UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-36554

Ocular Therapeutix, Inc.

(Exact name of registrant as specified in its charter)

(781) 357-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”  and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒ 

As of November 1, 2018, there were 41,095,372 shares of Common Stock, $0.0001 par value per share, outstanding.

Ocular Therapeutix, Inc.

INDEX 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.  All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements.  The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. 

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.  Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.  We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make.  Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. 

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to the Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.  We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. 

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements.

Ocular Therapeutix, Inc.

Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these financial statements. 

Ocular Therapeutix, Inc.

Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these financial statements. 

Ocular Therapeutix, Inc.

Statements of Cash Flows

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these financial statements. 

Ocular Therapeutix, Inc.

Notes to the Financial Statements

(Amounts in thousands, except share and per share data)

(Unaudited)

1. Nature of the Business and Basis of Presentation

Ocular Therapeutix, Inc.  (the “Company”) was incorporated on September 12, 2006 under the laws of the State of Delaware.  The Company is a biopharmaceutical company focused on the formulation, development and commercialization of innovative therapies for diseases and conditions of the eye using its proprietary, bioresorbable hydrogel platform technology.  The Company uses this technology to tailor duration and amount of delivery of a range of therapeutic agents of varying duration in its product candidates.  Since inception, the Company’s operations have been primarily focused on organizing and staffing the Company, acquiring rights to intellectual property, business planning, raising capital, developing its technology, identifying potential product candidates, undertaking preclinical studies and clinical trials, manufacturing initial quantities of its products and product candidates and building the initial sales and marketing infrastructure for the commercialization of the Company’s approved product and product candidates. 

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations, regulatory approval, uncertainty of market acceptance of products, securing reimbursement and the need to obtain additional financing.  Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. 

As of September 30, 2018, the Company’s lead product candidates were in clinical stage development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval and adequate reimbursement or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants. The Company may not be able to generate significant revenue from sales of any product for several years, if at all. Accordingly, the Company will need to obtain additional capital to finance its operations, including to support the planned commercial launch of DEXTENZA®, subject to receiving FDA approval for its new drug application, or NDA, for post-surgical ocular pain filed on June 28, 2018 with a target action date under the Prescription Drug User Fee Act (commonly known as “PDUFA”) of December 28, 2018.  

The Company believes that its existing cash and cash equivalents as of September 30, 2018, will enable it to fund its operating expenses, debt service obligations and capital expenditure requirements into the second quarter of calendar year 2019. Management has determined that the Company’s accumulated deficit, history of losses, negative cash flows from operations and future expected losses raise substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance date of these financial statements. The Company has incurred losses and negative cash flows from operations since its inception, and the Company expects to continue to generate operating losses and negative cash flows from operations in the foreseeable future. As of September 30, 2018, the Company had an accumulated deficit of $279,844. 

If the Company is unable to obtain other financing, the Company would be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts or to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company.  The actions necessary to reduce spending to a level that mitigates the factors described above are not considered probable, as defined in the accounting standards.   

The accompanying unaudited interim financial statements of the Company 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. The accompanying unaudited interim financial statements do not include any adjustments to reflect the possible future effects

on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the ability to continue as a going concern.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). 

Unaudited Interim Financial Information

The balance sheet at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP.  The accompanying unaudited financial statements as of September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.  However, the Company believes that the disclosures are adequate to make the information presented not misleading.  These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K on file with the SEC.  In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2018 and results of operations and cash flows for the nine months ended September 30, 2018 and 2017 have been made.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018. 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Significant estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition, the accrual of research and development expenses, including clinical trials, and the valuation of common stock and stock-based awards.  Estimates are periodically reviewed in light of changes in circumstances, facts and experience.  Actual results could differ from the Company’s estimates. 

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP.  Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.  Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

The Company’s cash equivalents at September 30, 2018 and December 31, 2017, were carried at fair value determined according to the fair value hierarchy described above (see Note 3).  The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these

assets and liabilities.  The carrying value of the Company’s outstanding notes payable (see Note 6) approximates fair value reflecting interest rates currently available to the Company. 

Restricted Cash

The Company held certificates of deposit totaling $1,614 at September 30, 2018 and December 31, 2017, as security deposits for the lease of the Company’s manufacturing space and current corporate headquarters.  The Company has classified these certificates of deposit as long-term restricted cash on its balance sheet. 

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. 

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period.  Diluted net loss per share is computed by dividing the diluted net loss by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options, unvested restricted common shares and common stock warrants, as determined using the treasury stock method.  For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. 

Recently Issued and Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).  ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized.  The new model requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.  In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date which delays the effective date of ASU 2014-09 such that the standard is effective for public entities for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years.  The FASB subsequently issued amendments to ASU No. 2014-09 that have the same effective date and transition date, all of which collectively are herein referred to as “the New Revenue Standard.” 

The Company adopted the New Revenue Standard on January 1, 2018 using the modified retrospective method.  The adoption of the New Revenue Standard did not have a material impact on its financial statements and footnote disclosures. Under the New Revenue Standard, the Company recognizes revenue when the customer obtains control of the good in an amount that reflects the consideration which the Company expects to receive in exchange for those goods.  The Company only applies the New Revenue Standard to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods transferred to the customer.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”).  ASU 2016-15 is intended to clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications.  The Company adopted ASU 2016-15 effective January 1, 2018 and its adoption did not have a material impact on its financial statements. 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash (“ASU 2016-18”).  ASU 2016-18 requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.  Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents

when reconciling the beginning-of-period and end-of- period total amounts shown on the statement of cash flows.  The Company adopted ASU 2016-18 effective January 1, 2018 and has reflected the adoption retrospectively to all periods presented. The Company’s statements of cash flows include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements. A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the statement of cash flows is as follows:

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. The new standard does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. A reporting entity must apply the amendments in the ASU prospectively to an award modified on or after the adoption date. The Company adopted ASU 2017-09 effective January 1, 2018, as required, and its adoption did not have a material impact on the Company’s financial statements. The adoption of ASU 2017-09, however, will have an impact on the accounting for the modification of stock-based awards, if any, to the extent stock-based awards are modified.

Recently Issued Accounting Pronouncements

In February 2016 and July 2018, the FASB issued ASU No. 2016-02, Leases (ASC 842) (“ASU 2016-02”) and ASU No. 2018-11, Targeted Improvements to ASC 842, Leases.  These standards require lessees to recognize most leases on the balance sheet.  This is expected to increase both reported assets and liabilities.  The new lease standards do not substantially change lessor accounting.  For public companies, the standards will be effective for the first interim reporting period within annual periods beginning after December 15, 2018.  Lessees and lessors will be required to apply the new standards at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective transition method.  The requirements of these standards include the presentation of right to use assets and the relative liability on the Company’s balance sheet for certain leasing arrangements, which previously have not been recorded on the balance sheet as well as a significant increase in required disclosures.  The Company expects that adopting this new accounting guidance will have a material impact on the financial statements and footnote disclosures.

In September 30, 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The new standard simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new standard will be effective beginning January 1, 2019 and early adoption is permitted. The Company does not expect that the adoption of ASU 2018-07 will have a material impact on its results of operations.

3. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 and indicate the level of the fair value hierarchy utilized to determine such fair value:

During the nine months ended September 30, 2018 there were no transfers between Level 1, Level 2 and Level 3.

4. Income Taxes

The Company did not provide for any income taxes in its statement of operations for the nine-month periods ended September 30, 2018 or 2017.  The Company has provided a valuation allowance for the full amount of its net deferred tax assets because, at September 30, 2018 and December 31, 2017, it was more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized. 

