The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited 2020 financial statements and related notes included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission ("SEC") on March 16, 2021 and as thereafter amended on April 14, 2021 and April 27, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our products, plans and strategy for our business and related financing, contains forward-looking statements that involve risks and uncertainties, including statements regarding our expected financial results in future periods. The words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "might," "plans," "projects," "will," "would," "strategy" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding expectations for revenues, liquidity, cash flows and financial performance, the anticipated results of our development efforts and the timing for receipt of required regulatory approvals, insurance reimbursements and product launches, our financing plans and future capital requirements, the materially adverse impact of the recent COVID-19 coronavirus pandemic and related public health measures on our business. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. We assume no obligations to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect actual outcomes.

Second Sight Medical Products, Inc. (NASDAQ: EYES) develops implantable visual prosthetics that are intended to deliver useful artificial vision to blind individuals. We are a recognized global leader in neuromodulation devices for blindness, and are committed to developing new technologies to treat the broadest populations of sight-impaired individuals.

Leveraging our 20 years of experience in neuromodulation for vision, we are developing the Orion® Visual Cortical Prosthesis System ("Orion"), an implanted cortical stimulation device intended to provide useful artificial vision to individuals who are blind due to a wide range of causes, including RP, glaucoma, diabetic retinopathy, optic nerve injury or disease and eye injury. Orion is intended to convert images captured by a miniature video camera mounted on glasses into a series of small electrical pulses. The device is designed to bypass diseased or injured eye anatomy and to transmit these electrical pulses wirelessly to an array of electrodes implanted on the surface of the brain's visual cortex, where it is intended to provide the perception of patterns of light. We are conducting a six- subject Early Feasibility Study of the Orion device at the Ronald Reagan UCLA Medical Center in Los Angeles ("UCLA") and Baylor College of Medicine in Houston ("Baylor"). Our 24 month results, most of which were measured after the study resumed, indicate to us that:





  • We have a good safety profile. Five subjects experienced a total of thirteen
    adverse events (AEs) related to the device or to the surgery, through February
    2021. One early AF was considered a serious adverse event (SAE), and all of
    the adverse events were in the expected category. The one SAE occurred at
    about three months post-implant, was resolved quickly, and did not require a
    hospital stay. There have been no serious adverse events due to the device or
    surgery since June 2018.




  • The efficacy data is encouraging. We measure efficacy by looking at three
    measures of visual function: The first is square localization, where Orion
    subjects sit in front of a touch screen and are asked to touch within the
    boundaries of a square when it appears. The second is direction of motion,
    where subjects are asked to identify the direction and motion of lines on a
    screen. The third is grating visual acuity, a measure of visual acuity that is
    adapted for very low vision. Four subjects have completed these tests at
    36-months, one subject at 24-months, and one subject at 12-months. For these
    most recent results, on square localization, six of six subjects tested in our
    feasibility study performed significantly better with the system on than off.
    On direction of motion, six of six performed better with the system on than
    off. On grating visual acuity, two of six tested had measurable visual acuity
    on the scale of this test (versus none who can do it with the device off).
    Another efficacy measurement of day-to-day functionality and benefit is FLORA,
    an acronym for Functional Low-Vision Observer Rated Assessment. FLORA is an
    assessment performed by an independent, third-party low vision orientation and
    mobility specialist who spends time with each of the subjects in their homes.
    The specialist asks each of the subjects a series of questions and also
    observes them performing 15 or more daily living tasks, such as finding light
    sources, following a sidewalk, or sorting laundry. The specialist then
    determines if the system is providing a benefit, if it is neutral, or if it is
    actually hurting the abilities of subjects to perform these tasks. Due to the
    Covid-19 pandemic, 4 out of 6 FLORA assessments were not performed at the 24
    month timeframe.  A protocol update was made to add FLORA assessments at the
    36 month timeframe. FLORA results to date show that four out of six completing
    the FLORA at 36 months had positive results indicating the Orion system is
    providing benefit. We reached agreement with the FDA in the fourth quarter of
    2019 to utilize a revised version of FLORA as our primary efficacy endpoint in
    our pivotal trial for Orion, pending successful validation of the instrument.

Our principal offices are located in Los Angeles, California.





