Vivani Medical Inc

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1. Organization and Business Operations

Vivani Medical, Inc. (“Vivani,” the “Company,” “we,” “us,” “our” or similar terms) is a preclinical stage biopharmaceutical company which develops miniaturized, subdermal implants utilizing its proprietary NanoPortal™ technology, which is designed to enable long-term, near constant-rate delivery of a broad range of medicines to treat chronic diseases. Vivani uses this platform technology to develop and potentially commercialize drug implant candidates, alone or in collaboration with pharmaceutical company partners to address a leading cause of poor clinical outcomes in the treatment of chronic disease, medication non-adherence. According to the U.S. Centers for Disease Control and Prevention, adherence is defined as the extent to which an individual’s behavior, including taking medications, corresponds to recommendations from a health care provider. An alarmingly high proportion of patients, approximately 50%, do not take their medicine as prescribed in the real world, a statistic that applies to both daily oral as well as weekly injectable medicines. For example, a recent study has shown that 64% of patients taking Wegovy® (semaglutide injectable) discontinue therapy within the first year of treatment, a number that increases to 76% by the second year. Unfortunately, GLP-1 discontinuation may result in a quick reversal of the health benefits in the majority of patients.

At Vivani, we are developing a portfolio of miniature, subdermal drug implant candidates that, unlike most oral and injectable medicines, are designed with the goal of guaranteeing medication adherence by delivering therapeutic drug levels for up tosix months or longer. In addition, our aim is to minimize fluctuations in patients’ drug levels through the use of our NanoPortal™ technology, which may improve the tolerability profiles for medicines, including GLP-1 receptor agonists, that produce side effects associated with fluctuating drug levels in the blood.

Vivani resulted from the business combination of Second Sight Medical Products, Inc. (“Second Sight”) and Nano Precision Medical, Inc. (“NPM”). On August 30, 2022, Second Sight and NPM completed their merger pursuant to which NPM became a wholly owned subsidiary of Second Sight and the combined company of NPM and Second Sight was renamed Vivani Medical, Inc. Vivani’s main priority is the further development of the company’s lead program NPM-115, a miniature,6-month, GLP-1 implant candidate for chronic weight management in obese or overweight patients withone or more risk factors and further development of the balance of company’s miniature, long-acting drug implant portfolio. In parallel, Vivani’s management team remains committed to identifying and exploring strategic options that will enable further development of its pioneering neurostimulation systems from legacy company Second Sight aimed at helping patients recover critical body functions.

In December 2022, we contributed our neurostimulation assets and certain liabilities to Cortigent, Inc. (“Cortigent”), a wholly owned subsidiary of Vivani. Cortigent has 5,000,000 shares of common stock outstanding, all owned by Vivani. Cortigent is advancing the Company’s pioneering neurostimulation technology. In March 2023, Vivani announced the filing of a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) for the proposed initial public offering of Cortigent. The Registration Statement on Form S-1 was recently amended and filed with the SEC on June 7, 2024 to refresh the financial information and provide minor updates to the business.

On July 6, 2023, Vivani changed its state of incorporation from the State of California to the State of Delaware by means of a plan of conversion, effective July 5, 2023. The reincorporation, including the principal terms of the plan of conversion, was submitted to a vote of, and approved by, Vivani’s stockholders at its 2023 Annual Meeting of Stockholders held on June 15, 2023. As part of this change of incorporation the Company established a par value of $0.0001 per share and all periods have been retroactively adjusted to reflect this change.

An Investigational New Drug Application (“IND”) for NPM-119 (GLP-1 implant) was filed with the U.S. Food and Drug Administration (“FDA”) on July 14, 2023, to support the initiation of a first-in-human study of an exenatide implant in patients with type 2 diabetes. On August 18, 2023, FDA provided written notification that the study was on full clinical hold, primarily due to insufficient Chemistry, Manufacturing, and Controls (“CMC”) information to assess the risk to human subjects. After providing additional information to sufficiently address the FDA's concerns, the FDA lifted the clinical hold on NPM-119 on June 13, 2024 allowing for the proposed study to proceed. The primary objective of this first-in-human clinical study was to evaluate the safety, tolerability and pharmacokinetics of NPM-119 in type 2 diabetes patients. The initial study design also incorporated Bydureon BCise® (exenatide injection) for comparison purposes.