In accordance with SEC Staff Accounting Bulletin No. 118, which addresses the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the legislation commonly referred to as the Tax Cuts and Jobs Act, the Company has recorded provisional amounts during the year ended December 31, 2017.  The Company filed its 2017 U.S. corporate income tax return in October 2018 and there was no resulting impact on any provisional amounts recorded in the Company’s income tax provision for the year ended December 31, 2017.  

The Company has not recorded any amounts for unrecognized tax benefits as of September 30, 2018 or December 31, 2017.  As of September 30, 2018 and December 31, 2017, the Company had no accrued interest or tax penalties recorded related to income taxes.  The Company’s income tax return reporting periods since December 31, 2014 are open to income tax audit examination by the federal and state tax authorities.  In addition, because the Company has net operating loss carryforwards, the Internal Revenue Service is permitted to audit earlier years and propose adjustments up to the amount of net operating losses generated in those years. 

5. Collaboration and Feasibility Agreements

In October 2016, the Company entered into a Collaboration, Option and License Agreement (the “Collaboration Agreement”) with Regeneron Pharmaceuticals, Inc.  (“Regeneron”) for the development and potential commercialization of products containing the Company’s extended-delivery hydrogel formulation in combination with Regeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases.  The Collaboration Agreement does not cover the development of any products that deliver small molecule drugs, including tyrosine kinase inhibitors, or TKIs, or deliver large molecule drugs other than those that target VEGF proteins. 

Under the terms of the Collaboration Agreement, the Company and Regeneron have agreed to conduct a joint research program with the aim of developing an extended-delivery formulation of aflibercept, currently marketed under

the tradename Eylea, that is suitable for advancement into clinical development.  The Company has granted Regeneron an option (the “Option”) to enter into an exclusive, worldwide license to develop and commercialize products containing the Company’s hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds (“Licensed Products”).  Under the term of the Collaboration Agreement, Regeneron is responsible for funding an initial preclinical tolerability study, which it initiated in early 2018.

If the Option is exercised, Regeneron will conduct further preclinical development and an initial clinical trial under a collaboration plan.  The Company is obligated to reimburse Regeneron for certain development costs incurred by Regeneron under the collaboration plan during the period through the completion of the initial clinical trial, subject to a cap of $25,000, which cap may be increased by up to $5,000 under certain circumstances.  If Regeneron elects to proceed with further development following the completion of the collaboration plan, it will be solely responsible for conducting and funding further development and commercialization of product candidates.  If the Option is exercised, Regeneron is required to use commercially reasonable efforts to research, develop and commercialize at least one Licensed Product.  Such efforts shall include initiating the dosing phase of a subsequent clinical trial within specified time periods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subject to certain extensions.  Through September 30, 2018, the Option has not been exercised, and no payments have been made to Regeneron.

Under the terms of the Collaboration Agreement, Regeneron has agreed to pay the Company $10,000 upon the exercise of the Option.  The Company is also eligible to receive up to $145,000 per Licensed Product upon the achievement of specified development and regulatory milestones, $100,000 per Licensed Product upon first commercial sale of such Licensed Product and up to $50,000 based on the achievement of specified sales milestones for all Licensed Products.  In addition, the Company is entitled to tiered, escalating royalties, in a range from a high-single digit to a low-to-mid teen percentage of net sales of Licensed Products.   

6. Notes Payable

The Company has outstanding borrowings under a credit and security agreement entered into in 2014 and as most recently amended in March 2017 (the “Amended Credit Facility”) totaling $18,000, which is collateralized by substantially all of the Company’s personal property, other than its intellectual property.  The $18,000 of borrowings were drawn at the closing of the March 2017 amendment, which was used primarily to pay-off outstanding balances on the facility as of the amendment date of $14,300, resulting in net proceeds to the Company of $3,700. 

The Company was obligated to make interest-only payments under the Amended Credit Facility until February 1, 2018, at which time the Company became obligated to make monthly principal and interest payments through December 1, 2020.  Amounts borrowed under the Amended Credit Facility are at LIBOR base rate, subject to 1.00% floor, plus 7.25% with an indicative interest rate of 8.25% as of the amendment date.  In addition, a final payment equal to 3.5% of amounts drawn under the Amended Credit Facility is due upon the maturity date of December 1, 2020, which the Company has accrued for using the effective interest rate method.  At September 30, 2018 and December 31, 2017, the outstanding balance amounted to $14,167 and $18,016,  including the amount accrued for the 3.5% final payment respectively, net of unamortized discount.

There are no financial covenants associated with the Amended Credit Facility; however, there are certain negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or acquisitions; encumbering its intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions.  The obligations under the Amended Credit Facility are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in the Company’s business, operations or financial or other condition. 

The Company accounted for the amendment of the Amended Credit Facility in March 2017 as a modification in accordance with the guidance in ASC 470-50, Debt.  Amounts paid to the lenders were recorded as debt discount and a new effective interest rate was established.  The effective annual interest rate of the outstanding debt under the Amended Credit Facility is 10.5%.    

As of September 30, 2018, the annual repayment requirements for the Amended Credit Facility, inclusive of the final payment of $630 due at expiration, were as follows:

Interest paid amounted to $1,131 and $1,075 for the nine months ended September 30, 2018 and 2017, respectively. 

7. Common Stock

In January 2018, the Company completed a follow-on offering of its common stock at a public offering price of $5.00 per share. The offering consisted of 7,475,000 shares of common stock sold by the Company, including those shares sold in connection with the exercise by the underwriter of its option to purchase additional shares. The Company received net proceeds from the follow-on offering of $34,704 after deducting underwriting discounts, commissions and expenses.

In January 2017, the Company completed a follow-on offering of its common stock at a public offering price of $7.00 per share.  The offering consisted of 3,571,429 shares of common stock sold by the Company.  The Company received net proceeds from the follow-on offering of $23,261 after deducting underwriting discounts, commissions and expenses.

In November 2016, the Company entered into a controlled equity offering sales agreement (the “2016 Sales Agreement”) with Cantor Fitzgerald & Co., under which the Company may offer and sell its common stock having aggregate proceeds of up to $40,000 from time to time.  In the three and nine months ended September 30, 2017, the Company sold 258,860 and 690,999 shares of common stock at-the-market under the 2016 Sales Agreement, resulting in net proceeds of approximately $1,573 and $5,384 after underwriting discounts, commission and expenses, respectively.  In the three and nine months ended September 30, 2018, the Company sold 2,026,031 and 3,192,566 shares of common stock at-the-market under the 2016 Sales Agreement, resulting in net proceeds of approximately $12,852 and $21,241, respectively, after underwriting discounts, commissions and expenses. Through September 30, 2018, the Company has sold 4,083,134 shares of common stock at-the-market under the 2016 Sales Agreement, resulting in net proceeds of approximately $27,844 after underwriting discounts, commissions and expenses.  As of September 30, 2018, the Company had approximately $10,864 available for future sale under the 2016 Sales Agreement.

8. Net Loss Per Share

Basic and diluted net loss per share was calculated as follows for the three and nine months ended September 30, 2018 and 2017:

The Company excluded the following common stock equivalents, outstanding as of September 30, 2018 and 2017, from the computation of diluted net loss per share for the three and nine months ended September 30, 2018 and 2017 because they had an anti-dilutive impact due to the net loss incurred for the periods.

