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Alimera: Index To Financial Statements

The following excerpt is from the company's SEC filing.

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements as of December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013:

Balance Sheets

Statements of Operations

Consolidated Statements of Comprehensive Loss

Statements of Changes in Stockholders’ (Deficit) Equity

Statements of Cash Flows

Notes to Consolidated Financial Statements

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Alimera Sciences, Inc.

We have aud ited the accompanying consolidated balance sheets of Alimera Sciences, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alimera Sciences, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred recurring losses, negative cash flow from operations, and has an accumulated deficit of $313 million as of December 31, 2014. These conditions, along with the other matters as set forth in Note 3, raise substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also discussed in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in the 1992

Internal Control-Integrated Framework

issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2015 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Atlanta, Georgia

March 13, 2015 (except for Note 18 and the paragraph entitled

Reporting Segments

in Note 2, as to which the date is September 18, 2015)

ALIMERA SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

AS OF

DECEMBER 31, 2014

(In thousands, except share and per share data)

CURRENT ASSETS:

Cash and cash equivalents

76,697

12,628

Accounts receivable, net

Prepaid expenses and other current assets

Inventory, net (Note 4)

Deferred financing costs

Total current assets

83,269

18,638

PROPERTY AND EQUIPMENT — at cost less accumulated depreciation

INTANGIBLE ASSET, net

24,490

TOTAL ASSETS

109,412

19,620

CURRENT LIABILITIES:

Accounts payable

Accrued expenses (Note 7)

Accrued milestone payments

Outsourced services payable

Note payable (Note 9)

Capital lease obligations

Total current liabilities

10,475

NON-CURRENT LIABILITIES:

Derivative warrant liability

16,098

16,381

Note payable — less current portion (Note 9)

33,065

Other non-current liabilities

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS’ (DEFICIT) EQUITY:

Preferred stock, $.01 par value — 10,000,000 shares authorized at December 31, 2014 and 2013:

Series A Convertible Preferred Stock, 1,300,000 authorized and 600,000 issued and outstanding at December 31, 2014 and 1,000,000 issued and outstanding at December 31, 2013; liquidation preference of $24,000 at December 31, 2014 and $40,000 at December 31, 2013

19,227

32,045

Series B Convertible Preferred Stock, 8,417 authorized and 8,416.251 issued and outstanding at December 31, 2014 and none issued and outstanding at December 31, 2013; liquidation preference of $50,750 at December 31, 2014 and $0 at December 31, 2013

49,568

Common stock, $.01 par value — 100,000,000 shares authorized, 44,320,342 shares issued and outstanding at December 31, 2014 and 31,610,991 shares issued and outstanding at December 31, 2013

Additional paid-in capital

292,851

240,135

Common stock warrants

Accumulated deficit

(313,255

(277,345

Accumulated other comprehensive loss

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

49,519

(4,925

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED

Years Ended December 31,

(In thousands, except share and per share data)

NET REVENUE

COST OF GOODS SOLD, EXCLUDING DEPRECIATION AND AMORTIZATION

(1,442

(1,863

GROSS PROFIT

RESEARCH, DEVELOPMENT AND MEDICAL AFFAIRS EXPENSES

11,811

GENERAL AND ADMINISTRATIVE EXPENSES

12,371

SALES AND MARKETING EXPENSES

15,087

15,942

OPERATING EXPENSES

39,928

34,413

NET LOSS FROM OPERATIONS

(32,947

(34,404

INTEREST EXPENSE AND OTHER

(2,090

UNREALIZED FOREIGN CURRENCY (LOSS) GAIN, NET

LOSS ON EARLY EXTINGUISHMENT OF DEBT

CHANGE IN FAIR VALUE OF DERIVATIVE WARRANT LIABILITY

(11,964

NET LOSS BEFORE TAXES

(35,736

(46,229

PROVISION FOR TAXES

(35,910

BENEFICIAL CONVERSION FEATURE OF PREFERRED STOCK (Note 11)

(4,950

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS

(36,660

(51,179

NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS — Basic and diluted

WEIGHTED AVERAGE SHARES OUTSTANDING — Basic and diluted

40,397,224

31,579,553

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Years Ended December 31,

(In thousands)

