EYENOVIA INC

Note 1 – Business Organization, Nature of Operations and Basis of Presentation

Eyenovia, Inc. (“Eyenovia” or the “Company”) is a commercial-stage ophthalmic pharmaceutical technology company developing a pipeline of microdose array print therapeutics based on its Optejet platform. MicroPine, its leading late-stage candidate for the multi-billion dollar pediatric progressive myopia market has been licensed to Arctic Vision (Hong Kong) Limited (“Arctic Vision”) in China and South Korea. In the United States, Eyenovia is also focused on the commercialization of its two Food and Drug Administration (“FDA”)-approved products: Mydcombi (tropicamide+phenylephrine ophthalmic spray) for mydriasis, as well as clobetasol propionate ophthalmic nanosuspension 0.05% to reduce pain and inflammation following ocular surgery.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed financial statements of the Company as of March 31, 2024 and for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the operating results for the full year ending December 31, 2024 or any other period. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and related disclosures of the Company as of December 31, 2023 and for the year then ended, which were included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 18, 2024 (the “2023 Form 10-K”), as amended by Amendment No. 1, filed with the SEC on April 26, 2024 (the “2023 Form 10-K Amendment”).

Note 2 – Summary of Significant Accounting Policies

The Company disclosed its significant accounting policies in Note 2 – Summary of Significant Accounting Policies included in the 2023 Form 10-K. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2024, except as disclosed below.

Liquidity and Going Concern

As of March 31, 2024, the Company had unrestricted cash and cash equivalents of approximately $8.0 million and an accumulated deficit of approximately $156.4 million. For the three months ended March 31, 2024 and 2023, the Company incurred net losses of approximately $10.9 million and $5.7 million, respectively, and used cash in operations of approximately $9.9 million and $7.0 million, respectively. The Company does not have recurring revenue and has not yet achieved profitability. The Company expects to continue to incur cash outflows from operations for the near future. The Company expects that its research and development and general and administrative expenses will continue to increase and, as a result, it will eventually need to generate significant product revenues to achieve profitability. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date that these financial statements are issued. Implementation of the Company’s plans and its ability to continue as a going concern will depend on many factors, including the Company’s ability to successfully commercialize its products and services, competing technological and market developments, and the need to enter into collaborations with other companies, or acquire other companies or technologies to enhance or complement its product and service offerings. Additionally, the Company may need to raise further capital, through the sale of additional equity or debt securities. If the Company is unable to generate sufficient recurring revenues or secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in order to conserve its cash.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents in the financial statements. As of March 31, 2024 and December 31, 2023, the Company had Treasury bills with original maturity dates of three months or less in the amounts of $2,039,357 and $5,450,118, respectively.

The Company has cash deposits in financial institutions that, at times, may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced losses in such accounts and periodically evaluates the creditworthiness of its financial institutions. As of March 31, 2024 and December 31, 2023, the Company had cash and cash equivalent balances in excess of FDIC insurance limits of $7,301,681 and $14,243,870, respectively.

Clinical Supply Arrangements

Bausch + Lomb Ireland Limited (“Bausch + Lomb”) and Arctic Vision had contracted with the Company to manufacture and supply them with the appropriate drug-device combination products to conduct their clinical trials on a cost plus 10% mark-up basis. Pursuant to the Letter Agreement (as defined below) with Bausch + Lomb, as referenced in Note 8 – Commitments and Contingencies – Bausch License Agreements, the arrangement with Bausch + Lomb has been terminated, and all rights have been repurchased by Eyenovia. The arrangement with Arctic Vision is still in place. The Company’s licensing agreement with Arctic Vision represents a collaborative arrangement and Arctic Vision is not a customer with respect to the clinical supply arrangements. The Company’s policy is to (a) defer the materials and manufacturing costs in order to properly match them up against the income from the clinical supply arrangements; and (b) report the net income from the clinical supply arrangements as other income. Deferred clinical supply costs were $0.8 million and $4.3 million at March 31, 2024 and December 31, 2023, respectively. See Note 8 – Commitments and Contingencies –Defective Clinical Supply for additional information.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The cost of inventory that is sold to third parties is included within cost of sales. The Company will periodically review for slow-moving, excess or obsolete inventories.

Inventory is primarily comprised of drug-device combination products, which are available for commercial sale, as follows:

The Company has evaluated the net realizable value of the commercial inventory. The write-down of commercial inventory to net realizable value was $198,034 and $0 for the three months ended March 31, 2024 and 2023, respectively.

Net Loss Per Share of Common Stock

Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, plus fully vested shares that are subject to issuance for little or no monetary consideration. Diluted loss per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. The following table presents the computation of basic and diluted net loss per common share:

The following securities are excluded from the calculation of weighted average diluted shares of common stock because their inclusion would have been anti-dilutive:

Subsequent Events

The Company has evaluated subsequent events through the date which the financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed.

Recently Issued Accounting Standards

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segments Disclosures (Topic 280), which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis. The guidance becomes effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Since this new ASU addresses only disclosures, the Company does not expect the adoption of this ASU to have any material effects on its financial condition, results of operations or cash flows. The Company is currently evaluating any new disclosures that may be required upon adoption of ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this standard, but does not expect it to have a material impact on its financial statements.

Note 3 – Prepaid Expenses and Other Current Assets

As of March 31, 2024 and December 31, 2023, prepaid expenses and other current assets consisted of the following:

Note 4 - Intangible Assets

On August 15, 2023 (the “Effective Date”), the Company entered into a license agreement (the “License”) with Formosa Pharmaceuticals Inc. (“Formosa”), whereby the Company acquired the exclusive U.S. rights to commercialize any product related to a novel formulation of clobetasol propionate ophthalmic suspension,0.05% (the “Licensed Product”), which was approved by the FDA for ophthalmic use for inflammation and pain after ocular surgery and supplemental disease indications, if any, associated with the New Drug Application for the Licensed Product. The License will remain in effect for ten years from the date of the first commercial sale of a Licensed Product, unless earlier terminated. The Company paid Formosa the aggregate amount of $2.0 million (the “Upfront Payment”), consisting of (a) cash in the amount of $1.0 million and (b)487,805 shares of common stock valued at $1.0 million, which is included in Intangible Assets on the accompanying balance sheet. In addition to the Upfront Payment, the Company also capitalized $122,945 of transaction costs, which were primarily legal expenses. In addition, the Company must pay Formosa up to $4.0 million upon the achievement of certain development milestones and up to $80.0 million upon the achievement of certain sales milestones. The trigger for the initial $2.0 million development milestone payments was FDA approval of the Licensed Product and the effective date of the acceptance by the Company of the transfer and assignment of the FDA approval. This occurred on March 11, 2024. Under the provisions of the License, the Company had 45 days from the effective date of acceptance of the transfer and assignment of FDA approval to make payment. Therefore, the Company recorded the $2.0 million increase in the intangible asset and the related accrual during March 2024. Subsequent to March 31, 2024, the Company made the requisite payment (see Note 11 – Subsequent Events). The second $2.0 million development milestone was earned upon FDA approval of the Licensed Product and payment is triggered on the earlier of twelve months after FDA approval or six months following the first commercial sale of the Licensed Product. Therefore, the Company recorded an additional $2.0 million increase in the intangible asset and the related accrual during March 2024.

Note 5 – Accrued Compensation

As of March 31, 2024 and December 31, 2023, accrued compensation consisted of the following:

Note 6 – Accrued Expenses and Other Current Liabilities

As of March 31, 2024 and December 31, 2023, accrued expenses and other current liabilities consisted of the following:

Note 7 – Notes Payable and Convertible Notes Payable

As of March 31, 2024 and December 31, 2023, notes payable and convertible notes payable consisted of the following:

On February 24, 2024, the Company issued a note payable in the amount of $505,050 for the purchase of a directors and officers’ liability insurance policy (the “D&O Loan”). The note accrues interest at a rate of 8.15% per year and matures on October 24, 2024. The D&O Loan is payable ineight monthly payments of $65,076 consisting of principal and interest. During the three months ended March 31, 2024, the Company repaid $61,646 of principal owed on the D&O Loan.

During the three months ended March 31, 2024, the Company recorded interest expense of $678,658, of which $675,228 (including amortization of debt discount of $184,207) was related to the Loan and Security Agreement with Avenue Capital Management II, L.P. and related entities (together, “Avenue”) and $3,430 was related to the D&O Loan. During the three months ended March 31, 2023, the Company recorded interest expense of $454,003, of which $450,394 is related to the Loan and Security Agreement with Avenue (including amortization of debt discount of $149,490) and $3,609 is related to the D&O Loan.

Note 8 – Commitments and Contingencies

Defective Clinical Supply

During the third quarter of 2023, a certain portion of clinical supply product sold to Bausch + Lomb had been determined to be defective. On April 23, 2024, the Company and Bausch + Lomb executed a letter agreement (the “Side Letter”) (see Note 11 – Subsequent Events), in which the parties agreed to an estimated value of $0.5 million related to defective clinical supply. Accordingly, the Company recorded an estimated charge equal to $0.4 million, which was included within other income (expense) during the year ended December 31, 2023, because the original sales to the licensee were recorded on that line item. During the three months ended March 31, 2024, the Company recorded an additional $0.1 million charge to other income (expense).

Bausch License Agreements

On October 9, 2020, the Company entered into a license agreement (the Bausch License Agreement”), pursuant to which Bausch + Lomb was permitted to develop and commercialize the Bausch Licensed Product (as defined in the Bausch License Agreement) in the United States and Canada (the “Licensed Territory”). Bausch + Lomb could terminate the Bausch License Agreement, with respect to the Bausch Licensed Product to either country in the Licensed Territory, at any time for convenience upon 90 days’ written notice.

On January 12, 2024, the Company and Bausch + Lomb entered into a mutual termination and reassignment agreement (the “Letter Agreement”), pursuant to which Eyenovia reacquired the rights to the Bausch Licensed Product. The terms of the agreement include the immediate transfer of the rights and the subsequent transfer of certain assets relating to the Bausch Licensed Product from Bausch + Lomb to the Company in exchange for cash and common stock consideration. In addition, under the terms of the Letter Agreement, the Company agreed to pay Bausch + Lomb a low single-digit royalty on its net sales of the Bausch Licensed Product in the United States and Canada for a period of ten years from the date of the first commercial sale by the Company (or its affiliates or licensees) of the Bausch Licensed Product in the United States. Under the Letter Agreement, (i) the Company will re-acquire any and all licenses and other rights granted by the Company to Bausch + Lomb under the original Bausch License Agreement, (ii) any and all licenses and other rights granted by Bausch + Lomb to the Company under the License Agreement are terminated, other than as set forth in the Letter Agreement, and (iii) other than as set forth in the Letter Agreement, Bausch + Lomb is released from all of their ongoing obligations under the License Agreement, including development and commercialization obligations.

Pursuant to the Letter Agreement, the Company paid Bausch + Lomb an upfront payment of $2.0 million in cash on January 22, 2024. The Company has recorded this amount as an operating expense. In connection with the entry into the Letter Agreement, the Company also agreed to issue Bausch + Lomb $3.0 million in shares of the Company’s common stock, within ten business days of the Regulatory Transfer Date, which occurred on April 11, 2024. See Note 11 – Subsequent Events for additional information.

Operating Leases

A summary of the Company’s right-of-use assets and liabilities is as follows:

Future minimum payments under the Company’s operating lease agreements are as follows:

Litigations, Claims and Assessments

The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements..

Note 9 – Stockholders’ Equity

At-The-Market Offering

During the three months ended March 31, 2024, the Company received approximately $3.2 million in net proceeds from the sale of 1,833,323 shares of its common stock pursuant to a sales agreement (the “Sales Agreement”) with Leerink Partners, LLC, formerly known as SVB Securities LLC (“Leerink Partners”) in an ”at-the-market” offering.

Stock-Based Compensation Expense

The Company records stock-based compensation expense related to stock options and restricted stock units (“RSUs”). For the three months ended March 31, 2024 and 2023, the Company recorded stock-based compensation expense of $546,232 ($206,586 which was included within research and development expenses and $339,646 was included within general and administrative expenses on the statements of operations) and $819,064 ($375,130 of which was included within research and development expenses and $443,934 was included within general and administrative expenses on the statements of operations), respectively.

Restricted Stock Units

A summary of the restricted stock units (“RSUs”) activity during the three months ended March 31, 2024 is presented below:

To date, RSUs have only been granted to directors in accordance with the Company’s Amended and Restated 2018 Omnibus Stock Incentive Plan. The Company’s policy is not to deliver shares underlying the RSUs until the termination of service.