9. Stock-Based Awards

2014 Stock Incentive Plan

The 2014 Stock Incentive Plan (the “2014 Plan”) provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards.  The number of shares of common stock that may be issued under the 2014 Plan is subject to increase on the first day of each fiscal year, beginning on January 1, 2015 and ending on December 31, 2024 in an amount equal to the lesser of a pre-determined formula or as determined by the Company’s board of directors.  On January 1, 2018, the number of shares available for issuance under the 2014 Plan was increased by 1,186,328.  As of September 30, 2018, 1,649,106 shares remained available for issuance under the 2014 Plan. 

2014 Employee Stock Purchase Plan

The Company has a 2014 Employee Stock Purchase Plan (the “ESPP”).  The number of shares of common stock that may be issued under the ESPP will automatically increase on the first day of each fiscal year, commencing on January 1, 2015 and ending on December 31, 2024 in an amount equal to the lesser of a pre-determined formula or as determined by the Company’s board of directors.  On January 1, 2018, the number of shares available for issuance under the 2014 Plan was increased by 148,291.  During the nine months ended September 30, 2018,  29,141 shares of common stock were issued.  As of September 30, 2018,  453,824 shares remained available for issuance under the ESPP. 

Inducement Stock Option Awards

On June 20, 2017, the Company issued to Antony Mattessich, who became a director of the Company on June 20, 2017 and the Company’s President and Chief Executive Officer on July 26, 2017, a non-statutory stock option to purchase an aggregate of 590,000 shares of the Company’s common stock at an exercise price of $10.94 per share. Subject to Mr. Mattessich’s continued service to the Company, the stock option will vest over a four-year period, with 25% of the shares underlying the option award vesting on the one-year anniversary of the grant date and the remaining 75% of the shares underlying the award vesting monthly thereafter.  The stock option was issued outside of the Company’s 2014 Plan as an inducement material to Mr. Mattessich’s acceptance of entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). 

Stock-based Compensation

The Company recorded stock-based compensation expense related to stock options and restricted common stock in the following expense categories of its statements of operations:

As of September 30, 2018, the Company had an aggregate of $12,789 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 2.6 years. 

As of September 30, 2018, there were outstanding unvested service-based stock options held by nonemployees for the purchase of 17,084 shares of common stock. 

10. Commitments and Contingencies

Intellectual Property Licenses

The Company has a license agreement with Incept LLC (“Incept”) to use and develop certain patent rights (the “Incept License”).  Under the Incept License, as amended and restated, the Company was granted a worldwide, perpetual, exclusive license to develop and commercialize products that are delivered to or around the human eye for diagnostic, therapeutic or prophylactic purposes relating to ophthalmic diseases or conditions.  The Company is obligated to pay low single-digit royalties on net sales of commercial products developed using the licensed technology, commencing with the date of the first commercial sale of such products and until the expiration of the last to expire of the patents covered by the license.  Any of the Company’s sublicensees also will be obligated to pay Incept a royalty equal to a low single-digit percentage of net sales made by it and will be bound by the terms of the agreement to the same extent as the Company.  The Company is obligated to reimburse Incept for its share of the reasonable fees and costs incurred by Incept in connection with the prosecution of the patent applications licensed to the Company under the Incept License.  Through September 30, 2018, royalties paid under this agreement related to product sales were $199 and have been charged to cost of product revenue. 

On September 13, 2018, (the “Effective Date) the Company entered into a second amended and restated license agreement (the “Second Amended Agreement”) with Incept.  The Second Amended Agreement amends and restates in full the Company’s prior amended and restated Incept License (the “Prior Agreement” or “Original License”)  to expand the scope of the Company’s intellectual property license and modify future intellectual property ownership and other rights thereunder. 

License Rights; Ownership of Intellectual Property 

The parties have agreed to expand the field of use of the exclusive, worldwide, perpetual, irrevocable license held by the Company under the Prior Agreement to include specified intellectual property rights and technology owned or controlled by Incept to make, have made, use, offer for sale, sell, sublicense, have sublicensed, offer for sublicense and import, (i) consistent with the Prior Agreement, products delivered to or around the human eye for diagnostic, therapeutic or prophylactic purposes relating to all human ophthalmic diseases or conditions (the “Ophthalmic Field of Use”) and (ii) as a result of the expansion of the scope of the Original License, products delivered for the treatment of acute post-surgical pain or for the treatment of ear, nose and/or throat diseases or conditions, subject to specified exceptions (the “Additional Field of Use”).  The parties have further agreed to expand the field of use of the Original License for certain patents, patent applications and other rights pertaining to shape-changing hydrogel formulations thereunder (the “Shape-Changing IP”) to include all fields except those involving the nerves and associated tissues specified in the Second Amended Agreement. 

The Company will solely own, without a license to Incept, all intellectual property rights conceived solely by one or more individuals from the Company (“Company Individuals”) after the Effective Date, subject to exceptions specified therein.  Subject to certain exceptions specified in the Second Amended Agreement, Incept will own and license to the Company (i) all intellectual property rights included in the Original License (“Original IP”) in the Ophthalmic Field of Use and the Additional Field of Use, (ii) intellectual property rights in the field of drug delivery conceived by one or more Company Individuals on or before the Effective Date (“Incept IP”), and (iii) intellectual property rights in the field of drug delivery conceived by one or more Company Individuals jointly with one or more individuals from Incept, including Dr. Sawhney (“Incept Individuals”), after the Effective Date (“Joint IP” and, collectively with the Original IP and the Incept IP, the “Licensed IP”). 

Financial Terms    

The Company and any of its sublicensees are obligated to pay Incept royalties as follows under the Agreement: (i) consistent with the Prior Agreement, a royalty equal to a low single-digit percentage of net sales by the Company or its affiliates of products, devices, materials, or components thereof (“Licensed Products”), including or covered by Original IP, excluding the Shape-Changing IP, in the Ophthalmic Field of Use; (ii) a royalty equal to a mid-single-digit percentage of net sales by the Company or its affiliates of Licensed Products including or covered by Original IP, excluding the Shape-Changing IP, in the Additional Field of Use; and (iii) a royalty equal to a low single-digit percentage of net sales by the Company or its affiliates of Licensed Products including or covered by Incept IP or Joint IP in the field of drug delivery.  Royalty obligations under the Second Amended Agreement commence with the first commercial sale of a Licensed Product described above and terminate upon the expiration of the last-to-expire patents included in the Licensed IP, as applicable.  Any sublicensee of the Company also will be obligated to pay Incept royalties on net sales of Licensed Products made by it and will be bound by the terms of the Second Amended Agreement to the same extent as the Company. Additionally, at its sole discretion, Incept may require, as a condition of any sublicense by the Company in the Additional Field of Use and in exchange for a reduction in the royalties owed on net sales of Licensed Products described above, payments equal to a mid-teen percentage of any upfront payment and, subject to certain conditions, other payments received by the Company from the sublicensee.

Patent Prosecution and Litigation    

Incept will continue to have sole control and responsibility for ongoing prosecution of patents included in the Original IP, and the Company will have sole control and responsibility for ongoing prosecution of patents and patent applications included in or arising under the Incept IP or Joint IP.  The parties have agreed to work together in good faith to enter into a separate agreement under which, subject to certain limitations, the Company would assume control of the prosecution of patents and patent applications included in or arising under the Shape-Changing IP.  The Company has the right, subject to certain conditions, to bring suit against third parties who infringe the patents included in the Original IP in the Ophthalmic Field of Use or the Additional Field of Use, patents included in the Incept IP in the drug delivery filed, patents included in the Joint IP in the drug delivery field, and patents included in the Shape-Changing IP in all fields except as described above.  The Company has also agreed, if requested by Incept, to enter into a joint defense and prosecution agreement for the purpose of allowing the parties to share confidential and attorney-client privileged information regarding the possible infringement of one or more patents covered by the Second Amended Agreement. The Company is responsible for all costs incurred in prosecuting any infringement action it brings.