OTHER COMPREHENSIVE LOSS

Foreign currency translation adjustments

TOTAL OTHER COMPREHENSIVE LOSS

(36,234

(46,717

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

Common Stock

Paid-In

Warrants

Accumulated Other Comprehensive Loss

Shares

Amount

(In thousands, except share data)

BALANCE — December 31, 2012

31,541,286

237,485

(231,116

39,144

Issuance of common stock

26,123

Exercise of stock options

43,582

Modification of common stock warrants

Forfeiture of common stock warrants

Intrinsic value of beneficial conversion feature

Accretion of beneficial conversion feature

Issuance of preferred stock, net of issuance costs

Stock-based compensation expense

Net loss

BALANCE — December 31, 2013

Issuance of common stock, net of issuance costs

6,284,915

35,146

35,209

391,307

Conversion of preferred stock

6,015,037

(400,000

(12,818

12,758

Issuance of common stock warrants

Exercise of common stock warrants

18,092

CONSOLIDATED STATEMENTS OF CASH FLOWS

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Depreciation and amortization

Inventory reserve

Unrealized foreign currency transaction gain

Amortization of deferred financing costs and debt discount

Loss on early extinguishment of debt

Stock option expense

Change in fair value of derivative warrant liability

Changes in assets and liabilities:

(1,355

(1,416

Accrued expenses and other current liabilities

(2,347

Other long-term liabilities

Net cash used in operating activities

(24,301

(37,821

CASH FLOWS FROM INVESTING ACTIVITIES:

Payment of license intangible (Note 6)

(25,000

Purchases of property and equipment

Net cash used in investing activities

(25,842

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Proceeds from sale of common stock

37,598

Payment of issuance cost of common stock

(2,389

Proceeds from issuance of Series B convertible preferred stock

50,000

Payment of Series B convertible preferred stock offering costs

Proceeds from issuance of notes payable (Note 9)

35,000

Payment of debt issuance costs (Note 9)

(1,016

Payment of principal on notes payable

(4,861

(3,169

Payment of debt extinguishment costs

Payments on capital lease obligations

Net cash provided by financing activities

114,745

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

64,069

(36,936

CASH AND CASH EQUIVALENTS — Beginning of year

49,564

CASH AND CASH EQUIVALENTS — End of year

SUPPLEMENTAL DISCLOSURES:

Cash paid for interest

Supplemental schedule of noncash investing and financing activities:

Conversion of Series A Convertible Preferred Stock to common stock

Series B Convertible Preferred Stock offering costs accrued but unpaid

Property and equipment acquired under capital leases

There were no income tax or dividend payments made for the years ended December 31, 2014 and 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS

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

The Company is presently focused on diseases affecting the back of the eye, or retina, because the Company’s management believes these diseases are not well treated with current therapies and represent a significant market opportunity. The Company’s only commercial product is ILUVIEN

, which has received marketing authorization in the United States (U.S.), Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden and the United Kingdom and has been recommended for marketing authorization in Poland. In the U.S., ILUVIEN is indicated for the treatment of diabetic macular edema (DME) in patients who have been previously treated with a course of corticosteroids and did not have a clinically significant rise in intraocular pressure (IOP). In the European Union (EU) countries in which ILUVIEN has received marketing authorization, it is indicated for the treatment of vision impairment associated with DME considered insufficiently responsive to available therapies. As part of the approval process in these countries, the Company has committed to conduct a

-year, post-authorization, open label registry study of ILUVIEN in

patients treated per the labeled indication.

The Company launched ILUVIEN in the United Kingdom and Germany in the second quarter of 2013 and in Portugal and the U.S. in the first quarter of 2015. To date, the majority of the Company’s sales have been in Germany and the United Kingdom. The Company was able to launch in Germany without price restrictions, but continues to work with the statutory health insurance funds in Germany to streamline reimbursement for ILUVIEN.

