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, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 001-37717
Senseonics Holdings, Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware | 3841 | 47-1210911 |
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 daysdays. 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 478,256,348528,281,405 shares of common stock, par value $0.001, outstanding as of November 4, 2022.3, 2023.
TABLE OF CONTENTS
PART I: Financial Information | |
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Notes to Unaudited Condensed Consolidated Financial Statements | 7 |
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ITEM 2: |
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ITEM 3: Quantitative and Qualitative Disclosures |
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ITEM 2: Unregistered Sales of Equity |
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2
Senseonics Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
| | | | | | | |
| | September 30, | | December 31, |
| ||
| | 2022 | | 2021 | | ||
| | | (unaudited) | | | | |
| | | | | | | |
Assets | | |
| | |
| |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 35,484 | | $ | 33,461 | |
Short term investments, net | | | 118,715 | | | 96,445 | |
Accounts receivable, net | | | 103 | | | 205 | |
Accounts receivable, net - related parties | | | 2,021 | | | 1,768 | |
Inventory, net | | | 7,257 | | | 6,316 | |
Prepaid expenses and other current assets | |
| 5,714 | |
| 6,218 | |
Total current assets | |
| 169,294 | |
| 144,413 | |
| | | | | | | |
Option | | | 101 | | | 239 | |
Deposits and other assets | |
| 3,241 | |
| 1,086 | |
Long term investments, net | | | 8,851 | | | 51,882 | |
Property and equipment, net | |
| 1,183 | |
| 1,308 | |
Total assets | | $ | 182,670 | | $ | 198,928 | |
Liabilities and Stockholders’ Equity (Deficit) | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 684 | | $ | 1,204 | |
Accrued expenses and other current liabilities | |
| 12,674 | |
| 10,667 | |
Accrued expenses and other current liabilities, related parties | | | 671 | | | 3,597 | |
Note payable, current portion, net | | | 15,223 | | | — | |
Derivative liability, current portion | | | 328 | | | — | |
Option, current | | | 28,068 | | | — | |
Term Loans, net | | | — | | | 2,926 | |
Total current liabilities | |
| 57,648 | |
| 18,394 | |
| | | | | | | |
Long-term debt and notes payables, net | | | 53,434 | | | 59,798 | |
Derivative liabilities | |
| 83,794 | |
| 236,291 | |
Option | | | — | | | 69,401 | |
Other liabilities | | | 2,859 | | | 579 | |
Total liabilities | |
| 197,735 | |
| 384,463 | |
| | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Stockholders’ equity (deficit): | | | | | | | |
Common stock, $0.001 par value per share; 900,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 478,211,956 shares and 447,282,263 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | |
| 478 | |
| 447 | |
Additional paid-in capital | |
| 806,069 | |
| 765,215 | |
Accumulated other comprehensive loss | | | (1,185) | | | (212) | |
Accumulated deficit | |
| (820,427) | |
| (950,985) | |
Total stockholders' equity (deficit) | |
| (15,065) | |
| (185,535) | |
Total liabilities and stockholders’ equity (deficit) | | $ | 182,670 | | $ | 198,928 | |
| | | | | | | |
| | September 30, | | December 31, |
| ||
| | 2023 | | 2022 | | ||
| | | (unaudited) | | | | |
| | | | | | | |
Assets | | |
| | |
| |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 55,759 | | $ | 35,793 | |
Short term investments, net | | | 69,648 | | | 108,222 | |
Accounts receivable, net | | | 701 | | | 127 | |
Accounts receivable, net - related parties | | | 2,749 | | | 2,324 | |
Inventory, net | | | 9,726 | | | 7,306 | |
Prepaid expenses and other current assets | |
| 7,557 | |
| 7,428 | |
Total current assets | |
| 146,140 | |
| 161,200 | |
| | | | | | | |
Deposits and other assets | |
| 6,991 | |
| 3,108 | |
Long term investments, net | | | — | | | 12,253 | |
Property and equipment, net | |
| 934 | |
| 1,112 | |
Total assets | | $ | 154,065 | | $ | 177,673 | |
Liabilities and Stockholders’ Equity (Deficit) | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 2,669 | | $ | 419 | |
Accrued expenses and other current liabilities | |
| 14,356 | |
| 14,616 | |
