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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 or
 o
    
    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: 001-34703
 Alimera Sciences, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    20-0028718(I.R.S. Employer
Identification No.)6120 Windward Parkway, Suite 290
Alpharetta, GA(Address of principal executive offices)
    
    30005(Zip Code)
 (678) 990-5740  (Registrants telephone number, including area code)
 
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 Yes o No þ




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##### 



ALIMERA SCIENCES, INC.
 QUARTERLY REPORT ON FORM 10-Q
 INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Balance Sheets at March 31, 2011 (unaudited) and December 31, 2010
    
    
    2Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)
    
    
    3Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)
    
    
    4Notes to Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 6. Exhibits
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I. FINANCIAL INFORMATION
 
 ITEM 1
    
    Financial Statements
 ALIMERA SCIENCES, INC.
 
 BALANCE SHEETS
 March 31,
    
    
    December 31,2011
    
    
    2010(Unaudited)(In thousands, except
share and
 per share data)CURRENT ASSETS:Cash and cash equivalents
    
    $
    49,457
    
    
    $
    28,514Investments
    
    
    503
    
    
    
    26,330Prepaid expenses and other current assets
    
    
    846
    
    
    
    1,078Deferred financing costs
    
    
    247
    
    
    
    272Total current assets
    
    
    51,053
    
    
    
    56,194PROPERTY AND EQUIPMENT  at cost less accumulated depreciation
    
    
    180
    
    
    
    220TOTAL ASSETS
    
    $
    51,233
    
    
    $
    56,414CURRENT LIABILITIES:Accounts payable
    
    $
    2,013
    
    
    $
    1,677Accrued expenses (Note 5)
    
    
    1,434
    
    
    
    2,731Outsourced services payable
    
    
    681
    
    
    
    841Notes payable (Note 7)
    
    
    1,852
    
    
    
    1,157Capital lease obligations
    
    
    11
    
    
    
    11Total current liabilities
    
    
    5,991
    
    
    
    6,417LONG-TERM LIABILITIES:Notes payable, net of discount  less current portion (Note 7)
    
    
    4,162
    
    
    
    4,767Other long-term liabilities
    
    
    15
    
    
    
    18PREFERRED STOCK:Preferred stock, $.01 par value  10,000,000 shares
authorized and no shares issued and outstanding at March 31,
2011 and December 31, 2010
    
    
    
    
    
    
    STOCKHOLDERS DEFICIT:Common stock, $.01 par value  100,000,000 shares authorized
and 31,333,483 shares issued and outstanding at March 31, 2011
and 100,000,000 shares authorized and 31,255,953 shares issued
and outstanding at December 31, 2010
    
    
    313
    
    
    
    313Additional paid-in capital
    
    
    233,888
    
    
    
    233,338Common stock warrants
    
    
    415
    
    
    
    415Accumulated deficit
    
    
    (193,551
    )
    
    
    (188,854
    )TOTAL STOCKHOLDERS EQUITY
    
    
    41,065
    
    
    
    45,212TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    51,233
    
    
    $
    56,414
   2




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ALIMERA SCIENCES, INC.
 
 STATEMENTS OF OPERATIONS
 Three Months Ended March 31,2011
    
    
    2010(Unaudited)(In thousands, except shareand per share data)RESEARCH AND DEVELOPMENT EXPENSES
    
    $
    1,757
    
    
    $
    3,065GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    1,540
    
    
    
    904MARKETING EXPENSES
    
    
    1,117
    
    
    
    247OPERATING EXPENSES
    
    
    4,414
    
    
    
    4,216INTEREST INCOME
    
    
    12
    
    
    
    2INTEREST EXPENSE
    
    
    (295
    )
    
    
    (474
    )DECREASE IN FAIR VALUE OF PREFERRED STOCK CONVERSION FEATURE
    
    
    
    
    
    
    3,265LOSS FROM CONTINUING OPERATIONS
    
    
    (4,697
    )
    