Term and Termination

The Second Amended Agreement will expire on the later of (i) the expiration or disclaimer by the Company of the last valid claim of an issued and unexpired patent included in the Licensed IP or (ii) the final unappealable rejection or abandonment of the last pending patent application arising under the Licensed IP.  Either party may terminate the Second Amended Agreement in the event of the other party’s insolvency, bankruptcy or comparable proceedings, or if the other party materially breaches the agreement and does not cure such breach during a specified cure period.

Collaboration Agreement

In October 2016, the Company entered into the Collaboration Agreement with Regeneron as described in Note 5.  Under the terms of the Collaboration Agreement, the Company has granted Regeneron an Option to enter into an exclusive, worldwide license to develop and commercialize products containing the Company’s hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds.  If the Option is exercised, the Company is obligated to reimburse Regeneron for certain development costs incurred under the collaboration plan during the period through the completion of the initial clinical trial, subject to a cap of $25,000, which cap may be increased by up to $5,000 under certain circumstances. 

Legal Proceedings

Securities Class Actions

On July 7, 2017, a putative class action lawsuit was filed against the Company and certain of the Company’s  current and former executive officers in the United States District Court for the District of New Jersey, captioned Thomas Gallagher v. Ocular Therapeutix, Inc, et al., Case No. 2:17-cv-05011. The complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between May 5, 2017 and July 6, 2017. The complaint generally alleges that the Company and certain of the Company’s current and former officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the Form 483 issued by the FDA related to DEXTENZA and the Company’s manufacturing operations for DEXTENZA. The complaint seeks unspecified damages, attorneys’ fees, and other costs.  On July 14, 2017, an amended complaint was filed; the amended complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between May 5, 2017 and July 11, 2017, and otherwise includes allegations similar to those made in the original complaint.

On July 12, 2017, a second putative class action lawsuit was filed against the Company and certain of the Company’s current and former executive officers in the United States District Court for the District of New Jersey, captioned Dylan Caraker v. Ocular Therapeutix, Inc., et al., Case No. 2:17-cv-05095. The complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between May 5, 2017 and July 6, 2017. The complaint includes allegations similar to those made in the Gallagher complaint, and seeks similar relief. 

On August 3, 2017, a third putative class action lawsuit was filed against the Company and certain of the Company’s current and former executive officers in the United States District Court for the District of New Jersey, captioned Shawna Kim v. Ocular Therapeutix, Inc., et al., Case No. 2:17-cv-05704. The complaint purports to be brought on behalf of shareholders who purchased the Company’s common stock between March 10, 2016 and July 11, 2017. The complaint includes allegations similar to those made in the Gallagher complaint, and seeks similar relief. 

On October 27, 2017, a magistrate judge for the United States District Court for the District of New Jersey granted the defendants’ motion to transfer the above-referenced Gallagher, Caraker, and Kim litigations to the United States District Court for the District of Massachusetts.  These matters were assigned the following docket numbers in the District of Massachusetts: 1:17-cv-12288 (Gallagher), 1:17-cv-12146 (Caraker), and 1:17-cv-12286 (Kim).

On March 9, 2018, the court consolidated the three actions and appointed co-lead plaintiffs and co-lead counsel for the consolidated action.  On May 7, 2018, co-lead plaintiffs filed a consolidated amended class action complaint.  The amended complaint makes allegations similar to those in the original complaints, against the same defendants, and seeks similar relief on behalf of shareholders who purchased the Company’s common stock between March 10, 2016 and July 11, 2017.  The amended complaint generally alleges that defendants violated Sections 10(b) and/or 20(a) of the

Exchange Act and Rule 10b-5 promulgated thereunder.  On July 6, 2018, defendants filed a motion to dismiss the consolidated amended complaint.  Plaintiffs’ filed an opposition to the motion to dismiss on September 4, 2018, and defendants filed a reply on October 4, 2018.

The Company denies any allegations of wrongdoing and intends to vigorously defend against these lawsuits.

Shareholder Derivative Litigation

On July 11, 2017, a purported shareholder derivative lawsuit was filed against certain of the Company’s current and former executive officers, certain current and former board members, and the Company as a nominal defendant, in the United States District Court for the District of Massachusetts, captioned Robert Corwin v. Sawhney et al., Case No. 1:17-cv-11270.  The complaint generally alleged that the individual defendants breached fiduciary duties owed to the Company by making allegedly false and/or misleading statements concerning the Form 483 related to DEXTENZA and our manufacturing operations for DEXTENZA.  The complaint purported to assert claims against the individual defendants for breach of fiduciary duty, and sought to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’ alleged misconduct.  The complaint also sought contribution on behalf of the Company from all individual defendants for their alleged violations of Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.  The complaint sought declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees and costs.  On September 20, 2017, counsel for the plaintiff filed a notice of voluntary dismissal, stating that the plaintiff wished to coordinate his efforts and proceed in a consolidated fashion with the plaintiff in a similar derivative suit that was pending in the Superior Court of Suffolk County of the Commonwealth of Massachusetts captioned Angel Madera v. Sawhney et al., Case. No. 17-2273 (which is discussed in the paragraph immediately below) by filing an action in that court subsequent to the dismissal of this lawsuit.  The Corwin lawsuit was dismissed without prejudice on September 21, 2017.  On October 24, 2017, the plaintiff filed a new derivative complaint in Massachusetts Superior Court (Suffolk County), captioned Robert Corwin v. Sawhney et al., Case No. 17-3425 (BLS2).  The new Corwin complaint includes allegations similar to those made in the federal court complaint and asserts a derivative claim for breach of fiduciary duty against certain of our current and former officers and directors. The complaint also asserts an unjust enrichment claim against two additional defendants, SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP.  The complaint also names the Company as a nominal defendant.

On July 19, 2017, a second purported shareholder derivative lawsuit was filed against certain of the Company’s current and former executive officers, all current board members, one former board member, and the Company as a nominal defendant, in the Superior Court of Suffolk County of the Commonwealth of Massachusetts, captioned Angel Madera v. Sawhney et al., Case. No. 17-2273.  The complaint included allegations similar to those made in the Corwin complaint.  The complaint purported to assert derivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, and sought to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’ alleged misconduct. The complaint sought declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees and costs. On November 6, 2017, the court dismissed this action without prejudice due to plaintiff’s failure to complete service of process within the time permitted under applicable court rules.  On December 21, 2017, the same plaintiff filed a new derivative complaint in the same court, captioned Angel Madera v. Sawhney et al., Case. No. 17-4126 (BLS2).  The new Madera complaint is premised on substantially similar allegations as the previous complaint and purports to assert derivative claims against certain current and former executive officers and board members for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and names the Company as a nominal defendant.  Like the new Corwin complaint, the new Madera complaint also asserts an unjust enrichment claim against two additional defendants, SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP.  

By order dated January 29, 2018, the court consolidated the state court Corwin and Madera complaints under the Corwin docket and appointed lead counsel for plaintiffs. On February 28, 2018, plaintiffs filed a consolidated amended complaint.  The consolidated complaint names substantially the same defendants and is premised on substantially similar allegations as the previous Corwin and Madera complaints, asserting claims for breach of fiduciary duty against the individual defendants and unjust enrichment against the two SV entity defendants.  On April 17, 2018, all defendants served a motion to dismiss the consolidated amended complaint.  On June 22, 2018, plaintiffs served their opposition to the motion to dismiss and a cross-motion to stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities class action in the District of Massachusetts. On July 30, 2018, the parties filed a joint

motion to stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities class action in the District of Massachusetts. On August 3, 2018, the court granted the motion to stay.

