables, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. Changes in this value each reporting period are reported in the condensed consolidated statement of operations.

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

The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes (Interim Financial Statements) that appear elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors. For further information regarding forward-looking statements, please refer to the “Special Note Regarding Forward-Looking Statements and Projections” immediately after the index to this report above.

Overview

Alimera Sciences, Inc., and its subsidiaries (we, our or us), is a pharmaceutical company that specializes in the commercialization and development of prescription ophthalmic pharmaceuticals. We focus on diseases affecting the back of the eye, or retina, because we believe these diseases are not well treated with current therapies and affect millions of people globally. Our only product is ILUVIEN^®, which has received marketing authorization and reimbursement in numerous countries for the treatment of DME. In the U.S. and certain other countries outside Europe, ILUVIEN is indicated for the treatment of DME in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure. In 17 countries in Europe, ILUVIEN is indicated for the treatment of vision impairment associated with chronic DME considered insufficiently responsive to available therapies. ILUVIEN is also now indicated in 17 countries in Europe for prevention of relapse in recurrent non-infectious uveitis affecting the posterior segment of the eye (NIU-PS).

We market ILUVIEN directly in the U.S., Germany, the U.K., Portugal and Ireland, and we have made ILUVIEN available in the Nordic Region (Denmark, Finland, Norway and Sweden) with the support of an exclusive wholesaler. In addition, we have entered into various agreements under which distributors are providing or will provide regulatory, reimbursement and sales and marketing support for ILUVIEN in Austria, Belgium, the Czech Republic, France, Italy, Luxembourg, the Netherlands, Spain, Australia, New Zealand and several countries in the Middle East. Further, we have granted an exclusive license to Ocumension Therapeutics for the development and commercialization of our 0.19mg fluocinolone acetonide intravitreal implant in China, East Asia and the Western Pacific.

Where We Market ILUVIEN to Treat Diabetic Macular Edema (DME)

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


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

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Where We Market ILUVIEN to Treat Recurrent Non-Infectious Uveitis Affecting the Posterior Segment of the Eye (NIU-PS)

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

Indication for the

Treatment of NIU-PS

Countries

Where ILUVIEN Has

Received Marketing Authorization

to Treat NIU-PS

Countries

Where ILUVIEN Has

Received Reimbursement Approval to Treat NIU-PS

Countries Where

ILUVIEN is

Currently Marketed

to Treat NIU-PS

The prevention of relapse in recurrent NIU-PS

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

The U.K., Germany, Ireland (private sector), Italy, France, Spain, the Czech Republic, Luxembourg and the Netherlands

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

The COVID-19 Pandemic and Our Steps to Address its Effects on Our Business

The unprecedented events of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues, liquidity and financial condition. These adverse effects of the pandemic on us have resulted from the following, among other factors:

•Limitations imposed by governments and private parties on in-person access to physicians have adversely affected us in certain countries where ILUVIEN is currently marketed and may again do so if reimposed where they have been lifted.

•Patients’ concerns about their personal health during the COVID-19 pandemic have also negatively affected our business.

•Limitations on travel curtailed our in-person marketing activities, and may again do so if reimposed.

•Pressure on health services arising from winter epidemics of COVID and flu can result in prioritization of hospital resources and cancellation or delay of elective procedures such as intravitreal injections.

•SARS-CoV-2 variants may continue to emerge, with unpredictable effects on our business.

These factors may continue to adversely impact our revenue in affected markets and our capital resources, although the extent and duration of that impact is currently uncertain. (Please refer to “Special Note Regarding Forward-Looking Statements and Projections” above.)

In response to these developments, we have implemented measures to mitigate the impact of the pandemic on our financial position and operations. We are continuing to monitor the effects of the SARS-CoV-2 variants and to increase our engagement with our customers to mitigate any anticipated loss of revenue in those markets that may be affected.

For more information about the effect of the COVID-19 pandemic on our business and the related risks we face, please see Part I, Item 1A, “Risk Factors – Risks Related to the Public Health Pandemic,” in the 2021 Form 10-K.

Transactions with Ocumension Therapeutics

On April 14, 2021, we entered into a transaction with Ocumension Therapeutics, incorporated in the Cayman Islands with limited liability (Ocumension), or one of its affiliates. In the Ocumension transaction, we received a total of $20.0 million in cash under two agreements:

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•a Share Purchase Agreement with Ocumension, pursuant to which we offered and sold to Ocumension 1,144,945 shares of our common stock at a purchase price of $8.734044 per share, or $10.0 million in total; and

•an Exclusive License Agreement (the Ocumension License Agreement) with a wholly owned subsidiary of Ocumension, pursuant to which we granted an exclusive license for the development and commercialization of our 190 microgram fluocinolone acetonide intravitreal implant in applicator under Ocumension’s own branded label in China, East Asia, and the Western Pacific, in exchange for a nonrefundable upfront payment of $10.0 million and aggregated potential sales milestone payments of up to $89.0 million upon achievement by the Ocumension subsidiary of specified amounts of net sales of the licensed product in in the future. We recognized $11.0 million in license revenue from the Ocumension transaction (including the value of a warrant subscription agreement, which we received as consideration from Ocumension, to purchase 1,000,000 shares of Ocumension Therapeutics during a period of four years (the Ocumension Warrant)), in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, with the remaining approximate $300,000 in consideration received classified as deferred revenue that will be recognized over the remaining term of the license agreement once Ocumension begins to sell products. Revenue from the Ocumension License Agreement is included within net revenue in the accompanying condensed consolidated statements of operations.

For more information about the Ocumension transaction, see Notes 9 and 16 in the Interim Financial Statements and our Current Report on Form 8-K filed with the SEC on April 14, 2021.