In October 2013, the United Kingdom’s National Institute for Health and Care Excellence (NICE) issued a positive Final Appraisal Determination recommending ILUVIEN funding, taking into consideration a simple patient access scheme (PAS) for the treatment of pseudophakic eyes (eyes with an artificial lens) in chronic DME patients considered insufficiently responsive to available therapies. The Company began receiving orders for ILUVIEN from several National Health Service (NHS) facilities in January 2014 following the final technology appraisal guidance that was published in November 2013. Further, in February 2014, the Scottish Medicines Consortium, after completing its assessment and review of a similar simple PAS, announced that is has accepted ILUVIEN for restricted use within the NHS Scotland.

In July 2013, the Transparency Commission (Commission de la Transparence or CT) of the French National Health Authority (Haute Autorite de Sante) issued a favorable opinion for the reimbursement and hospital listing of ILUVIEN by the French National Health Insurance for the treatment of chronic DME considered insufficiently responsive to available therapies. The Company continues to negotiate with the French authorities, but has not yet reached an agreement on price.

In July 2014, the Company reached agreement with INFARMED, the marketing authorization body of the Portuguese Ministry of Health, for the pricing and reimbursement of ILUVIEN for the public sector in Portugal.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies relate primarily to the continuing operations of the Company:

Use of Estimates in Financial Statements

— The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts based on informed estimates and judgments of management. Actual results could differ from those estimates.

Principles of Consolidation

— The consolidated financial statements include the accounts of Alimera Sciences, Inc. and all wholly-owned subsidiaries. All significant inter-company balances have been eliminated in consolidation.

Reclassifications

Within the operating expenses section of the Consolidated Statements of Operations for the year ended December 31, 2013, the Company reclassified depreciation expense of

$138,000

from general and administrative expenses to depreciation and amortization to conform to the current year presentation. In addition, the Company reclassified certain medical affairs support expenses of

$448,000

$429,000

for the year ended December 31, 2014 and 2013, respectively, from sales and marketing expenses to research, development and medical affairs expenses.

Cash and Cash Equivalents

— Cash and cash equivalents include cash and highly liquid investments that are readily convertible into cash and have a maturity of 90 days or less when purchased. Generally, cash and cash equivalents held at financial institutions are in excess of federally insured limits. The Company limits its exposure to credit loss by placing its cash and cash equivalents in highly liquid investments with high quality financial institutions. Cash and cash equivalents were

$76,697,000

$12,628,000

at December 31, 2014 and 2013, respectively, with approximately

100.0%

of these balances, respectively held in U.S. based financial institutions.

Revenue Recognition

The Company recognizes revenue from its product sales when persuasive evidence of an arrangement exists, title to product and associated risk of loss have passed to the customer, the price is fixed or determinable, and collection from the customer is reasonably assured. Title passes generally upon shipment or upon receipt by the customer depending on the agreement with the customer. Precise information regarding the receipt of product by the customer is not always readily available. In these cases, the Company estimates the date of receipt based upon shipping policies by geographic location. The Company's shipping policies require delivery within 24 hours of shipment in most instances. Taxes that are collected from customers and remitted to governmental authorities are not included in revenue.

Accounts Receivable and Allowance for Doubtful Accounts

— Accounts receivable are generated through sales primarily to pharmacies, hospitals and wholesalers which began in 2013. The Company does not require collateral from its customers for accounts receivable. The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects management's best estimate of the amounts that will not be collected. In addition to reviewing delinquent accounts receivable, management considers many factors in estimating its general allowance, including historical data, experience, customer types, credit worthiness, and economic trends. From time to time, management may adjust its assumptions for anticipated changes in any of those or other factors expected to affect collectability. Provisions for doubtful accounts are charged to operations at the time management determines these accounts may become uncollectable. The Company writes off accounts receivable when management determines they are uncollectable and credits payments subsequently received on such receivables to bad debt expense in the period received. There were accounts receivable write-offs of

$21,000

for the year ended December 31, 2014 and no allowance for doubtful accounts at December 31, 2014. There were

accounts receivable write-offs for the year ended December 31, 2013 and no allowance for doubtful accounts at December 31, 2013.