On January 31, 2018, a third purported shareholder derivative suit was filed against certain of the Company’s current and former executive officers, certain current and former board members, and the Company as a nominal defendant, in the United States District Court for the District of Massachusetts, captioned Brian Robinson v. Sawhney et al., Case. No. 1:18-cv-10199.  The complaint includes allegations similar to those made in the Corwin and Madera complaints.  The complaint does not name either SV Life Sciences Fund, IV, LP or SV Life Sciences Fund IV Strategic Partners, LP as defendants, and adds two former officers as defendants.  The complaint purports to assert derivative claims against the individual defendants for breach of fiduciary duty, waste of corporate assets, and unjust enrichment, and seeks to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’ alleged misconduct. The complaint seeks declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees and costs.  On April 30, 2018, all defendants filed a motion to dismiss or stay the complaint. Plaintiff filed his opposition on June 22, 2018. On July 26, 2018, the parties filed a joint motion to extend the deadline for defendants to file their reply brief pending the potential substitution of the named shareholder plaintiff.  On August 20, 2018, the parties filed a joint stipulation and proposed order regarding plaintiff’s unopposed request to substitute a new shareholder plaintiff and the parties’ joint request that the court stay the proceedings pending a decision on the motion to dismiss in the above-referenced securities class action in the District of Massachusetts.  On September 4, 2018, the court entered the requested order substituting the named plaintiff and staying the matter.

On February 16, 2018, a fourth purported shareholder derivative suit was filed against certain of the Company’s current and former executive officers, certain current and former board members, and the Company as a nominal defendant, in the United States District Court for the District of Delaware, captioned Terry Kelly v. Sawhney et al., Case. No. 1:18-cv-00277.  The complaint includes allegations similar to those made in the Corwin and Madera complaints.  The complaint purports to assert derivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment and waste of corporate assets, and seeks to recover on behalf of the Company for any liability the Company incurs as a result of the individual defendants’ alleged misconduct. The complaint also asserts an unjust enrichment claim against SV Life Sciences Fund IV, LP and SV Life Sciences Fund IV Strategic Partners, LP.  The complaint seeks declaratory, equitable, and monetary relief, an unspecified amount of damages, with interest, and attorneys’ fees and costs. On June 11, 2018, the parties filed a stipulation staying the lawsuit pending final judgment in the consolidated derivative action pending in Massachusetts state court under the Corwin docket, described above.  The court entered an order staying the case on June 12, 2018.

The Company denies any allegations of wrongdoing and intend to vigorously defend against these lawsuits.

In addition, the Company has received a subpoena from the SEC, dated December 15, 2017, requesting documents and information concerning DEXTENZA (dexamethasone insert) 0.4mg, including related communications with the FDA, investors and others.  The Company received a second subpoena from the SEC on August 21, 2018, requesting documents and information concerning its participation in two investor conferences in June 2017.  The Company intends to fully cooperate with the SEC regarding this non-public, fact-finding inquiry.  The SEC has informed the Company that this inquiry should not be construed as an indication that any violations of law have occurred or that the SEC has any negative opinion of any person, entity or security.

The Company is unable to predict the outcome of these lawsuits or proceedings at this time. Moreover, any conclusion of these matters in a manner adverse to the Company and for which it incurs substantial costs or damages not covered by our directors’ and officers’ liability insurance would have a material adverse effect on the Company’s financial condition and business. In addition, the proceedings could adversely impact the Company’s reputation and divert management’s attention and resources from other priorities, including the execution of business plans and strategies that are important to the Company’s ability to grow the Company’s business, any of which could have a material adverse effect on the Company’s business.

11. Related Party Transactions

The Company has a license agreement with Incept to use and develop certain patent rights that it entered into in 2007, amended and restated in January 2012 and further amended and restated in September 2018 (see Note 10).  Incept and certain owners of Incept are shareholders of the Company.  In addition, certain employees of the Company are

shareholders of Incept.  The Company’s Chairman of the Board of Directors and former President and Chief Executive Officer (“CEO”) is a general partner of Incept and has a 50% ownership stake in Incept. 

In July 2017, the Company terminated a service arrangement with Axtria, Inc. (“Axtria”), a company that provided data warehouse implementation, operations and maintenance support services to the Company.  Jaswinder Chadha, co-founder and CEO of Axtria, is also a member of the Company’s Board of Directors and a cousin to the Company’s  Chairman of the Board of Directors and former President and CEO.  During the nine months ended September 30, 2017, the Company incurred expenses of $864.  As of September 30, 2018 and December 31, 2017, there were no amounts due to Axtria. 

Since October 2017, the Company has engaged McCarter English LLP (“McCarter”) to provide legal services to the Company, including with respect to intellectual property matters.  The Company’s Senior Vice President, Technical Operations, Kevin Hanley, who joined the Company in January 2018, is married to a partner at McCarter, who has not participated in providing legal services to the Company.  The Company incurred fees for legal services rendered by McCarter of $155 and $376 for the three and nine months ended September 30, 2018, respectively.  As of September 30, 2018, there was $65, recorded in accrued expenses for McCarter.

12. Restructuring and Other Costs

On July 31, 2017, the Board of Directors approved a strategic restructuring to eliminate a portion of the Company’s workforce as part of an initiative to enhance operations and reduce expenses.  As part of this strategic restructuring, the Company eliminated 30 positions across the organization.  During the third quarter of 2017, the Company recorded $1,703 of restructuring-related costs in operating expenses in research and development and selling and marking, including employee severance, benefits and related costs. 

On July 31, 2017, the Company entered into a transition, separation and release of claims agreement (the “Ankerud Transition Agreement”), pursuant to which Eric Ankerud resigned from his role as Executive Vice President, Regulatory, Quality and Compliance of the Company, effective immediately.  Mr. Ankerud continued to serve as an at-will employee of the Company in the capacity of Senior Advisor until October 31, 2017.  He currently serves as a consultant to the Company.  Under the Ankerud Transition Agreement, Mr. Ankerud is entitled to separation benefits until October 31, 2018,  in the form of continuation of his base salary in the same amount in effect as of October 31, 2017; the payment of monthly premiums for healthcare and/or dental coverage; and provided he continues to provide services to the Company as a consultant, the continued vesting of his outstanding stock options awards in accordance with the applicable equity plans and stock option agreements.  During the third quarter of 2017, the Company recorded $386 of severance expense which are included in operating expenses in research and development.

On October 13, 2017, the Company entered into a transition, separation and release of claims agreement (the “Fortune Transition Agreement”) with James Fortune, pursuant to which Mr. Fortune resigned from his role as Chief Operating Officer and any and all other positions he holds as an officer or employee of the Company, effective December 31, 2017 (the “Separation Date”).  Pursuant to the Fortune Transition Agreement, effective as of October 13, 2017, the Employment Agreement, by and between the Company and Mr. Fortune, dated June 19, 2014, was terminated.  Under the Fortune Transition Agreement, Mr. Fortune will be entitled to separation benefits in the form of (i) the continuation of his base salary for twelve months after the Separation Date in the same amount in effect as of the October 13, 2017 and (ii) the payment of monthly premiums for healthcare and/or dental coverage at the same rate that is in effect on the Separation Date until the earlier of twelve months from the Separation Date or the date Mr. Fortune becomes eligible to receive such benefits under another employer’s benefit plan.  For the calendar year 2017, Mr. Fortune was eligible to receive a bonus payment in such amount, if any, as he would have received had he remained employed with the Company through the date of such bonus payments.  On January 31, 2018, the Company’s Compensation Committee determined to grant Mr. Fortune a bonus of $62 for his performance in 2017 and this amount was included in accrued expenses as of December 31, 2017.  During the fourth quarter of 2017, the Company recorded $417 of severance expense which was included in operating expenses in general and administration.

