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~~2019

☐ 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: 001-37717

Senseonics Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)	3841 (Primary Standard Industrial Classification Code Number)	47‑1210911 (I.R.S. Employer Identification Number)

20451 Seneca Meadows Parkway

Germantown, MD 20876‑7005

(301) 515‑7260

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	SENS	NYSE American

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.


Large accelerated filer	◻	Accelerated filer	☒
Non-accelerated filer	◻	Smaller reporting company	☒
Emerging growth company	☒		

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 ☒

There were ~~176,850,372~~203,452,603 shares of common stock, par value $0.001, outstanding as of November 7, ~~2018.~~2019.

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TABLE OF CONTENTS

PART I: Financial Information

ITEM 1:Financial Statements

Condensed Consolidated Balance Sheets as of September 30, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018	2
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018	3
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018	4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018	45
Notes to Unaudited Condensed Consolidated Financial Statements	46

ITEM 2:Management Discussion and Analysis of Financial Condition and Results of Operations	1924

ITEM 3:Quantitative and Qualitative Disclosures about Market Risk	3037

ITEM 4:Controls and Procedures	3037

PART II: Other Information	38

ITEM 1:Legal Proceedings	3138

ITEM 1A:Risk Factors	3138

ITEM 2:Unregistered Sales of Equity and Securities and Use of Proceeds	3239

ITEM 3:Defaults Upon Senior Securities	3239

ITEM 4:Mine Safety Disclosures	3240

ITEM 5:Other Information	3240

ITEM 6:Exhibits	3341

SIGNATURES	3443

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Senseonics Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019		2018

	(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	157,032	$	16,150	$	130,580	$	136,793
Marketable securities		5,997		20,300
Accounts receivable, primarily from a related party		4,101		3,382
Accounts receivable						2,800		830
Accounts receivable - related parties						3,468		6,267
Inventory, net		10,001		2,991		19,862		10,231
Prepaid expenses and other current assets		4,723		2,092		4,862		3,985
Total current assets		181,854		44,915		161,572		158,106

Deposits and other assets		119		176		3,108		117
Property and equipment, net		1,358		853		2,366		1,750
Total assets	$	183,331	$	45,944	$	167,046	$	159,973

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,870	$	7,712	$	3,253	$	4,407
Accrued expenses and other current liabilities		8,854		5,428		18,705		13,851
Notes payable, current portion		10,000		10,000
Deferred revenue						—		628
Term Loans, current portion						—		10,000
Total current liabilities		22,724		23,140		21,958		28,886

Notes payable, net of discount		7,207		14,414
Convertible senior notes, net of discount		35,277		—
Derivative liability		39,825		—
Notes payable, accrued interest		1,614		1,054
Term Loans, net of discount and current portion						43,092		4,783
2023 Notes, net of discount						11,529		36,103
2025 Notes, net of discount						35,668		—
Derivative liabilities						26,988		17,091
Other liabilities		79		69		2,464		1,849
Total liabilities		106,726		38,677		141,699		88,712

Commitments and contingencies (Note 8)
Commitments and contingencies

Stockholders’ equity:
Common stock, $0.001 par value per share; 450,000,000 and 250,000,000 shares authorized, 176,725,832 and 136,882,735 shares issued and outstanding as of September 30, 2018 and December 31, 2017		177		137
Common stock, $0.001 par value per share; 450,000,000 shares authorized; 203,365,624 and 176,918,381 shares issued and outstanding as of September 30, 2019 and December 31, 2018						203		177
Additional paid-in capital		426,901		270,953		462,876		428,878
Accumulated deficit		(350,473)		(263,823)		(437,732)		(357,794)
Total stockholders' equity		76,605		7,267		25,347		71,261
Total liabilities and stockholders’ equity	$	183,331	$	45,944	$	167,046	$	159,973

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Revenue, primarily from a related party	$	5,158	$	2,097	$	11,728	$	3,464
Revenue, net									$	959	$	837	$	3,678	$	1,768
Revenue, net - related parties										3,360		4,321		8,671		9,960
Total revenue										4,319		5,158		12,349		11,728
Cost of sales		7,742		2,957		14,889		5,716		7,659		7,742		23,552		14,889
Gross profit		(2,584)		(860)		(3,161)		(2,252)		(3,340)		(2,584)		(11,203)		(3,161)

Expenses:
Sales and marketing expenses		7,851		2,089		17,469		4,478		11,560		7,851		38,573		17,469
Research and development expenses		7,402		9,765		23,805		22,368		11,076		7,402		28,688		23,805
General and administrative expenses		5,138		3,891		14,531		11,545		5,388		5,138		17,321		14,531
Operating loss		(22,975)		(16,605)		(58,966)		(40,643)		(31,364)		(22,975)		(95,785)		(58,966)
Other income (expense), net:
Interest income		820		129		1,245		187		519		820		1,556		1,245
Loss on extinguishment of debt										(398)		—		(398)		—
Interest expense		(2,170)		(915)		(6,177)		(2,365)		(3,460)		(2,170)		(7,459)		(6,177)
Change in fair value of 2023 derivative		(7,513)		—		(22,526)		—
Debt issuance costs										(3,344)		—		(3,344)		—
Change in fair value of derivative liabilities										19,186		(7,513)		26,147		(22,526)
Other income (expense)		(43)		12		(226)		(5)		(638)		(43)		(655)		(226)
Total other expense, net		(8,906)		(774)		(27,684)		(2,183)
Total other income (expense), net										11,865		(8,906)		15,847		(27,684)

Net loss		(31,881)		(17,379)		(86,650)		(42,826)		(19,499)		(31,881)		(79,938)		(86,650)
Total comprehensive loss	$	(31,881)	$	(17,379)	$	(86,650)	$	(42,826)	$	(19,499)	$	(31,881)	$	(79,938)	$	(86,650)

Basic and diluted net loss per common share	$	(0.18)	$	(0.13)	$	(0.57)	$	(0.39)	$	(0.10)	$	(0.18)	$	(0.43)	$	(0.57)
Basic and diluted weighted-average shares outstanding		176,332,575		128,898,682		150,866,978		108,959,779		197,223,419		176,332,575		183,804,257		150,866,978

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

(in thousands)


				Additional				Total
	Common Stock			Paid-In		Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit		Equity
Three months ended September 30, 2018:
Balance, June 30, 2018	176,242	$	177	$	424,130	$	(318,592)	$	105,715
Issued shares of common stock	735				(54)		—		(54)
Exercise of stock options for cash and warrants	390		—		1,205		—		1,205
Conversion of 2023 Notes	(661)		—		1		—		1
Stock-based compensation expense and vesting of RSUs	20		—		1,618		—		1,618
Net loss	—		—		—		(31,881)		(31,881)
Balance, September 30, 2018	176,726	$	177	$	426,900	$	(350,473)	$	76,604

Nine months ended September 30, 2018:
Balance, December 31, 2017	136,883	$	137	$	270,953	$	(263,823)	$	7,267
Issued shares of common stock	38,076		38		149,004		—		149,042
Exercise of stock options and warrants	1,602		1		2,018		—		2,019
Conversion of 2023 Notes	74		1		250		—		251
Stock-based compensation expense and vesting of RSUs	91		—		4,675		—		4,675
Net loss	—		—		—		(86,650)		(86,650)
Balance, September 30, 2018	176,726	$	177	$	426,900	$	(350,473)	$	76,604

Three months ended September 30, 2019:
Balance, June 30, 2019	177,031	$	177	$	433,228	$	(418,233)	$	15,172
Issued shares of common stock	26,136		26		26,731		—		26,757
Exercise of stock options for cash and warrants	179		—		—		—		—
Stock-based compensation expense and vesting of RSUs	20		—		2,194		—		2,194
Issuance of warrants related to debt	—		—		723		—		723
Net loss	—		—		—		(19,499)		(19,499)
Balance, September 30, 2019	203,366	$	203	$	462,876	$	(437,732)	$	25,347

Nine months ended September 30, 2019:
Balance, December 31, 2018	176,918	$	177	$	428,878	$	(357,794)	$	71,261
Issued shares of common stock	26,136		26		26,731		—		26,757
Exercise of stock options and warrants	230		—		93		—		93
Stock-based compensation expense and vesting of RSUs	82		—		6,451		—		6,451
Issuance of warrants related to debt					723				723
Net loss	—		—		—		(79,938)		(79,938)
Balance, September 30, 2019	203,366	$	203	$	462,876	$	(437,732)	$	25,347

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2019		2018
Cash flows from operating activities
Net loss	$	(86,650)	$	(42,826)	$	(79,938)	$	(86,650)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		178		145
Depreciation and amortization expense						335		178
Non-cash interest expense (debt discount and deferred costs)		2,415		339		6,798		2,415
Change in fair value of derivative liability		22,525		—
Change in fair value of derivative liabilities						(26,147)		22,525
Stock-based compensation expense		4,676		2,740		6,452		4,676
Provision for lower of cost or net realizable value		133		208		(121)		133
Provision for inventory obsolescence						2,198		—
Non-cash lease expense						336		—
Net realized gain on marketable securities		(112)		(59)		—		(112)
Changes in assets and liabilities:
Accounts receivable		(719)		(1,812)		829		(719)
Prepaid expenses and other current assets		(2,631)		(1,534)		(877)		(2,631)
Inventory		(7,143)		(2,144)		(11,708)		(7,143)
Deposits and other assets		57		(71)		(4)		57
Accounts payable		(3,842)		2,055		(1,154)		(3,842)
Accrued expenses and other current liabilities		3,446		2,927		3,998		3,446
Accrued interest		560		569
Deferred revenue						(628)		—
Term Loans, accrued interest						(908)		560
Deferred rent		10		13		—		10
Other						(947)		—
Net cash used in operating activities		(67,097)		(39,450)		(101,486)		(67,097)
Cash flows from investing activities
Capital expenditures		(683)		(297)		(951)		(683)
Purchases of marketable securities		(7,935)		(25,867)		—		(7,935)
Sales and maturities of marketable securities		22,350		10,300		—		22,350
Net cash provided by (used in) investing activities		13,732		(15,864)
Net cash (used in) provided by investing activities						(951)		13,732
Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs		149,044		66,870		26,757		149,044
Proceeds from exercise of stock options		2,018		239
Proceeds from notes payable, net of costs		—		4,896
Proceeds from issuance of warrants		—		104
Proceeds from convertible senior notes, net of costs		50,705		—
Principal payments of notes payable		(7,500)		—
Proceeds from exercise of stock options and stock warrants						94		2,018
Proceeds from 2023 Notes, net of costs						—		50,705
Proceeds from 2025 Notes, net of costs						77,699		—
Proceeds from Solar Term Loan, net of costs						42,951		—
Proceeds from issuance of warrants, net of costs						723		—
Repayment of Oxford and SVB Term Loan						(15,000)		—
Repurchase of 2023 notes						(37,000)		(7,500)
Principal payments under capital lease obligations		(20)		(59)		—		(20)
Net cash provided by financing activities		194,247		72,050		96,224		194,247
Net increase in cash and cash equivalents		140,882		16,736
Net (decrease) increase in cash and cash equivalents						(6,213)		140,882
Cash and cash equivalents, at beginning of period		16,150		13,047		136,793		16,150
Cash and cash equivalents, at end of period	$	157,032	$	29,783
					$	130,580	$	157,032

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	2,768	$	1,304	$	4,200	$	2,768

Lease liabilities arising from obtaining right-of-use assets						3,109		—
Supplemental disclosure of non-cash investing and financing activities
Property and equipment purchases included in accounts payable and accrued expenses					$	182	$	—

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

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Senseonics Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization

Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the design, development and commercialization of glucose monitoring ~~products~~systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy.

~~ASN Technologies, Inc. (“ASN”) was incorporated in Nevada on June 26, 2014. On December 4, 2015, ASN reincorporated in Delaware and changed its name to~~ Senseonics, Incorporated is a wholly-owned subsidiary of Senseonics Holdings ~~Inc. On December 7, 2015, Senseonics Holdings, Inc. acquired 100% of the outstanding capital stock of Senseonics, Incorporated (the "Acquisition"). Senseonics, Incorporated~~and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings ~~Inc.~~ and ~~its wholly-owned subsidiary~~ Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context ~~requires otherwise.~~otherwise requires.

2.Liquidity

The Company’s operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, lack of operating history and uncertainty of future profitability. Since inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs. The Company has not generated significant ~~revenues~~revenue from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability, alone or with others, to complete the development of its products or product candidates, and to obtain necessary regulatory approvals for the manufacture, marketing and sales of those products. These activities will require significant uses of working capital through the remainder of ~~2018~~2019 and beyond.

~~On March 23, 2016,~~At September 30, 2019, the Company effected the initial closing of its public offering of 15,800,000 shares of its common stock at a price to the public of $2.85 per share (the “March 2016 Offering”). The Company received aggregate net proceeds from the March 2016 Offering, including proceeds from the underwriters’ subsequent partial exercise of their option to purchase additional shares, of $44.8 million. On June 30, 2016,had $130.6 million in cash and cash equivalents. In July 2019, the Company ~~entered into Amended~~completed financing and ~~Restated Loan~~debt transactions totaling gross proceeds of over $100 million, after repayment of the Term Loans (as defined below) and ~~Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) resulting in borrowings~~a portion of ~~an aggregate principal amount of $25.0 million. On June 1, 2017,~~ the Company effected the closing of its offering of 29,078,014 shares of its common stock at a price of $1.41 per share (the “May 2017 Offering”). The Company received aggregate net proceeds from the May 2017 Offering of $40.4 million. On August 23, 2017, the Company effected the closing of its offering of 13,383,125 shares of its common stock at a price of $2.15 per share (the “August 2017 Offering”). The Company received aggregate net proceeds from the August 2017 Offering of $26.5 million. In January 2018, the Company issued $50.0 million in aggregate principal amount ofCompany’s convertible senior subordinated notes ~~and in February 2018, the Company issued an additional $3.0 million in aggregate principal amount of convertible senior subordinated notes (collectively, the~~due 2023 (the “2023 Notes”) ~~upon the partial exercise~~. As a result of the underwriters’ over-allotment option. On June 28, 2018, the Company effected the closing of its offering of 38,076,561 shares of its common stock at a price of $3.93 per share (the “June 2018 Offering”). The Company received aggregate net proceeds from the June 2018 Offering of $149.0 million. Managementthese transactions, management has concluded that, based on the Company’s current operating plans, including the restructuring described in Note 13, and its existing cash and cash equivalents, ~~and marketable securities available for sale~~ will be sufficient to meet the Company’s anticipated operating needs ~~into~~through the end of 2020. ~~Accordingly, management has concluded that the doubt about the Company’s ability to continue as a going concern through March 31, 2019 that existed at May 10, 2018 has been alleviated.~~

Historically, the Company has financed its operating activities through the sale of equity and equity linked securities and the issuance of debt. The Company plans to continue financing its operations with external capital for the foreseeable future. However, the Company may not be able to raise additional funds on acceptable terms, or at all. If the Company is unable to secure sufficient capital to fund its research and development and other operating activities, the

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Company may be required to delay or suspend operations, enter into collaboration agreements with partners that could require the Company to share commercial rights to its products to a greater extent or at earlier stages in the product development process than is currently intended, merge or consolidate with other entities, or liquidate.