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Our first commercially approved product was the Argus® II Retinal Prosthesis System ("Argus II"). The Argus II was the only retinal prosthesis approved in the United States by the Food and Drug Administration ("FDA"), and was the first approved retinal prosthesis in the world. The Argus II system provided an artificial form of vision that differs from the vision of people with normal sight. It did not restore normal vision and there is no evidence that it slowed or reversed the progression of any disease. The majority of patients received a significant benefit from the Argus II, however results did vary and some patients reported receiving little or no benefit. By creating an artificial form of useful vision in patients who otherwise had total sight loss, the Argus II provided benefits that included:





  • restoring independence through a renewed ability to navigate independently in
    unfamiliar environments;




  • improving patients' orientation and mobility, such as locating doors and
    windows, avoiding obstacles, and following the lines of a crosswalk;




  • allowing patients to feel more connected with people in their surroundings,
    such as seeing when someone is approaching or moving away;




  • providing patients with enjoyment from being "visual" again, such as locating
    the moon, tracking groups of players as they move around a field, and watching
    moving streams of lights from fireworks;




  • enabling some patients to re-enter the workforce through multiple vocations
    that become possible because of Argus II; and




  • improving patients' well-being and ability to perform activities of daily
    living

We began selling the Argus II System in Europe at the end of 2011, Saudi Arabia in 2012, the United States and Canada in 2014, Turkey in 2015, Iran, Taiwan, South Korea and Russia in 2017, and Singapore in 2018. Given the limited addressable market of Argus II, we no longer market the Argus II and have focused all of our resources on the development of Orion.

We also researched multiple technologies that we believe to be complimentary to artificial vision and could potentially provide significant enhancements to the Orion user experience. In most cases, we collaborate with 3rd party firms to advance and integrate these innovative technologies with our artificial vision systems. Examples of technologies that we believe will be complimentary to our products include: eye tracking, object recognition and localization, thermal imaging and depth-based decluttering.

Product and Clinical Development Plans

By further developing our visual cortical prosthesis, Orion, we believe we may be able to significantly expand our market to include nearly all profoundly blind individuals. The only notable exceptions for potential use of the Orion are those who are blind due to otherwise currently treatable diseases, individuals who are born blind, or blindness due to direct damage of the visual cortex, which is rare. However, of the estimated 36 million blind people worldwide, there are approximately 5.8 million people who are legally blind due to causes that are not otherwise treatable. We continue to develop and refine our estimates of the potential addressable market size as we evaluate the commercial prospects for Orion using a combination of published sources, third party market research, and physician feedback. We currently estimate over 500,000 individuals in the US are legally blind due to retinitis pigmentosa, glaucoma, diabetic retinopathy, optic nerve disease and eye injury. Of this population, we estimate the potential US addressable market is between 50,000 and 100,000 individuals with bi-lateral blindness at the light-perception level or worse. Our marketing approvals by the FDA and other regulatory agencies will ultimately determine the subset of these patients who are eligible for the Orion based on our clinical trials and the associated results.

Our objective in designing and developing the Orion visual prosthesis system is to bypass the optic nerve and directly stimulate the part of the brain responsible for human vision. A six-subject Early Feasibility Study of the Orion device is currently underway at UCLA and Baylor. Regularly scheduled visits at both sites were paused in mid-March due to Covid-19, however visits at UCLA resumed mid- September 2020 and Baylor resumed in December 2020. Our 24 month results for the six subjects indicate a good safety profile with encouraging efficacy data and benefits in helping subjects perform their daily living tasks. We believe these data are encouraging and support advancement of Orion into a larger pivotal clinical study. Early promising results are not necessarily indicative of results which may be obtained in large clinical trials. No assurance can be given that we will achieve similar results in our larger Orion clinical trials. No peer-reviewed data is available yet for the Orion system.

In November 2017, the FDA granted Breakthrough Devices Program designation for the Orion. This designation is given to a few select medical devices in order to provide more effective treatment of life-threatening or irreversibly debilitating diseases or conditions. This program is intended to help patients have more timely access to these medical devices by expediting their development, assessment, and review. The U.S. Food and Drug Administration (FDA) approved the Argus 2s Retinal Prosthesis System, a redesigned set of external hardware (glasses and video processing unit) initially for use in combination with previously implanted Argus II systems for the treatment of retinitis pigmentosa (RP). The Company expects that the Argus 2s will be adapted to be the external system for the next generation Orion Visual Cortical Prosthesis System currently under development. In addition to ergonomic improvements, the Argus 2s system offers significantly more processing power, potentially allowing for improved video processing. A decision on when or if to begin production of the newly approved hardware is under evaluation.