    
    (1,423
    )INCOME FROM DISCONTINUED OPERATIONS (NOTE 3)
    
    
    
    
    
    
    4,000NET (LOSS) INCOME
    
    
    (4,697
    )
    
    
    2,577PREFERRED STOCK ACCRETION
    
    
    
    
    
    
    (359
    )PREFERRED STOCK DIVIDENDS
    
    
    
    
    
    
    (2,025
    )NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS
    
    $
    (4,697
    )
    
    $
    193NET (LOSS) INCOME PER SHARE APPLICABLE TO COMMON
STOCKHOLDERS  Basic and diluted
    
    $
    (0.15
    )
    
    $
    0.12WEIGHTED  AVERAGE SHARES OUTSTANDING  Basic and diluted
    
    
    31,277,697
    
    
    
    1,619,011
   3




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ALIMERA SCIENCES, INC.
 
 STATEMENTS OF CASH FLOWS
 Three Months Ended March 31,2011
    
    
    2010(Unaudited)(In thousands)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (4,697
    )
    
    $
    2,577Income from discontinued operations (Note 3)
    
    
    
    
    
    
    (4,000
    )Depreciation
    
    
    44
    
    
    
    48Change in fair value of preferred stock conversion feature
    
    
    
    
    
    
    (3,265
    )Stock-based compensation and other expense
    
    
    438
    
    
    
    108Amortization of deferred financing costs
    
    
    114
    
    
    
    Changes in assets and liabilities:Prepaid expenses and other current assets
    
    
    232
    
    
    
    (118
    )Accounts payable
    
    
    336
    
    
    
    962Accrued expenses and other current liabilities
    
    
    (1,457
    )
    
    
    (767
    )Other long-term liabilities
    
    
    
    
    
    
    (184
    )Net cash used in operating activities
    
    
    (4,990
    )
    
    
    (4,639
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from maturities of investments
    
    
    25,827
    
    
    
    Purchases of property and equipment
    
    
    (4
    )
    
    
    (23
    )Net cash provided by (used in) investing activities of continuing operations
    
    
    25,823
    
    
    
    (23
    )Net cash provided by investing activities of discontinued operations (Note 3)
    
    
    
    
    
    
    4,000Net cash provided by investing activities
    
    
    25,823
    
    
    
    3,977CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of Series C-1 preferred warrants
    
    
    
    
    
    
    9,998Proceeds from exercise of stock options
    
    
    113
    
    
    
    Proceeds from exercise of common warrants
    
    
    
    
    
    
    148Deferred offering costs
    
    
    
    
    
    
    (163
    )Payments on capital lease obligations
    
    
    (3
    )
    
    
    (1
    )Net cash provided by financing activities
    
    
    110
    
    
    
    9,982NET INCREASE IN CASH
    
    
    20,943
    
    
    
    9,320CASH  Beginning of period
    
    
    28,514
    
    
    
    4,858CASH  End of period
    
    $
    49,457
    
    
    $
    14,178
 Three Months Ended March 31,2011
    
    
    2010SUPPLEMENTAL DISCLOSURES:Cash paid for interest
    
    $
    143
    
    
    $
    300
    4




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ALIMERA SCIENCES, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 1. Nature of Operations
       2. Basis of Presentation
     5




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ALIMERA SCIENCES, INC.
 NOTES TO FINANCIAL STATEMENTS
 3. Discontinued Operations
  Net income
from discontinued operations (in thousands)
    
    $
    4,000Net income from discontinued operations per share  Basic and diluted
    
    $
    2.47Weighted-average shares outstanding  Basic and diluted
    
    
    1,619,011
 4. Factors Affecting Operations
  5. Accrued Expenses
  March 31,
    
    
    December 31,2011
    
    
    2010(In thousands)Accrued clinical investigator expenses
    
    $
    795
    
    
    $
    1,911Accrued compensation expenses
    
    
    453
    
    
    
    730Other accrued expenses
    
    
    186
    
    
    
    90Total accrued expenses
    
    $
    1,434
    
    
    $
    2,731




6



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ALIMERA SCIENCES, INC.
 NOTES TO FINANCIAL STATEMENTS
 6. pSivida Agreement
  
    
    pay $12.0 million to pSivida upon the execution of the March 2008 agreement;
    
    issue a $15.0 million promissory note to pSivida;
    
    forgive all outstanding development payments, penalties and interest as of
the effective date of the March 2008 agreement, which totaled $6.8 million;
    
    continue responsibility for regulatory, clinical, preclinical,
manufacturing, marketing and sales for the remaining development and
commercialization of the products;
    
    assume all financial responsibility for the development of the products and
assume 80% of the commercialization costs of the products (instead of 50%
as provided under the February 2005 agreement); and
    
    make an additional milestone payment of $25.0 million after the first
product under the March 2008 agreement has been approved by the FDA.
     7.
Term Loan Agreement and Working Capital Revolver
 Term
Loan Agreement
     Debt
Instruments with Detachable Warrants
  7




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ALIMERA SCIENCES, INC.
 NOTES TO FINANCIAL STATEMENTS
 Working
Capital Revolver
      8. Earnings (Loss) Per Share (EPS)
 Earnings per Share,
 Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2011
    
    
    2010(Unaudited)
    
    
    (Unaudited)Series A preferred stock and convertible accrued dividends
    
    
    
    
    
    
    7,005,145Series B preferred stock
    
    
    
    
    
    
    7,147,894Series C preferred stock
    
    
    
    
    
    
    5,807,112Series C-1 preferred stock
    
    
    
    
    
    
    2,752,990Common stock warrants
    
    
    30,615
    
    
    
    150,703Stock options
    
    
    1,632,683
    
    
    
    1,792,764Total
    
    
    1,663,298
    
    
    
    24,656,608
 9. Preferred Stock
  
    
    Dividends were
cumulative and accrued on a daily basis at the rate
of 8% per annum beginning on the date of issuance and based on the original
issue price, as adjusted for any stock dividend, stock split, combination, or
other event involving the preferred stock. Dividends accrued, whether or not
declared, annually and were due and payable when and if declared by the Board
of Directors, upon a liquidating event upon redemption of the preferred stock  or on the date
that the preferred stock was otherwise acquired by the Company.
  8




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ALIMERA SCIENCES, INC.
 NOTES TO FINANCIAL STATEMENTS
 
    
    Upon any liquidation, dissolution, or winding up of the
Company, the preferred stockholders were entitled to a
liquidation preference payment equal to (i) the sum of the
liquidation value plus all accumulated, accrued, and unpaid
dividends and (ii) the pro rata share of any remaining
amounts such holder would have been entitled to receive had
such holders shares been converted into common stock
immediately prior to the liquidation, dissolution, or
winding up.
    
    At any time subsequent to March 17, 2013, the holders of a
majority of the preferred stock could have required the
Company to redeem all or any portion of the preferred
stock. If the preferred stock was redeemed, the redemption
would have occurred in equal installments over a three-year
period. The price paid by the Company to redeem the shares
would have been the greater of (i) the original issue
price, plus all accumulated, accrued, and unpaid dividends,
and (ii) the fair market value of the preferred stock being
redeemed at the time of the redemption.
     10. Stock Options
  Three Months Ended March 31,2011
    
    
    2010Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    PriceOptions at beginning of period
    
    
    2,741,985
    
    
    $
    3.81
    
    
    
    2,225,778
    
    
    $
    2.14Grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeitures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercises
    
    
    (77,530
    )
    
    
    1.45
    
    
    
    
    
    
    
    Options at end of period
    
    
    2,664,455
    
    
    
    3.87
    
    
    
    2,225,778
    
    
    
    2.14
  9




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ALIMERA SCIENCES, INC.
 NOTES TO FINANCIAL STATEMENTS
  Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value(In thousands)Outstanding
    
    
    2,664,455
    
    
    $
    3.87
    
    
    6.80 years
    
    
    $
    11,952Exercisable
    
    
    1,738,510
    
    
    
    2.03
    
    
    5.76 years
    
    
    
    10,112Expected to vest
    
    
    877,488
    
    
    
    7.51
    
    
    8.77 years
    
    
    
    1,656
  Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value(In thousands)Outstanding
    
    
    2,741,985
    
    
    $
    3.81
    
    
    6.99 years
    
    
    $
    18,338Exercisable
    
    
    1,722,281
    
    
    
    1.88
    
    
    5.88 years
    
    
    
    14,638Expected to vest
    
    
    963,754
    
    
    
    7.24
    
    
    8.92 years
    
    
    
    3,334
 11. Income Taxes
       10




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ALIMERA SCIENCES, INC.
 NOTES TO FINANCIAL STATEMENTS
 12. Fair Value
       March 31, 2011Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In thousands)Cash equivalents(1)
    
    $
    48,432
    
    
    $
    
    
    
    $
    
    
    
    $
    48,432Investments in marketable debt securities(2)
    
    
    
    
    
    
    503
    
    
    
    
    
    
    
    503Assets measured at fair value
    
    $
    48,432
    
    
    $
    503
    
    
    $
    
    
    
    $
    48,935
 December 31, 2010Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In thousands)Cash equivalents(1)
    
    $
    27,393
    
    
    $
    
    
    
    $
    
    
    
    $
    27,393Investments in marketable debt securities(2)
    
    
    
    
    
    
    26,330
    
    
    
    
    
    
    
    26,330Assets measured at fair value
    
    $
    27,393
    
    
    $
    26,330
    
    
    $
    
    
    
    $
    53,723
 
 (1)
    
    The carrying amounts approximate fair value due to the short-term maturities of the cash and cash equivalents.(2)
    
    Valuations are based on quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly. These prices include broker or dealer quotations, or alternative
pricing sources with reasonable levels of price transparency. Pricing sources include industry standard data
providers, security master files from large financial institutions, and other third party sources which are
input into a distribution-curve-based algorithm to determine a daily market value. This creates a consensus
price or a weighted average price for each security.  11




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PART I. FINANCIAL INFORMATION
 
 ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
  • delay in or failure to obtain regulatory approval of the
Company’s product candidates; • uncertainty as to the Company’s ability to
commercialize, and market acceptance of, the Company’s product candidates; • the extent of government regulations; • uncertainty as to the relationship between the benefits of
the Company’s product candidates and the risks of their side-effect
profiles; • dependence on third-party manufacturers to manufacture the
Company’s product candidates in sufficient quantities and quality; • uncertainty of clinical trial results; • limited sales and marketing infrastructure; • inability of the Company’s outside sales force to
successfully sell and market ILUVIEN in the U.S. following regulatory approval;
and • the Company’s ability to operate its business in
compliance with the covenants and restrictions that it is subject to under its
credit facility.   Overview
     12




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
    
    complete the clinical development and registration of ILUVIEN;
 
    
    build our sales and marketing capabilities for the anticipated commercial launch of ILUVIEN in late 2011;
 
    
    add the necessary infrastructure to support our growth;
 
    
    evaluate the use of ILUVIEN for the treatment of other diseases; and
 
    
    advance the clinical development of other new product candidates either currently in our pipeline, or
that we may license or acquire in the future.
     Our Agreement with pSivida US, Inc.
   13




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Our Credit
Facility
 Term Loan
Agreement
      Working
Capital Revolver
      Our Discontinued Non-Prescription Business
  Financial Operations Overview
 Revenue
   14




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Research and Development Expenses
  
    
    salaries and related expenses for personnel;
 
    
    fees paid to consultants and contract research organizations (CRO) in conjunction with independently
monitoring clinical trials and acquiring and evaluating data in conjunction with clinical trials, including
all related fees such as investigator grants, patient screening, lab work and data compilation and statistical
analysis;
 
    
    costs incurred with third parties related to the establishment of a commercially viable manufacturing process
for our product candidates;
 
    
    costs related to production of clinical materials, including fees paid to contract manufacturers;
 
    
    costs related to upfront and milestone payments under in-licensing agreements;
 
    
    costs related to compliance with FDA regulatory requirements;
 
    
    consulting fees paid to third-parties involved in research and development activities; and
 
    
    costs related to stock options or other stock-based compensation granted to personnel in development functions.
   
    
    the number of sites included in the trials;
 
    
    the length of time required to enroll eligible patients;
 
    
    the number of patients that participate in the trials;
 
    
    the number of doses that patients receive;
 
    
    the drop-out or discontinuation rates of patients;
 
    
    the duration of patient follow-up;
 
    
    the phase of development the product candidate is in; and
 
    
    the efficacy and safety profile of the product candidate.
  15




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General and Administrative Expenses
  Marketing Expenses
   Interest and Other Income
  Interest Expense
   16




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Change in Fair Value of Preferred Stock Conversion Feature
  Preferred Stock Accretion
  Preferred Stock Dividends
  Basic
and Diluted Net (Loss) Income Applicable to Common Stockholders per Common Share
  Critical Accounting Policies and Estimates
   17




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Clinical Trial Prepaid and Accrued Expenses
  Research and Development Costs
  Stock-Based Compensation
      Three Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2011
    
    
    2010(Unaudited)
    
    
    (Unaudited)(In thousands)Marketing
    
    $
    97
    
    
    $
    11Research and development
    
    
    101
    
    
    
    38General and administrative
    
    
    217
    
    
    
    59Total employee stock-based compensation expense
    
    $
    415
    
    
    $
    108
  18




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Income Taxes
    Results of Operations
  Three Months EndedMarch 31,2011
    
    
    2010(In thousands)RESEARCH AND DEVELOPMENT EXPENSES
    
    $
    1,757
    
    
    $
    3,065GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    1,540
    
    
    
    904MARKETING EXPENSES
    
    
    1,117
    
    
    

247TOTAL OPERATING EXPENSES
    
    
    4,414
    
    
    
    4,216INTEREST AND OTHER INCOME
    
    
    12
    
    
    
    2INTEREST EXPENSE
    
    
    (295
    )
    
    
    (474
    )DECREASE IN FAIR VALUE OF DERIVATIVE
    
    


    
    
    
    3,265LOSS FROM CONTINUING OPERATIONS
    
    $

(4,697)
    
    
    $

(1,423)
 Three months ended March 31, 2011 compared to the three months ended March 31, 2010
 Research and development expenses.
  19




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General and administrative expenses.
 Marketing expenses.
 Interest expense.
 Decrease in fair value of preferred stock conversion feature.
 Income from discontinued operations
  Liquidity and Capital Resources
    20




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Contractual Obligations and Commitments
   21




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Our Credit
Facility
 Term Loan
Agreement
      Working
Capital Revolver
       22




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Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  
 ITEM 3 Qualitative and Quantitative Disclosures about Market Risk
   
 ITEM 4 Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   23




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PART II. OTHER INFORMATION
 
 ITEM 1A Risk Factors
  
 ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
   
 ITEM 6 Exhibits
 ExhibitNumber
    
    Description31.1
    
    
    Certification of the Principal Executive Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Principal Financial Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer and Chief
Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002.
   24




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SIGNATURES
  Alimera Sciences, Inc./s/ C. Daniel MyersC. Daniel MyersChief Executive Officer and President
(Principal executive officer)  /s/ Richard S. Eiswirth, Jr.Richard S. Eiswirth, Jr.Chief Operating Officer and Chief Financial Officer
(Principal financial and accounting officer)   25




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ALIMERA SCIENCES, INC.
 EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    
    Certification of the Principal Executive Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Principal Financial Officer, as
required by Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer and Acting
Chief Financial Officer, as required by Section 906 of the
Sarbanes-Oxley Act of 2002.
   26