3.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the Company’s opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly its financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, ~~2017,~~2018, has been derived from audited financial statements as of that date. The interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of ~~revenues~~revenue and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, ~~inventory valuation, inputs used to value~~ stock-based compensation, recoverability of long-lived assets, ~~fair value of financial instruments, income~~deferred taxes and valuation allowances, obsolete inventory, product returns, patient access program costs, depreciable lives of property and equipment, ~~reserves for expected warranty costs,~~ and estimated accruals for clinical ~~and preclinical~~ study costs, which are accrued based on estimates of work performed under ~~contracts.~~contract. Actual results could differ from those estimates; however management does not believe that such differences would be material.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, glucose monitoring products.

Comprehensive Loss

Comprehensive loss comprises net loss and other changes in equity that are excluded from net loss. For the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

Cash and Cash Equivalents and Concentration of Credit Risk

The Company considers highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

The Company’s cash and cash equivalents potentially subject the Company to credit and liquidity risk. The Company maintains cash deposits at major financial institutions with high credit quality and, at times, the balances of those deposits may exceed the Federal Deposit Insurance Corporation limits of $250,000. The Company has not

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experienced and does not anticipate any losses on deposits with commercial banks and financial institutions that exceed the federally insured amounts.

Concentration of ~~Revenues~~Revenue and Customers

At any given time, the Company’s trade receivables are concentrated among a small number of principal customers. If any of the Company’s customers fail to pay their obligations under the terms of these financial instruments, the Company’s maximum exposure to potential losses would be equal to amounts reported on its consolidated balance sheets.

During the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, the Company derived ~~substantially all~~a majority of its total net revenue from one customer, who is also a related party. During the three months ended September 30, 2019 and 2018, the Company derived 78 percent and 84 percent of its total net revenue from this customer, respectively. During the nine months ended September 30, 2019 and 2018, the Company derived 70 percent and 85 percent of its total net revenue from this one customer, respectively.

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Revenue by geographic region

The following table sets forth net revenue derived from the Company’s two ~~customers. Total revenues from those customers was as follows (in thousands):~~primary geographical markets, the United States and outside of the United States, based on the geographic location to which the Company delivers the product, for the three and nine months ended September 30, 2019 and 2018.

Three Months Ended

Nine Months Ended

September 30,

September 30,


2018

2017

2018

2017

Roche Diabetes Care (related party)

$
4,322

$
2,036

$
9,960

$
3,199

Rubin Medical

$
291

$
51

$
1,188

$
254


	Three Months Ended				Nine Months Ended
	September 30, 2019				September 30, 2019
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
Outside of the United States	$	3,792	87.8	%	$	9,908	80.2	%
United States		527	12.2			2,441	19.8
Total	$	4,319	100.0	%	$	12,349	100.0	%


	Three Months Ended				Nine Months Ended
	September 30, 2018				September 30, 2018
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
Outside of the United States	$	4,658	90.0	%	$	11,228	96.0	%
United States		500	10.0			500	4.0
Total	$	5,158	100.0	%	$	11,728	100.0	%

~~Marketable Securities~~

Marketable securities consist of government and agency securities and corporate debt securities. The Company’s investments are classified as available for sale. Such securities are carried at fair value, with any unrealized holding gains or losses reported, net of any tax effects reported, as accumulated other comprehensive income. Realized gains and losses, and declines in value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of any available for sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is established. Dividend and interest income is recognized when earned. The cost of securities sold is calculated using the specific identification method. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets.

Inventory

Inventory is valued at the lower of cost or net realizable value. Cost is determined using the standard cost method that approximates first in, first out. The Company periodically reviews inventory to determine if a write-down is necessary for inventory that has become obsolete, inventory that has a cost basis less than net realizable value, and inventory in excess of future demand taking into consideration the product shelf life.

Accounts Receivable

The Company grants credit to various customers in the normal course of business. Accounts receivable consist of amounts due from distributors. The Company records an allowance for doubtful accounts at the time potential collection risk is identified. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, which is between three to five years for laboratory equipment, between five to seven years for office furniture and equipment, and the shorter of lease term or useful life for leasehold improvements. Upon disposition of the assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Repairs and maintenance costs are included as expense in the accompanying statement of operations.

Management reviews property and equipment for impairment whenever events or changes in circumstances

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indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured

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by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Management did not identify any indicators of impairment through September 30, ~~2018.~~2019.

Derivative Financial Instruments

In July 2019, the Company issued $82.0 million in aggregate principal amount of convertible senior subordinated notes due 2025 (the “2025 Notes”). In connection with the 2025 Notes, the Company bifurcated the embedded conversion option along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision, and recorded the fair value of these embedded features as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging.

In connection with the Company’s issuance of the 2023 Notes in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in the Company’s consolidated balance sheets in accordance with ~~Accounting Standards Codification (“ASC”)~~ASC Topic 815, Derivatives and Hedging.

The two financial ~~instrument is~~instruments above are remeasured at the end of each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense) as a change in fair value of ~~2023 derivative.~~the derivative liability.

Warranty Reserve

The Company may replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs ~~associated with a product~~ are recorded at the time of ~~shipment. The Company estimates future replacement costs~~shipment and are developed by analyzing historical replacement experience ~~for the timing~~ and ~~amount of returned~~ product ~~and the Company evaluates the reserve quarterly and makes adjustments when appropriate.~~performance.

Revenue Recognition

~~Effective January 1, 2018, the~~The Company ~~adopted~~recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers~~, using the full retrospective transition method.~~. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company generates product revenue from sales of the Eversense system and related components and supplies at a fixed price to third-party distributors in the European Union and to a network of strategic fulfillment partners in the United States (collectively, “Customers”) who then resell the products to health care providers and patients. The Company is paid for its sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.

~~Revenues~~Revenue from product sales ~~are~~is recognized when the Customers obtain control of the Company’s product, which occurs at a point in time, based upon the delivery terms as defined in the ~~distributor agreement.~~contract. The Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

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Product sales are recorded net of estimated costs for patient access and sales incentive programs. In March 2019, the Company introduced the Eversense Bridge Program (the “program”) in the United States. Under the program, the Company provides financial assistance, in the form of reimbursement, to eligible patients based on their insurance coverage. Reimbursement payments to the patient under the program are treated as a reduction of revenue in the period in which the corresponding gross revenue is recognized. Estimated reimbursement payments for product shipped to the Company’s customers but not provided to a patient within the same reporting period is based on historical experience and recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Because of the limited experience with the program as of September 30, 2019, the Company’s estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material. The Company also, at its discretion, offers no discounts ~~rebates, rights of return, or~~and other allowances under defined promotional or prompt pay programs to the Customers which ~~would~~ result in the establishment of reserves against product ~~revenue. Additionally,~~revenue, however, to date ~~the Company has not incurred incremental costs in obtaining a Customer contract.~~these amounts have been immaterial.

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Cost of Sales

The Company uses third-party contract manufacturers to manufacture Eversense and related components and supplies. Cost of sales ~~includes~~consists primarily of raw materials, contract manufacturing service fees, ~~reserves for~~ expected warranty costs, ~~reserves for inventory valuation,~~recall costs, product obsolescence, scrap, warehousing indirect personnel costs and shipping and handling expenses associated with product delivery.

~~Shipping~~Sales and ~~Handling~~Marketing Expenses

~~Shipping~~Sales and ~~handling~~marketing expenses ~~associated with product delivery are included within cost~~consist primarily of salaries, commissions, and other related costs, including stock-based compensation, for personnel who perform sales, ~~in the Company’s consolidated statements of operations.~~marketing, and customer support functions. Other significant costs include marketing programs, website design and advertising, educational and promotional materials, consultants, and tradeshow expenses.

Research and Development ~~Costs~~Expenses

Research and development ~~costs are expensed as incurred.~~expenses consist of expenses incurred in performing research and development activities in developing Eversense, including clinical trials and feasibility studies, and partnerships for strategic initiatives including insulin delivery and new indications. Research and development expenses include compensation and benefits for research and development employees including stock‑based compensation, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to ~~employee compensation, preclinical studies and clinical trials, supplies, outsource testing, consulting and depreciation~~regulatory operations, fees paid to contract research organizations and other ~~facilities‑~~consultants, and other outside expenses. Research and development expenses are expensed as incurred.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related ~~expenses.~~costs, including stock‑based compensation, for personnel in the Company’s executive, finance, accounting, business development, information technology, and human resources functions. Other significant costs include information technology, facility costs, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

Stock‑Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight‑line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period. The Company accounts for forfeitures in the period in which they occur.

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The Company uses the Black‑Scholes option pricing model to determine the fair value of stock‑option awards. Valuation of stock awards requires management to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the fair value of the Company’s common stock, future volatility of the Company’s stock price, dividend yields, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can affect the fair value estimate.

Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740, Income Taxes. The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.

Since the Company had net operating loss (“NOL”) carryforwards as of September 30, ~~2018,~~2019, no excess tax benefits for the tax deductions related to stock-based awards were recognized in the statements of operations and comprehensive loss.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a

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tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. Management does not expect the outcome related to accrued uncertain tax provisions to have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. The Company did not have any amounts accrued relating to interest and penalties as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 1998 and all subsequent periods due to the availability of NOL carryforwards. In addition, all of the NOLs and research and development credit carryforwards that may be used in future years are still subject to adjustment.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities. The Company’s ~~term notes~~2025 Notes and 2023 Notes are recorded at historical cost, net of discounts, and are not remeasured at fair value.

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

For periods of net loss, diluted net loss per share is calculated similarly to basic loss per share because the impact of all potential common shares is anti-dilutive. At September 30, ~~2018~~2019 and ~~2017,~~2018, the total number of anti-dilutive

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shares, consisting of common stock options, stock purchase warrants, and the 2025 Notes and 2023 Notes using the if-converted method, which have been excluded from the computation of diluted loss per share, were as follows:


	September 30,		September 30,
	2018	2017	2019	2018
Stock-based awards	21,006,058	15,986,298	25,684,676	21,006,058
2023 Notes	15,499,998	—	6,672,500	15,499,998
2025 Notes			63,565,883	—
Warrants	4,068,581	4,570,902	5,196,581	4,068,581
Total anti-dilutive shares outstanding	40,574,637	20,557,200	101,119,640	40,574,637

For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and the 2025 Notes and 2023 Notes using the if-converted method.

Recent Accounting Pronouncements

Recently Adopted

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in~~ No. 2016-02, Leases (Topic 842) (“ASC ~~Topic 605,~~ ~~Revenue Recognition, and creates a new ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~842”). In 2015 and 2016, the FASB issued additional ASUs related to ASC Topic 606 that delayed the effective date of the guidance and clarified various aspects of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, and licensing, and they include other improvements and practical expedients. The Company adopted this new standard on January 1, 2018 using the full retrospective transition method. The adoption of the new standard did not materially impact the amounts reported in the Company’s consolidated financial statements and there were no other significant changes impacting the timing or measurement of revenues or the Company’s business process and controls.

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In August 2016, the FASB issued ASU 2016-15, guidance on the classification of certain cash receipts and cash payments in the statements of cash flows, including those related to debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, and distributions received from equity method investees. The Company adopted this new standard on January 1, 2018 on a retrospective basis. The adoption of the new standard did not impact the amounts reported in the Company’s consolidated statements of cash flows.

~~Not Yet Adopted~~

~~In February 2016, the FASB issued ASU 2016-02, guidance for accounting for leases.~~ The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11 to provide another transition method, allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The guidance is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. The Company ~~plans to adopt~~adopted the ~~guidance on~~new standard effective January 1, ~~2019.~~2019 using the modified retrospective approach. The Company ~~is in~~did not elect the ~~process~~transition option, but elected certain practical expedients, including not separating lease components from nonlease components for all classes of ~~reviewing its lease agreements and evaluating the impact~~underlying assets. Additionally, all leases with a term at commencement of ~~the lease guidance on~~12 months or less will be excluded from analysis under ASC 842. The standard did not materially affect the Company’s consolidated ~~financial statements. The Company anticipates recording additional~~net loss or cash flows.

Impact of Adopting ASC 842 on the Financial Statements


	January 1, 2019				January 1, 2019
	Prior to ASC
	842 Adoption		ASC 842 Adoption		As Adjusted
Consolidated Balance Sheet Data (in thousands)
Operating lease assets (1)	$	—	$	2,235	$	2,235
Deferred rent non-current (2)	$	84	$	(84)	$	—
Operating lease liabilities (3)	$	—	$	417	$	417
Non-current operating lease liabilities (3)	$	—	$	1,902	$	1,902

(1) Represents capitalization of operating lease assets, ~~and corresponding liabilities on its consolidated balances sheets related~~including reclassification of deferred rent to operating ~~leases within its~~ lease ~~portfolio upon adoption~~assets.

(2) As of December 31, 2018, the ~~guidance.~~deferred rent balance was $84.

(3) Represents recognition of operating lease liabilities.

The Company has evaluated all other issued unadopted ~~Accounting Standards Updates~~ASUs and believes the adoption of these standards will not have a material impact on its consolidated statements of earnings, balance sheets, or cash flows.

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4. ~~Marketable Securities~~

~~Marketable securities available for sale, consisting of government and agency securities and corporate debt securities, were as follows (in thousands):~~

September 30, 2018

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Market


Cost

Gains

Losses

Value

Corporate debt securities

$
5,997

$
—

$
—

$
5,997

Total

$
5,997

$
—

$
—

$
5,997

December 31, 2017

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Market


Cost

Gains

Losses

Value

Government and agency securities

$
5,990

$
—

$
—

$
5,990

Corporate debt securities

14,310

—

—

14,310

Total

$
20,300

$
—

$
—

$
20,300

5. Inventory, net

Inventory, net of reserves, consisted of the following (in thousands):


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019		2018
Finished goods	$	489	$	375	$	4,312	$	1,457
Work-in-process		8,565		2,150		12,571		7,211
Raw materials		947		466		2,979		1,563
Total	$	10,001	$	2,991	$	19,862	$	10,231

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6.5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019		2018
Contract manufacturing	$	3,592	$	1,601	$	3,359	$	2,962
Clinical and preclinical		15		35		193		111
Marketing		396		93
Software		87		214
Marketing and sales						416		287
IT and software						144		244
Insurance		208		77		333		—
Interest receivable						2		239
Other receivables						235		—
Other		425		72		180		142
Total prepaid expenses and other current assets	$	4,723	$	2,092	$	4,862	$	3,985

~~7.Accrued~~6.Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30,		December 31,		September 30,		December 31,
	2018		2017		2019		2018
Contract manufacturing	$	3,090	$	1,209	$	4,192	$	6,068
Compensation and benefits		2,652		2,209		4,363		3,685
Product warranty		694		813
Professional Services		899		942
Interest on notes payable and 2023 Notes		587		180
Clinical and preclinical		166		55
Sales and marketing services						816		738
Professional & administration services						2,576		727
Interest on notes payable						856		1,268
Research and development						2,504		147
Product warranty and replacement obligations						1,405		816
Patient access and incentive programs						1,299		—
Operating lease						647		—
Other		766		20		47		402
Total accrued expenses and other current liabilities	$	8,854	$	5,428	$	18,705	$	13,851

~~8.Commitments~~7.Leases

The Company evaluates whether contractual arrangements contain leases at the inception of such arrangements. Specific considerations include whether the Company can control the underlying asset and ~~Contingencies~~has the right to obtain substantially all of the economic benefits or outputs from the asset. Substantially all of the Company’s leases are long-term operating leases with fixed payment terms. The Company currently does not have financing leases. Right-of-use (“ROU”) operating lease assets represent the Company’s right-to-use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments. Operating lease expense is

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recognized on a straight-line basis over the lease term and is included in general and administrative expenses on the Company’s consolidated statement of operations and comprehensive loss. Options to extend the leases or terminate the leases early are only included in the lease term when it is reasonably certain that the option will be exercised.