                                       18

Liquidity and Capital Resources

From inception, our operations have been funded primarily through the sales of our common stock and warrants, as well as from the issuance of debt, convertible debt, research and clinical grants, and limited product revenue which was generated from the sale of our Argus II product. Funding of our business since 2019 has been primarily provided by:





  • On June 25, 2021, we closed an underwritten public offering of 11,500,000
    shares of common stock at a price of $5.00 per share for aggregate net
    proceeds of $53.3 million.




  • On March 23, 2021, we closed our private placement to seven institutional
    investors of 4,650,000 shares of common stock at an offering price of $6.00
    per share for aggregate net proceeds of approximately $24.5 million




  • On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of
    the Board of Directors of the Company and $1.2 million from two unaffiliated
    shareholders. These loans and accrued interest were repaid in the second
    quarter of 2021.




  • On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares
    of common stock at an offering price of $1.00 per share for aggregate net
    proceeds of approximately $6.7 million

We were awarded a $1.6 million grant (with the intent to fund $6.4 million over five years subject to annual review and approval) from the National Institutes of Health (NIH) to fund the "Early Feasibility Clinical Trial of a Visual Cortical Prosthesis" that commenced in January 2018. Our second year grant of $1.4 million was approved on April 6, 2021 and our third year grant of $1.4 million was approved on May 12, 2021. As of June 30, 2021 we recorded $0.3 million of deferred grant costs, included in prepaid expenses and other current assets.

We were notified by the Nasdaq stock market regarding our non-compliance with one of the continued listing requirements of the Nasdaq capital market. We have subsequently satisfied the Nasdaq compliance listing.





                                       19

We are subject to the risks and uncertainties associated with a business with no revenue that is developing a novel medical device. We have incurred recurring operating losses and negative operating cash flows since inception, and we expect to continue to incur operating losses and negative operating cash flows for the foreseeable future. To finance our operations we will need to raise additional capital, which cannot be assured. Our operating plan may change as a result of many factors currently unknown to us, and we will need to seek additional funds through public or private equity offerings or debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs, or we may be unable to expand or maintain our operations, maintain our current organization and employee base or otherwise capitalize on our business opportunities, as desired, which could materially and adversely affect our business, financial condition and results of operations.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States ("GAAP") and the requirements of the United States Securities and Exchange Commission require management to make estimates, assumptions and judgments that affect the amounts, liabilities, revenue and expenses reported in the financial statements and the notes to the financial statements. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to our critical accounting policies during the six months ended June 30, 2021 from those disclosed in the Annual Report on 10-K for the year ended December 31, 2020.





                                       20





Results of Operations

Net sales. Our net sales consisted of revenue primarily from the sale of our Argus II product which is no longer marketed. We have discontinued sales of this product to focus on development of Orion.

Cost of sales. Cost of sales includes the salaries, benefits, material, overhead, third party costs, warranty, charges for excess and obsolete inventory, and other costs required to make the Argus II system at our Los Angeles, California facility. Our product involves technologically complex materials and processes. We record cost of sales when products are implanted, which may differ from the period we are able to record revenue. Such timing differences may cause our reported results of operations to be difficult to compare from period to period.

Operating Expenses. We generally recognize our operating expenses as incurred in four general operational categories: research and development, clinical and regulatory, sales and marketing, and general and administrative. Our operating expenses also include a non-cash component related to the amortization of stock-based compensation for research and development, clinical and regulatory, sales and marketing, and general and administrative personnel. We have received grants from institutions or agencies, such as the National Institutes of Health, to help fund the some of the cost of our development efforts. We have recorded the amount of funding received from these grants as reductions to operating expenses.





  • Research and development expenses consist primarily of employee compensation
    and consulting costs related to the design, development, and enhancements of
    our current and potential future products, offset by grant revenue received in
    support of specific research projects. We expense our research and development
    costs as they are incurred. Due to the recent downsizing of our business, we
    are currently evaluating the path forward for our research and development
    activities for Orion, including the potential for collaboration with 3rd
    parties and/or outsourcing the engineering work for Orion.