The following table summarizes the restructuring and other costs reserve for the period indicated, which is included in accrued expenses in the accompany balance sheets for the period indicated:

13.  Subsequent Event

The Company sold an additional 562,309 shares of common stock between October 1, 2018 and October 31, 2018, at-the-market under the 2016 Sales Agreement discussed in Note 7, resulting in net proceeds of approximately $3,602 after underwriting discounts, commissions and expenses.  As of November 2, 2018, the Company had approximately $7,170 available for future sale under the 2016 Sales Agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 8, 2018.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.  As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. 

Overview

We are a biopharmaceutical company focused on the formulation, development and commercialization of innovative therapies for diseases and conditions of the eye using our proprietary, bioresorbable hydrogel platform technology.  We use this technology to tailor duration and amount of delivery of a range of therapeutic agents of varying duration in our product candidates. 

We currently incorporate U.S. Food and Drug Administration, or FDA, approved therapeutic agents, including small molecules and proteins, into our hydrogel technology with the goal of providing extended delivery of drug to the eye.  We believe that our extended delivery technology allows us to treat conditions and diseases of both the front and the back of the eye and can be administered through a range of different modalities including intracanalicular inserts, intracameral implants and intravitreal implants. We have product candidates in clinical and preclinical development applying this technology to treat post-surgical ocular pain and inflammation, allergic conjunctivitis, dry eye disease, glaucoma and ocular hypertension, and wet age-related macular degeneration, or wet AMD, among other conditions. 

Our lead product candidates are DEXTENZA® (dexamethasone insert), for the treatment of post-surgical ocular pain and inflammation, allergic conjunctivitis and dry eye disease, and OTX-TP (travoprost insert), for the reduction of intraocular pressure, or IOP, in patients with glaucoma and ocular hypertension. Both product candidates are extended-delivery, drug-eluting, preservative-free intracanalicular inserts that are placed into the canaliculus through a natural opening called the punctum located in the inner portion of the lower eyelid near the nose. 

Our early stage assets include two development programs that have initiated human clinical trials: OTX-TIC, an intracameral travoprost implant for the reduction of IOP in patients with glaucoma and ocular hypertension where greater IOP reduction is needed; and OTX-TKI, a tyrosine kinase inhibitor-containing intravitreal injection by fine gauge needle, delivering a hydrogel, anti-angiogenic formulation for the treatment of wet AMD. We are also continuing our collaboration with Regeneron Pharmaceuticals, Inc., or Regeneron, for the development and potential commercialization of products containing our extended-delivery hydrogel in combination with Regeneron’s VEGF inhibitor, aflibercept, currently marketed under the brand name Eylea.

In addition to our ongoing drug product development, we currently market our sole commercial product ReSure® Sealant, a hydrogel ophthalmic wound sealant approved by the FDA to seal corneal incisions following cataract surgery.  ReSure Sealant is the first and only surgical sealant to be approved by the FDA for ophthalmic use. 

DEXTENZA (dexamethasone insert)

Our most advanced product candidate, DEXTENZA, incorporates the FDA-approved corticosteroid dexamethasone as an active pharmaceutical ingredient into a hydrogel, drug-eluting intracanalicular insert.  In September 2015, we submitted to the FDA a New Drug Application, or NDA, for DEXTENZA for the treatment of post-surgical ocular pain.  In July 2016, we received a Complete Response Letter, or CRL, from the FDA regarding our NDA for DEXTENZA.  This CRL pertained to deficiencies in manufacturing process and controls identified during a pre-NDA approval inspection of our manufacturing facility.  In January 2017, we resubmitted our NDA.  Following a re-inspection of manufacturing operations by the FDA which was completed in May 2017, we received an FDA Form 483 containing new inspectional observations focused on manufacturing processes and analytical testing related to the manufacture of drug product for commercial production.  In July 2017, we received a second CRL from the FDA regarding our NDA for DEXTENZA for the treatment of post-surgical ocular pain.  FDA concerns included deficiencies in manufacturing processes and analytical testing related to manufacturing of drug product identified during the May

2017 pre-NDA approval inspection. In May 2017, we submitted our initial response to the Form 483 and, in November 2017, we submitted our responses to the FDA’s remaining inspectional observations in an effort to close out the items identified in the Form 483. 

In June 2018, we resubmitted the NDA for DEXTENZA for the treatment of post-surgical ocular pain.  In July 2018, the FDA designated the DEXTENZA resubmission as a class 2, or major, review with a target action date under the Prescription Drug User Fee Act, commonly known as PDUFA, of December 28, 2018.  At the end of October 2018, the FDA completed a pre-NDA approval inspection of our manufacturing facility in Bedford, Massachusetts.  Following the FDA’s review of our facilities, we received Form 483 inspectional observations and we are in the process of fully responding to those observations.  Adequate resolution of the outstanding Form 483 inspectional observations and the final decision as to the adequacy of our manufacturing processes are determined by the FDA with input from the Office of Process and Facilities within its Center for Drug Evaluation and Research, or CDER, as part of the NDA review process, and are necessary prior to NDA approval.    We continue to expect final notification on the status of our NDA for DEXTENZA from the FDA by the December 28th PDUFA target action date.

If DEXTENZA is approved for marketing, we intend to build our own highly targeted, key account sales force that would focus on the ambulatory surgical centers responsible for the largest volumes of cataract surgery. 

We have completed three Phase 3 clinical trials of DEXTENZA for the treatment of post-surgical ocular pain and inflammation.  The data from two of these three completed Phase 3 clinical trials and a prior Phase 2 clinical trial are being used to support our NDA for post-surgical ocular pain.  Subject to receiving approval for the pain indication, we plan to submit an NDA supplement, or sNDA, for DEXTENZA for the treatment of post-surgical ocular inflammation.  We have also completed two Phase 3 clinical trials of DEXTENZA for the treatment of allergic conjunctivitis and a Phase 2 clinical trial of DEXTENZA for the treatment of dry eye disease. 

OTX-TP (intracanalicular travoprost insert)

Our second product candidate, OTX-TP, incorporates travoprost, an FDA-approved prostaglandin analog, or PGA, that reduces elevated IOP as its active pharmaceutical ingredient, into a hydrogel, drug-eluting intracanalicular insert.  This preservative-free insert is designed to elute drug for up to 90 days.  OTX-TP is being developed as a treatment to lower IOP in patients with primary open angle glaucoma and ocular hypertension.  We reported topline results from a Phase 2b clinical trial for this indication in October 2015.  We completed an End-of-Phase 2 review with the FDA in April 2016 and initiated the first of two Phase 3 clinical trials of OTX-TP in September 2016. Our first Phase 3 trial has reached the target enrollment of 550 patients at approximately 50 sites in the United States. Based on discussions with the FDA, the first Phase 3 clinical trial design includes an OTX-TP treatment arm and a placebo-controlled comparator arm that uses a non-drug eluting hydrogel-based intracanalicular insert. The primary efficacy endpoint is superiority in the reduction of IOP from baseline in the OTX-TP treatment arm compared to the placebo arm at three diurnal time points at each of three measurement dates, 2, 6 and 12 weeks. We expect that the FDA will require that OTX-TP show both a statistically superior reduction of IOP, compared to the placebo and a clinically meaningful reduction of IOP prior to granting marketing approval.  We have completed our target enrollment and are not screening any additional subjects.    We expect topline efficacy data from the first Phase 3 clinical trial in the first half of 2019.  We do not intend to initiate the second Phase 3 clinical trial until we receive data from the first Phase 3 clinical trial and may determine to discuss the results of this first Phase 3 clinical trial with the FDA prior to initiating a second Phase 3 clinical trial.  Given the anticipated use of OTX-TP as a chronic therapy, we intend to generate six-month (300 patients) and one-year (100 patients) safety data during the first Phase 3 clinical trial to support our product registration.  In order to meet these targets, we began enrollment in the open-label one-year safety extension study in July 2018.