As of March 31, 2024, there was $63,095 of unrecognized stock-based compensation expense related to RSUs which will be recognized over a weighted average period of 0.3 years.

Stock Options

A summary of the option activity during the three months ended March 31, 2024 is presented below:

The following table presents information related to stock options as of March 31, 2024:

In applying the Black-Scholes option pricing model to stock options granted, the Company used the following approximate assumptions:

As of March 31, 2024, there was $2,407,571 of unrecognized stock-based compensation expense related to stock options which will be recognized over a weighted average period of 2.1 years.

The weighted average estimated grant date fair value of the stock options granted for the three months ended March 31, 2024 and 2023 was approximately $1.33 and $1.61 per share, respectively.

Note 10 – Employee Benefit Plans

401(k) Plan

In April 2019, the Company adopted the Eyenovia 401(k) Plan (the “Plan”), which went into effect in May 2019. All Company employees are able to participate in the Plan, subject to eligibility requirements as outlined in the Plan documents. Under the terms of the Plan, eligible employees are able to defer a percentage of their pay every pay period up to annual limitations set by Congress and the Internal Revenue Service under Section 401(k) of the Internal Revenue Code. The Company’s Board of Directors approved a matching contribution equal to 100% of elective deferrals up to 4% of eligible earnings with the matching contribution subject to certain vesting requirements as outlined in the Plan documents. During the three months ended March 31, 2024 and 2023, the Company recorded expense of$102,483 and$78,969, respectively, associated with its matching contributions.

Note 11 - Subsequent Events

Registered Direct Offering

On April 8, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with a single fundamentals-based healthcare investor (the “Purchaser”), pursuant to which the Company agreed to sell, in a registered direct offering by the Company directly to the Purchaser (the “Offering”),3,223,726 shares of common stock, par value $0.0001 per share. The price per share in the Offering was $0.6204. The aggregate gross proceeds to the Company from the Offering were approximately $2.0 million.

At-The-Market Offering

Subsequent to March 31, 2024, the Company received approximately $317,000 in net proceeds from the sale of 347,794 shares of its common stock pursuant to its Sales Agreement with Leerink Partners in its ”at-the-market” offering. On April 8, 2024, the Company suspended its use of and terminated the prospectus supplement related to the potential issuance from time to time of the Company’s common stock pursuant to the Sales Agreement, unless and until a new prospectus supplement or a new registration statement is filed.

Reversion of Licensed Rights Under Mutual Termination Agreement with Bausch + Lomb

On January 12, 2024, the Company and Bausch + Lomb entered into the Letter Agreement, pursuant to which Eyenovia reacquired the rights to the CHAPERONE trial at the Regulatory Transfer Completion Date (as defined in the Letter Agreement; hereinafter the “Transfer Date”). See Note 8 – Commitments and Contingencies – Bausch License Agreements for details of the Letter Agreement.

On April 11, 2024, the Transfer Date, the transfer of the rights and certain assets relating to the CHAPERONE trial from Bausch + Lomb to the Company was completed. On May 3, 2024, the Company issued Bausch + Lomb 2,299,397 shares of the Company’s common stock, valued at $3.0 million, in satisfaction of its obligations pursuant to the Letter Agreement.

On April 23, 2024, the Company and Bausch + Lomb entered into the Side Letter, pursuant to which the Company and Bausch + Lomb agreed that the Company would pay approximately $0.5 million to Bausch + Lomb related to the defective clinical supply. It was also agreed that the Company will receive approximately $0.25 million from Bausch + Lomb to fund the vendor hold back liability that will be due upon completion of the CHAPERONE study. In addition, the Company purchased $0.5 million of clinical supplies from Bausch + Lomb in April 2024.

Intangible Asset Payment

Based on the achievement of the first development milestone (see Note 4 – Intangible Assets) which occurred on March 11, 2024, the Company paid Formosa the aggregate amount of $2.0 million, consisting of (a) cash in the amount of $1.0 million on April 26, 2024 and (b)613,496 shares of common stock valued at $1.0 million on April 29, 2024, which is included in Intangible Assets on the accompanying balance sheet.