The Company recognizes a ROU operating lease asset and liability as of the lease commencement date at the present value of the lease payments over the lease term. If the discount rate in the lease agreement is not implicit, the Company estimates the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. Lease and non-lease components are accounted for as a single component. Leases with an initial term of 12 months or less are expensed to rent expense over the related term.

The Company leases approximately 33,000 square feet of research and office space for its corporate headquarters under a ~~non‑cancelable~~non-cancelable operating lease expiring in 2023. The Company has an option to renew the lease for one additional ~~five‑~~five year term. ~~Additionally,~~With the adoption of ASC 842, the Company has recorded a right-of-use asset and corresponding lease liability, and does not include the additional five year term under the option.

The Company leases approximately 12,000 square feet of office space under a cancelable operating lease that expired on June 30, 2019 and subsequently became a month-to-month lease. The Company elected to account for this lease in accordance with the policy of not recording leases with an initial term of 12 months or less on the balance sheet. This lease terminated on October 31, 2019.

On September 2, 2019, the Company entered into a new non-cancellable operating lease agreement for approximately 30,500 square feet of office space expiring in ~~December 2018.~~2023. The Company ~~can terminate~~does not have the ~~lease agreement upon 60 days’ prior written notice. The Company has an~~ option to renew the lease for ~~three~~an additional ~~two-month terms. Expense recognition is based upon a straight‑line basis and was $0.2 million for each~~term. The Company did not have any lease related payments made to the lessor before the commitment date, lease incentives received from the lessor or initial direct cost adjustments to be added to the initial measurement of the liability. The Company recorded $1.1 million of associated right-of-use assets and lease liabilities in its consolidated balance sheet at September 30, 2019.

Operating lease expense for the three and nine months ended September 30, ~~2018 and 2017~~2019 was $0.2 million and $0.5 million, ~~for each of~~respectively. Short-term lease expense is included in total lease expense. For the nine months ended September 30, ~~2018 and 2017.~~

~~On March 31, 2016, the Company amended a corporate development agreement with a supplier to include a minimum purchase commitment per year. Total research and development~~2019, short term lease expense ~~related to the minimum payment~~ was ~~$0.3~~$0.1 million and ~~$0.2 million~~ for the three months ended September 30, ~~2018 and 2017, respectively, and $0.8~~2019 the short term lease expense amount was not significant.

Operating lease expense was $0.2 million and $0.5 million for the three and nine months ended September 30, 2018, ~~and 2017,~~ respectively. ~~There were approximately $0.3 million of future minimum payments under this commitment at September 30, 2018.~~

9.~~401(k) Plan~~

The ~~Company has a defined contribution 401(k) plan available to all full-time employees. Employee contributions are voluntary~~following table summarizes the lease assets and ~~are determined on an individual basis subject to~~liabilities as of September 30, 2019 (in thousands):



Operating Lease Assets and Liabilities	Balance Sheet Classification		Amount
Assets
Operating lease ROU assets		Deposits and other assets	$	2,987
Liabilities
Current operating lease liabilities		Accrued expenses and other current liabilities	$	647
Non-current operating lease liabilities		Other non-current liabilities		2,462
Total operating lease liabilities			$	3,109

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The following table summarizes the ~~maximum allowable~~maturity of undiscounted payments due under ~~federal income tax regulations. Participants are fully vested in their contributions. There have been no employer contributions to this plan. Administrative expenses for~~lease liabilities and the ~~plan, which are paid by~~present value of those liabilities as of September 30, 2019 (in thousands):


2019 (remaining 3 months)	$	206
2020		938
2021		969
2022		1,002
2023		600
Total		3,715
Present value adjustment		(606)
Present value of lease liabilities	$	3,109

The following table summarizes the ~~Company, were not material in~~weighted-average lease term and weighted-average discount rate as of September 30, 2019:


Remaining lease term (years)
Operating leases	3.9
Discount rate
Operating leases	9.1	%

During the ~~three or~~ nine months ended September 30, ~~2018~~2019, the Company made cash payments of $0.5 million under its operating leases, which are included in cash flows used in operating activities in the consolidated statement of cash flows.

8.Notes Payable

Term Loans

Solar Loan Agreement

On July 16, 2019, the Company entered into a Loan and Security Agreement (the “Solar Loan Agreement”) with Solar Capital, Ltd. (“Solar”). Pursuant to the Solar Loan Agreement, on July 25, 2019, the Company borrowed term loans in an aggregate principal amount of $45.0 million (the “Solar Term Loan”), of which the Company used $11.6 million to repay in full the Term Loans and terminate the Amended and Restated Loan and Security Agreement with Oxford and SVB described below.

Interest on the Solar Term Loan is payable monthly at a floating annual rate of 6.50% plus the greater of (i) the rate per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd. and (ii) 2.48%, provided that the minimum floor interest rate is 8.98%. The maturity date for the Solar Term Loan is July 1, 2024 (the “Solar Maturity Date”). Commencing on August 1, 2021, the Company will be required to make monthly principal amortization payments; provided that the interest only period may be extended to (i) August 1, 2022 if the Company’s product revenue is greater than or ~~2017.~~equal to $40.0 million on a trailing six-month basis prior to the second anniversary of the effective date and (ii) August 1, 2023 if the Company’s product revenue is greater than or equal to $75.0 million on a trailing six-month basis after the achievement of the first extension.

The Company may elect to prepay the Solar Term Loan prior to the Solar Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the effective date, 2.00% if the prepayment occurs during the second year following the effective date, and 1.00% if the prepayment occurs more than two years after the effective date and prior to the Solar Maturity Date.

The Solar Loan Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Solar Lenders’ security interest over the collateral, a

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material adverse change, the occurrence of a default under certain other agreements entered into by the Company and its subsidiaries, the rendering of certain types of judgments against the Company and its subsidiaries, the revocation of certain government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect. Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by the Company would begin to bear interest at a rate that is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by the Solar Lenders.

The Solar Term Loan is secured by substantially all of the Company and its subsidiaries’ assets. The Solar Loan Agreement also contains specified financial covenants related to the Company’s liquidity and trailing six-month revenue.

The Solar Loan Agreement also contains certain restrictive covenants that limit the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements.

A final fee (“Final Fee”), which is equal to $2.9 million (6.45% of the Solar Term Loan), is due and payable on the earliest to occur of (i) Solar Maturity Date, (ii) the acceleration of the Solar Term Loan including, upon the occurrence of a bankruptcy or insolvency event, or (iii) prepayment, refinancing, substitution or replacement of the Solar Term Loan. The fee is accreted to interest expense over the term of the loan to the Final Fee amount.

In connection with the Solar Term Loan, the Company incurred issuance costs in the amount of $0.4 million, and paid fees to Lenders (as defined below) in the amount of $0.9 million in connection with the repayment of the Term Loans, which are netted against the principal balance of the Solar Term Loan and amortized as additional interest expense over the term of the Solar Term Loan using the effective interest method. Unamortized debt issuance costs and additional prepayment fees in the amount of $0.4 million associated with the repayment of the Term Loans were recorded as a loss on the extinguishment of debt in other income (expense) in the Company’s consolidated statements of operations and comprehensive loss as of September 30, 2019.

Additionally, the Company issued Solar warrants to purchase an aggregate of 1,125,000 shares of the Company’s common stock with an exercise price of $1.20 per share (the “Solar Warrants”). The Solar Warrants are exercisable until July 25, 2029. The proceeds from the Solar Term Loan were allocated between the debt and the Solar Warrants based on their respective fair value of $0.7 million, and were recorded within equity resulting in a debt discount that is being amortized as additional interest expense over the term of the Solar Term Loan using the effective interest method.

Oxford and Silicon Valley Bank Term Loans

On June 30, 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and together with Oxford, the “Lenders”). Pursuant to the Amended and Restated Loan and Security Agreement, the Company borrowed an aggregate principal amount of $25.0 million in the following three tranches: $15.0 million (“Tranche 1 Term Loan”); $5.0 million (“Tranche 2 Term Loan”); and $5.0 million (“Tranche 3 Term Loan”) (each, a “Term Loan,” and collectively, the “Term Loans”). The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, the Company issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million (the “Oxford/SVB Notes”) on June 30, 2016. The Company used approximately $11.0 million from the proceeds from the Oxford/SVB Notes to repay the outstanding balance under the Company’s previously existing Loan and Security Agreement with Oxford. The Company borrowed the Tranche 2 Term Loan and Tranche 3 Term Loan in November 2016 and March 2017, respectively. The maturity date for all Term Loans was June 1, 2020. The Company was also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans and was being accrued as additional interest expense over the term of the Oxford/SVB Notes using the effective interest method.

Proceeds from the Solar Term Loan were used to repay the remaining balance of the Oxford and SVB Term Loans, which were subject to a prepayment fee equal to $0.1 million.

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Convertible Notes

2025 Notes

In July 2019, the Company issued $82.0 million in aggregate principal amount of 2025 Notes. The 2025 Notes are general, unsecured, senior subordinated obligations of the Company and bear interest at a rate of 5.25% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2025 Notes will mature on January 15, 2025, unless earlier repurchased or converted.

~~10.Notes Payable~~The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.

~~Convertible Senior~~The 2025 Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at an initial conversion rate of 757.5758 shares per $1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $1.32 per share).

The Company may redeem for cash all or part of the 2025 Notes, at its option, if (1) the last reported sale price of the Company’s common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (2) a registration statement covering the resale of the shares of the Company’s common stock issuable upon conversion of the 2025 Notes is effective and available for use and is expected to remain effective and available for use during the redemption period as of the date of the redemption notice date. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a fundamental change, such as a merger, sale, greater than 50% ownership change, liquidation, dissolution or delisting, holders may require the Company to repurchase for cash all or any portion of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue shares.

The 2025 Notes are guaranteed on a senior unsecured basis by the Company’s wholly-owned subsidiary, Senseonics, Incorporated, and may be guaranteed by certain future subsidiaries. The subsidiary guarantor is 100% owned, the guarantee is full and unconditional and joint and several and the parent company has no independent assets or operations and any subsidiaries of the parent company other than the subsidiary guarantor are minor.

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In connection with the issuance of the 2025 Notes, the Company incurred $4.3 million in debt issuance costs and debt discounts. Several note holders of the 2025 Notes were also note holders of the 2023 Notes, and as a result, these transactions qualified as loan modifications. The associated debt issuance costs were allocated between the portion of 2025 Notes purchased by new note holders, and of 2025 Notes purchased by existing 2023 Note holders. Loan modifications require third-party debt related costs to be expensed immediately, whereas fees paid to lenders of the modified loans are deferred. The third-party costs associated with the new note holders are also deferred as discounts that are amortized as additional interest expense over the term of the notes. Of the $4.3 million, $3.3 million were expensed for loan modifications and $1.0 million were deferred as discounts to the debt.

The 2025 Notes also contained an embedded conversion option requiring bifurcation as a separate derivative liability, along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision. The Company recorded the fair value of the embedded features in the amount of $36.0 million as a debt discount and derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

Based upon recent trading prices (Level 2 — market approach) and other observable inputs, including the Company’s common stock, implied volatility, interest rates and credit spreads, the fair value of the Company’s 2025 Notes, excluding the embedded features, were $57 million as of September 30, 2019.

2023 Notes

In January 2018, the Company issued $50.0 million in aggregate principal amount of the 2023 Notes. In February 2018, the Company issued an additional $3.0 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the overallotment option by the underwriter. The net proceeds from the issuance of the 2023 Notes, after deducting transaction costs, were $50.7 million. The 2023 Notes are general, unsecured, senior subordinated obligations of the Company. The Company pays interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. In July 2019, the Company used the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the outstanding 2023 Notes. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as a long-term liability on the Company’s consolidated balance sheet at September 30, ~~2018.~~2019.

Each $1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company would increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.

~~In accordance with GAAP relating to embedded conversion features, the~~

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The Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded ~~conversion option~~features as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $17.3 million. Additionally, the Company incurred transaction costs of $2.2 million. The debt discount ~~embedded conversion option~~ and transaction costs are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%.

The derivative ~~liability will be remeasured~~is adjusted to fair value at each reporting period, with ~~changes~~the change in the fair value recorded to other income/(expense) in the Company’s consolidated ~~statements~~statement of operations inand comprehensive loss.

Based upon recent trading prices (Level 2 — market approach) and other ~~income (expense).~~observable inputs, including the Company’s common stock, implied volatility, interest rates and credit spreads, the fair value of the Company’s 2023 Notes, excluding the embedded features, was $13.4 million as of September 30, 2019 and $41 million at December 31, 2018.

In the ~~second quarter of~~nine months ended September 30, 2018, the Company issued 73,529 shares of common stock upon the conversion of $250,000 in aggregate principal amount of the 2023 Notes. There ~~was~~were no ~~conversion~~conversions of 2023 Notes in the ~~third quarter of 2018.~~three months ended September 30, 2018 and 2019, or the nine months ended September 30, 2019.

~~Term Notes Payable~~

On June 30, 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Oxford and SVB (the “Lenders”). Pursuant to the Amended and Restated Loan and Security Agreement, the Company has borrowed an aggregate principal amount of $25.0 million in theThe following three tranches: $15.0 million (“Tranche 1 Term Loan”); $5.0 million (“Tranche 2 Term Loan”); and $5.0 million (“Tranche 3 Term Loan”) (each, a “Term Loan,” and collectively, the “Term Loans”). The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, the Company issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million (the “Notes”) on June 30, 2016. The Company used approximately $11.0 million from the proceeds from the Notes to repay thecarrying amounts are outstanding ~~balance~~ under the Company’s ~~previously existing Loan~~notes payable as of September 30, 2019 and ~~Security Agreement with Oxford.~~ December 31, 2018 (in thousands):


	September 30, 2019					December 31, 2018
	Principal ($)	Debt Discount ($)	Issuance Costs ($)	Warrants ($)	Carrying Amount ($)	Principal ($)	Debt Discount ($)	Issuance Costs ($)	Warrants ($)	Carrying Amount ($)
Solar Term Loan	45,000	(834)	(328)	(746)	43,092	-	-	-	-	-
Oxford / SVB Term	-	-	-	-	-	15,000	(113)	(103)	-	14,784
2023 Notes	15,700	(4,171)			11,529	52,700	(16,597)	-		36,103
2025 Notes	82,000	(45,603)	(729)		35,668	-	-	-	-	-

Interest expense related to the notes payable for the periods presented below is as follows (in thousands):


	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Effective Interest Rate	Interest ($)	Debt Discount & Fees ($)	Loss on Extinguishment of Debt ($)	Total Interest Expense ($)	Effective Interest Rate	Interest ($)	Debt Discount & Fees ($)	Loss on Extinguishment of Debt ($)	Total Interest Expense ($)
Solar Term Loan	8.98%	772	60	-	832	8.98%	772	60	-	832
Oxford / SVB Term	7.37%	68		-	68	7.37%	900	56	-	955
2023 Notes	5.25%	708	176	398	1,282	5.25%	1,924	1,888	398	4,210
2025 Notes	5.25%	761	915	-	1,676	5.25%	943	915	-	1,859

	Three Months Ended September 30, 2018					Nine Months Ended September 30, 2018
	Effective Interest Rate	Interest ($)	Debt Discount & Fees ($)	Loss on Extinguishment of Debt ($)	Total Interest Expense ($)	Effective Interest Rate	Interest ($)	Debt Discount & Fees ($)	Loss on Extinguishment of Debt ($)	Total Interest Expense ($)
Oxford / SVB Term	7.37%	361	88	-	449	7.37%	1,211	292	-	1,503
2023 Notes	5.25%	694	1,027	-	1,721	5.25%	1,853	4,655	-	6,508

The ~~Company borrowed~~following are the ~~Tranche 2~~scheduled maturities of the Solar Term Loan, ~~in November 2016 upon the Lenders’ confirmation that the Company received positive data in its U.S. pivotal trial~~2025 Notes, and 2023 Notes as of Eversense, and the Company submitted a pre-market approval (“PMA”) application for Eversense in the United States with the FDA. The Company borrowed the Tranche 3 Term Loan in March 2017 upon completion of the first commercial sale of its second-generation transmitter in the European Union. The maturity date for all Term Loans is June 1, 2020 (the “Maturity Date”).September 30, 2019 (in thousands):


2019 (remaining three months)	$	—
2020		—
2021		6,250
2022		15,000
2023		30,700
Thereafter		90,750
Total	$	142,700

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The Term Loans bear interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consisted of interest-only through December 31, 2017. In January 2018, the Company began to make monthly principal payments that will continue until the Maturity Date.

The Company may elect to prepay all Term Loans prior to the Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the funding date of any Term Loan, 2.00% if the prepayment occurs during the second year following the funding date of any Term Loan, and 1.00% if the prepayment occurs more than two years after the funding date of any Term Loan and prior to the Maturity Date.

The Amended and Restated Loan and Security Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company, the rendering of certain types of judgments against the Company, the revocation of certain government approvals of the Company, violation of covenants, and incorrectness of representations and warranties in any material respect. Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by the Company would begin to bear interest at a rate that is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by Lenders.

Pursuant to the Amended and Restated Loan and Security Agreement, the Company also issued 10-year stock purchase warrants to purchase an aggregate of 260,251 shares of common stock with an exercise price ranging from $1.86 to $3.86 per share. (see Note 11, “Stockholders’ Equity”).

The Notes are collateralized by all of the Company’s consolidated assets. The Notes also contain certain restrictive covenants that limit the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. The Company incurred issuance costs related to the Notes of approximately $0.6 million that are being amortized as additional interest expense over the term of the Notes using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a discount to the Notes, which is also being amortized as additional interest expense over the term of the Notes using the effective interest method.

At maturity (or earlier prepayment), the Company is also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans. This fee is being accrued as additional interest expense over the term of the Notes using the effective interest method. At September 30, 2018 and December 31, 2017, the final payment fee accrual was $1.6 million and $1.1 million, respectively.

~~The following are the scheduled maturities of the 2023 Notes and Term Loans as of September 30, 2018 (in thousands):~~

2018 (remaining three months)

$
2,500

2019

10,000

2020

5,000

2021

—

2022

—

After 2022

52,700

Total

$
70,200

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The Company estimates the fair value of the term notes based on borrowing rates currently available for loans with similar terms (Level 2). The Company believes that the fair value of its term notes approximate their carrying value. The Company estimates the fair value of the 2023 Notes using commonly accepted valuation methodologies and market-risk measurements that are indirectly observable, such as credit risk (Level 2). At September 30, 2018, the fair value of the 2023 Notes, excluding the derivative liability, was $44.2 million.

~~11.Stockholders’~~9.Stockholders’ Equity

Preferred Stock

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company’s authorized capital stock included 5,000,000 shares of undesignated preferred stock, par value $0.001 per share. No shares of preferred stock were outstanding as of September 30, ~~2018~~2019 or December 31, ~~2017.~~2018.

Common Stock

In July 2019, pursuant to an underwriting agreement with Jefferies LLC, the Company closed a follow-on public offering of 26,136,363 shares of its common stock at a price of $1.10 per share, which included the exercise in full by Jefferies LLC of its option to purchase up to 3,409,090 additional shares. The Company received net proceeds of $26.9 million from the offering, after deducting underwriting discounts and offering expenses.

As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company’s authorized capital stock included 450,000,000 ~~and 250,000,000~~ shares of common stock, ~~respectively,~~ par value $0.001 per share. The Company had ~~176,725,832~~203,365,624 and ~~136,882,735~~176,918,381 shares of common stock issued and outstanding at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Stock Purchase Warrants

Additionally, the Company issued the Solar Warrants to purchase an aggregate of 1,125,000 shares of the Company’s common stock with an exercise price of $1.20 per share. The Solar Warrants are exercisable until July 25, 2029. The proceeds from the Solar Term Loan were allocated between the debt and the Solar Warrants based on their fair value of $0.7 million, and were recorded within equity resulting in a discount to the Solar Term Loan.

In connection with the issuance of the Oxford/SVB Notes, the Company ~~also~~ issued to the Lenders 10-year stock purchase warrants to purchase an aggregate of 116,581, 63,025 and 80,645 shares of common stock at an exercise price of $3.86, $2.38 and $1.86 per share, respectively. The cumulative fair value of the warrants, which the Company estimated to be $0.5 million, ~~was recorded as~~resulted in a discount to the Oxford/SVB Notes. These warrants expire on June 30, 2026, November 22, 2026, and March 29, 2027, respectively, and are classified in equity.

In connection with the Company’s original Loan and Security Agreement with Oxford in 2014, the Company issued to Oxford 10-year stock purchase warrants to purchase an aggregate of 167,570 shares of common stock at an exercise price of $1.79 per share. The fair value of the warrants, which the Company estimated to be $0.2 million, ~~was recorded as~~resulted in a discount to the promissory notes issued to Oxford in connection with the original Loan and Security Agreement. These warrants expire on November 2, 2020, July 14, 2021 and August 19, 2021, and are classified in equity.

The unamortized deferred financing fees and debt discount related to the notes rollover amount iswas being amortized along with the deferred financing costs and the discount created by the new issuance of the ~~warrants~~Solar Warrants over the term of the loan using the effective interest method. ~~For~~In connection with the ~~three~~repayment of the Term Loans, the unamortized discount and ~~nine months ended September 30, 2018 and 2017, the Company~~additional prepayment fee of $0.4 million was recorded ~~amortization of discount~~as a loss on extinguishment of debt ~~of $0.1 million and $0.2 million, respectively, within interest expense~~in other income (expense) in the ~~accompanying~~Company’s consolidated statements of operations and comprehensive loss.

Stock‑Based Compensation

In December 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”) under which incentive stock options, non-qualified stock options, and restricted stock awards may be granted to the Company’s employees and certain other persons in accordance with the 2015 Plan provisions. In connection with the March 2016 Offering, the Company’s board of directors adopted and the Company’s stockholders approved an Amended and Restated 2015 Equity Incentive Plan (the “amended and restated 2015 Plan”). The amended and restated 2015 Plan became effective as of the date of the pricing of the March 2016 Offering. The Company’s board of directors may

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terminate the amended and restated 2015 Plan at any time. Options granted under the amended and restated 2015 Plan expire ten years after the date of grant.

Pursuant to the amended and restated 2015 Plan, the number of shares initially reserved for issuance pursuant to equity awards was 17,251,115 shares, representing 8,000,000 shares plus up to an additional 9,251,115 shares in the event that options that were outstanding under the Company’s equity incentive plans as of February 16, 2016 expire or otherwise terminate without having been exercised (in such case, the shares not acquired will revert to and become available for issuance under the amended and restated 2015 Plan). The number of shares of the Company’s common stock reserved for issuance under the amended and restated 2015 Plan will automatically increase on January 1 of each

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year, beginning on January 1, 2017 and ending on January 1, 2026, by 3.5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. As of September 30, ~~2018, 1,385,452~~2019, 3,343,444 shares remained available for grant under the amended and restated 2015 Plan.

On May 30, 2019, the Company adopted the Senseonics Holdings, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 1,800,000 shares of the Company’s common stock for issuance. The only persons eligible to receive grants of Awards (as defined below) under the Inducement Plan are individuals who satisfy the standards for inducement grants in accordance with NYSE American Company Guide Section 711(a), including individuals who were not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company. An “Award” is any right to receive the Company’s common stock pursuant to the Inducement Plan, consisting of nonstatutory options, restricted stock unit awards and other equity incentive awards. As of September 30, 2019, 1,031,458 shares remained available for grant under the Inducement Plan.

On May 8, 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”), under which incentive stock options, non‑qualified stock options, and restricted stock awards may be granted to the Company’s employees and certain other persons in accordance with the 1997 Plan provisions. Approximately ~~7,229,541~~6,253,301 shares of the Company’s common stock underlying options have vested or are expected to vest under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan.

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period.

~~12.Fair~~10.Fair Value Measurements

The Company ~~applies~~accounts for recurring and non-recurring fair value ~~accounting for all financial assets~~measurements in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 820, Fair Value Measurements and ~~liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company~~Disclosures (ASC 820). ASC 820 defines fair value, ~~as the price that would be received from selling an asset or paid to transfer~~establishes a ~~liability in an orderly transaction between market participants at the measurement date. When determining the~~ fair value ~~measurements~~hierarchy for assets and liabilities ~~that are required to be recorded~~measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820 hierarchy ranks the ~~Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements~~quality of reliability of inputs, or assumptions, ~~that market participants would use~~used in the determination of fair value and requires assets and liabilities carried at fair value to ~~price the asset or liability, such as risks inherent~~be classified and disclosed in ~~valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying~~one of the following ~~hierarchy, which prioritizes the inputs used to measure fair value into~~ three ~~levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:~~categories:

Level 1—Quoted prices for identical assets or liabilities in active markets.

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The Company classifies money market funds within Level 1 in the fair value hierarchy because the Company uses quoted prices in active markets. The Company classifies government agency securities and corporate debt securities within Level 2 in the fair value hierarchy because the Company uses pricing sources utilizing market observable inputs to determine fair value. The Company values the embedded conversion option through a Monte Carlo analysis utilizing future stock prices modeled using geometric Brownian motion; option pricing models utilizing using inputs such as the Company’s stock price, volatility

Table of ~~the Company’s common stock and guideline public companies, dividend yield, and risk-free rate; and management assumptions concerning the likelihood of the occurrence of certain corporate events.~~Contents

Financial Assets and Liabilities Measured at Fair Value ~~on a Recurring Basis~~

The Company has segregated its financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

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The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value ~~on a recurring basis as follows~~ (in thousands):


	September 30, 2018								September 30, 2019
	Total		Level 1		Level 2		Level 3		Total			Level 1			Level 2			Level 3
Assets
Marketable securities	$	5,997	$	—	$	5,997	$	—
Money market funds										$	923		$	923		$	—		$	—
Liabilities
Embedded conversion option		39,825		—		—		39,825
Embedded features of the 2025 Notes										$	26,201		$	—		$	—		$	26,201
Embedded features of the 2023 Notes										$	787		$	—		$	—		$	787

December 31, 2017


Total

Level 1

Level 2

Level 3

Money market funds

$
4,706

$
4,706

$
—

$
—

Government and agency securities

7,987

—

7,987

—

Corporate debt securities

17,708

—

17,708

—


	December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	122,859	$	122,859	$	—	$	—
Liabilities
Embedded features of the 2023 Notes	$	17,091	$	—	$	—	$	17,091

The inputs used in measuring the fair value of the Company’s money market funds included in cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of the funds.

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value ~~on a recurring basis~~ that used significant unobservable inputs (Level 3) (in thousands):

Embedded

Conversion

Option
December 31, 2017

$
—
Issuance of the 2023 Notes

17,300
Change in fair value included in other income (expense)

22,525
September 30, 2018

$
39,825


	Embedded
	Features of the
	the Notes
December 31, 2018	$	17,091
Initial fair value of embedded features of 2025 Notes		36,044
Change in derivative liabilities (including the partial settlement of the 2023 Notes)		(26,147)
September 30, 2019	$	26,988

~~The Company reviews~~During the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain financial instruments within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended September 30, 2019 and 2018, ~~and 2017. When a determination is made to classify an asset or liability within Level 3,~~ the ~~determination is based upon the significance of the unobservable inputs to the overall fair value measurement.~~

~~Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis~~

~~The~~ Company ~~has no financial assets and liabilities that are measured at fair value on a non-recurring basis.~~

~~Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis~~

~~The Company has no non-financial assets and liabilities that are measured at fair value on a recurring basis.~~

~~Non‑Financial Assets and Liabilities Measured at Fair Value on a Non‑Recurring Basis~~

The Company measures its long‑lived assets, including property and equipment, at fair value on a non‑recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized in the three and nine months ended September 30, 2018 and 2017.did not have any transfers between levels.

~~13.Income~~11.Income Taxes

The Company has not recorded any tax provision or benefit for the ~~three and~~ nine months ended September 30, ~~2018~~2019 or September 30, ~~2017.~~2018. The Company has provided a valuation allowance for the full amount of its net deferred tax assets since realization of any future benefit from deductible temporary differences, NOL carryforwards and research and development credits is not more-likely-than-not to be realized at September 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

12. Related Party Transactions

Roche Holding A.G, through its ownership interests in Roche Finance Ltd (collectively, “Roche”), has a noncontrolling ownership interest in the Company. For the three months ended September 30, 2019 and 2018, revenue from Roche was $3.4 million and $4.3 million, respectively. For the nine months ended September 30, 2019 and 2018,

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revenue from Roche was $8.7 million and $9.9 million, respectively. Amounts due from Roche as of September 30, 2019 and December 31, 2018 were $3.5 million and $6.3 million, respectively.

13.Subsequent Events

On ~~December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law. The new legislation contains several key tax provisions that will impact~~November 7, 2019, the Company ~~including~~implemented a restructuring designed to meet the ~~reduction~~following objectives:

Reset strategic goals based on learnings from the Company’s first year of U.S. commercial launch;

Enhance the customer experience with the Company’s Eversense CGM system, including outcomes, longevity, reliability, access, support, and training;

Focus on executing pathways to successful launch of the 180-day product in the United States; and

Reduce cash burn to support these activities while minimizing near-term dilution and ensuring the best allocation of capital

Pursuant to the restructuring, the Company also immediately reduced its current, open and planned workforce by approximately 30%. The Company expects to incur one-time restructuring costs related to severance expenses of the corporate income tax rate to 21% effective January 1, 2018. The new legislation also includes a variety of other changes, such as a one-time repatriation tax on accumulated foreign earnings, a limitation on the tax deductibility of interest expense, acceleration of business asset expensing, and reductionapproximately $0.8 million in the ~~amount~~fourth quarter of executive pay that could qualify as a tax deduction, among others. The lower corporate income tax rate required the Company to remeasure its U.S. deferred tax assets and liabilities as well as reassess the realizability of its deferred tax assets and liabilities. ASC Topic 740 requires the Company to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff has issued Staff Accounting Bulletin No. 118 which allows the Company to record provisional amounts during a measurement period which is similar to the measurement period used when accounting for business combinations. While no adjustments has been made in the current period, the Company will continue to assess the impact of the recently enacted tax law on its business and financial statements and will reflect the provisional impact of the tax law change in the period when such analysis is complete.2019.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those described below and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K, particularly in Part I – Item 1A, “Risk Factors,” and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, ~~2017,~~2018, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~13, 2018.~~15, 2019. Unless otherwise indicated or the context otherwise requires, all references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to the "Company," "we," "our," "ours," "us" or similar terms refer to Senseonics Holdings, Inc. and its ~~subsidiaries.~~subsidiary.

Overview

We are a medical technology company focused on the design, development and commercialization of glucose monitoring products to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. Our continuous glucose monitoring, or CGM, systems, Eversense and Eversense XL, are reliable, long‑term, implantable CGM systems that we have designed to continually and accurately measure glucose levels in people with diabetes for a period of up to 90 and 180 days, respectively, as compared to six to fourteen days for currently available CGM systems. We believe Eversense and Eversense XL will provide people with diabetes with a more convenient method to monitor their glucose levels in comparison towith the traditional method of self‑monitoring of blood glucose, or SMBG, as well as currently available CGM systems. In our U.S. pivotal clinical trial, we observed that Eversense measured glucose levels over 90 days with a degree of accuracy superior to that of other currently available CGM systems. On June 21, 2018, our Eversense System received approval from the U.S. Food and Drug Administration, or FDA, for marketing in the United States and we began distributing Eversense through our direct sales force and a network of strategic fulfillment partners in the United States in July 2018. Eversense andOur Eversense XL ~~are approved for sale~~system is available in ~~Europe/~~Europe, the Middle East and Africa (EMEA) and our Eversense system is currently approved for sale in the United States.

Recent Developments

In the third quarter of 2019, we completed enrollment of our PROMISE 180-day U.S. pivotal clinical trial of Eversense XL with 208 subjects enrolled across eight clinical sites. We expect to report topline data from the PROMISE trial in the first half of 2020. If the data from the PROMISE trial are positive, we intend to use the data in a regulatory submission to the FDA to expand the Eversense system use to 180 days in the United States. We expect such approval will happen by the end of 2020. We also intend to use data from the first 90 days of the PROMISE trial, if positive, to support a supplemental submission to the FDA for an integrated, or iCGM , designation for our current Eversense 90-day system, which the FDA could potentially approve in the first half of 2020.

In September 2019, Senseonics issued a voluntary recall of specific Eversense sensors from doctors’ offices and distributors in the United States, as a small number (1.4% of inserted Sensors over the affected period) of sensors had prematurely stopped functioning due to inadequate hydration of the sensor’s glucose-sensing membrane. There were 844 Eversense CGM Sensors recalled under this field action. No action was needed from patients regarding this

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voluntary recall. The cost of the recall was $0.4 million and is recorded in cost of sales on the consolidated statements of operations and comprehensive loss at September 30, 2019.

In November 2019, we implemented a restructuring, or the Restructuring, designed to meet the following objectives:

Reset strategic goals based on learnings from our first year of U.S. commercial launch;

Enhance the customer experience with our Eversense CGM system, including outcomes, longevity, reliability, access, support and training;

Focus on executing the pathway to successful launch of our 180-day product in the United States; and

Reduce cash burn to support these activities while minimizing near-term dilution and ensuring the best allocation of capital.

Pursuant to the Restructuring, we also immediately reduced our current, open and planned workforce by approximately 30%. We expect to incur one-time restructuring costs related to severance expenses of approximately $0.8 million in the fourth quarter of 2019.

European ~~Development and~~ Commercialization of Eversense

In ~~May 2016,~~September 2015, we received our CE Mark for Eversense, which allows us to market and sell Eversense in Europe. In connection with our CE Mark, we have agreed to conduct post-market surveillance activities. In June 2016, we commenced commercialization of Eversense in Sweden through our exclusiveentered into a distribution agreement with Rubin Medical, or Rubin, pursuant to which ~~also has~~we granted Rubin the exclusive right to market, sell and distribute Eversense in Sweden, Norway and ~~Denmark.~~Denmark through September 2020. Rubin markets and sells medical products for diabetes treatment in the Scandinavian ~~region.~~region, including as the exclusive Scandinavian distributor for the insulin pump manufacturer Tandem Corporation. Under the agreement, Rubin is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices.

In May 2016, we entered into a distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH, together referred to as Roche, pursuant to which we granted Roche the exclusive right to market, sell and distribute Eversense in Germany, Italy and the Netherlands. Under the agreement, Roche is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices. We began distributing Eversense through Roche in Germany in September 2016 and in Italy and the Netherlands. in the fourth quarter of 2016. In November 2016, we entered into an amendment to the distribution agreement with Roche granting Roche the exclusive right to market, sell and distribute Eversense in Europe, the Middle East and Africa, excluding Sweden, Norway, Denmark, Finland and Israel. In January 2019, we entered into an additional amendment to the distribution agreement with Roche ~~is a pioneer~~to extend the agreement through January 31, 2021. Pursuant to the amendment to the agreement, Roche has agreed to certain purchase levels of Eversense systems and pricing terms through the extended term of the agreement. In addition, under the amendment, Roche’s role as the exclusive distributor of Eversense was expanded to provide Roche with exclusive distribution rights in 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the

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~~development of blood glucose monitoring systems~~ Asia Pacific and ~~a global leader for diabetes management systems and services. We began distributing Eversense through Roche in Germany in September 2016 and in Italy and the Netherlands in the fourth quarter of 2016.~~Latin American regions. To date, we have begun distributing Eversense in an aggregate of 14 European countries and South Africa through Rubin and Roche.

In September 2017, we received the CE ~~Mark~~mark for Eversense XL, which is indicated for a sensor life of up to 180 days. Eversense XL began commercialization in Europe in the fourth quarter of 2017. ~~In February 2018 we received approval~~All such commercialization and marketing activities remain subject to ~~market Eversense NOW, which is an application designed to remotely monitor the Eversense users’ CGM data in real time.~~applicable government approvals.

United States Development and Commercialization of Eversense

In 2016, we completed our ~~Precise~~PRECISE II pivotal clinical trial in the United States. This trial, which was fully enrolled with 90 subjects, was conducted at eight sites in the United States. In the trial, we measured the accuracy of Eversense measurements through 90 days after insertion. We also assessed safety through 90 days after insertion or through sensor removal. In the trial, we observed a mean absolute relative difference, or MARD, of 8.5% utilizing two calibration points for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period. ~~We also observed a MARD of 9.5% utilizing one calibration point for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period.~~ Based on the data from this trial, in October 2016 we submitted a pre-market approval, or PMA, application to the FDA to market Eversense in the United States for 90-day use. On March 29, 2018, we had a meeting with the FDA Clinical Chemistry and Clinical Toxicology Devices Panel, during which the panel voted that the Eversense benefits outweighed the risks by a count of 8 to 0. The panel also voted 8 to 0 in favor of the safety and 8 to 0 in favor of the efficacy of Eversense. On June 21, 2018, we received PMA approval from the FDA for the Eversense ~~System.~~system. In July 2018, we began distributing the Eversense ~~System~~ system

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directly in the United States through our own direct sales and marketing ~~organization and a network of strategic fulfillment partners.~~organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor. We intend to pursue a Category I CPT ~~code in the future.~~code.

~~Pediatric Development~~

~~On June 22,~~In December 2018, ~~third party researchers presented data from a~~we initiated the PROMISE pivotal clinical trial ~~evaluating~~to evaluate the ~~performance~~safety and accuracy of Eversense XL for a period of up to 180 days in ~~pediatrics aged 12 and over and adults with diabetes at~~ the ~~American Diabetes Association's 78th Scientific Sessions. In this prospective, unblinded, single-arm, single-center trial conducted by LMC Diabetes & Endocrinology in Canada,~~United States. As described above during the quarter ended September 30, ~~children and six adults with diabetes were evaluated on the accuracy and safety~~2019, we completed enrollment of the ~~Eversense XL CGM System through~~PROMISE trial. We expect to report topline data from the ~~180-day~~PROMISE trial ~~duration. When referenced against a lab analyzer,~~in the ~~findings demonstrated~~first half of 2020. If the ~~accuracy of Eversense XL (MARD of 9.4%, 15/15% metric of 83%, and 99.6% of consensus error grid~~data from the PROMISE trial are positive, we intend to use the data in ~~zones A and B). Trial participants~~a regulatory submission to the FDA to expand the Eversense system use to 180 days in the United States. We also ~~generally expressed an overall favorable rating~~intend to use data from the first 90 days of the ~~system. No serious adverse events related~~PROMISE trial, if positive, to support a supplemental submission to the ~~insertion/removal of~~FDA for an integrated, or iCGM, designation for our current Eversense 90-day system, which the ~~sensor or device were reported. We believe the observations from this study~~FDA could potentially ~~help inform~~approve in the ~~design~~first half of ~~our future pediatric clinical trials.~~2020.

In March 2019, we launched a patient access program, the Eversense Bridge Program, to assist those patients who do not have insurance coverage for Eversense, or whose insurance is denied or insufficient. Pursuant to this program, we are providing financial assistance to eligible patients purchasing Eversense to enable more patients to access the Eversense system. The amount of assistance that we provide depends on a patient’s insurance coverage. The program establishes maximum limits per patient and excludes certain patients as ineligible, including government-insured patients and residents of certain states. We continue to experience increasing interest and activity across patients and providers. The program provides opportunities to engage both regional and national payors, which we expect will lead to additional positive payor coverage decisions for the Eversense system.

In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system. With this approval, the Eversense system can now be used as a therapeutic CGM to replace fingerstick blood glucose measurement for dosing decisions. We plan to roll out a new Eversense application with this expanded indication in the United States in the fourth quarter of 2019.

We have never been profitable and our net losses were ~~$31.9~~$19.5 million and ~~$17.4~~$31.8 million for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$86.7~~$79.9 million and ~~$42.8~~$86.7 million for the nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively. As of September 30, ~~2018,~~2019, our accumulated deficit totaled ~~$350.5~~$437.7 million, primarily as a result of expenses incurred in connection with our research and development programs and ~~from general and administrative expenses~~manufacturing costs associated with ~~our operations.~~developing the Eversense system. We expect to continue to incur ~~significant expenses and increasing operations and~~ net losses for the foreseeable future.

We have incurred and expect to continue to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. In addition, we expect that our expenses will increase substantially as we continue the research and development of our other products and maintain, expand and protect our intellectual property portfolio and seek regulatory approvals in other jurisdictions. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will need to obtain ~~substantial~~ additional funding in connection with our continuing operations through debt financings, public or private equity ~~or debt financings~~ or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a ~~material and adverse~~negative impact

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on our financial condition and our ability to successfully commercialize Eversense and develop and commercialize ~~Eversense and~~ future products and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.

Financial Overview

Revenue

~~During~~Revenue from product sales is recognized when the ~~three~~customers obtain control of our product, which occurs at a point in time, based upon the delivery terms as defined in the contract. We are typically paid within 60 days of invoicing subsequent to the customers obtaining control of our product.

Product sales are recorded net of estimated costs for patient access and ~~nine months ended September 30, 2018,~~sales incentive programs. In March 2019, we ~~generated product revenue from sales of~~introduced the Eversense and Eversense XL system in Europe pursuant to distribution agreements with Roche and Rubin, and we expect to begin marketing Eversense and Eversense XL in additional countries in 2019. In July 2018, we began distributing the Eversense System directlyBridge Program in the United ~~States through~~States. Under the Eversense Bridge Program, we provide financial assistance, in the form of reimbursement, to eligible patients based on their insurance coverage. Reimbursement payments to the patient under the Eversense Bridge Program are treated as a reduction of revenue in the period in which the corresponding gross revenue is recognized. Estimated reimbursement payments for product shipped to our ~~own direct sales~~customers but not provided to a patient within the same reporting period is based on historical experience and ~~marketing organization~~

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recorded within accrued expenses and ~~a network~~other current liabilities in the accompanying consolidated balance sheets. Because of ~~strategic fulfillment partners.~~the limited experience with the program as of September 30, 2019, our estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material. We ~~expect~~also, at our discretion, offer discounts and other allowances under defined promotional or prompt pay programs to our customers which result in the establishment of reserves against product revenue, ~~from product sales will increase as we ramp up our commercialization efforts through the remainder of 2018 and into 2019. If we fail~~however, to successfully commercialize Eversense or if we are unable to successfully complete the development of future generations of Eversense, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.date these amounts have been immaterial

Cost of Sales

We ~~utilize~~use third-party contract manufacturers to ~~produce the~~manufacture Eversense ~~system.~~and related components and supplies. Cost of sales consists primarily of ~~the components of the Eversense system and assembly, as well as reserves for~~raw materials, contract manufacturing service fees, expected warranty ~~costs. Other cost of sales includes distribution-related expenses such as logistics~~costs, recall costs, product obsolescence, scrap, warehousing indirect personnel costs and shipping ~~costs of Eversense to Roche~~ and Rubin for distribution in various regions in Europe, the Middle East and Africa. We calculate gross margin as revenue less costs of sales divided by revenue. We expect our overall gross margin to improve over the long term, as our sales increase and we have more opportunities to spread our costs over larger production volumes. However, our gross margins may fluctuate from period to period.handling expenses associated with product delivery.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, commissions, and other related costs, including ~~stock‑based~~stock-based compensation, for personnel who perform sales, marketing, and ~~marketing~~customer support functions. Other significant costs include marketing programs, website design and advertising, educational and promotional materials, consultants, and tradeshow expenses.

~~We anticipate that our sales and marketing expenses will increase in the future as we continue to expand our commercialization of Eversense.~~

Research and Development Expenses

Research and development expenses consist of expenses incurred in performing research and development activities in developing ~~the~~ Eversense, ~~system,~~ including ~~our~~ clinical trials and feasibility ~~studies.~~studies, and partnerships for strategic initiatives including insulin delivery and new indications. Research and development expenses include compensation and benefits for research and development employees including ~~stock‑based~~stock-based compensation, ~~overhead expenses,~~ cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to contract research organizations and other consultants, and other outside expenses. Research and development ~~costs~~expenses are expensed as incurred.

We have incurred significant research and development expenses from inception, with the substantial majority of the expenses spent on the development of Eversense. We expect to continue to commit significant resources to continue to develop Eversense and future product enhancements and to conduct ongoing and future clinical trials. We expect that our overall research and development expenses will continue to increase in absolute dollars, but to decline as a percentage of total expenses as we expand the commercialization of Eversense.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including ~~stock‑based~~stock-based compensation, for personnel in our executive, finance, accounting, business development, information technology, and human resources functions. Other significant costs include information technology, facility costs, ~~not otherwise included in research and development expenses,~~ legal fees relating to patent and corporate matters and fees for accounting and consulting services.

Other Income (Expense), Net

Interest income consists of interest earned on our cash equivalents. Interest expense primarily consists of interest expense on our notes payable and amortization of associated debt issuance costs and debt discounts. Our embedded derivate instruments associated with the 2025 Notes and 2023 Notes (as defined below) are remeasured at the end of each reporting period and the changes in fair value are reported in other income (expense) in our consolidated statements of operations and comprehensive loss.

Recent Accounting Pronouncements Not Yet Adopted

See “Note 3―Summary of Significant Accounting Policies” included in our Notes to Consolidated Financial Statements (under the caption “Recent Accounting Pronouncements”).

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Our general and administrative expenses have increased, and we expect them to continue to increase in the future, as a result of operating as a public company. These increases include increased costs related to the hiring of additional personnel and increased fees to outside consultants, lawyers and accountants as well as expenses related to maintaining compliance with NYSE American listing rules and SEC requirements, insurance, and investor relations costs. These expenses may further increase when we no longer qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, which will require us to comply with certain reporting requirements from which we are currently exempt.

~~Other Income (Expense), Net~~

Other income (expense) primarily consists of the change in the fair value of the 2023 derivative, which represents the value of the embedded conversion option within our convertible senior subordinated notes due 2023. This financial instrument is remeasured at the end of each reporting period with changes in fair value recorded in other income (expense). Interest income consists of interest earned on our cash equivalents and interest expense primarily consists of the interest expense on the secured notes, or the Notes, we issued to Oxford Finance LLC, or Oxford, in connection with our original Loan and Security Agreement in July and December 2014 and the Notes we issued to Oxford and Silicon Valley Bank, or SVB, in connection with our Amended and Restated Loan and Security Agreement in June 2016, November 2016 and March 2017. We refer to Oxford and SVB together as the Lenders. This interest expense primarily consists of (i) contractual interest on the Notes, (ii) amortization of debt discount related to warrants, or the warrants, that we issued to the Lenders in connection with the Notes, and (iii) the accrual into interest expense of a final payment obligation that we are required to pay to the Lenders at maturity of the Notes.

Results of Operations

Comparison of the three months ended September 30, ~~2018~~2019 and ~~2017~~2018

The following table sets forth our results of operations for the three months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands).:


	Three Months Ended						Three Months Ended
	September 30,				Period-to-		September 30,				Period-to-
	2018		2017		Period Change		2019		2018		Period Change
	(in thousands)						(unaudited)
Revenue, primarily from a related party	$	5,158	$	2,097	$	3,061
Revenue, net							$	959	$	837	$	122
Revenue, net - related parties								3,360		4,321		(961)
Total revenue								4,319		5,158		(839)
Cost of sales		7,742		2,957		4,785		7,659		7,742		(83)
Gross profit		(2,584)		(860)		(1,724)		(3,340)		(2,584)		(756)

Expenses:
Sales and marketing expenses		7,851		2,089		5,762		11,560		7,851		3,709
Research and development expenses		7,402		9,765		(2,363)		11,076		7,402		3,674
General and administrative expenses		5,138		3,891		1,247		5,388		5,138		250
Operating loss		(22,975)		(16,605)		(6,370)		(31,364)		(22,975)		(8,389)
Other income (expense), net:
Interest income		820		129		691		519		820		(301)
Loss on extinguishment of debt								(398)		—		(398)
Interest expense		(2,170)		(915)		(1,255)		(3,460)		(2,170)		(1,290)
Change in fair value of 2023 derivative		(7,513)		—		(7,513)
Other (expense) income		(43)		12		(55)
Total other expense, net		(8,906)		(774)		(8,132)
Debt issuance costs								(3,344)		—		(3,344)
Change in fair value of derivative liabilities								19,186		(7,513)		26,699
Other income (expense)								(638)		(43)		(595)
Total other income (expense), net								11,865		(8,906)		20,771
Net loss	$	(31,881)	$	(17,379)	$	(14,502)	$	(19,499)	$	(31,881)	$	12,382

Revenue, net

Our net revenue ~~increased~~decreased $0.8 million to $4.3 million for the three months ended September 30, 2019, compared to $5.2 million for the three months ended September 30, ~~2018, compared~~2018. Although sales volumes increased year-over-year as a result of increased U.S. commercialization of Eversense, this growth did not translate into a net revenue increase due to ~~$2.1 million~~gross to net reductions to revenue for the ~~three months ended September 30, 2017. This~~Eversense Bridge Program, which began in the first quarter of 2019. We expect that our revenue from global net product sales will increase ~~was due to increased demand~~in the remainder of ~~Eversense from~~

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~~Rubin~~2019 and ~~Roche for distribution in Europe during the three months ended September 30, 2018,~~future years as ~~well as from U.S. revenue that~~ we ~~recognized during the three months ended September 30, 2018.~~continue our commercialization efforts.

Cost of sales

Our cost of sales ~~increased to~~remained consistent at $7.7 million for the three months ended September 30, ~~2018, compared to $3.0~~2019 and the three months ended September 30, 2018.

Gross profit was $(3.3) million and $(2.6) million for the three months ended September 30, ~~2017. This increase~~2019 and 2018, respectively. The decrease was primarily due to ~~increased sales of~~the Eversense Bridge Program gross to Roche and Rubin for distribution in Europe, product manufacturing capacity expansion initiatives, and product engineering changes during the three months ended September 30, 2018, as well as costs related to U.S. sales of Eversense.

~~Our gross profit was $(2.6) million and $(0.9) million for the three months ended September 30, 2018 and 2017, respectively.~~net reductions.. Gross profit as a percentage of revenue, or gross margin, was ~~(50)~~(77)% and ~~(41)~~(50)% infor the three months ended September 30, 2019 and 2018, respectively. We expect overall gross margin to improve over the long term, as our sales increase, we continue to improve yields, and ~~2017, respectively.~~we have more opportunities to leverage our costs over larger production volumes.

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Sales and marketing expenses

Sales and marketing expenses were $11.6 million for the three months ended September 30, 2019, compared to $7.9 million for the three months ended September 30, 2018, ~~compared to $2.1 million for the three months ended September 30, 2017,~~ an increase of ~~$5.8~~$3.7 million. The increase was primarily due to a ~~$3.3~~$3.0 million increase ~~in salaries, bonuses~~related to the buildout of the U.S. sales force and ~~payroll related costs for additional headcount, an~~a $0.7 million increase ~~in market research and marketing costs of $1.0 million in connection~~associated with commercialization activities to support the U.S. launch of ~~Eversense, and an increase of $1.5 million in other~~Eversense. We anticipate that our sales and ~~general~~ marketing expenses ~~to support~~will decrease in the next year as a result of the implementation of the Restructuring, which we expect will align our ~~European distribution of Eversense as well as in connection~~efforts with ~~our U.S. launch of Eversense.~~anticipated sales and market opportunities.

Research and development expenses

Research and development expenses were $11.1 million for the three months ended September 30, 2019, compared to $7.4 million for the three months ended September 30, 2018, ~~compared to $9.8 million for the three months ended September 30, 2017, a decrease~~an increase of ~~$2.4~~$3.7 million. The ~~decrease~~increase was primarily due to a ~~$1.3~~$3.4 million ~~decrease~~increase in expenses related to clinical ~~trial expenses~~studies, and a $0.3 million increase for salaries and personnel related costs. We expect to decrease ~~of $1.5 million for~~our overall research and development expenses ~~related~~in the next year as the PROMISE trial concludes and we seek U.S. regulatory approval to market the ~~development of future generations of Eversense, partially offset by an increase of $0.4 million in salaries, bonuses and payroll related costs for additional headcount.~~180-day product.

General and administrative expenses

General and administrative expenses ~~were~~increased $0.3 million to $5.4 million for the three months ended September 30, 2019, compared to $5.1 million for the three months ended September 30, ~~2018, compared~~2018. The increase was primarily due to ~~$3.9~~increases in software licenses and information technology service fees of $0.2 million and legal fees of $0.1 million. We expect general and administrative expenses to decrease in the next year as we implement the Restructuring.

Total other income (expense), net

Total other income, net, was $11.9 million for the three months ended September 30, ~~2017, an increase of $1.2 million. The increase was primarily due~~2019, compared to ~~a $0.2 million increase in salaries, bonuses and payroll related costs for additional headcount, and an increase of $1.0 million in other general and administrative costs to support our operations.~~

~~Total~~total other expense, net

~~Total other expense, net, was~~ of $8.9 million for the three months ended September 30, 2018, ~~compared~~an increase of $20.8 million. This increase was primarily due to ~~$0.8~~a ($19.2) million decrease in the fair value of the derivative liabilities for the three months ended September 30, ~~2017, an increase of $8.1 million. The increase was primarily due~~2019, compared to a $7.5 million ~~change~~increase in ~~fair value~~the 2018 period. This increase was partially offset by $3.3 million of fees recognized in connection with the modification of the ~~derivative liability, an increase of~~2023 Notes, and a $1.3 million increase in interest expense ~~on our Term Loans and 2023 Notes, described below in “Liquidity and Capital Resources,” partially offset by $0.7 million in interest income earned on marketable securities.~~for the three months ended September 30, 2019.

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Comparison of the nine months ended September30, ~~2018~~2019 and ~~2017~~2018

The following table sets forth our results of operations for the nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands).


	Nine Months Ended						Nine Months Ended
	September 30,				Period-to-		September 30,				Period-to-
	2018		2017		Period Change		2019		2018		Period Change
	(unaudited)						(in thousands)
Revenue, primarily from a related party	$	11,728	$	3,464	$	8,264
Revenue, net							$	3,678	$	1,768	$	1,910
Revenue, net - related parties								8,671		9,960		(1,289)
Total revenue								12,349		11,728		621
Cost of sales		14,889		5,716		9,173		23,552		14,889		8,663
Gross profit		(3,161)		(2,252)		(909)		(11,203)		(3,161)		(8,042)

Expenses:
Sales and marketing expenses		17,469		4,478		12,991		38,573		17,469		21,104
Research and development expenses		23,805		22,368		1,437		28,688		23,805		4,883
General and administrative expenses		14,531		11,545		2,986		17,321		14,531		2,790
Operating loss		(58,966)		(40,643)		(18,323)		(95,785)		(58,966)		(36,819)
Other income (expense), net:
Interest income		1,245		187		1,058		1,556		1,245		311
Loss on extinguishment of debt								(398)		—		(398)
Interest expense		(6,177)		(2,365)		(3,812)		(7,459)		(6,177)		(1,282)
Change in fair value of 2023 derivative		(22,526)		—		(22,526)
Other expense		(226)		(5)		(221)
Total other expense, net		(27,684)		(2,183)		(25,501)
Debt issuance costs								(3,344)		—		(3,344)
Change in fair value of derivative liabilities								26,147		(22,526)		48,673
Other income (expense)								(655)		(226)		(429)
Total other income (expense), net								15,847		(27,684)		43,531

Net loss	$	(86,650)	$	(42,826)	$	(43,824)	$	(79,938)	$	(86,650)	$	6,712

Revenue, net

Our net revenue increased $0.6 million to $12.3 million for the nine months ended September 30, 2019, compared to $11.7 million for the nine months ended September 30, ~~2018, compared~~2018. This increase was primarily due to ~~$3.5 million for~~increased revenue from sales of Eversense in the United States in the nine months ended September 30, ~~2017. This increase was due to increased demand of Eversense from Rubin and Roche for distribution~~2019 following our U.S. launch in ~~Europe during the nine months ended September 30, 2018, as well as from U.S. revenue that we recognized during the nine months ended September 30,~~July 2018.

Cost of sales

Our cost of sales increased $8.7 million to $23.6 million for the nine months ended September 30, 2019, compared to $14.9 million for the nine months ended September 30, ~~2018, compared~~2018. The increase was primarily due to ~~$5.7~~an increase of $3.4 million for impairment charges for obsolete inventory, including product design changes, an increase of $2.1 million in warranty expense and obligations as a result of the January 2019 amendment of the Roche distribution agreement, and increased volumes shipped to customers, $1.1 million for scrap charges related to product non-conformity at our contract manufacturers, an increase of $1.7 million for salaries and personnel costs associated with manufacturing and supply chain, and an increase of $0.3 million for lab supplies.

Our gross profit was $(11.2) million and $(3.2) million for the nine months ended September 30, ~~2017. This increase~~2019 and 2018, respectively. The decrease was ~~due to increased sales of Eversense to Roche and Rubin for distribution in Europe during the nine months ended September 30, 2018, as well as costs~~primarily related to ~~U.S. sales of Eversense.~~

~~Our~~the Eversense Bridge Program gross ~~profit was $(3.2) million~~to net reductions, impairment charges for obsolete inventory, and ~~$(2.3) million for the nine months ended September 30, 2018 and 2017, respectively.~~scrap charges. Gross profit as a percentage of revenue, or gross margin, was ~~(27)~~(91)% and ~~(65)~~(27)% in the nine months ended September 30, ~~2018~~2019 and ~~2017, respectively.~~2018.

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Sales and marketing expenses

Sales and marketing expenses were $38.6 million for the nine months ended September 30, 2019, compared to $17.5 million for the nine months ended September 30, 2018, ~~compared to $4.5 million for the nine months ended September 30, 2017,~~ an increase of ~~$13.0~~$21.1 million. The $21.1 million increase was primarily due to a ~~$7.1~~$11.9 million increase in salaries ~~bonuses~~ and payroll related costs for additional headcount, an increase of $4.7 million in ~~market research~~selling related costs including marketing programs and ~~marketing costs~~materials, customer support, travel and trade shows, and an increase of ~~$3.7~~$4.4 million in consulting fees in connection with the U.S. launch and commercialization of Eversense ~~and an increase of $2.2 million in other sales and general marketing expenses to support our European distribution of Eversense as well as in connection with our U.S. launch of Eversense.~~

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Research and development expenses

Research and development expenses were $28.7 million for the nine months ended September 30, 2019, compared to $23.8 million for the nine months ended September 30, 2018, ~~compared to $22.4 million for the nine months ended September 30, 2017,~~ an increase of ~~$1.4~~$4.9 million. The increase of $4.9 million was primarily due to ~~a $2.1 million increase in salaries, bonuses and payroll related costs for additional headcount and~~ an increase of ~~$0.4~~$6.3 million ~~for research and development~~in expenses related to ~~the development of future generations of Eversense,~~clinical studies, partially offset by a ~~decrease~~decline of $1.5 million in ~~clinical trial~~ expenses ~~of $1.1 million.~~related to product development efforts at our contract manufacturers.

General and administrative expenses

General and administrative expenses were $17.3 million for the nine months ended September 30, 2019, compared to $14.5 million for the nine months ended September 30, 2018, ~~compared~~an increase of $2.8 million. The increase was primarily due to ~~$11.5~~a $1.1 million increase in salaries and personnel related costs for additional headcount, a $1.0 million increase for occupancy, insurance, consulting fees, and legal fees, and a $0.7 million increase in software and information technology services costs.

Total other income (expense), net

Total other income, net, was $15.8 million for the nine months ended September 30, ~~2017, an increase of $3.0 million. The increase was primarily due~~2019, compared to ~~a $1.4 million increase in salaries, bonuses and payroll related costs for additional headcount, and an increase of $1.6 million in other general and administrative costs to support our operations.~~

~~Total~~total other expense, net

~~Total other expense, net, was~~ of $27.7 million for the nine months ended September 30, 2018, ~~compared to $2.2~~an increase of $43.5 million. The change in the fair value of the derivative liabilities of $48.7 million for the nine months ended September 30, ~~2017, an increase of $25.5 million. The increase was primarily due~~2019 compared to ~~a $22.5 million~~the nine months ended September 30, 2018 included the change in the fair value of the ~~derivative liability, an~~embedded features on the 2025 Notes and 2023 Notes. This increase was partially offset by $3.3 million of ~~$3.8~~fees recognized in connection with the modification of the 2023 Notes, and a $1.3 million increase in interest expense, ~~on our Term Loans and 2023 Notes, and an increase of $0.3 million in other expense, partially offset by $1.1 million in interest income earned on marketable securities.~~for the nine months ended September 30, 2019.

Liquidity and Capital Resources

Sources of Liquidity

WeTo date, we have incurred substantial losses and cumulative negative cash flows from operations since our inception in October 1996. We have never been profitable and our net losses were ~~$31.9~~$79.9 million and ~~$17.4 million for the three months ended September 30, 2018 and 2017, respectively, and~~ $86.7 ~~million and $42.8~~ million for the nine months ended September 30, 2019 and 2018, ~~and 2017,~~ respectively. As of September 30, 2019, our accumulated deficit totaled $437.7 million.

To date, we have funded our operations principally through the issuance of preferred stock, common stock and debt. As of September 30, ~~2018,~~2019, we had cash and cash equivalents of $130.6 million.

In July 2019, we entered into a Loan and ~~marketable securities~~Security Agreement, or the Solar Loan Agreement, with Solar Capital, Ltd. a Maryland corporation, or Solar, pursuant to which we borrowed an aggregate principal amount of ~~$163.0 million. Under~~$45.0 million, or the Solar Term Loan of which we used $11.6 million of net proceeds to repay in full our existing term loan with Oxford Finance LLC, or Oxford, and Silicon Valley Bank, or SVB, and terminate our Amended and Restated Loan and Security Agreement with Oxford and SVB. Net proceeds from the ~~Lenders, we have borrowed an aggregate principal amount~~Solar Term Loan, after the deduction of ~~$25.0~~debt discounts and issuance costs were $34.5 million.

In ~~January 2018,~~July 2019, we issued ~~$50.0~~$82.0 million in aggregate principal amount of our 5.25% Convertible Senior Notes due

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2025, or the 2025 Notes, to Jefferies LLC as the initial purchaser, who subsequently resold the 2025 Notes to qualified institutional buyers in reliance on the exemption from registration provided by Rule 144A under the Securities Act of 1933, as amended. We used $37.9 million of the net proceeds from the offering of the 2025 Notes to repurchase $37.0 million aggregate principal amount our outstanding 5.25% convertible senior subordinated notes due 2023, or the 2023 Notes, ~~and in February 2018, we issued an additional $3.0 million in aggregate~~at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon. Net proceeds from the offering of the 2025 Notes, after the deduction of debt issuance costs, lender fees, and the repurchase of the 2023 ~~Notes.~~Notes were $40.7 million.

~~On March 30, 2018, we entered into~~In July 2019, pursuant to an ~~at-the-market sales~~underwriting agreement with ~~Cowen and Company~~Jefferies LLC, or Cowen, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen acting as our sales agent. As of the date of this report, we have not sold any shares of our common stock under the at-the-market facility.

~~On June 28, 2018,~~ we closed ~~our June 2018 Offering~~a follow-on public offering of ~~38,076,561~~26,136,363 shares of our common stock at a price of $1.10 per share, which included the exercise in full by Jefferies LLC of its option to purchase up to 3,409,090 additional shares. We received net proceeds of $26.8 million from the offering, after deducting underwriting discounts and offering expenses.

On June 28, 2018, pursuant to an underwriting agreement with BTIG, LLC, we closed public offering of 38,076,561 shares of our common stock, including BTIG, LLC’s exercise in full of its option to purchase additional shares, at a price of $3.93 per ~~share.~~share, or the June 2018 Offering. We received aggregate net proceeds of $149.0 million from the June 2018 ~~Offering of $149.0 million.~~Offering.

Our ability to generate revenue and achieve profitability depends on our completion of the development of Eversense and future product candidates and obtaining and maintaining the necessary regulatory approvals for the manufacture, marketing and sales of those products. These activities, including our planned significant research and development efforts, will require significant uses of working capital through ~~2018~~2020 and beyond.

We expect our existing cash and cash equivalents, ~~and marketable securities as of September 30, 2018~~ will ~~enable us~~be sufficient to fund our operations ~~into~~through the end of 2020. We have based this estimate on assumptions that may prove to be ~~wrong,~~incorrect, and we

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could use our capital resources sooner than we currently expect. Additionally, the process of clinical and regulatory development of medical devices is costly, and the timing of progress of these efforts is uncertain.

We anticipate that we will continue to incur losses for the foreseeable future. ~~We expect that our research and development expenses and administrative expenses will continue to increase and, as~~As a result, we ~~will need~~anticipate needing additional capital to fund our operations. Until such time, if ever, as we can generate substantial revenue and cash flow from operations, we expect to finance our cash needs through a combination of debt financings, equity offerings, ~~which may include additional follow-on offerings or through our at-the-market facility, debt financings~~ and revenue from potential research and development and other collaboration agreements. To the extent that we raise additional capital through debt or the future sale of equity, ~~or debt,~~ the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant licenses to develop and market products that we would otherwise prefer to develop and market ourselves.

Indebtedness

Term Loans

On June 30, 2016, we entered into an Amended and Restated Loan and Security Agreement with ~~the Lenders.~~Oxford and SVB. Pursuant to the Amended and Restated Loan and Security Agreement, we ~~have~~ borrowed an aggregate principal amount of $25.0 ~~million in the following three tranches: $15.0 million, or the Tranche 1 Term Loan; $5.0 million, or the Tranche 2 Term Loan; and $5.0 million, or the Tranche 3 Term Loan.~~million. We refer to ~~each~~these borrowings as the Oxford/SVB Term Loans. In July 2019, we used $11.6 million of the ~~tranches as a~~Solar Term Loan and collectively, the Term Loans. The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, we issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million, or the Notes, on June 30, 2016. We used approximately $11.0 million from the proceeds from the Notes to repay in full the ~~outstanding balance under~~Oxford/SVB Term Loans and terminate our ~~previously existing~~Amended and Restated Loan and Security Agreement with Oxford dated as of July 31, 2014, including the applicable final payment fee due thereunder of $1 million. On November 22, 2016, the funding conditions for the Tranche 2 Term Loan were satisfied; therefore, we issued secured notes to the Lenders for aggregate gross proceeds of $5.0 million. On March 29, 2017, the funding conditions for the Tranche 3 Term Loan were satisfied; therefore, we issued secured notes to the Lenders for aggregate gross proceeds of $5.0 million. The maturity date for all Term Loans is June 1, 2020, or the Maturity Date.and SVB.

The Oxford/SVB Term Loans ~~bear~~bore interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consisted of interest-only through December 31, 2017. In January 2018, we began to make monthly principal ~~payments that will continue until~~payments.

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In connection with the Solar Term Loan Agreement described below, we elected to prepay all Oxford/SVB Term Loans prior to the Maturity Date subject to a prepayment fee equal to 1.00%.

Pursuant to the Amended and Restated Loan and Security Agreement, we also issued to Oxford and SVB10-year stock purchase warrants to purchase an aggregate of 116,581, 63,025 and 80,645 shares of common stock with exercise prices of $3.86, $2.38, and $1.86 per share, respectively.

We incurred issuance costs related to the Oxford/SVB Term Loans of approximately $0.6 million that were being amortized as additional interest expense over the term of the Oxford/SVB Term Loans using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a discount to the Oxford/SVB Term Loans and was also being amortized as additional interest expense over the term of the Oxford/SVB Terms Loans. The remaining unamortized interest expense was written off upon the repayment of the Oxford/SVB Term Loans in July 2019.

We were also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Oxford/SVB Term Loans. This fee was accrued as additional interest expense over the term of the Oxford/SVB Term Loans and the remainder was recognized as additional interest expense upon the repayment of the Oxford/SVB Term Loans in July 2019.

On July 16, 2019, we entered into the Solar Loan Agreement with the Lenders. Pursuant to the Solar Loan Agreement, on July 25, 2019, we borrowed the Solar Term Loan in an aggregate principal amount of $45.0 million. We used $11.6 million of the Solar Term Loan to repay in full the Oxford/SVB Term Loans and terminate our Amended and Restated Loan and Security Agreement with Oxford and SVB.

Interest on the Solar Term Loan will be payable monthly at a floating annual rate of 6.50% plus the greater of (i) the rate per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd. and (ii) 2.48%, provided that the minimum floor interest rate is 8.98%. The maturity date for the Solar Term Loan will be July 1, 2024, or the Solar Maturity Date. Commencing on August 1, 2021, we will be required to make monthly principal amortization payments; provided that the interest only period may be extended to (i) August 1, 2022 if our product revenue is greater than or equal to $40.0 million on a trailing six-month basis prior to the second anniversary of the effective date and (ii) August 1, 2023 if our product revenue is greater than or equal to $75.0 million on a trailing six-month basis after the achievement of the first extension.

We may elect to prepay ~~all~~the Solar Term ~~Loans~~Loan prior to the Solar Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the ~~funding~~effective date, ~~of any Term Loan,~~ 2.00% if the prepayment occurs during the second year following the ~~funding~~effective date, ~~of any Term Loan,~~ and 1.00% if the prepayment occurs more than two years after the ~~funding~~effective date ~~of any Term Loan~~ and prior to the Solar Maturity Date. ~~As of September 30, 2018, the outstanding balance of the Term Loans was $17.5 million.~~

The ~~Amended and Restated~~Solar Loan ~~and Security~~ Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by us, the rendering of certain types of judgments against us, the revocation of certain ~~of our~~ government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect. Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by us would begin to bear interest at a rate that is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by ~~Lenders.~~

~~Pursuant to~~ the Amended and Restated Loan and Security Agreement, we also issued to the Lenders 10‑year stock purchase warrants to purchase an aggregate of 260,251 shares of common stock with an exercise price ranging from $1.86 to $3.86 per share.

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The Solar Term ~~Loans are collateralized~~Loan is secured by substantially all of our ~~consolidated~~ assets. The ~~Term Loans~~Solar Loan Agreement also ~~contain~~contains specified financial covenants related to our liquidity and trailing six-month revenues.

The Solar Loan Agreement also contains certain restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. ~~We incurred issuance costs related to the Term Loans~~

Table of approximately $0.6 million that are being amortized as additional interest expense over the term of the Term Loans using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a discount to the Term Loans, which is also being amortized as additional interest expense over the term of the Term Loans using the effective interest method.Contents

At maturity (or earlier prepayment), we are also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans, or $2.3 million. This fee is being accrued as additional interest expense over the term of theConvertible Notes ~~using the effective interest method.~~

In January 2018, we issued $50.0 million in aggregate principal amount of 2023 Notes, and in February 2018, we issued an additional $3.0 million in aggregate principal amount of 2023 Notes. The 2023 Notes are general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. The 2023 Notes will mature on February 1, 2023, unless earlier repurchased or converted. Payment of the principal of, and accrued and unpaid interest, if any, on the maturity date, and the fundamental change repurchase price of (excluding cash payable in lieu of delivering fractional shares of our common stock), the 2023 Notes is subordinated to the prior payment in full in cash or other payment satisfactory to the holders of senior debt, of all existing and future senior debt, which includes our indebtedness under the Amended and Restated Loan and Security Agreement with ~~the Lenders~~Oxford and SVB and any refinancing thereof.

The 2023 Notes are convertible into shares of our common stock at the option of the holders at any time prior to the close of business on the business day immediately preceding the maturity date. The conversion rate is initially 294.1176 shares of common stock per $1,000 principal amount of 2023 Notes (equivalent to an initial conversion price of approximately $3.40 per share of common stock), subject to customary adjustments. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of our common stock. In addition, following certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2023 Notes in connection with such a corporate event.

~~In the second quarter of 2018, we issued 73,529 shares of common stock upon the conversion of $250,000 in aggregate principal amount of the 2023 Notes.~~ As of September 30, ~~2018,~~2019, the aggregate outstanding principal amount of the 2023 Notes was ~~$52.7~~$15.7 million.

In July 2019, we issued $82.0 million in aggregate principal amount of 2025 Notes. The 2025 Notes are general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2025 Notes will mature on January 15, 2025, unless earlier repurchased or converted.

We used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.

The 2025 Notes are convertible, at the option of the holders, into shares of our common stock, at an initial conversion rate of 757.5758 shares per $1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $1.32 per share).

We may redeem for cash all or part of the 2025 Notes, at our option, if (1) the last reported sale price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption and (2) a registration statement covering the resale of the shares of our common stock issuable upon conversion of the 2025 Notes is effective and available for use and is expected to remain effective and available for use during the redemption period as of the date of the redemption notice date. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

If we undergo a fundamental change, such as a merger, sale, greater than 50% ownership change, liquidation, dissolution, or delisting, holders may require us to repurchase for cash all or any portion of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such notice of redemption or

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corporate event. In certain circumstances, we will be required to pay cash in lieu of delivering make whole shares unless we obtain stockholder approval to issue shares.

Cash Flows

The following is a summary of cash flows for each of the periods set forth below (in thousands).

Nine Months Ended

September 30,

2018

2017

(unaudited)

Net cash used in operating activities

$
(67,097)

$
(39,450)

Net cash provided by (used in) investing activities

13,732

(15,864)

Net cash provided by financing activities

194,247

72,050

Net increase in cash and cash equivalents

$
140,882

$
16,736


	Nine Months Ended
	September 30,
	2019		2018
	(unaudited)
Net cash used in operating activities	$	(101,486)	$	(67,097)
Net cash (used in) provided by investing activities		(951)		13,732
Net cash (used in) provided by financing activities		96,224		194,247
Net (decrease) increase in cash and cash equivalents	$	(6,213)	$	140,882

Net cash used in operating activities

Net cash used in operating activities was $101.5 million for the nine months ended September 30, 2019, and consisted of a net loss of $79.9 million and a net change in non-cash items of $(10.1) million due to the change in the fair value of the derivatives on the 2025 Notes and 2023 Notes, offset by debt issuance fees associated with the modified convertible notes, and stock-based compensation costs, and changes related to operating assets and liabilities of $(11.4) million, mostly related to the build-up of inventory during the third quarter of 2019.

Net cash used in operating activities was $67.1 million for the nine months ended September 30, 2018, and consisted of a net loss of $86.7 million and a net change in operating assets and liabilities of $(10.2) million (consisting of a net increase in accounts receivable, prepaid expenses and other current assets, inventory, and deposits and other assets of $10.4 million, net of an increase in accounts payable, accrued expenses and other current liabilities, accrued

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interest, and deferred rent of $0.2 million), partially offset by stock-based compensation expense of ~~$4.7~~$7.0 million, an increase in the fair value of derivative liability of $22.5 million, ~~and~~non-cash interest expense of $1.5 million, non-cash interest expense of $2.4 million, and depreciation write-down of the carrying value of our inventory to net realizable value, and net realized gain on marketable securities of an aggregate amount of $0.2 million.

Net cash (used in) provided by investing activities

Net cash used in ~~operating~~investing activities was ~~$39.5~~$1.0 million for the nine months ended September 30, ~~2017,~~2019, and consisted primarily of ~~a net loss of $42.8 million~~capital expenditures for laboratory and a net decrease in operating assets and liabilities of $0.1 million (consisting of an increase in accounts payable, accrued expenses and interest of $5.6 million, net of an increase in accounts receivable, inventory, and prepaid expenses and other current assets of $5.5 million), partially offset by stock-based compensation expense of $2.7 million, and depreciation, non-cash interest expense, and write-down of the carrying value ofproduction equipment at our ~~inventory to net realizable value of an aggregate amount of $0.7 million.~~

~~Net cash provided by (used in) investing activities~~contract manufacturers.

Net cash provided by investing activities was $13.7 million for the nine months ended September 30, 2018 and consisted sales and maturities of marketable securities of $22.4 million, partially offset by purchases of marketable securities of $8.0 million, and capital expenditures of $0.7 million.

Net cash ~~used in investing~~(used in) provided by financing activities

Net cash provided by financing activities was ~~$15.9~~$96.2 million for the nine months ended September 30, ~~2017,~~2019, and consisted of ~~purchases~~net proceeds from the issuance of ~~marketable securities~~common stock of ~~$25.9~~$26.8 million, net proceeds of $77.7 million from the issuance of 2025 Notes, net proceeds from the Solar Term Loan of $43.0 million and ~~capital expenditures~~proceeds from stock option and warrant exercises of ~~$0.3~~$0.1 million, ~~partially~~ offset by ~~sales~~repurchases of $37.0 million of 2023 Notes and ~~maturities~~repayment in full of ~~marketable securities~~$15 million of ~~$10.3 million.~~

~~Net cash provided by financing activities~~the Term Loans.

Net cash provided by financing activities was $194.2 million for the nine months ended September 30, 2018, and consisted primarily of $149.0 million from the issuance of common stock in our June 2018 Offering, $50.7 million from the issuance of the 2023 Notes, and $2.0 million from the exercise of stock options, partially offset by aggregate principal payments on our Term Loans and capital lease obligations of $7.5 million.

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Net cash provided by financing activities was $72.1 million for the nine months ended September 30, 2017, and consisted primarily of the net proceeds received from our offerings of common stock in May 2017 and August 2017 of $66.9 million, notes payable and warrants of $5.0 million, and the exercise of stock options of $0.2 million.

Contractual Obligations

The following summarizes our contractual obligations as of September 30, ~~2018 (in thousands).~~2019. (1)


	Payment due by period										Payment due by period
			Remainder of						After				Remainder of						After
Contractual Obligations	Total		2018		2019-2020		2021-2022		2022		Total		2019		2020-2021		2022-2023		2023
Operating lease obligations	$	2,989	$	150	$	1,241	$	1,316	$	282	$	3,715	$	206	$	1,907	$	1,602	$	-
Payments under corporate development agreement(1)		277		—		277		—		—
Principal payments under Notes(2)		17,500		2,500		15,000		—		—
Interest payments under Notes(2)		3,667		371		3,296		—		—
Principal payments under 2023 Notes(3)		52,700		—		—		—		52,700
Principal payments under Solar Term Loan												45,000		-		6,250		30,000		8,750
Interest payments under Solar Term Loan												13,835		1,021		8,111		4,437		266
Solar note Final fee payment												2,903		-		-		-		2,903
Principal payment under 2023 Notes												15,700		-		-		15,700		-
Interest payments under 2023 Notes~~(3)~~		12,451		—		5,534		5,534		1,383		2,885		-		1,649		1,236		-
Principal payment under 2025 Notes												82,000		-		-		-		82,000
Interest payments under 2025 Notes												24,036		-		8,734		8,744		6,558
Total contractual obligations	$	89,584	$	3,021	$	25,348	$	6,850	$	54,365	$	190,074	$	1,227	$	26,650	$	61,719	$	100,477

(1)

~~Represents minimum payment obligations under a corporate development agreement to purchase current application-specific integrated circuits, which are subcomponents of the sensors used in Eversense.~~

~~(2)~~

Represents the principal and interest payment schedule for the ~~$17.5 million principal amount of the~~Solar Term Loan, 2023 Notes and 2025 Notes that were outstanding as of September 30, ~~2018.~~2019. For additional information, see “Liquidity and Capital Resources – Indebtedness.”

~~(3)~~

~~Represents the principal and interest payment schedule for the $52.7 million principal amount of the 2023 Notes that were outstanding as of~~ ~~September~~ ~~30, 2018.~~

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Off‑Balance Sheet Arrangements

During three and nine months ended September 30, ~~2018~~2019 we did not have, and we do not currently have, any off‑balance sheet arrangements, as defined under SEC rules.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

~~We are in~~At the ~~process~~end of ~~evaluating~~ the ~~benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as~~2019 fiscal year, we will no longer be an emerging growth company and we ~~may rely on certain of these exemptions, including without limitation,~~will no longer be exempt from (i) ~~not being required to provide~~providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the ~~Sarbanes‑Oxley~~Sarbanes-Oxley Act and (ii) ~~not being required to comply~~complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (b) the last day of our fiscal year ending December 31, 2019; (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous six years; or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

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Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by our management. Due to the significant judgment involved in selecting certain of the assumptions used in these areas, it is possible that different parties could choose different assumptions and reach different conclusions.

~~Effective January 1, 2018, we adopted Accounting Standards Codification, or ASC, Topic 606,~~ ~~Revenue from Contracts with Customers~~, using the full retrospective transition method. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity

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satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

We believe there have been no ~~other~~ material changes to our critical accounting policies and use of estimates as disclosed in the footnotes to our audited financial statements for the year ended December 31, ~~2017~~2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~13, 2018.~~15, 2019.

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of September 30, ~~2018,~~2019, we had cash and cash equivalents ~~and marketable securities~~ of ~~$163.0~~$130.6 million. We generally hold our cash in interest-bearing money market accounts. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Additionally, the interest rates on our 2025 Notes and 2023 Notes are fixed. The rate on borrowings under our Solar Term Loan is variable, subject to a minimum floor interest rate. Due to the short-term maturities of our cash equivalents and the ~~low risk profile of our investments,~~minimum interest rate on the Solar Term Loan, an immediate 100 basis point change in interest rates would not have a material effect on ~~the fair market value~~our results of ~~our cash equivalents. Additionally, the interest rates on our 2023 Notes and our Term Loans are fixed.~~operations. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.

Foreign Currency Risk

~~Our reporting currency is the U.S. dollar. We expect that~~The majority of our international sales ~~through distributors and~~are denominated in Euros. Therefore, our dollar value of sales is impacted by exchange rates versus the ~~costs we incur in connection with our international operations will be in currencies other than the~~dollar. Currency fluctuations or a strengthening U.S. dollar ~~primarily the Euro. However,~~can decrease our revenue from these Euro-denominated international sales. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements, and we do not believe that ~~an immediate~~the effect of a hypothetical 10% ~~increase or decrease~~change in ~~the relative value of the U.S. dollar~~foreign currency exchange rates applicable to ~~other currencies~~our business would have had a material ~~effect~~impact on our operating ~~results.~~results or financial condition. We do not currently engage in any hedging transactions to manage our exposure to foreign currency exchange rate risk.

ITEM 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, ~~2018,~~2019, the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute,

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assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit

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relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. Based on the evaluation of our disclosure controls and procedures as of September 30, ~~2018,~~2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1: Legal Proceedings

From time to time, we are subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results or financial ~~condition~~.condition.

ITEM 1A: Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Except ~~for the risk factors~~as described below, our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, filed with the SEC on March ~~13, 2018.~~ 15, 2019.

~~Risks Related to our Accounting Policies and Principles~~

If our estimates relating to our critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results could fall below expectations of financial analysts and investors, resulting in a decline in our stock price.

The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonableRestrictive covenants under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of financial analysts and investors, resulting in a decline in our stock price. Significant assumptions and estimates used in preparing our consolidated financial statements include thoseindentures related to ~~revenue recognition, stock-based compensation~~the 2023 Notes and ~~income taxes. Moreover,~~ the ~~new revenue recognition guidance, ASC Topic 606, Revenue from Contracts with Customers, requires more judgment than did~~2025 Notes and the ~~prior guidance.~~Solar Loan Agreement may limit the manner in which we operate.

~~Our financial results~~The indentures related to the 2023 Notes and the 2025 Notes and the Solar Loan Agreement contain, and any future indebtedness we incur may ~~be adversely affected by changes in accounting principles applicable to us.~~

~~U.S. GAAP are subject to interpretation by the FASB, the SEC, and~~contain, various negative covenants that restrict, among other ~~bodies formed to promulgate and interpret appropriate accounting principles. For example, in May 2014, the FASB issued accounting standards update~~things, our ability to:

incur additional indebtedness, guarantee indebtedness or issue disqualified stock or, in the case of such subsidiaries, preferred stock;

declare or pay dividends on, repurchase or make distributions in respect of, their capital stock or make other restricted payments;

make investments or acquisitions;

create liens;

enter into agreements restricting certain subsidiaries' ability to pay dividends or make other intercompany transfers;

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets and the assets of our restricted subsidiaries;

enter into transactions with affiliates;

sell, transfer or otherwise convey certain assets; and

prepay certain types of indebtedness.

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~~No. 2014-09 (Topic 606), Revenue from Contracts with Customers, which supersedes nearly~~

In addition, the Solar Loan Agreement has minimum liquidity and monthly net product revenue requirements and the Solar Term Loan and other obligations under the Solar Loan Agreement are be secured by substantially all ~~existing revenue recognition guidance under U.S. GAAP. We adopted this guidance as~~ of ~~January 1, 2018. Any difficulties as~~our assets. As a result, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities, repurchase shares of ~~implementing these pronouncements~~our common stock or ~~adequately accounting after adoption could cause us~~finance future operations or capital needs.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to ~~fail~~pay our substantial debt.

Our ability to ~~meet~~make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial ~~reporting obligations,~~condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in ~~regulatory discipline~~a default on our debt obligations.

Despite our current debt levels, subject to certain conditions and ~~harm investors’ confidence~~limitations, we may still incur substantially more debt or take other actions which would intensify the risks discussed above.

Despite our current consolidated debt levels, subject to certain conditions and limitations in ~~us.~~the indentures related to the 2023 Notes and the 2025 Notes and the Solar Loan Agreement, we may be able to incur substantial additional debt in the future, some of which may be secured debt. We may not be subject to any restrictions on incurrence of additional indebtedness under the terms of any future indebtedness. If new debt is added to our current debt levels, the related risks that we and they now face could intensify.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. However, this exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds

~~(a) Sales of Unregistered Securities~~Not applicable.

During the three months ended September 30, 2018, we issued 7,925 shares of common stock upon the net exercise of warrants at an exercise price of $1.79 per share. The issuance of these securities was exempt from registration under Section 3(a)(9) of the Securities Act.

ITEM 3: Defaults Upon Senior Securities

Not applicable.

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ITEM 4: Mine Safety Disclosures

Not applicable.

ITEM 5: Other Information

None.

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ITEM 6: Exhibits

The exhibits listed on the Exhibit Index hereto are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.


Exhibit No.		Document

3.1		Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).

3.2		Amended and Restated Bylaws of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).

3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2018 (File No. 001-37717), filed with the Commission on August 8, 2018).

10.1		Indenture, dated as of July 25, 2019, by and between the Company, the Subsidiary and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on July 29, 2019).

10.2		Form of Note representing the Company’s 5.25% Convertible Senior Notes due 2025 (included as Exhibit A to the Indenture filed as Exhibit 4.1), filed with the Commission on July 29, 2019).

10.3		Second Supplemental Indenture, dated as of July 25, 2019, by and between the Company and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on July 29, 2019).

10.4		Registration Rights Agreement, dated as of July 25, 2019, by and among the Company, the Subsidiary and Jefferies LLC (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on July 29, 2019).

10.5		Loan and Security Agreement among Solar Capital Ltd., the Lenders, Senseonics, Incorporated and the Company dated as of July 16, 2019 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on July 17, 2019).

10.6		Form of Warrant to be issued pursuant to the Solar Loan Agreement (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on July 17, 2019).

31.1*		Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act.

31.2*		Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act.

32.1**		Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

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+ Portions of this exhibit (indicated by asterisks) have been excluded because such information (i) is not material and (ii) would be competitively harmful if publicly disclosed.

* Filed herewith.

** These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	SENSEONICS HOLDINGS, INC.


Date: November ~~8, 2018~~12, 2019	By:	/s/ ~~R. Don Elsey~~Jon Isaacson
		~~R. Don Elsey~~Jon Isaacson
		Chief Financial Officer
		(Principal Financial Officer)

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	September 30, 2018
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Corporate debt securities	$	5,997	$	—	$	—	$	5,997
Total	$	5,997	$	—	$	—	$	5,997


	December 31, 2017
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Market
	Cost		Gains		Losses		Value
Government and agency securities	$	5,990	$	—	$	—	$	5,990
Corporate debt securities		14,310		—		—		14,310
Total	$	20,300	$	—	$	—	$	20,300


2018 (remaining three months)	$	2,500
2019		10,000
2020		5,000
2021		—
2022		—
After 2022		52,700
Total	$	70,200


	Embedded
	Conversion
	Option
December 31, 2017	$	—
Issuance of the 2023 Notes		17,300
Change in fair value included in other income (expense)		22,525
September 30, 2018	$	39,825