Accrued expenses and other current liabilities, related parties | | | 277 | | | 837 | |
Note payable, current portion, net | | | — | | | 15,579 | |
Derivative liability, current portion | | | — | | | 20 | |
Total current liabilities | |
| 17,302 | |
| 31,471 | |
| | | | | | | |
Long-term debt and notes payables, net | | | 40,485 | | | 56,383 | |
Derivative liabilities | |
| 245 | |
| 52,050 | |
Other liabilities | | | 6,312 | | | 2,689 | |
Total liabilities | |
| 64,344 | |
| 142,593 | |
| | | | | | | |
Preferred stock and additional paid-in-capital, subject to possible redemption: $0.001 par value per share; 12,000 shares and 12,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | | | 37,656 | | | 37,656 | |
Total temporary equity | | | 37,656 | | | 37,656 | |
| | | | | | | |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Stockholders’ equity (deficit): | | | | | | | |
Common stock, $0.001 par value per share; 900,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 528,176,273 shares and 479,637,138 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | |
| 528 | |
| 480 | |
Additional paid-in capital | |
| 903,665 | |
| 806,488 | |
Accumulated other comprehensive loss | | | (59) | | | (678) | |
Accumulated deficit | |
| (852,069) | |
| (808,866) | |
Total stockholders’ equity (deficit) | |
| 52,065 | |
| (2,576) | |
Total liabilities and stockholders’ equity | | $ | 154,065 | | $ | 177,673 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share data)
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Revenue, net | | $ | 126 | | | 276 | | $ | 555 | | $ | 1,196 |
Revenue, net - related parties | | | 4,496 | | | 3,256 | | | 10,263 | | | 8,471 |
Total revenue | | | 4,622 | | | 3,532 | | | 10,818 | | | 9,667 |
Cost of sales | | | 3,866 | | | 4,778 | | | 8,711 | | | 9,995 |
Gross profit (loss) | | | 756 | | | (1,246) | | | 2,107 | | | (328) |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Research and development expenses | | | 10,985 | |
| 7,200 | | | 28,088 | | | 19,562 |
Selling, general and administrative expenses | | | 7,340 | |
| 7,585 | | | 23,785 | |
| 23,347 |
Operating loss | | | (17,569) | |
| (16,031) | | | (49,766) | |
| (43,237) |
Other income (expense), net: | | | | | | | | | | | | |
Interest income | | | 544 | | | 486 | | | 878 | | | 743 |
Gain (Loss) on fair value adjustment of option | | | (8,592) | | | 13,556 | | | 41,333 | | | (74,848) |
Gain on extinguishment of debt and option | | | — | | | — | | | — | | | 330 |
Interest expense | | | (4,801) | | | (4,245) | | | (13,806) | | | (12,337) |
Gain (Loss) on change in fair value of derivatives | | | (28,948) | | | 50,075 | | | 152,169 | | | (255,185) |
Impairment cost | | | (984) | | | (488) | | | (138) | | | (1,650) |
Other expense | | | (41) | | | (439) | | | (112) | | | (723) |
Total other income (expense), net | | | (42,822) | | | 58,945 | | | 180,324 | | | (343,670) |
| | | | | | | | | | | | |
Net Income (Loss) | | | (60,391) | | | 42,914 | | | 130,558 | | | (386,907) |
Other comprehensive income (loss) | | | | | | | | | | | | |
Unrealized gain (loss) on marketable securities | | | (57) | | | 18 | | | (973) | | | 2 |
Total other comprehensive gain (loss) | | | (57) | | | 18 | | | (973) | | | 2 |
Total comprehensive income (loss) | | $ | (60,448) | | $ | 42,932 | | $ | 129,585 | | $ | (386,905) |
| | | | | | | | | | | | |
Basic net income (loss) per common share | | $ | (0.13) | | | 0.10 | | $ | 0.28 | | $ | (0.93) |
Basic weighted-average shares outstanding | | | 472,475,747 | | | 445,378,308 | | | 464,244,736 | | | 414,128,283 |
| | | | | | | | | | | | |
Diluted net income (loss) per common share | | $ | (0.13) | | | 0.08 | | $ | (0.10) | | $ | (0.93) |
Diluted weighted-average shares outstanding | | | 472,475,747 | | | 581,760,516 | | | 608,345,713 | | | 414,128,283 |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Revenue, net | | $ | 426 |
| $ | 126 | | $ | 1,176 | | $ | 555 |
Revenue, net - related parties | | | 5,671 | | | 4,496 | | | 13,184 | | | 10,263 |
Total revenue | | | 6,097 | | | 4,622 | | | 14,360 | | | 10,818 |
Cost of sales | | | 4,925 | | | 3,866 | | | 12,358 | | | 8,711 |
Gross profit | | | 1,172 | | | 756 | | | 2,002 | | | 2,107 |
| | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | |
Research and development expenses | | | 12,769 | |
| 10,985 | | | 38,003 | | | 28,088 |
Selling, general and administrative expenses | | | 7,425 | |
| 7,340 | | | 22,598 | |
| 23,785 |
Operating loss | | | (19,022) | |
| (17,569) | | | (58,599) | |
| (49,766) |
Other income (expense), net: | | | | | | | | | | | | |
Interest income | | | 1,460 | | | 544 | | | 3,879 | | | 878 |
Gain (Loss) on fair value adjustment of option | | | — | | | (8,592) | | | — | | | 41,333 |
Exchange related gain (loss), net | | | (4,569) | | | — | | | 14,207 | | | — |
Interest expense | | | (2,425) | | | (4,801) | | | (9,388) | | | (13,806) |
Gain (Loss) on change in fair value of derivatives | | | 438 | | | (28,948) | | | 6,505 | | | 152,169 |
Impairment cost, net | | | — | | | (984) | | | — | | | (138) |
Other income (expense) | | | 15 | | | (41) | | | 194 | | | (112) |
Total other (expense) income, net | | | (5,081) | | | (42,822) | | | 15,397 | | | 180,324 |
| | | | | | | | | | | | |
Net (Loss) Income | | | (24,103) | | | (60,391) | | | (43,202) | | | 130,558 |
Other comprehensive income (loss) | | | | | | | | | | | | |
Unrealized gain (loss) on marketable securities | | | 61 | | | (57) | | | 619 | | | (973) |
Total other comprehensive gain (loss) | | | 61 | | | (57) | | | 619 | | | (973) |
Total comprehensive (loss) income | | $ | (24,042) | | $ | (60,448) | | $ | (42,583) | | $ | 129,585 |
| | | | | | | | | | | | |
Basic net (loss) income per common share | | $ | (0.04) | | $ | (0.13) | | $ | (0.08) | | $ | 0.28 |
Basic weighted-average shares outstanding | | | 592,452,262 | | | 472,475,747 | | | 552,703,546 | | | 464,244,736 |
| | | | | | | | | | | | |
Diluted net loss per common share | | $ | (0.04) | | $ | (0.13) | | $ | (0.08) | | $ | (0.10) |
Diluted weighted-average shares outstanding | | | 592,452,262 | | | 472,475,747 | | | 552,703,546 | | | 608,345,713 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (in
(in thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | Accumulated | | | | | Total |
| Series A | | ||||
| | Common Stock | | Paid-In | | Other | | Accumulated | | Stockholders' |
| Convertible | | ||||||||
|
| Shares |
| Amount |
| Capital |
| Comprehensive Loss | | Deficit | | Equity (Deficit) |
| Preferred Stock Temporary Equity |
| ||||||
Three months ended September 30, 2021: | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2021 | | 445,125 | | | 445 | | | 765,262 | | | (16) | | | (1,078,332) | | | (312,641) | | $ | — | |
Exercise of stock options and warrants | | 474 | | | 1 | | | 737 | | | — | | | — | | | 738 | | | — | |
Issued common stock for vested RSUs and ESPP purchase | | 16 | | | — | | | 24 | | | — | | | — | | | 24 | | | — | |
Stock-based compensation expense | | — | | | — | | | 2,301 | | | — | | | — | | | 2,301 | | | — | |
Net income | | — | | | — | | | — | | | — | | | 42,914 | | | 42,914 | | | — | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | 18 | | | — | | | 18 | | | — | |
Balance, September 30, 2021 | | 445,615 | | $ | 446 | | $ | 768,324 | | $ | 2 | | $ | (1,035,418) | | $ | (266,646) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2021: | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2020 |
| 265,582 | | | 266 | | | 504,162 | | | — | | | (648,511) | | | (144,083) | | $ | 2,811 | |
Issuance of convertible preferred stock, net | | — | | | — | | | — | | | | | | | | | — | | | 42,756 | |
Conversion of preferred stock | | 54,166 | | | 54 | | | 45,512 | | | — | | | — | | | 45,566 | | | (45,567) | |
Issuance of common stock, net | | 112,571 | | | 113 | | | 200,327 | | | — | | | — | | | 200,440 | | | — | |
Exercise of stock options and warrants |
| 5,501 | | | 5 | | | 4,622 | | | — | | | — | | | 4,627 | | | — | |
Exchange and conversion of convertible notes, net | | 4,925 | | | 5 | | | 6,496 | | | — | | | — | | | 6,501 | | | — | |
Issued common stock for vested RSUs and ESPP purchase | | 2,870 | | | 3 | | | 71 | | | — | | | — | | | 74 | | | — | |
Stock-based compensation expense | | — | | | — | | | 7,134 | | | — | | | — | | | 7,134 | | | — | |
Net loss | | — | | | — | | | — | | | — | | | (386,907) | | | (386,907) | | | — | |
Other comprehensive income, net of tax |
| — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | |
Balance, September 30, 2021 |
| 445,615 | | $ | 446 | | $ | 768,324 |