  • Clinical and regulatory expenses consist primarily of salaries, travel and
    related expenses for personnel engaged in clinical and regulatory functions,
    as well as internal and external costs associated with conducting clinical
    trials and maintaining relationships with regulatory agencies offset by grant
    revenue received in support of specific clinical research products. We expect
    clinical and regulatory expenses to be lower in the short-run as we have
    closed our clinical study activities related to Argus II and Orion clinical
    site visits were temporarily paused due to COVID-19. In the long-run, we
    expect clinical and regulatory expenses to increase if and when we conduct a
    pivotal clinical study of Orion.




  • Sales and marketing expenses consist primarily of salaries, commissions,
    travel and related expenses for personnel engaged in sales, marketing, market
    access and business development functions, as well as costs associated with
    promotional and other marketing activities including the cost of units
    consumed as demos or samples. We expect sales and marketing expenses to be
    significantly lower in 2021 than in 2020 as we no longer employ sales and
    marketing personnel and no longer market the Argus II product.




  • General and administrative expenses consist primarily of salaries and related
    expenses for executive, legal, finance, human resources, information
    technology and administrative personnel, as well as recruiting and
    professional fees, patent filing and annuity costs, insurance costs and other
    general corporate expenses, including rent. We expect general and
    administrative expenses to be significantly lower in 2021 as we have
    significantly reduced staff.

Comparison of the Three Months Ended June 30, 2021 and 2020

Research and development expense. Research and development expense increased by $0.4 million, or 115%, to $0.7 million in the second quarter of 2021 from $0.3 million in the second quarter of 2020. The costs increased as we restarted our curtailed activity due to COVID-19.

Clinical and regulatory expense. Clinical and regulatory expense decreased $0.1 million, or 39%, to $0.3 million in the second quarter of 2021 from $0.4 million in the second quarter of 2020. This decrease is attributable to decreased costs associated with the Orion feasibility study and increased offsets of grant funds. We expect clinical and regulatory costs to continue in the future at a reduced level as we resume activities for our Early Feasibility Study.

General and administrative expense. General and administrative expense decreased $0.2 million, or 12%, to $1.3 million in the second quarter of 2021 from $1.5 million in the same period of 2020. General and administrative expenses decreased as a result of staffing reductions.

Restructuring charges. We recorded a restructuring charges of $0.8 million in the second quarter of 2020 comprised of $0.2 million of material and overhead costs in connection with our decision to no longer market Argus II and a $0.6 million cash charge for severance compensation and other associated costs all of which were substantially settled by June 30, 2020.





                                       21

Comparison of the Six Months Ended June 30, 2021 and 2020

Research and development expense. Research and development expense decreased by $3.2 million, or 76%, to $1.0 million in the first six months 2021 from $4.2 million in the same period of 2020. The costs decreased due to our staffing reductions. We expect our research and development expenses to increase as we restart our curtailed activity based upon our revised development plans.

Clinical and regulatory expense. Clinical and regulatory expense decreased $1.0 million, or 78%, to $0.3 million in the first six months of 2021 from $1.3 million in the same period of 2020. This decrease is attributable to decreased costs associated with the Orion feasibility study and increased offsets of grant funds. We expect clinical and regulatory costs to continue in the future at a reduced level.

Selling and marketing expense. Selling and marketing expense was zero in the first six months of 2021 as compared to $0.7 million in the same period of 2020. We expect selling and marketing expense to cease until we begin marketing our Orion product.

General and administrative expense. General and administrative expense increased $0.3 million, or 8%, to $3.8 million in the first six months of 2021 from $3.5 million in the same period of 2020. This increase is attributable to increased legal costs and termination fee associated with our termination of the MOU of $1.0 million. General and administrative expenses also decreased from staffing reductions.

Restructuring charges. We recorded non-cash restructuring charges of $1.2 million in the first six months of 2020 comprised of $0.5 million to fully reserve our inventory in connection with our decision to no longer market Argus II and $0.7 million to write-down our fixed assets that are not directly involved in the development of Orion and a $0.2 million in material and overhead costs associated with Argus II and a $0.8 million cash charge for severance compensation and other associated costs.

Liquidity and Capital Resources

Our 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. Our ability to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our business initiatives and/or raise additional capital, however, there can be no assurances that we will be able to do so.

On June 25, 2021, we closed an underwritten public offering of 11,500,000 shares of common stock at a price of $5.00 per share for aggregate net proceeds of $53.3 million.

On March 23, 2021, we closed our private placement to seven institutional investors of 4,650,000 shares of stock at an offering price of $6.00 per share for aggregate net proceeds of approximately $24.5 million. We believe the financing provides sufficient working capital to sustain approximately eighteen months of operations.

On December 8, 2020, we borrowed $1 million from Gregg Williams, Chairman of the Board of Directors of the Company and $1.2 million from two unaffiliated shareholders. These loans and accrued interest were repaid during May and June 2021.

On May 5, 2020, we closed our underwritten public offering of 7,500,000 shares of common stock at an offering price of $1.00 per share for aggregate net proceeds of approximately $6.6 million.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward- looking statement that involves risks and uncertainties, and actual results could vary materially. Conducting clinical trials is a time- consuming, expensive and uncertain process that takes many years to complete and we may never generate the necessary data or results required to obtain marketing approval. We do not expect revenues until we are successful in completing the development and obtaining marketing approval for Orion. We expect expenses to increase in connection with our ongoing activities, particularly as we continue clinical trials of Orion, initiate new research and development projects and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for Orion, we expect to incur significant additional expenses related to sales, marketing, distribution and other commercial infrastructure to commercialize such product. In addition, our product candidates, if approved, may not achieve commercial success. We incur significant costs associated with operating as a public company in a regulated industry.

Until such time, if ever, we can generate substantial product revenues, we anticipate that we will seek to fund our operations through public or private equity or debt financings, grants, collaborations, strategic partnerships or other sources. However, we may be unable to raise additional capital or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity, convertible debt or other equity-linked securities, the ownership interests of some or all of our common stockholders will be diluted, the holders of new equity securities may have priority rights over our existing stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If adequate funds are not available, we may be required to further curtail operations significantly or to obtain funds by entering into agreements on unattractive terms. If, for example, we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. Our inability to raise capital could have a material adverse effect on our business, financial condition and results of operations.





                                       22

Cash and cash equivalents increased by $70.6 million from $3.2 million as of December 31, 2020 to $73.8 million as of June 30, 2021. Working capital was $71.8 million as of June 30, 2021, as compared to a deficit of $0.9 million as of December 31, 2020, an increase of $72.7 million. We use our cash and cash equivalents and working capital to fund our operating activities.

Cash Flows from Operating Activities

During the first six months of 2021, we used $4.9 million of cash in operating activities, consisting primarily of a net loss of $5.1 million, offset by non-cash charges which provided cash of $0.1 million for depreciation and amortization of property and equipment, stock-based compensation, change in right of use assets and by a net change in operating assets and liabilities of $0.1 million. During the first six months of 2020, we used $13.9 million of cash in operating activities, consisting primarily of a net loss of $12.0 million, offset by non-cash charges which provided cash of $1.6 million for depreciation and amortization of property and equipment, stock-based compensation, change in right of use assets, impairment charge and offset by a net change in operating assets and liabilities of $3.5 million.

Cash Flows from Investing Activities

Cash used for investing activities in the first six months of 2021 was zero and was $331,000 in the first six months of 2020 for the purchase of property and equipment.

Cash Flows from Financing Activities

Financing activities provided $75.6 million of cash in the first six months of 2021 consisting of $77.8 million of net proceeds from the sale of common stock and $25,000 from the proceeds from warrant exercises offset by the repayment of debt of $2.2 million. Financing activities provided $6.4 million of cash in the first six months of 2020 consisting of $6.7 million of net proceeds from the sale of common stock offset by the use of $281,000 for the repurchase of partial shares in connection with our reverse stock split and the repurchase of ESPP shares.

Off-Balance Sheet Arrangements

At June 30, 2021, we did not have any transactions, obligations or relationships that constitute off-balance sheet arrangements.





Item3.    Quantitative and Qualitative Disclosures about Market Risk



Interest Rate Sensitivity

The primary objective of our investment activities is to maintain the safety of principal and preserve liquidity without incurring significant risk. We invest cash in excess of our current needs in money market funds. As of June 30, 2021, our investments consisted solely of money market funds.





Exchange Rate Sensitivity

The majority of our operating expenses were denominated in U.S. dollars. We have not entered into foreign currency forward contracts to hedge our operating expense exposure to foreign currencies, but we may do so in the future.

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