— Inventories are stated at the lower of cost or market with cost determined under the first in, first out (FIFO) method. Included in inventory costs are component parts, work-in-progress and finished goods. The Company relies on third party manufacturers for the production of all inventory and does not capitalize any internal costs. The Company periodically reviews inventories for excess, obsolete or expiring inventory and writes down obsolete or otherwise unmarketable inventory to its estimated net realizable value. If the actual net realizable value is less than that estimated, or if there are any further determinations that inventory will not be marketable based on estimates of demand, additional inventory write-downs will be required.

Intangible Assets

— The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, which approximates a straight-line basis, over the estimated periods benefited. The estimated useful life of the intangible asset is approximately

thirteen years

Property and Equipment

— Property and equipment are stated at cost. Additions and improvements are capitalized while repairs and maintenance are expensed. Depreciation is provided on the straight-line method over the useful life of the related assets beginning when the asset is placed in service. The estimated useful lives of the individual assets are as follows: furniture

and fixtures and manufacturing equipment,

five years

; office equipment and leasehold improvements,

29 months

; and software,

three years

Impairment

— Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When indicators of impairment are present, the Company evaluates the carrying amount of such assets in relation to the operating performance and future estimated undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. The assessment of the recoverability of assets will be impacted if estimated future operating cash flows are not achieved.

Income Taxes

— In accordance with the Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 740,

, 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. 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.

Income tax positions are considered for uncertainty in accordance with ASC 740-10. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position; therefore, no ASC 740-10 liabilities have been recorded. The Company will recognize accrued interest and penalties related to unrecognized tax benefits, if any, as interest expense and income tax expense, respectively, in the consolidated statements of operations.

Significant management judgment is involved in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. Due to uncertainties with respect to the realization of deferred tax assets as a result of the Company's history of operating losses, a valuation allowance has been established against the net deferred tax asset balance. The valuation allowance is based on management’s estimates of taxable income in the jurisdictions in which the Company operates and the period over which deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, a change in the valuation allowance may be needed, which could materially impact the Company’s financial position and results of operations.

Research and Development Costs

— Research and development costs are expensed as incurred. Research and development expenses were

$7,594,000

$3,904,000

for the year ended December 31, 2014 and 2013, respectively.

Stock-Based Compensation

— The Company has stock option plans which provide for grants of stock options to employees and directors to purchase shares of the Company’s common stock at exercise prices generally equal to the fair market values of such stock at the dates of grant. Compensation cost is recognized for all share-based awards based on the grant date fair value in accordance with the provisions of ASC 718,

Compensation — Stock Compensation

. The fair values for the options are estimated at the dates of grant using a Black-Scholes option-pricing model.

Additionally, the Company sponsors an employee stock purchase plan under which employees may elect payroll withholdings to fund purchases of the Company’s stock at a discount. The Company estimates the fair value of the option to purchase shares of the Company’s common stock using the Black-Scholes valuation model and recognizes compensation expense in accordance with the provisions of ASC 718-50,

Employee Share Purchase Plans

Derivative Financial Instruments

— The Company generally does not use derivative instruments to hedge exposures to cash flow or market risks. However, certain warrants to purchase Series A convertible Preferred Stock or common stock that do not meet the requirements for classification as equity, in accordance with the Derivatives and Hedging Topic of the ASC, are classified as liabilities. In such instances, net-cash settlement is assumed for financial reporting purposes, even when the terms of the underlying contracts do not provide for a net-cash settlement. These warrants were considered derivative instruments at issuance because the agreements provide for settlement in Series A Convertible Preferred Shares or common shares at the option of the holder, an adjustment to the warrant exercise price for common shares at some point in the future, and contain anti-dilution provisions whereby the number of shares for which the warrants are exercisable and/or the exercise price of the warrants are subject to change in the event of certain issuances of stock at prices below the then-effective exercise price of the warrants. The warrant exercise price no longer can be adjusted at some point in the future. The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying common stock. Such financial instruments are initially recorded at fair value with subsequent changes in fair value recorded as a component of change in fair value of derivative warrant liability in the consolidated statements of operations in each reporting period. If these instruments subsequently meet the requirements for equity classification, the Company reclassifies the fair value to equity. At December 31, 2014 and 2013, these warrants represented the only outstanding derivative instruments issued or held by the Company.

Fair Value of Financial Instruments

— The carrying amounts of the Company’s financial instruments, including cash and...


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