OTX-TIC (intracameral travoprost implant)  

OTX-TIC is our product candidate for glaucoma patients in need of a more significant reduction in IOP and ocular hypertension. OTX-TIC is a bioresorbable hydrogel implant incorporating travoprost that is designed to be administered by a physician as an intracameral injection with an initial target duration of drug release of four to six months. Preclinical studies to date have demonstrated reduction of IOP and pharmacokinetics in the aqueous humor that suggest a pharmacodynamic response of IOP reduction in humans.  Our investigational new drug application, or IND, for our U.S. trial became effective in the first quarter of 2018, and we dosed the first patient in May 2018. With the first patient having been treated for six months, initial assessment of early biological activity and safety supports continued development of OTX-TIC.  This trial is a multi-center, open-label, proof-of-concept clinical trial designed to evaluate

the safety, durability, tolerability, and efficacy in patients with primary open-angle glaucoma or ocular hypertension.  We anticipate presenting initial results from this clinical trial in the first half of 2019. 

Back-of-the-Eye Programs

We are engaged in the development of formulations of our hydrogel administered via intravitreal injection to address the large and growing markets for diseases and conditions of the back of the eye.  Our initial development efforts are focused on the use of our extended-delivery hydrogel in combination with anti-angiogenic drugs, such as protein-based anti-VEGF drugs or small molecule drugs, such as TKIs, for the treatment of retinal diseases such as wet AMD, retinal vein occlusion and diabetic macular edema.  Our initial goal for these programs is to provide extended delivery over a four to six month period thereby reducing the frequency of the current monthly or bi-monthly intravitreal injection regimen for wet AMD and other retinal diseases and providing a more consistent uniform release of drug over the treatment period.

OTX-TKI (intravitreal tyrosine kinase inhibitor implant)

OTX-TKI is a preformed, bioresorbable hydrogel fiber incorporating a small molecule TKI with anti-angiogenic properties delivered by intravitreal injection. TKIs have shown promise in the treatment of wet AMD. In May 2017, we reported data from preclinical studies evaluating the efficacy, tolerability and pharmacokinetics of OTX-TKI.  In this study, OTX-TKI was well-tolerated, and high levels of drug were maintained in the tissue for up to twelve months in Dutch belted rabbits. We expect to dose the first patient in a Phase 1 clinical trial outside the United States in the fourth quarter of 2018.  This clinical trial will be a multi-center, open-label study to test the safety, durability and tolerability of OTX-TKI.  We also plan to evaluate biological activity by following visual acuity over time and measuring retinal thickness using standard optical coherence tomography.  

OTX-IVT (intravitreal aflibercept implant) in Collaboration with Regeneron

In October 2016, we entered into a strategic collaboration, option and license agreement, or Collaboration Agreement, with Regeneron for the development and potential commercialization of products using our hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds for the treatment of retinal diseases, with the initial focus on the VEGF trap aflibercept, currently marketed under the brand name Eylea. Under the terms of the agreement, we granted Regeneron an option, or the Option, to enter into an exclusive, worldwide license under our intellectual property to develop and commercialize products using our hydrogel in combination with Regeneron’s large molecule VEGF-targeting compounds, or Licensed Products. The Collaboration Agreement does not cover the development of any products that deliver small molecule drugs, including TKIs, for any target including VEGF, or any products that deliver large molecule drugs other than those that target VEGF proteins. Under the terms of the Collaboration Agreement, we and Regeneron have agreed to conduct a joint research program with the aim of developing an extended-delivery formulation of aflibercept that is suitable for advancement into clinical development.   We refer to the formulation we are developing with Regeneron as OTX-IVT.

Regeneron is responsible for funding an initial preclinical tolerability study, which it initiated in early 2018.  If the Option is exercised, Regeneron will conduct further preclinical development and an initial clinical trial under a collaboration plan. We are obligated to reimburse Regeneron for certain development costs during the period through the completion of the initial clinical trial, subject to a cap of $25 million, which cap may be increased by up to $5 million under certain circumstances. We do not expect our funding requirements under the collaboration to be material over the next twelve months. If Regeneron elects to proceed with further development beyond the initial clinical trial, it will be solely responsible for conducting and funding further development and commercialization of product candidates. If the Option is exercised, Regeneron is required to use commercially reasonable efforts to research, develop and commercialize at least one Licensed Product. Such efforts shall include initiating the dosing phase of a subsequent clinical trial within specified time periods following the completion of the first-in-human clinical trial or the initiation of preclinical toxicology studies, subject to certain extensions.

Under the terms of the Collaboration Agreement, Regeneron has agreed to pay us $10 million upon exercise of the Option.  We are also eligible to receive up to $145 million per Licensed Product upon the achievement of specified development and regulatory milestones, including successful results from the first-in-human clinical trial, $100 million per Licensed Product upon first commercial sale of such Licensed Product and up to $50 million based on the

achievement of specified sales milestones for all Licensed Products.  In addition, we are entitled to tiered, escalating royalties, in a range from a high-single digit to a low-to-mid teen percentage of net sales of Licensed Products.  

ReSure®  Sealant

Following our receipt of FDA approval for ReSure Sealant, we commercially launched this product in the United States in 2014. ReSure Sealant is approved to seal corneal incisions following cataract surgery and is the first and only surgical sealant to be approved by the FDA for ophthalmic use.  In the pivotal clinical trials that formed the basis for FDA approval, ReSure Sealant provided superior wound closure and a better safety profile than sutured closure. While ReSure Sealant remains commercially available in the United States, there is no sales support provided to the product at this time.  We have received only limited revenues from ReSure Sealant to date and anticipate only limited sales for 2018.

The FDA required two post-approval studies as a condition for approval of our premarket approval, or PMA, application for ReSure Sealant.  The first post-approval study, identified as the Clinical PAS, was to enroll at least 598 patients to confirm that ReSure Sealant can be used safely by physicians in a standard cataract surgery practice and to confirm the incidence of the most prevalent adverse ocular events identified in our pivotal study of ReSure Sealant in eyes treated with ReSure Sealant.  We submitted the final study report of the Clinical PAS to the FDA in June 2016, and the FDA has confirmed the Clinical PAS has been completed.  The second post-approval study, identified as the Device Exposure Registry Study, is intended to link to the Medicare database to ascertain if patients are diagnosed or treated for endophthalmitis within 30 days following cataract surgery and application of ReSure Sealant.  The Device Exposure Registry Study is required to include at least 4,857 patients.  Due to difficulties in establishing an acceptable way to link ReSure Sealant to the Medicare database and lack of investigator interest, we have been unable to enroll trial sites and patients, collect patient data and report study data to the FDA.  We have provided regular periodic reports to the FDA on the progress of this post-approval study. 