Sources of Revenues

Our revenues for the three months ended September 30, 2022 and 2021 were generated from product sales primarily in the U.S., Germany and the U.K. Our revenues for the nine months ended September 30, 2022 and 2021 were generated from product sales primarily in the U.S., Germany and the U.K. For the nine months ended September 30, 2021, our revenues also reflected (a) the recognition of $1.0 million of deferred revenue associated with the termination of our Canadian distribution agreement with Knight Therapeutics, and (b) license revenue of $11.0 million from (i) the upfront license payment under the Ocumension License Agreement and (ii) the value of the Ocumension Warrant under an analysis performed utilizing ASC 606, Revenue from Contracts with Customers. In the U.S., two large pharmaceutical distributors accounted for 65% and 57% of our consolidated product revenues for the three months ended September 30, 2022 and 2021, respectively, and 62% and 54% of our consolidated product revenues for the nine months ended September 30, 2022 and 2021, respectively. These U.S.-based distributors purchase ILUVIEN from us, maintain inventories of ILUVIEN and sell downstream to physician offices, pharmacies and hospitals. Internationally, in countries where we sell direct, our customers are hospitals, clinics and pharmacies. We sometimes refer to physician offices, pharmacies, hospitals and clinics as end users. In international countries where we sell to distributors, these distributors maintain inventory levels of ILUVIEN for sale to their customers.

License Agreement with EyePoint Pharmaceuticals US, Inc.

Under the July 2017 New Collaboration Agreement with EyePoint Pharmaceuticals US, Inc. (EyePoint), we have rights to the technology underlying ILUVIEN for the treatment of (a) human eye diseases, including uveitis, in Europe, the Middle East, and Africa, and (b) human eye diseases other than uveitis worldwide. During each of the three and nine months ended September 30, 2022 and 2021, our net royalty expense payable to EyePoint was 5.2%. We will pay an additional 2% royalty on future global net revenues and other related consideration in excess of $75.0 million in any year. (For more information about our agreement with EyePoint, including how we calculate the royalty percentages we are required to pay, see Note 9 in the Interim Financial Statements.)

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Consolidated Results of Operations


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands, except share and per share data)
REVENUE:
PRODUCT REVENUE, NET	$	13,598	$	12,153	$	40,100	$	34,022
LICENSE REVENUE		—		—		—		11,048
NET REVENUE		13,598		12,153		40,100		45,070
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(2,006)		(1,689)		(5,852)		(5,064)
GROSS PROFIT		11,592		10,464		34,248		40,006
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		4,483		3,278		11,998		10,058
GENERAL AND ADMINISTRATIVE EXPENSES		3,352		2,808		9,537		9,577
SALES AND MARKETING EXPENSES		6,504		5,751		20,222		15,900
DEPRECIATION AND AMORTIZATION		664		649		2,023		1,920
OPERATING EXPENSES		15,003		12,486		43,780		37,455
(LOSS) INCOME FROM OPERATIONS		(3,411)		(2,022)		(9,532)		2,551
INTEREST EXPENSE AND OTHER		(1,500)		(1,360)		(4,247)		(4,050)
UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET		(67)		142		79		323
GAIN ON EXTINGUISHMENT OF DEBT		—		—		—		1,792
CHANGE IN FAIR VALUE OF WARRANT ASSET		(267)		(1,112)		(598)		(411)
NET (LOSS) INCOME BEFORE TAXES		(5,245)		(4,352)		(14,298)		205
INCOME TAX (PROVISION) BENEFIT		(12)		169		(29)		(471)
NET LOSS	$	(5,257)	$	(4,183)	$	(14,327)	$	(266)
NET LOSS PER SHARE — Basic and Diluted	$	(0.75)	$	(0.60)	$	(2.05)	$	(0.04)
WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and Diluted		6,996,575		6,924,174		6,995,695		6,480,952

Net Revenue

We generate revenue from ILUVIEN, our only product. In addition to generating revenue from product sales, we seek to generate revenue from other sources such as upfront fees, milestone payments in connection with collaborative or strategic relationships, and royalties resulting from the licensing of ILUVIEN or any future product candidates and other intellectual property. Revenue from our international distributors fluctuates depending on the timing of the shipment of ILUVIEN to the distributors and the distributors’ sales of ILUVIEN to their customers.

Net revenue increased by approximately $1.4 million, or 11%, to approximately $13.6 million for the three months ended September 30, 2022, compared to approximately $12.2 million for the three months ended September 30, 2021. The increase was primarily due to increased access to physicians, improved patient flow in physician practices, and investment in our sales, marketing, scientific and medical programs. Partially offsetting this increase, our international product revenue for the three months ended September 30, 2022, as reported in U.S. dollars, was negatively affected in comparison to the 2021 period by changes in foreign currency exchange rates that reduced our international revenue for the 2022 period by approximately 18%, or $810,000. Adjustments in net product revenue to exclude fluctuations in foreign currency exchange rates result in a non-GAAP financial measure. Please refer to “Liquidity and Capital Resources – Non-GAAP Financial Measure” on page 44 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.

Net revenue decreased by approximately $5.0 million, or 11%, to approximately $40.1 million for the nine months ended September 30, 2022, compared to approximately $45.1 million for the nine months ended September 30, 2021. The decrease was primarily attributable to (a) the $11.0 million of recognized license revenue from our transactions with Ocumension and (b) the recognition of $1.0 million in deferred product revenue associated with the termination of our Canadian distribution agreement with Knight Therapeutics, both of which were recognized during the nine months ended September 30, 2021. Offsetting these decreases, consolidated net product revenue increased by approximately $6.1 million, or 18%, to approximately $40.1 million from $34.0 million for the nine months ended September 30, 2022 and 2021, respectively. The increase was primarily due to increased access to physicians, improved patient flow in physician practices, and investment in our sales, marketing, scientific and medical programs. Partially offsetting this increase, our international net product revenue for the nine months ended September 30, 2022, as reported in U.S. dollars, was negatively affected in comparison to the 2021 period by changes in foreign exchange rates that reduced our international revenue for the 2022 period by approximately 12%, or $1.9 million. Please

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refer to “Liquidity and Capital Resources – Non-GAAP Financial Measure” on page 44 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.

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

Gross profit is affected by costs of goods sold, which includes costs of manufactured goods sold and royalty payments to EyePoint under the New Collaboration Agreement. Additionally, cost of goods sold by our international distributors fluctuates depending on the revenue share attributable to the respective contract.

Cost of goods sold, excluding depreciation and amortization, increased by approximately $300,000, or 18%, to approximately $2.0 million for the three months ended September 30, 2022, compared to approximately $1.7 million for the three months ended September 30, 2021. The increase was primarily related to our increased product sales.

Cost of goods sold, excluding depreciation and amortization, increased by approximately $800,000, or 16%, to approximately $5.9 million for the nine months ended September 30, 2022, compared to approximately $5.1 million for the nine months ended September 30, 2021. The increase was primarily related to our increased product sales.