On August 25, 2023, the Company and Cortigent entered into an Amendment 1 (the “Amendment”) to the Transition Funding, Support and Services Agreement dated March 19, 2023 (the “TFSSA”). Pursuant to the TFSSA, Vivani has agreed to advance funds and provide or cause to be provided to Cortigent the services and funding intended to cover salaries and related costs, rent and other overhead in order to permit Cortigent to operate in substantially the same manner in which business operations of Cortigent were previously operated by Second Sight, prior to the formation of Cortigent, which obligations will continue, in the case of the funding obligations, until the earlier of December 31, 2024 or the closing of an initial public offering of Cortigent (the “Funding Support Term”). Under the Amendment, Cortigent has agreed to repay $1,500,000 to Vivani at the conclusion of the Funding Support Term. In addition, at the conclusion of the Funding Support Term, Cortigent will enter into afive-year promissory note at 5% interest for $2,000,000 in favor of Vivani. Consequently, Vivani will forgive any remaining amounts due by Cortigent to the Company under the TFSSA. In October 2023, Vivani implemented a reduction-in-force to conserve cash that decreased Cortigent’s employees from 14 to 7 while continuing the ongoing Orion® clinical study and basic operations.

In the fourth quarter of 2023, Vivani Medical Australia Pty Ltd., a wholly owned subsidiary in Australia was established to support studies of our product candidates.

In February 2024, Vivani announced positive preclinical weight loss data with its exenatide implant that was comparable to semaglutide, the active ingredient in Ozempic®/Wegovy®, and a strategic shift to prioritize the Company's obesity portfolio. In a study of high-fat diet-induced obese mice, the exenatide implant generated weight loss of approximately 20% compared to a sham implant control after a 28-day treatment duration, comparable to the extent of weight loss observed in mice treated with semaglutide injections (Ozempic®) in the same study.

In February, the Company also disclosed that semaglutide is the active pharmaceutical ingredient in NPM-139, another miniature, long term subdermal GLP-1 implant in development for chronic weight management further demonstrating our prioritization on obesity. NPM-139 also has the added potential benefit of once-yearly administration.

On March 1, 2024, the Company entered into a securities purchase agreement (“Securities Purchase Agreement”) with an institutional investor to purchase 3,947,368 shares of common stock, par value $0.0001 per share (the “Common Stock”) and warrants to purchase up to an aggregate of 3,947,368 shares of common stock at a purchase price of $3.80 per share and accompanying warrant in a registered direct offering (the “Offering”). The warrants have an exercise price of $3.80 per share, are exercisable immediately upon issuance, and will expire three years following the date of issuance.

On April 22, 2024, the Company entered into an Open Market Sale Agreement SM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company may offer and sell, from time to time at its sole discretion, shares of the Common Stock, having an aggregate offering price of up to $75.0 million through Jefferies as its sales agent. Also on April 22, 2024, the Company filed a Registration Statement on Form S-3, which was declared effective on May 3, 2024, including a sales agreement prospectus relating to the offering of up to $75.0 million shares of its Common Stock in accordance with the Sales Agreement.

On May 28, 2024, Vivani announced the publication of positive weight loss data supporting the potential veterinary use of OKV-119, the company's miniature, long-acting GLP-1 implant under development with partner Okava Pharmaceuticals, Inc. ("Okava") for the treatment of pre-diabetes, diabetes and obesity in companion felines. The device is intended to be conveniently inserted under the skin during routine veterinary visits and is being designed to deliversix months of GLP-1 therapy with a single administration.

As stated previously, on June 13, 2024, Vivani announced that the FDA cleared the IND and lifted the clinical hold for NPM-119, the Company's miniature, six-month GLP-1 implant under development for the treatment of patients with type 2 diabetes.