On October 18, 2018, we received a warning letter from the FDA, dated October 17, 2018, relating to our compliance with data collection and information reporting obligations in the Device Exposure Registry Study.  The FDA warning letter is due to a perceived lack of progress with the enrollment and related data collection and information reporting obligations for a required post-approval trial.  We believe we have made substantial efforts to meet these requirements and enroll this trial, but none of the 150 investigational sites that we approved have been interested in conducting this trial.  We have appealed the warning letter from the FDA.   ReSure Sealant currently remains commercially available in the United States, though there is no sales support provided to the product at this time.  

Additional Potential Areas for Growth

In addition to our focus on formulating, developing and commercializing innovative therapies for diseases and conditions of the eye, we are also assessing the potential use of our hydrogel platform technology in new areas of the body. 

On September 13, 2018, we entered into a second amended and restated license agreement, or Second Amended Agreement, with Incept LLC, an intellectual property holding company, or Incept.  The Second Amended Agreement amends and restates in full the Company’s prior amended and restated license agreement with Incept, dated as of January 27, 2012, to expand the scope of the Company’s intellectual property license to include products delivered for the treatment of acute post-surgical pain or for the treatment of ear, nose and/or throat diseases or conditions, subject to specified exceptions.    

Financial Position

We have generated limited revenue to date.  All of our sustained release drug delivery products are in various phases of clinical and preclinical development.  We do not expect sales of ReSure Sealant to generate revenue that is sufficient for us to achieve profitability.  Instead, our ability to generate product revenue sufficient to achieve profitability will depend heavily on our obtaining marketing approval for and commercializing products with greater market potential, including one or both of DEXTENZA and OTX-TP.  Since inception, we have incurred significant operating losses.  Our net loss was $42.6 million and $50.3 million for the nine months ended September 30, 2018 and 2017, respectively.  As of September 30, 2018, we had an accumulated deficit of $279.8  million. 

Our total cost and operating expenses were $43.3 million for the nine months ended September 30, 2018, including $7.2 million in non-cash stock-based compensation expense and depreciation expense.  Our operating expenses are expected to grow as we continue to pursue the clinical development of our most advanced product candidates, DEXTENZA and OTX-TP; continue the research and development of our other product candidates; continue the internal development of our intravitreal hydrogel formulation for the sustained delivery of protein-based or small molecule anti-angiogenic drugs, such as anti-VEGF drugs and TKIs for the treatment of wet AMD and other back-of-the-eye diseases; and seek marketing approval for any such product candidate for which we obtain favorable pivotal clinical trial results.  In August 2017, we updated our DEXTENZA commercial plans in light of the delayed regulatory process of DEXTENZA and realized savings in operating expenses, including reduced personnel costs, as a result of streamlining headcount, as part of an initiative to reduce expenses.  As a result, we also expect to incur lower sales and marketing expenses for our product candidates until we obtain marketing approval of DEXTENZA or any of our other product candidates.  In addition, we will continue to incur additional costs associated with operating as a public company.

We do not expect to generate significant revenue from sales of any product for several years, if at all. Accordingly, we may need to obtain substantial additional funding in connection with our continuing operations. If we are unable to access our borrowing capacity or raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts or to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

In November 2016, we entered into a controlled equity offering sales agreement, or the 2016 Sales Agreement, with Cantor Fitzgerald & Co., or Cantor, under which we may offer and sell our common stock having aggregate proceeds of up to $40.0 million from time to time. Through October 31, 2018, we have sold an aggregate of 4,645,443 shares of common stock under the 2016 Sales Agreement, resulting in net proceeds of approximately $31.4 million after underwriting discounts, commission and other offering expenses. 

In January 2017, we completed a follow-on offering of our common stock at a public offering price of $7.00 per share.  The offering consisted of 3,571,429 shares of common stock sold by us.  We received net proceeds from the follow-on offering of approximately $23.3 million after deducting underwriting discounts and offering expenses.  In January 2018, we completed a follow-on offering of our common stock at a public offering price of $5.00 per share. The offering consisted of 7,475,000 shares of common stock sold by us, including those shares sold in connection with the exercise by the underwriter of its option to purchase additional shares. We received net proceeds from the follow-on offering of approximately $34.7 million after deducting underwriting discounts and offering expenses.

Based on our current plans and forecasted expenses, we believe that our existing cash and cash equivalents, as of September 30, 2018, without giving effect to any potential payment under our Collaboration Agreement with Regeneron, will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into the second quarter of calendar year 2019.  We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.  We have not reflected the full costs of building a sales force that we would build if DEXTENZA is approved for marketing in our current operating plan and will need to raise additional capital to support such an effort.  See “—Liquidity and Capital Resources.”

Financial Operations Overview

Revenue

From our inception through September 30, 2018, we have generated limited amounts of revenue from the sales of our products.  Our ReSure Sealant product received PMA from the FDA in 2014.  We commenced sales of ReSure Sealant in the first quarter of 2014, have received only limited revenues from ReSure Sealant to date and anticipate only limited sales for 2018. ReSure Sealant is currently our only source of revenue from product sales. We may generate revenue in the future if we successfully develop one or more of our product candidates and receive marketing approval for any such product candidate or if we enter into longer-term collaboration agreements with third parties.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

We expense research and development costs as incurred.  We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. 

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials and regulatory fees.  We do not allocate employee and contractor-related costs, costs associated with our platform technology, costs related to manufacturing or purchasing clinical trial materials, and facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.  We use internal resources in combination with third-party CROs, including clinical monitors and clinical research associates, to manage our clinical trials, monitor patient enrollment and perform data analysis for many of our clinical trials.  These employees work across multiple development programs and, therefore, we do not track their costs by program. 

The table below summarizes our research and development expenses incurred by product development program:

We expect that our expenses will increase in connection with our ongoing activities including costs related to clinical trials and other research and development activities for our DEXTENZA and OTX-TP product candidates and other research and development activities. 

The successful development and commercialization of our product candidates is highly uncertain.  This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical and preclinical development could mean a significant change in the costs and timing associated with the development of these product candidates.  For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. 

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, information technology, human resources and administrative functions.  General and administrative expenses also include facility-related costs and professional fees for legal, patent, consulting and accounting and audit services. 

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued development and commercialization of our product candidates.  We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. 

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries and related costs for personnel in selling and marketing functions as well as consulting and advertising and promotion costs.  During the three and nine months ended

September 30, 2018 and 2017, we incurred selling and marketing expenses in connection with ReSure Sealant, which we began commercializing in 2014, and marketing expenses in preparation for a potential commercial launch of DEXTENZA. 

In August 2017, we reorganized our DEXTENZA commercial plans and realized savings in operating expenses, including personnel costs, as a result of streamlining headcount, as part of an initiative to enhance operations and reduce expenses.  As a result, we expect our selling and marketing expenses to decrease until we begin to incur expenses in support of potential marketing approval of our product candidates.    

Other Income (Expense)

Interest Income.  In 2018, interest income consists primarily of interest income earned on cash and cash equivalents.  In the three and nine months ended September 30, 2018 and 2017, our interest income has not been significant due to the low rates of interest being earned on our invested balances. 

Interest Expense.  Interest expense is incurred on our debt. 

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles.  The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements.  On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses and stock-based compensation.  We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  During the three and nine months ended September 30, 2018, there were no material changes to our critical accounting policies.  Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 8, 2018 and the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.  We believe that of our critical accounting policies, the following accounting policies involve the most judgment and complexity:

Accordingly, we believe the policies set forth in our Annual Report on Form 10-K filed with the SEC on March 8, 2018 are critical to fully understanding and evaluating our financial condition and results of operations.  If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. 

Results of Operations

Comparison of the Three Months Ended September 30, 2018 and 2017

The following table summarizes our results of operations for the three months ended September 30, 2018 and 2017: