Vivani Medical, Inc. quarterly report, Q2 FY2022

Business context and reporting period

This is Second Sight Medical Products, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The filing concerns the company identified in the request as Vivani Medical, Inc.; the registrant named in this filing is Second Sight. It develops visual prostheses, including the investigational Orion cortical prosthesis. The company reported no sales in either 2022 or the comparable 2021 periods.

Financial results and liquidity

Amounts below are in millions of dollars, except per-share data.

• Gross profit and margins were zero because the company had no sales.
• Cash and cash equivalents were $56.377 million at June 30, 2022, down from $69.593 million at year-end 2021. Working capital was $54.8 million, versus $68.0 million.
• Six-month operating cash use was $5.197 million; investing cash use was $8.018 million, including an $8 million advance under a SAFE agreement with Nano Precision Medical (NPM). No financing cash was raised during the period.
• Total liabilities were $2.591 million, primarily current operating and accrued liabilities. The balance sheet reported no debt at June 30, 2022.
• The company recorded the $8 million SAFE as an asset. It terminates if the NPM merger closes; if the merger agreement terminates without a merger, it may convert into NPM shares under the SAFE terms.

Material changes versus the prior comparable period

• Q2 operating expenses rose $0.833 million, mainly as general and administrative expense increased $0.787 million, which management attributed primarily to legal costs related to the NPM merger. Research and development expense rose $0.148 million; clinical and regulatory expense fell $0.102 million.
• For the first six months, operating expenses increased $0.206 million. Higher research and development costs were partly offset by lower general and administrative and clinical and regulatory costs. The 2021 period included a Pixium termination fee.
• Cash fell $13.216 million from year-end, reflecting operating cash use and the SAFE investment. Unlike the first half of 2021, the 2022 period had no equity-offering proceeds.

Outlook, risks and unusual items

• Management expects continuing operating losses and negative operating cash flows, and stated that additional capital will be needed. The filing gives no quantified cash-runway estimate or formal revenue or earnings guidance.
• Orion remains in early feasibility development. Management described 36-month results from a small study as encouraging, but noted that no peer-reviewed Orion data were available and that early results may not predict larger-trial outcomes. The company was negotiating the clinical and regulatory pathway with the FDA; Breakthrough Devices designation is not marketing approval.
• The merger agreement with NPM was approved by shareholders on July 27, 2022, after quarter-end; management anticipated completion in August. The agreement required at least $63 million in specified cash and securities, reduced by advances to NPM; after the $8 million SAFE advance, the filing described the remaining requirement as $55 million and said the company expected to meet it.
• COVID-19 had disrupted clinical visits and could affect operations, suppliers, and development. Other risks include the need for additional funding and uncertain clinical, regulatory, and commercial outcomes.
• Pixium claimed approximately €5.1 million (about $5.2 million) in litigation following termination of a proposed business combination; the company said it believed its $1 million payment fulfilled its obligations and recorded no further loss accrual. The company also disputed an Oppenheimer invoice exceeding $1.86 million. Three European patent oppositions were pending.

Important facts for investors to verify

• Whether and when the NPM merger closed, and its final terms, including the cash condition and treatment of the SAFE.
• Cash use and funding needs after June 30, 2022, including the extent to which grants or other financing support operations.
• FDA-agreed clinical and regulatory milestones for Orion, validation of the proposed efficacy endpoint, and progress toward a larger trial.
• Updates and potential financial exposure from the Pixium litigation, Oppenheimer claim, and patent oppositions.
• The filing reported disclosure controls effective at a reasonable-assurance level, while noting that the company was updating its control environment to reflect reduced staffing and segregation-of-duties changes.