On July 11, 2024, the Company provided an update of the clinical development plans for NPM-115, the clinical program associated with the miniature, long-acting GLP-1 (high-dose exenatide) implant for chronic weight management in obese and overweight individuals. The Company has redesigned the First-in-Human study, LIBERATE-1, initially intended to explore the safety, tolerability and pharmacokinetics of its exenatide implant in patients with type 2 diabetes, to evaluate the implant in obese and overweight patients. The study will enroll patients who will be titrated on weekly semaglutide injections foreight weeks before being randomized to receive a single exenatide implant, weekly exenatide injections (Bydureon BCise®) or weekly semaglutide injections (Wegovy®) for anine-week treatment duration. The LIBERATE-1 study will be conducted in Australia and is anticipated to be initiated in the fourth quarter of 2024, subject to regulatory clearance, with data from the study expected in 2025.

Liquidity and Capital Resources

From inception, our operations have been funded primarily through the sales of our common stock and warrants.

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. We are subject to the risks and uncertainties associated with a business withno revenue that is developing novel medical devices, including limitations on our operating capital resources. 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.

On March 1, 2024, the Company entered into the Securities Purchase Agreement relating to the issuance of 3,947,368 shares of the Common Stock and warrants to purchase up to an aggregate of 3,947,368 shares of Common Stock (the “Warrants”), to such investor at a purchase price of $3.80 per share and accompanying warrants in the Offering. The Warrants have an exercise price of $3.80 per share, are exercisable immediately upon issuance and will expire three years following the date of issuance. Simultaneously, the Company also entered into a placement agency agreement with Maxim Group LLC (“Maxim” and such agreement, the “Placement Agency Agreement,” and together with the Securities Purchase Agreement, the “Agreements”), who acted as the sole placement agent for the Offering. The gross proceeds of $15.0 million from the Offering, before paying the placement agent fees and other offering costs, were received on March 5, 2024. In connection with the Securities Purchase Agreement, the Company paid issuance costs of$1.3 million, resulting in net proceeds of $13.7 million, during thesix months ended June 30, 2024. For additional information, refer to Note 6. Equity Securities of the Notes to Condensed Consolidated Financial Statements.

On April 22, 2024, the Company entered into the Sales Agreement with Jefferies, under which the Company may offer and sell, from time to time at its sole discretion, shares of the Common Stock, having an aggregate offering price of up to $75.0 million through Jefferies as its sales agent. Also on April 22, 2024, the Company filed a Registration Statement on Form S-3, which was declared effective on May 3, 2024, including a sales agreement prospectus relating to the offering of up to $75.0 million shares of its Common Stock in accordance with the Sales Agreement. For additional information, refer to Note 6. Equity Securities of the Notes to Condensed Consolidated Financial Statements.

We estimate that currently available cash will provide sufficient funds to enable the Company to meet its planned obligations into the second half of 2025. 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.

Note 2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

These unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and following the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In our opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of our financial position and our results of operations and cash flows for periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with our financial statements and accompanying notes for the fiscal year ended December 31, 2023, included within our Annual Report on Form 10-K filed with the SEC on March 26, 2024. The results of the interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period or any future year or period.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during thereporting periods. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to useful lives of long-lived assets, stock-based compensation and evaluation of going concern. Management bases its estimates on historical experience and on various assumptions that management believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Operating Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. Our chief operating decision-maker, our Chief Executive Officer, reviews financial information presented for each of our segments. We havetwo reporting segments, specifically the Biopharm Division and Neurostimulation Division. Neither division is revenue producing. The Biopharm Division includes activities from NPM and Vivani Medical Australia Pty Ltd. The Neurostimulation Division includes activities from Cortigent and our subsidiary in Switzerland.

During the three months ended June 30, 2024, the Biopharm Division and Neurostimulation Division incurred operating expenses of $5.2 million and $0.5 million, respectively. During the three months ended June 30, 2024, consolidated net loss for the Biopharm Division was $4.8 million and for the Neurostimulation Division was $0.5 million.

During the six months ended June 30, 2024, the Biopharm Division and Neurostimulation Division incurred operating expenses of $10.9 million and $1.0 million, respectively. During the six months ended June 30, 2024, consolidated net loss for the Biopharm Division was $10.3 million and for the Neurostimulation Division was $1.1 million.

As of June 30, 2024, total assets for the Biopharm Division and the Neurostimulation Division was $47.0 million and $1.2 million, respectively.

The Company’s long-term assets are located in the United States.

Significant Accounting Policies

Our significant accounting policies are set forth in our financial statements for the year ended December 31, 2023, included within our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 26, 2024.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2023-07,Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.

In December 2023, the FASB issued ASU No.2023-09,Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted.

Note 3. Concentration of Risk

Credit Risk

Financial instruments that subject us to concentrations of credit risk consist primarily of cash, certificates of deposit and money market funds. We maintain cash, certificates of deposit and money market funds with financial institutions that we deem reputable.

Foreign Operations

The accompanying condensed consolidated financial statements as of June 30, 2024 and 2023 include assets amounting to approximately$26,000 and $0.1 million, respectively, relating to our operations in Switzerland. In the fourth quarter of 2023, Vivani Medical Australia Pty Ltd., a wholly owned subsidiary in Australia was established to support studies of our product candidates. Unanticipated events in foreign countries could disrupt our operations and impair the value of these assets.

Note 4. Fair Value Measurements

The authoritative guidance with respect to fair value establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required.

Level 1. Observable inputs such as quoted prices in active markets for an identical asset or liability that we have the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.

Level 2. Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.

Level 3. Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own assumptions. Financial assets and liabilities utilizing Level 3 inputs include infrequently traded non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.

We determine the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, we perform an analysis of the assets and liabilities at each reporting period end.

Cash equivalents, which includes certificates of deposit and money market funds, are the only financial instruments measured and recorded at fair value on our condensed consolidated balance sheet, and are valued using Level 1 inputs. As of June 30, 2024 and 2023, we did not have any Level 1 and Level 2 financial liabilities or Level 3 financial assets or liabilities measured at fair value on a recurring basis. We did not have any transfers between Level 1 and Level 2 or transfers in or out of Level 3 during the three and six months ended June 30, 2024 and 2023.

The following table summarizes assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

Note 5. Selected Balance Sheet Detail

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

Note 6. Equity Securities

We are authorized to issue 300,000,000 shares of common stock with 55,196,703 issued and outstanding as of June 30, 2024. In addition, we are authorized to issue 10,000,000 shares of preferred stock with none issued as of June 30, 2024.

Securities Purchase Agreement

On March 1, 2024, the Company entered into the Securities Purchase Agreement relating to the issuance of 3,947,368 shares of the Common Stock and Warrants to purchase up to an aggregate of 3,947,368 shares of common stock, at a purchase price of $3.80 per share and accompanying warrants in the Offering. The Warrants have an exercise price of $3.80 per share, are exercisable immediately upon issuance and will expire three years following the date of issuance. The Company also entered into a Placement Agency Agreement with Maxim, who acted as the sole placement agent for the Offering. In connection with the Placement Agency Agreement, the Company agreed to pay Maxim an aggregate cash fee of 7.0% of the aggregate proceeds raised from the sale and issuance of the shares of common stock and accompanying warrants. Pursuant to the Placement Agency Agreement, the Company also agreed to reimburse Maxim up to $65,000 for its legal expenses. The gross proceeds of $15.0 million from the Offering, before paying the placement agent fees and other estimated offering costs, were received on March 5, 2024. In connection with the Securities Purchase Agreement, the Company paid issuance costs of $1.3 million, resulting in net proceeds of $13.7 million, during thesix months ended June 30, 2024.

Pursuant to the terms of the Securities Purchase Agreement, until 45 days following the closing of the Offering, the Company agreed not to issue (or enter into any agreement to issue) any shares of common stock or common stock equivalents, subject to certain exceptions. The Company has further agreed not to enter into an agreement involving a variable rate transaction until one year following the closing of the Offering. In addition, the Company’s directors and officers have entered into lock-up agreements with the Company pursuant to which each of them has agreed not to, for a period of 90 days from the closing of the Offering, offer, sell, transfer or otherwise dispose of the Company’s securities, subject to certain exceptions.