Gross profit increased by approximately $1.1 million, or 10%, to approximately $11.6 million for the three months ended September 30, 2022, compared to approximately $10.5 million for the three months ended September 30, 2021. Gross margin was 85% and 86% for the three months ended September 30, 2022 and 2021, respectively.

Gross profit decreased by approximately $5.8 million or 15%, to approximately $34.2 million for the nine months ended September 30, 2022, compared to approximately $40.0 million for the nine months ended September 30, 2021. Gross margin was 85% and 89% for the nine months ended September 30, 2022 and 2021, respectively. The decrease was primarily related to the events associated with Ocumension and Knight Therapeutics described above, both of which were recognized during the 2021 period.

Research, Development and Medical Affairs Expenses

Currently, our research, development and medical affairs expenses are primarily focused on activities that support ILUVIEN and include salaries and related expenses for research and development and medical affairs personnel, including medical science liaisons. Our research, development and medical affairs expenses also include costs related to clinical studies such as the NEW DAY Study and the provision of medical affairs support, including symposia development for physician education, and costs related to compliance with FDA, EEA or other regulatory requirements. We expense both internal and external research and development costs as they are incurred.

Research, development and medical affairs expenses increased by approximately $1.2 million, or 36%, to approximately $4.5 million for the three months ended September 30, 2022, compared to approximately $3.3 million for the three months ended September 30, 2021. The increase was primarily attributable to increases of approximately $400,000 in inserter component manufacturing costs, $370,000 of clinical study costs related to increased enrollment in our NEW DAY Study, and $280,000 in personnel and travel costs.

Research, development and medical affairs expenses increased by approximately $1.9 million, or 19%, to approximately $12.0 million for the nine months ended September 30, 2022, compared to approximately $10.1 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $630,000 of personnel and travel costs, $610,000 in inserter component manufacturing costs, $440,000 in scientific communication costs, and $290,000 of clinical study costs related to increased enrollment in our NEW DAY Study. These increases were offset by a decrease of $230,000 of quality assurance costs.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for employees in executive and administrative functions, including finance, accounting, legal, information technology, training and employee development. Other significant costs include facilities costs and professional fees for accounting and legal services. We expect to continue to incur significant costs to comply with the reporting, corporate governance, internal control and similar requirements applicable to public companies.

General and administrative expenses increased by approximately $600,000, or 21%, to approximately $3.4 million for the three months ended September 30, 2022, compared to approximately $2.8 million for the three months ended September 30, 2021. The increase was primarily attributable to an offsetting recovery of $560,000 in VAT expense during the three months ended September 30, 2021.

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General and administrative expenses decreased by approximately $40,000, or 4%, to approximately $9.5 million for the nine months ended September 30, 2022, compared to approximately $9.6 million for the nine months ended September 30, 2021.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of third-party service fees and compensation for employees for the commercial promotion of, the assessment of the commercial opportunity of, the development of market awareness for, the pursuit of reimbursement approval for, and the commercialization of ILUVIEN, including launch plans for ILUVIEN in new markets. Other costs include professional fees associated with developing plans for ILUVIEN or any future products or product candidates and maintaining public relations.

Sales and marketing expenses increased by approximately $800,000, or 14%, to approximately $6.5 million for the three months ended September 30, 2022, compared to approximately $5.7 million for the three months ended September 30, 2021. The increase was primarily attributable to increases of approximately $760,000 in marketing costs, including costs to attend conventions, costs related to our direct to patient marketing campaign and costs associated with customer engagement which has contributed to our increase net product revenue.

Sales and marketing expenses increased by approximately $4.3 million, or 27%, to approximately $20.2 million for the nine months ended September 30, 2022, compared to approximately $15.9 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $2.5 million in marketing costs, including costs to attend conventions, costs related to our direct to patient marketing campaign and costs associated with customer engagement which has contributed to our increase net product revenue and $1.5 million of added personnel costs, including commissions, and travel expenses.

Operating Expenses

As a result of the increases and decreases in various expenses described above, total operating expenses increased by approximately $2.5 million, or 20%, to approximately $15.0 million for the three months ended September 30, 2022, compared to approximately $12.5 million for the three months ended September 30, 2021. The increase was primarily attributable to increases of approximately $1.2 million in research, development and medical affairs expenses, $800,000 in sales and marketing expenses and $600,000 in general and administrative expenses as described above.

As a result of the increases and decreases in various expenses described above, total operating expenses increased by approximately 6.3 million, or 17%, to approximately $43.8 million for the nine months ended September 30, 2022, compared to approximately $37.5 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $4.3 million in sales and marketing expenses and $1.9 million in research, development and medical affairs expenses. These increases were partially offset by a decrease of approximately $40,000 in general and administrative expenses as described above.

Interest Expense and Other

Interest Expense and Other increased by approximately $100,000, or 7%, to approximately $1.5 million for the three months ended September 30, 2022, compared to approximately $1.4 million for the three months ended September 30, 2021. This increase is related to the increasing interest rate on our debt.

Interest Expense and Other increased by approximately $200,000 or 5% to approximately $4.2 million for the nine months ended September 30, 2022 compared to approximately $4.0 million for the nine months ended September 30, 2021. This increase is related to the increasing interest rate on our debt.

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

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

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

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Common stock equivalent securities that would potentially dilute basic EPS in the future but were not included in the computation of diluted EPS because they were either classified as participating and do not share in losses or would have been anti-dilutive. Those securities were approximately 1.9 million for the three and nine months ended September 30, 2022, and 1.7 million for the three and nine months ended September 30, 2021.

Results of Operations – Segment Review

The following selected unaudited financial and operating data are derived from our Interim Financial Statements. The results and discussions that follow reflect how our Chief Executive Officer (CEO), who is the chief operating decision maker, monitors the performance of our reporting segments.

Our U.S. and International segments represent the sales and marketing, general and administrative and research and development activities dedicated to the respective geographies. The Operating Cost segment primarily represents the general and administrative and research and development activities not specifically associated with the U.S. or International segments and includes expenses such as executive management; information technology administration and support; legal; compliance; clinical studies; and business development. In monitoring performance, aligning strategies and allocating resources, our chief operating decision maker manages and evaluates our U.S., International and Operating Cost segments based on segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. Therefore, we classify within Other (a) the non-cash expenses included in research, development and medical affairs expenses; general and administrative expenses; and sales and marketing expenses; and (b) depreciation and amortization.

Each of our U.S., International and Operating Cost segments is separately managed and is evaluated primarily upon segment income or loss from operations. Other is presented to reconcile to our consolidated totals. For that reconciliation, please see Note 19 in the Interim Financial Statements. We do not report balance sheet information by segment because our chief operating decision maker does not review that information. We allocate certain operating expenses among our reporting segments based on activity-based costing methods. These activity-based costing methods require us to make estimates that affect the amount of each expense category that is attributed to each segment. Changes in these estimates will directly affect the amount of expense allocated to each segment and therefore the operating profit of each reporting segment.

U.S. Segment



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands)
REVENUE:
PRODUCT REVENUE, NET	$	8,920	$	6,917	$	24,783	$	18,352
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(1,057)		(830)		(2,932)		(2,285)
GROSS PROFIT		7,863		6,087		21,851		16,067
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		1,229		1,042		3,680		2,641
GENERAL AND ADMINISTRATIVE EXPENSES		367		224		878		694
SALES AND MARKETING EXPENSES		4,439		3,943		13,739		10,889
OPERATING EXPENSES		6,035		5,209		18,297		14,224
SEGMENT INCOME FROM OPERATIONS	$	1,828	$	878	$	3,554	$	1,843

U.S. Segment – three months ended September 30, 2022 compared to the three months ended September 30, 2021

Product revenue, net. Product revenue, net increased by approximately $2.0 million, or 29%, to approximately $8.9 million for the three months ended September 30, 2022, compared to approximately $6.9 million for the three months ended September 30, 2021. The increase was primarily due to increased access to physicians, improved patient flow in physician practices and investment in our sales, marketing, scientific and medical programs.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $270,000, or 33%, to approximately $1.1 million for the three months ended September 30, 2022, compared to approximately $830,000 for the three months ended September 30, 2021. The increase was primarily attributable to our increased product sales.

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Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $200,000, or 20%, to approximately $1.2 million for the three months ended September 30, 2022, compared to approximately $1.0 million for the three months ended September 30, 2021. The increase was primarily attributable to an increase of approximately $240,000 in personnel and travel costs.

General and administrative expenses. General and administrative expenses increased by approximately $140,000, or 63%, to approximately $370,000 for the three months ended September 30, 2022, compared to approximately $230,000 for the three months ended September 30, 2021.

Sales and marketing expenses. Sales and marketing expenses increased by approximately $500,000, or 13%, to approximately $4.4 million for the three months ended September 30, 2022, compared to approximately $3.9 million for the three months ended September 30, 2021. The increase was primarily attributable to increases of $520,000 in marketing costs, including costs to attend conventions and costs related to our direct to patient marketing campaign.

U.S. Segment – nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Net revenue. Net revenue increased by approximately $6.4 million, or 35%, to approximately $24.8 million for the nine months ended September 30, 2022, compared to approximately $18.4 million for the nine months ended September 30, 2021. The increase was primarily due to increased access to physicians, improved patient flow in physician practices and investment in our sales, marketing, scientific and medical programs.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization, increased by approximately $600,000, or 26%, to approximately $2.9 million for the nine months ended September 30, 2022, compared to approximately $2.3 million for the nine months ended September 30, 2021. The increase was primarily attributable to our increased product sales.

Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $1.0 million or 38%, to approximately $3.6 million for the nine months ended September 30, 2022, compared to approximately $2.6 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $730,000 in personnel and travel costs and $480,000 in scientific communication costs.

General and administrative expenses. General and administrative expenses increased by approximately $190,000, or 28%, to approximately $880,000 for the nine months ended September 30, 2022, compared to approximately $690,000 for the nine months ended September 30, 2021.

Sales and marketing expenses. Sales and marketing expenses increased by approximately $2.8 million, or 26%, to approximately $13.7 million for the nine months ended September 30, 2022, compared to approximately $10.9 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $1.7 million in marketing costs, including costs to attend conventions, and costs related to our direct to patient marketing campaign and $1.1 million in added personnel costs including increased commissions and travel expenses.

International Segment



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands)
REVENUE:
PRODUCT REVENUE, NET	$	4,678	$	5,236	$	15,317	$	15,670
LICENSE REVENUE		—		—		—		11,048
NET REVENUE		4,678		5,236		15,317		26,718
COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION		(949)		(859)		(2,920)		(2,779)
GROSS PROFIT		3,729		4,377		12,397		23,939
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES		942		979		2,665		3,005
GENERAL AND ADMINISTRATIVE EXPENSES		434		6		1,326		1,064
SALES AND MARKETING EXPENSES		1,873		1,610		5,932		4,407
OPERATING EXPENSES		3,249		2,595		9,923		8,476

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SEGMENT INCOME FROM OPERATIONS

480

1,782

2,474

15,463

International Segment - three months ended September 30, 2022 compared to the three months ended September 30, 2021

Net revenue. Net revenue decreased by approximately $500,000, or 10%, to approximately $4.7 million for the three months ended September 30, 2022, compared to approximately $5.2 million for the three months ended September 30, 2021. Our international product revenue for the three months ended September 30, 2022, as reported in U.S. dollars, was negatively affected in comparison to the 2021 period by changes in foreign exchange rates that reduced our international revenue for the 2022 period by approximately 18%, or $810,000. Please refer to “Liquidity and Capital Resources – Non-GAAP Financial Measure” on page 44 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization increased by approximately $90,000, or 10%, to approximately $950,000 for the three months ended September 30, 2022, compared to approximately $860,000 for the three months ended September 30, 2021.

Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $40,000, or 4%, to approximately $940,000 for the three months ended September 30, 2022, compared to approximately $980,000 for the three months ended September 30, 2021.

General and administrative expenses. General and administrative expenses were approximately $430,000 for the three months ended September 30, 2022 compared to approximately $10,000 for the three months ended September 30, 2021. The increase was primarily attributable to a recovery of $560,000 in VAT expense during the three months ended September 30, 2021.

Sales and marketing expenses. Sales and marketing expenses increased by approximately $300,000, or 19%, to approximately $1.9 million for the three months ended September 30, 2022, compared to approximately $1.6 million for the three months ended September 30, 2021. The increase was primarily attributable to increases of approximately $240,000 in marketing costs, including costs to attend conventions.

International Segment - nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Net revenue. Net revenue decreased by approximately $11.4 million, or 43%, to approximately $15.3 million for the nine months ended September 30, 2022, compared to approximately $26.7 million for the nine months ended September 30, 2021. The decrease was primarily related to the events with Ocumension and Knight Therapeutics described above, both of which were recognized during the 2021 period. Additionally, our international product revenue for the nine months ended September 30, 2022, as reported in U.S. dollars, was negatively affected in comparison to the 2021 period by changes in foreign exchange rates that reduced our international revenue for the 2022 period by approximately 12%, or $1.9 million. Please refer to “Liquidity and Capital Resources – Non-GAAP Financial Measure” on page 44 for information about this non-GAAP financial measure and a reconciliation of GAAP net product revenue to non-GAAP adjusted net product revenue.

Cost of goods sold, excluding depreciation and amortization. Cost of goods sold, excluding depreciation and amortization increased by approximately $100,000, or 4%, to $2.9 million for the nine months ended September 30, 2022 compared to approximately $2.8 million for the nine months ended September 30, 2021.

Research, development and medical affairs expenses. Research, development and medical affairs expenses decreased by approximately $300,000, or 10%, to approximately $2.7 million for the nine months ended September 30, 2022, compared to approximately $3.0 million for the three months ended September 30, 2021. The decrease was primarily attributable to a decrease in costs associated with consultants.

General and administrative expenses. General and administrative expenses increased by approximately $300,000 or 27% to approximately $1.3 million for the nine months ended September 30, 2022, compared to approximately $1.0 million for the nine months ended September 30, 2021. The increase was primarily attributable to a recovery of VAT expense during the nine months ended September 30, 2021.

Sales and marketing expenses. Sales and marketing expenses increased by approximately $1.5 million, or 34%, to approximately $5.9 million for the nine months ended September 30, 2022, compared to approximately $4.4 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $790,000 in marketing costs, including costs to attend conventions, $430,000 in personnel costs including increased commissions and travel expenses, $210,000 in market access costs and $120,000 in consultant costs.

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Operating Cost Segment



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands)
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES	$	2,353	$	1,221	$	5,612	$	4,343
GENERAL AND ADMINISTRATIVE EXPENSES		2,417		2,429		6,810		7,311
SALES AND MARKETING EXPENSES		142		138		392		423
OPERATING EXPENSES		4,912		3,788		12,814		12,077
SEGMENT LOSS FROM OPERATIONS	$	(4,912)	$	(3,788)	$	(12,814)	$	(12,077)

Operating Cost Segment - three months ended September 30, 2022 compared to the three months ended September 30, 2021

Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $1.2 million, or 93%, to approximately $2.4 million for the three months ended September 30, 2022, compared to approximately $1.2 million for the three months ended September 30, 2021. The increase was primarily attributable to increases of approximately $400,000 in inserter component manufacturing costs and $370,000 of clinical study costs, including costs associated with our NEW DAY Study.

General and administrative expenses. General and administrative expenses were approximately $2.4 million for the three months ended September 30, 2022 and September 30, 2021, respectively.

Sales and marketing expenses. Sales and marketing expenses were approximately $140,000 for each of the three months ended September 30, 2022 and September 30, 2021, respectively.

Operating Cost Segment - nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Research, development and medical affairs expenses. Research, development and medical affairs expenses increased by approximately $1.3 million, or 30%, to approximately $5.6 million for the nine months ended September 30, 2022, compared to approximately $4.3 million for the nine months ended September 30, 2021. The increase was primarily attributable to increases of approximately $610,000 in inserter component manufacturing costs and $290,000 of clinical study costs including costs associated with our NEW DAY Study.

General and administrative expenses. General and administrative expenses decreased by approximately $500,000, or 7%, to approximately $6.8 million for the nine months ended September 30, 2022, compared to approximately $7.3 million for the nine months ended September 30, 2021. The decrease was primarily attributable to decreases of $390,000 of professional fees and $210,000 in personnel and travel expenses.

Sales and marketing expenses. Sales and marketing expenses decreased by approximately $30,000, or 7%, to approximately $390,000 for the nine months ended September 30, 2022, compared to approximately $420,000 for the nine months ended September 30, 2021.

Other



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
	(In thousands)
RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES	$	(41)	$	36	$	41	$	69
GENERAL AND ADMINISTRATIVE EXPENSES		134		149		523		508
SALES AND MARKETING EXPENSES		50		60		159		181
DEPRECIATION AND AMORTIZATION		664		649		2,023		1,920
OPERATING EXPENSES		807		894		2,746		2,678
SEGMENT LOSS FROM OPERATIONS	$	(807)	$	(894)	$	(2,746)	$	(2,678)

Our CEO, who is our chief operating decision maker, manages and evaluates our U.S., International and Operating Cost segments based upon segment income or loss from operations adjusted for certain non-cash items, such as stock-based compensation expense and depreciation and amortization. We classify the non-cash expenses included in research, development and medical affairs expenses, general and administrative expenses, and sales and marketing expenses within Other in the Interim Financial Statements.

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Operating expenses. Operating expenses in Other decreased by approximately $90,000, or 10%, to $810,000 for the three months ended September 30, 2022, compared to approximately $900,000 for the three months ended September 30, 2021.

Operating expenses in Other was approximately $2.7 million for each of the nine months ended September 30, 2022 and 2021.

Depreciation and amortization. Depreciation and amortization was approximately $660,000 and $650,000 for the three months ended September 30, 2022 and 2021, respectively.

Depreciation and amortization was approximately $2.0 million and $1.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Liquidity and Capital Resources

Overview

Since inception, we have incurred recurring losses, negative cash flow from operations and have accumulated a deficit in stockholders’ equity of $411.6 million as of September 30, 2022. As of September 30, 2022, we had approximately $5.5 million in cash and cash equivalents. In mid-April 2021 we received a total of $20.0 million in cash from the Ocumension transaction described above. We have used these funds to commercialize ILUVIEN, to fund our NEW DAY clinical trial and for general corporate purposes, which may include working capital, capital expenditures, other clinical trial expenditures, acquisitions of new technologies, products or businesses in ophthalmology, and investments.

As explained above in “Effects of the COVID-19 Pandemic,” the unprecedented events of the COVID-19 pandemic, and its unpredictable duration, in the regions where we have customers, employees and distributors have had an adverse effect on our sales of ILUVIEN and thus on our net revenues, liquidity and capital resources. The duration of that impact is uncertain at this time, particularly in light of the continued emergence of SARS-CoV-2 variants that increase the transmissibility of the coronavirus.

Since January 2020, we have funded our operations through:

(a)cash received from our sales;

(b)net proceeds of the loans that we obtained in December 2019 and February 2020 from a group of lenders led by SLR Investment Corp. (formerly named Solar Capital Ltd.) under a $45.0 million loan and security agreement (the 2019 Loan Agreement);

(c)an approximately $1.8 million loan (the PPP Loan) we obtained in April 2020 under the Paycheck Protection Program established as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, which was forgiven in its entirety, including interest, on April 16, 2021; and

(d)the $20.0 million in funds we obtained in April 2021 as a result of the Ocumension transaction.

The 2019 Loan Agreement does not include a revolving loan feature and has been fully advanced by the lenders. We currently have no additional borrowing capacity, and the 2019 Loan Agreement generally prohibits any additional debt unless we obtain the prior consent of the lenders.

Indebtedness

Loans from SLR Investment Corp. (SLR, formerly known as Solar Capital Ltd. until February 2021). On January 5, 2018, we entered into a $40.0 million loan and security agreement with SLR, as Collateral Agent, and the parties signatory thereto from time to time as Lenders, including SLR in its capacity as a lender (the 2018 Loan Agreement). On December 31, 2019, we refinanced the 2018 Loan Agreement by entering into a $45.0 million loan and security agreement (the 2019 Loan Agreement) with SLR, as the Collateral Agent, and the parties signing the loan agreement from time to time as Lenders, including SLR in its capacity as a Lender (collectively, the Lenders). Under the 2019 Loan Agreement, we borrowed $42.5 million on December 31, 2019 and borrowed the remaining $2.5 million on February 21, 2020. The two borrowings under the 2019 Loan Agreement totaled $45.0 million and are referred to as the SLR Loan. The SLR Loan matures on July 1, 2024. We used the initial proceeds of the SLR Loan to pay off the outstanding loan under the 2018 Loan Agreement, along with related prepayment, legal and other fees and expenses totaling approximately $2.3 million, which included $2.2 million in fees to SLR. We used the remaining proceeds of the SLR Loan to provide additional working capital for general corporate

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purposes during 2020 and the first half of 2021.

On May 1, 2020, we entered into a First Amendment to the 2019 Loan Agreement (the First Amendment). The First Amendment included revised covenants that applied to our financial performance during 2020, all of which we met. The First Amendment, among other things, required that a minimum revenue covenant be measured at March 31, 2021 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with a plan we submitted to the Collateral Agent in February 2021, with such plan to be approved by our board of directors (the Board) and the Collateral Agent in its sole discretion.

On March 30, 2021, we entered into a Second Amendment to the 2019 Loan Agreement (the Second Amendment), which among other things:

(a)reflected the Collateral Agent’s consent to our delivery of Board-approved annual financial projections for 2021 by April 1, 2021 (which we delivered in a timely manner);

(b)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2021, that we must achieve for each such period (the Revenue Covenant);

(c)required that the Revenue Covenant be tested at March 31, 2022 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan we must submit to the Collateral Agent by January 15th of such year, such plan to be approved by our Board and the Collateral Agent in its sole discretion; and

(d)provided that in future years we must deliver to the Collateral Agent and the Lenders as soon as available after approval thereof by our Board, but no later than the earlier of (x) 15 days after such approval and (y) February 28 of such year, our annual financial projections for the entire current fiscal year as approved by our Board, provided that any revisions to such projections approved by our Board shall be delivered to the Collateral Agent and the Lenders no later than seven days after such approval.

On February 22, 2022, we entered into a Third Amendment to the 2019 Loan Agreement (the Third Amendment), which, among other things:

(a)specified the minimum revenue amount, calculated on a trailing six-month basis and tested at the end of each calendar quarter in 2022, that we must achieve for each such period (the Revenue Covenant);

(c)required that the Revenue Covenant be tested at March 31, 2023 and at the last day of each quarter thereafter, with the minimum revenue amount equal to a percentage of our projected revenues in accordance with an annual plan we must submit to the Collateral Agent by January 15 of such year, such plan to be thereafter approved by our Board and the Collateral Agent in its sole discretion no later than February 28 of such year.

The Federal Reserve has raised interest rates to combat the effects of inflation and has announced that it expects to continue to do so in the future. An increase in LIBOR (or a successor interest rate) would increase our interest costs. For example, a 1.0% increase in the interest rate under the 2019 Loan Agreement above the interest rate that applied to us as of September 30, 2022 (10.28%) would increase our interest expense by approximately $426,000 per year and reduce our liquidity and capital resources by that amount. A more significant increase could materially and adversely affect our results of operations and our ability to pay amounts due under the 2019 Loan Agreement. The 2019 Loan Agreement provides for interest only payments through December 31, 2022, followed by 19 monthly payments of approximately $2.4 million in principal, plus interest, until the loan matures on July 1, 2024.

Our operations and thus our net product revenues have continued to be adversely affected by the COVID-19 pandemic. During each of the six months ended September 30, 2021 and December 31, 2021, we did not generate sufficient revenue to meet the trailing six-month Revenue Covenant included in the 2019 Loan Agreement. For each such six-month period, the Lenders provided a consent that permitted us not to maintain the Revenue Covenant as of September 30, 2021 and December 31, 2021, respectively, and waived any event of default that

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may have occurred or may have been deemed to have occurred. We were in compliance with the Revenue Covenant as of March 31, 2022 and September 30, 2022, and we expect to comply with the Revenue Covenant at the next reportable date, which is September 30, 2022, and through one year after the filing date of this Quarterly Report on Form 10-Q, although we can give no assurances in that regard. However, due to the remaining uncertainty surrounding the COVID-19 pandemic, it is possible that we will fail to comply with the Revenue Covenant. If we fail to comply with the Revenue Covenant and the Lenders do not provide a consent and waiver, acceleration of the maturity of the loan is one of the remedies available to the Lenders. If the Lenders accelerate the maturity of the loan, we would be forced to find alternative financing or enter into an alternative agreement with the Lenders. We cannot be sure that alternative financing will be available when needed or that, if available, the alternative financing could be obtained on terms that are not significantly detrimental to us or our stockholders. See the risk factor related to the 2019 Loan Agreement in Part I, Item 1A of the 2021 Form 10-K.

Paycheck Protection Program Loan. On April 22, 2020, we received an approximately $1.8 million loan (the PPP Loan) under the Paycheck Protection Program established by the U.S. Small Business Administration as part of the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act. The PPP Loan was unsecured and was evidenced by a note in favor of HSBC Bank USA, National Association (HSBC) as the lender. On July 21, 2020, we submitted an application to HSBC for forgiveness of the PPP Loan. The PPP Loan was forgiven in its entirety, including interest, on April 16, 2021.

$20.0 million Capital Infusion from Ocumension

On April 14, 2021, we entered into a Share Purchase Agreement with Ocumension Therapeutics, pursuant to which we offered and sold to Ocumension 1,144,945 shares of our common stock, at a purchase price of $8.734044 per share. The number of shares sold was equal to 19.9% of the number of shares of common stock outstanding immediately before the closing. The aggregate gross proceeds from the sale of the shares were $10.0 million. In addition, we received a nonrefundable upfront license payment of $10.0 million pursuant to the Ocumension License Agreement. For more information about the Ocumension transaction, see “Transactions with Ocumension Therapeutics” above, Notes 9 and 16 in the Interim Financial Statements, and our Current Report on Form 8-K filed with the SEC on April 14, 2021.

Current Cash Position

As of September 30, 2022, we had approximately $5.5 million in cash and cash equivalents, a decrease of $11.0 million from the $16.5 million in cash and cash equivalents that we reported as of December 31, 2021 and a decrease of approximately $2.4 million from the $7.9 million in cash and cash equivalents that we reported as of June 30, 2022.

In April 2021, we received gross proceeds of $20.0 million in cash from the Ocumension transaction described above. As we have previously disclosed, we have used some of these proceeds to invest in targeted spending programs in both the U.S. and international markets to drive reengagement with physicians and accelerate our growth. While we believe many of these investments have proven to be successful, we also realize that continuing to spend at those levels in current market conditions is not sustainable. To conserve our cash, we are curtailing some of our spending to address the slower than expected revenue growth coming out of the pandemic, and we expect to continue to monitor our ongoing spending programs closely.

Amortization of principal on our 2019 Loan Agreement is currently scheduled to begin on January 1, 2023, with principal payments of approximately $2.4 million per month, plus interest. We are seeking to refinance this loan by December 31, 2022, before the amortization payments begin. The actual amount of funds that we will need will depend on many factors, some of which are beyond our control. The Company has begun discussions with its current lender to refinance the debt and will engage with other potential lenders if necessary to obtain a refinancing solution. We can provide no assurances regarding the terms or timing of any such refinancing if we are able to accomplish it.

We cannot be sure that additional financing will be available or that, if it is available, we can obtain the additional financing on terms that are not significantly detrimental to us or our stockholders. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders could result, and the terms of any new equity securities may have a preference over our common stock. If we were to attempt to raise additional funds through strategic collaboration agreements, we may not be successful in obtaining those agreements, or in receiving milestone or royalty payments under them. If we were to attempt to raise additional funds through debt financing, we would be required to obtain the permission or participation of SLR, which we might not be able to obtain. Our recurring losses and any potential needs to raise capital create substantial doubt about our ability to continue as a going concern for the next 12 months following the issuance of the Interim Financial Statements to be included in this Quarterly Report on Form 10-Q.

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Sources and Uses of Cash for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

For the nine months ended September 30, 2022, net cash used in our operations was approximately $9.7 million. The cash used in our operations was impacted by our net loss of approximately $14.3 million and an increase of approximately $960,000 in accounts receivable. Cash used in operations for the nine months ended September 30, 2022 was offset by $2.0 million of non-cash depreciation and amortization, $850,000 of non-cash interest expense associated with the amortization of our debt discount and deferred financing costs, a decrease of $740,000 in inventory, $720,000 of non-cash stock-based compensation expense, a net increase of $680,000 in accounts payable, accrued expenses and other current liabilities, a $600,000 non-cash decrease in fair value of our warrant asset and a decrease of $320,000 in prepaid expenses and other current assets.

For the nine months ended September 30, 2021, cash provided by our operations was approximately $1.5 million. The cash provided by our operations was impacted by our net loss of approximately $270,000, $1.9 million of non-cash depreciation and amortization, a gain on extinguishment of debt of $1.8 million, $970,000 of non-cash consideration received as revenue, $760,000 of non-cash stock-based compensation expense, $720,000 of non-cash interest expense associated with the amortization of our debt discount and a $410,000 change in fair value of warrant asset. Further increasing cash from operations was a decrease of $760,000 in accounts receivable, a net increase of $720,000 in accounts payable, accrued expenses and other current liabilities and a decrease of $400,000 in inventory. These increases were offset by a decrease of $720,000 in long-term liabilities and an increase of $160,000 in prepaid expenses and other current assets.

For the nine months ended September 30, 2022, net cash used in our investing activities was approximately $170,000, which was primarily due to purchases of furniture and equipment for our new office in Alpharetta, GA.

For the nine months ended September 30, 2021, net cash used in our investing activities was approximately $500,000, which was primarily due to capital expenditures associated with the transfer of manufacturing from our prior contract manufacturer to the facility at Cadence, Inc.

For the nine months ended September 30, 2022, net cash used in our financing activities was approximately $110,000, which was primarily due to payments of finance lease obligations.

For the nine months ended September 30, 2021, net cash provided by our financing activities was approximately $9.8 million, which was primarily due to $10.0 million of proceeds from the issuance of common stock, offset by $160,000 of payments of finance lease obligations and $80,000 in common stock issuance costs.

Contractual Obligations and Commitments

2019 Loan Agreement. The outstanding loan under the 2019 Loan Agreement (the SLR Loan) provides for interest only payments until January 1, 2023, followed by 19 monthly payments of approximately $2.4 million principal, plus interest, until the loan matures on July 1, 2024. We estimate that we will be obligated to pay to the Lenders $45.0 million in loan principal and approximately $5.4 million in interest through July 1, 2024 at the current rate of 9.43% per annum (which may be higher as noted above).

The NEW DAY Study. In January 2020, we began entering into agreements with contract research organizations (CROs) and physician clinics in connection with a multicenter, single masked, randomized and controlled trial designed to generate prospective data evaluating ILUVIEN as a baseline therapy in the treatment of DME and demonstrate its advantages over the current standard of care of repeat anti-VEGF injections (the NEW DAY Study). The NEW DAY Study is planned to enroll approximately 300 treatment-naïve, or almost naïve, DME patients in approximately 42 sites around the U.S. For the three months ended September 30, 2022 and 2021, we incurred approximately $1.2 million and $920,000, respectively, of expense associated with the NEW DAY Study. For the nine months ended September 30, 2022 and 2021, we incurred approximately $3.3 million and $2.9 million, respectively, of expense associated with the NEW DAY Study. In connection with the NEW DAY Study, we expect to incur additional expenses of approximately $1.9 million for the remainder of 2022, $5.6 million in 2023 and $1.3 million in 2024.

Manufacturing Services Agreement with Alliance. In February 2016, we and Alliance Medical Products Inc., a Siegfried Company (Alliance), a third-party manufacturer, amended and restated the parties’ existing agreement for the manufacture of the ILUVIEN implant, the assembly of the ILUVIEN applicator and the packaging of the completed ILUVIEN commercial product. Under the amended and restated Alliance agreement, its term was extended by five years, at which point the agreement became automatically renewable for successive one-year periods unless either party delivers notice of non-renewal to the other party at least 12 months before the end of the term or any renewal term. We are responsible for supplying the ILUVIEN applicator and the active pharmaceutical ingredient, and we must order at least 80% of the ILUVIEN units required in the U.S., Canada and the EEA from Alliance.

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Manufacturing Services Agreement with Cadence. On October 30, 2020, we entered into a Manufacturing Services Agreement (the Cadence Agreement) with Cadence, Inc., for the manufacture of certain component parts of the ILUVIEN applicator (the components) at its facility near Pittsburgh, Pennsylvania. Under the Cadence Agreement, we will pay certain per-unit prices based on regularly scheduled shipments of a minimum number of components. The initial term of the Cadence Agreement expires on October 30, 2025. After the expiration of the initial term, the Cadence Agreement will automatically renew for separate but successive one-year terms unless either party provides written notice to the other party that it does not intend to renew the Cadence Agreement at least 24 months before the end of the term. The Cadence Agreement may be terminated by either party under certain circumstances. In connection with the Cadence Agreement, we expect to be invoiced approximately $650,000 in each of 2022 and 2023.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established to facilitate off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of SEC Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.

Impact of Recent Accounting Pronouncements

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

Foreign Exchange

Our international operations are subject to certain opportunities and risks, including currency fluctuations and governmental actions. The impact of fluctuations in foreign currency exchange rates decreased our net product revenue for the three and nine months ended September 30, 2022 by approximately $810,000 and $1.9 million, respectively.

We expect foreign currency exchange rate fluctuations will have an unfavorable impact through the end of the year.

Non-GAAP Financial Measure

Adjustments in net product revenue to exclude fluctuations in foreign currency exchange rates result in a non-GAAP financial measure, as defined in Regulation G promulgated under the Securities Exchange Act of 1934, as amended. We report our financial results in compliance with GAAP but believe that adjusting our net product revenue to exclude fluctuations in foreign currency exchange rates provides useful information to investors regarding our operating performance. We use this non-GAAP financial measure in the management of our business. Net product revenue for the three and nine months ended September 30, 2022 has been adjusted in certain instances in this report to exclude the impact of fluctuations in foreign currency exchange rates in the comparisons to GAAP net product revenue for the three and nine months ended September 30, 2021. See the table below entitled “Reconciliation of GAAP Net Product Revenue to Non-GAAP Adjusted Net Product Revenue.” GAAP net product revenue is the most directly comparable GAAP financial measure to adjusted net product revenue.

This non-GAAP financial measure, as presented, may not be comparable to a similarly titled measure reported by other companies because not all companies adjust revenue for currency fluctuations in an identical manner. Therefore, this non-GAAP financial measure is not necessarily an accurate measure of comparison between companies.

The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for guidance prepared in accordance with GAAP. The principal limitation of this non-GAAP financial measure is that it excludes significant elements required by GAAP to be recorded in Alimera’s financial statements. In addition, this non-GAAP financial measure is subject to inherent limitations because it reflects the exercise of judgment by management in determining it.

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RECONCILIATION OF GAAP NET PRODUCT REVENUE TO NON-GAAP ADJUSTED NET PRODUCT REVENUE


Amounts presented for the 2021 periods are our reported amounts we prepared in accordance with GAAP	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(unaudited)
GAAP NET PRODUCT REVENUE	$	13,598	$	12,153	$	40,100	$	34,022
Adjustment to net product revenue:
Foreign currency fluctuations, net	809		—		1,894		—
NON-GAAP ADJUSTED NET PRODUCT REVENUE	$	14,407	$	12,153	$	41,994	$	34,022

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

In the 2021 Form 10-K, we identify under Item 1A of Part I important factors that could affect our business, financial condition, results of operations and future operations and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report on Form 10-Q. There have been no material changes in our risk factors since the filing of the 2021 Form 10-K. However, the risks described in the 2021 Form 10-K are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits


Exhibit Number		Description
3.1		Restated Certificate of Incorporation of Registrant, as amended on various dates (filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, as filed on March 2, 2020, and incorporated herein by reference).
3.2		Amended and Restated Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, as filed on March 2, 2020 and incorporated herein by reference).
31.1*		Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of the Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104		Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101).

*Filed herewith.

The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Alimera Sciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ALIMERA SCIENCES, INC.

November 14, 2022	By:	/s/ Richard S. Eiswirth, Jr.
		Richard S. Eiswirth, Jr.
		President and Chief Executive Officer
		(Principal Executive Officer)

November 14, 2022	By:	/s/ J. Philip Jones
		J. Philip Jones
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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