At-the-Market Sales Agreement

On April 22, 2024, the Company entered into the Sales Agreement with Jefferies, under which the Company may offer and sell, from time to time at its sole discretion, shares of the Common Stock, having an aggregate offering price of up to $75.0 million through Jefferies as its sales agent. Also on April 22, 2024, the Company filed a Registration Statement on Form S-3, which was declared effective on May 3, 2024, including a sales agreement prospectus relating to the offering of up to $75.0 million shares of its Common Stock in accordance with the Sales Agreement.

The Company may sell the Common Stock under the Sales Agreement (A) in privately negotiated transactions; (B) as block transactions; or (C) by any other method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made directly on the Nasdaq Capital Market or sales made into any other existing trading market for the shares of Common Stock. Jefferies will use commercially reasonable efforts to place the shares of Common Stock from time to time, based upon the Company's instructions (including any price, time or size limits or other customary parameters or conditions we may impose). The Company will pay Jefferies a commission of up tothree percent (3.0%) of the gross sales proceeds of any Common Stock sold through Jefferies under the Sales Agreement, and also has provided Jefferies with customary indemnification rights. In addition, the Company has agreed to reimburse certain legal expenses and fees incurred by Jefferies in connection with the offering.

The Company is not obligated to make any sales of Common Stock under the Sales Agreement. The offering of shares of Common Stock pursuant to the Sales Agreement will terminate upon the earlier of (i) the sale of all Common Stock subject to the Sales Agreement or (ii) termination of the Sales Agreement in accordance with its terms.

During the six months ended June 30, 2024, the Company issued 218,238 shares of common stock for gross proceeds of $412,000 as part of the Sales Agreement with Jefferies. The Company paid expenses of $300,500, resulting in net proceeds of $112,000.

Note 7. Warrants

A summary of warrant activity for thesix months ended June 30, 2024 is presented below (in thousands, except per share and contractual life data).

NPM, prior to the merger with Second Sight, issued common stock and warrants (collectively, the “unit” or “units”) in 2019,2020 and 2021 for $3.15 per unit. Outstanding warrants to purchase common stock are shown in the table above and generally expire five years from the date of issuance at $3.15 per share exercise price are transferable intoone share of common stock and may be exercised on a cashless basis.

Second Sight underwriter warrants of 10,125 were outstanding and are convertible into 3,375 shares, included in the table above, and converted as part of the merger for Vivani warrants on a like-for-like basis. The weighted average exercise price of these warrants is $3.75.

In connection with the Securities Purchase Agreement entered on March 1, 2024, relating to the issuance of 3,947,368 shares of the Common Stock, par value of $0.0001 per share, the Company issued Warrants to purchase 3,947,368 shares of common stock at an exercise price of $3.80 per share. These Warrants are exercisable immediately upon issuance and will expire three years following the date of issuance. The Warrants may be exercised on a cashless basis.

The warrants outstanding as of June 30, 2024 hadno intrinsic value.

Note 8. Stock-Based Compensation

Equity Incentive Plan

The Vivani Medical, Inc.2022 Omnibus Incentive Plan (the “2022 Plan”) became effective on August 30, 2022. Under the 2022 Plan,10,033,333 shares were authorized for issuance at its effective date. The maximum number of shares with respect to which stock awards could be granted is offset and reduced by stock awards previously granted under the 2022 Plan. As of June 30, 2024, 2,359,532 shares of common stock were available for future issuance under the 2022 Plan pursuant to stock awards that had not previously been granted.

For stock option grants, the option price is determined by the Board of Directors but cannot be less than the fair value of the shares at the grant date. Generally, theoptions vest ratably over four years and expireten years from the grant date. The plan provides for accelerated vesting if there is a change of control, as defined in the Plan.

Stock Options

A summary of stock option activity is presented below (in thousands, except per share and contractual life data).

The estimated aggregate intrinsic value of stock options exercisable as of June 30, 2024 was $0.01 million.

Restricted Stock Units (RSUs)

A summary of restricted stock activity and related information (in thousands, except per share data):

During the six months ended June 30, 2024, the Company granted 292,500 RSUs, subject to market conditions which required our stock price to exceed $3.15 per share forthree consecutive days in thefour years from grant date for the RSUs to vest. Upon achievement of the market condition, one-third of the award will vest, and thereafter, one-third of the award will vest on the first and second anniversary of the achievement date, subject to the recipient’s continued service through each applicable vesting date.

During the six months ended June 30, 2023, the Company granted 402,500 RSUs, subject to market conditions which required our stock price to exceed $3.15 per share forthree consecutive days in thefour years from grant date for the RSUs to vest. Upon achievement of the market condition, one-third of the award will vest, and thereafter, one-third of the award will vest on the first and second anniversary of the achievement date, subject to the recipient’s continued service through each applicable vesting date.

Stock-Based Compensation Expense

The following table summarizes total stock-based compensation expense for stock options and RSUs, which is included in the statements of operations (in thousands):

As of June 30, 2024, there was $2.3 million of total unrecognized stock-based compensation expense related to outstanding stock options that will be recognized over a weighted average period of 1.4 years. As of June 30, 2024, there was$0.4 million of total unrecognized compensation expense related to outstanding RSUs that will be recognized over a weighted average period of 0.8 years

Stock Options

During thesix months ended June 30, 2024, we granted stock options to purchase 818,209 shares of common stock to certain employees and board members. The options are exercisable for a period often years from the date of grant at a weighted average price of $1.70 per share, which was calculated at the fair value of our common stock on the respective grant date. The options generally vest over a period offour years.

Stock Options (Service Vesting)

During thesix months ended June 30, 2024,818,209 stock options subject to service vesting, were issued and valued at $1.1 million using the Black-Scholes option-pricing model. During thesix months ended June 30, 2023,921,817 stock options subject to service vesting, were issued and valued at $0.9 million using the Black-Scholes option-pricing model. The calculated value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions.

Stock Options (Market Conditions Vesting)

During thesix months ended June 30, 2023,200,000 stock options were granted and subject to market conditions which required our stock price to exceed $6.30 per share forthree consecutive days in thefour years from grant date for the stock option to vest. These stock options with market conditions vesting were valued at $0.1 million. The fair value of these options subject to market conditions were valued using the Monte-Carlo Simulation model with the following assumptions:

Restricted Stock Units (RSUs)

During thesix months ended June 30, 2024, the Company granted 292,500 RSUs. These RSUs are subject to performance vesting criteria, based on market conditions which required our stock price to exceed $3.15 per share forthree consecutive days in thefour years from grant date for the RSUs to vest. The assumptions used to estimate the fair value of the performance-based restricted stock units granted during the six months ended June 30, 2024 and June 30, 2023 and valued using a Monte Carlo simulation were as follows:

The steps involved in utilizing the Monte Carlo simulation in order to value the performance-based RSUs included the following:

**1. Projection of the Company’s Common Stock Value.**The performance-based RSUs were measured based on the Company’s underlying common stock value over the performance period (four years following the Valuation Date).

Additionally, we considered thetwo-year vesting period following achievement of the performance condition. Accordingly, our common stock value was simulated over asix-year period to capture iterations through which the performance condition was satisfied on the Performance Period End Date. The analysis involved projecting our common stock value starting with our current common stock value. The forecasted stock price was based on the Geometric Brownian motion (“GBM”), and the Monte Carlo simulation generated random variables using the GBM to forecast our stock price on a daily basis over the specified period assuming 252 trading days per year. The Monte Carlo simulation for the PSO utilized the following assumptions:

**2. Consideration of the Performance-Vesting Schedule.**As previously discussed, our publicly traded common share price must equal or exceed the Stock Price Hurdle amount of $3.15 over a 3-consecutive-trading-day rolling period on or before the Performance Period End Date. If such performance condition is achieved,1/3 of the award shall vest on the Hurdle Achievement Date,1/3 of the award shall vestone year following the Hurdle Achievement Date, and 1/3 of the award shall vesttwo years following the Hurdle Achievement Date.

3. Performance-Based RSU Value Conclusion. The proceeds from the vesting of common shares were then discounted to the Valuation Date using the applicable risk-free rate, which is consistent with the assumption utilized to project stock prices in our Monte Carlo simulation. For the purpose of calculating the weighted service period associated with the Subject Interest, a separate simulation was performed using our cost of equity as the drift rate. The service period was then determined based on the median Hurdle Achievement Date.

Note 9. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of shares of common stock outstanding during the period plus the dilutive effects of potentially dilutive securities outstanding during the period. Potentially dilutive securities include common stock options, RSUs and warrants issued and outstanding.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts):

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods presented, as the inclusion of all potential common stock equivalents outstanding would have been antidilutive.

During thesix months ended June 30, 2024 and 2023, the following common stock equivalents were excluded from the computation of diluted net loss per share because including them would have been antidilutive (in thousands).

Note 10. Right-of-use Assets and Operating Lease Liabilities

We lease certain office, laboratory, research and development space for our use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease costs are recognized in the income statement over the lease term on a straight-line basis. Depreciation is computed using the straight-line method over the estimated useful life of the respective assets. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. As most of our leases do not provide an implicit rate, we used our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

On November 21, 2022, Vivani entered into a triple net lease agreement for a single building with 43,645 square feet of space in Alameda, California. The stated term of the lease commenced on June 1, 2023 and terminates on September 30, 2033, ten years and four months. The lease term is based on the non-cancellable period in the lease agreement. There are two options to extend the lease, each for a term of five years; however, the extension options were not included in the measurement of the ROU asset and lease liability since it is not reasonably certain that the Company will exercise such extension options. Payments increase annually from $2,676,311 to $3,596,784, or 124 monthly payments less the first four which are abated, totaling approximately $31.0 million. Vivani is responsible for insurance, property taxes and common area maintenance charges. Vivani deposited $1.3 million to guarantee a letter of credit to secure the lease and this amount is recorded as restricted cash, long-term on the balance sheets as of June 30, 2024 and December 31, 2023. The lease in Emeryville, California expired on September 30, 2023.

On February 1, 2023, we entered into a lease agreement, effective March 1, 2023, to sublease office space to replace Cortigent’s headquarters. Our rental payments amount to $22,158 per month plus operating expenses, tolease 14,823 square feet of office space at 27200 Tourney Road, Valencia, California 91355. The sublease has a term of two years and two months. We also entered into a lease for storage space on January 25, 2023, in the same building at a cost of $6,775 per month for a term of two years and one month.

The following table summarizes supplemental balance sheet information related to the Company’s operating leases (in thousands):

Operating lease cost was $0.8 million and $0.6 million during thethree months ended June 30, 2024 and 2023, respectively, and $1.7 million and $0.9 million during thesix months ended June 30, 2024 and 2023, respectively.

Variable lease cost, comprising primarily of common area maintenance charges and taxes, for the operating lease was $0.1 million and $0.1 million during thethree months ended June 30, 2024 and 2023, respectively, and $0.2 million and $0.2 million during thesix months ended June 30, 2024 and 2023, respectively.

The following table summarizes a maturity analysis of our lease liabilities showing the aggregate lease payments as of June 30, 2024 (in thousands except weighted average data):

Other information related to leases are as follows (in thousands):

Note 11. Commitments and Contingencies

Indemnification Agreements

We maintain indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

Clinical Trial Agreements

Based upon FDA approval of Argus II, which was obtained in February 2013, we were required to collect follow-up data from subjects enrolled in our pre-approval trial for a period of up to ten years post-implant, which was extended through the year 2019. This requirement to collect follow-up data was halted in 2020 with FDA approval. In addition, we conducted three post-market studies to comply with U.S. FDA, French, and European post-market surveillance regulations and requirements and are conducting an early feasibility clinical study of Orion. We have contracted with various universities, hospitals, and medical practices to provide these services. Payments are based on procedures performed for each subject and are charged to clinical and regulatory expense as incurred. Total amounts expensed during thethree months ended June 30, 2024 and 2023 were $4,000 and $90,000, respectively, and during the six months ended June 30, 2024 and 2023 were $10,000 and $116,000, respectively.

Litigation, Claims and Assessments

One opposition filed by Pixium Vision SA (“Pixium”) is pending in the European Patent Office challenging the validity of a European patent owned by Cortigent. The outcome of the challenge is not certain, however, if successful, it may affect our ability to block competitors from utilizing Cortigent’s neurostimulation patented technology. We believe a successful challenge will not have a material effect on our ability to manufacture and sell our products, or otherwise have a material effect on Cortigent’s operations.

As described in the Company’s 10-K for the year ended December 31, 2020, the Company had entered into a Memorandum of Understanding (“MOU”) for a proposed business combination with Pixium. In response to a press release by Pixium dated March 24, 2021, and subsequent communications between us and Pixium, our Board of Directors determined that the business combination with Pixium was not in the best interest of our shareholders. On April 1, 2021, we gave notice to Pixium that we were terminating the MOU between the parties and seeking an amicable resolution of termination amounts that may be due, however no assurance can be given that an amicable resolution will be reached. We accrued $1,000,000 of liquidated damages as contemplated by the MOU in accounts payable as of March 31, 2021 and remitted that amount to Pixium in April 2021. Pixium indicated that it considered this termination wrongful, rejected the Company’s offers, but retained the $1,000,000 payment. On May 19, 2021, Pixium filed suit in the Paris Commercial Court, and currently claim damages of approximately €5.1 million or about $5.6 million. We believe we have fulfilled our obligations to Pixium with the liquidated damages payment of $1,000,000. On December 8, 2022, the Company received notice that the Paris Commercial Court has rendered its judgment, including finding that the Company’s termination of the MOU was not valid. In the judgment, the Company was ordered to pay to Pixium the amount of €2,500,000 minus a €947,780 credit for the $1,000,000 already paid for, a net amount payable of approximately €1,552,220. On May 24, 2023, the Company filed an appeal against the judgment from the Paris Commercial Court except in so far as such prior judgment dismissed (i) Pixium’s claim for the Company to pay it a sum of €480,693 relating to the alleged time spent by its teams, (ii) Pixium’s application to order the Company to pay it a sum of €1,500,000 in respect to alleged loss of opportunity and (iii) deducted the sum of $1,000,000 that we already paid Pixium and which Pixium retained converted into euros at the date of the judgment. Thereafter Pixium filed its brief with Paris Court of Appeal and filed a cross-appeal on January 18, 2024. Meanwhile, the Company received notice that the Paris Commercial Court had opened safeguard proceedings against Pixium by judgment dated October 9, 2023, then in its judgment dated November 13, 2023, converted safeguard proceedings into receivership, and in its judgment dated January 31, 2024, converted Pixium’s receivership proceedings to liquidation proceedings, the transfer plan being rejected. As a result, Pixium’s liquidator intervened on behalf of Pixium in the pending proceedings before the Paris Court of Appeal and filed its brief on March 21, 2024. The Company filed its brief in reply with the Paris Court of Appeal on April 17, 2024. Proceedings before the Paris Court of Appeal are pending. In parallel, since the Company has failed to enforce the judgment, Pixium has requested the pre-trial judge to strike out the Company's appeal for failure to enforce the judgment. The hearing took place on June 4, 2024 and the decision is expected to be handed down on September 10, 2024, which is an approximate date that is subject to change. The Company recorded a charge of $1,675,000 for the year ended December 31, 2022, related to this matter but plans to continue its appeal against the preliminary judgment.

We are party to litigation arising in the ordinary course of business. It is our opinion that the outcome of such matters will not have a material effect on our results of operations, however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

**Item 2.