| $ | 2 | | $ | (1,035,418) | | $ | (266,646) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2022: | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2022 | | 465,326 | | | 465 | | | 776,640 | | | (1,128) | | | (760,036) | | | 15,941 | | | — | |
Issuance of common stock, net | | 12,084 | | | 12 | | | 26,427 | | | — | | | — | | | 26,439 | | | — | |
Exercise of stock options and warrants | | 681 | | | 1 | | | 711 | | | — | | | — | | | 712 | | | — | |
Issued common stock for vested RSUs and ESPP purchase | | 121 | | | — | | | 69 | | | — | | | — | | | 69 | | | — | |
Stock-based compensation expense | | — | | | — | | | 2,222 | | | — | | | — | | | 2,222 | | | — | |
Net loss | | — | | | — | | | — | | | — | | | (60,391) | | | (60,391) | | | — | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | (57) | | | — | | | (57) | | | — | |
Balance, September 30, 2022 | | 478,212 | | $ | 478 | | $ | 806,069 | | $ | (1,185) | | $ | (820,427) | | $ | (15,065) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2022: | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2021 | | 447,282 | | | 447 | | | 765,215 | | | (212) | | | (950,985) | | | (185,535) | | | — | |
Issuance of common stock, net |
| 15,161 | | | 15 | | | 34,428 | | | — | | | — | | | 34,443 | | | — | |
Exercise of stock options and warrants |
| 9,892 | | | 10 | | | 941 | | | — | | | — | | | 951 | | | — | |
Issuance of common stock for vested RSUs and ESPP purchase | | 6,970 | | | 7 | | | 125 | | | — | | | — | | | 132 | | | — | |
Stock-based compensation expense | | — | | | — | | | 6,543 | | | — | | | — | | | 6,543 | | | — | |
Shares withheld related to net share settlement of equity awards |
| (1,093) | | | (1) | | | (1,183) | | | — | | | — | | | (1,184) | | | — | |
Net income | | — | | | — | | | — | | | — | | | 130,558 | | | 130,558 | | | — | |
Other comprehensive loss, net of tax |
| — | | | — | | | — | | | (973) | | | — | | | (973) | | | — | |
Balance, September 30, 2022 |
| 478,212 | | $ | 478 | | $ | 806,069 |
| $ | (1,185) | | $ | (820,427) | | $ | (15,065) | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Additional | | Accumulated | | | | | Total | | Series B | ||||
| | Common Stock | | Paid-In | | Other | | Accumulated | | Stockholders' | | Convertible | ||||||||
|
| Shares |
| Amount |
| Capital |
| Comprehensive Loss | | Deficit | | Equity (Deficit) |
| Preferred Stock Temporary Equity | ||||||
Three months ended September 30, 2022: | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2022 | | 465,326 | | $ | 465 | | $ | 776,640 | | $ | (1,128) | | $ | (760,036) | | $ | 15,941 | | $ | — |
Issuance of common stock, net of issuance costs | | 12,084 | | | 12 | | | 26,427 | | | — | | | — | | | 26,439 | |
| — |
Exercise of stock options and warrants | | 681 | | | 1 | | | 711 | | | — | | | — | | | 712 | | | — |
Issued common stock for vested RSUs and ESPP purchase | | 121 | | | — | | | 69 | | | — | | | — | | | 69 | | | — |
Stock-based compensation expense | | — | | | — | | | 2,222 | | | — | | | — | | | 2,222 | | | — |
Net loss | | — | | | — | | | — | | | — | | | (60,391) | | | (60,391) | | | — |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | (57) | | | — | | | (57) | | | — |
Balance, September 30, 2022 | | 478,212 | | $ | 478 | | $ | 806,069 | | $ | (1,185) | | $ | (820,427) | | $ | (15,065) | | $ | — |
| | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2022: | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2021 |
| 447,282 | | $ | 447 | | $ | 765,215 | | $ | (212) | | $ | (950,985) | | $ | (185,535) | | $ | — |
Issuance of common stock, net of issuance costs | | 15,161 | | | 15 | | | 34,428 | | | — | | | — | | | 34,443 | | | — |
Exercise of stock options and warrants |
| 9,892 | | | 10 | | | 941 | | | — | | | — | | | 951 | | | — |
Issued common stock for vested RSUs and ESPP purchase | | 6,970 | | | 7 | | | 125 | | | — | | | — | | | 132 | | | — |
Stock-based compensation expense | | — | | | — | | | 6,543 | | | — | | | — | | | 6,543 | | | — |
Shares withheld related to net share settlement of equity awards | | (1,093) | | | (1) | | | (1,183) | | | — | | | — | | | (1,184) | | | — |
Net income | | — | | | — | | | — | | | — | | | 130,558 | | | 130,558 | | | — |
Other comprehensive loss, net of tax |
| — | | | — | | | — | | | (973) | | | — | | | (973) | | | — |
Balance, September 30, 2022 |
| 478,212 | | $ | 478 | | $ | 806,069 |
| $ | (1,185) | | $ | (820,427) | | $ | (15,065) | | $ | — |
| | | | | | | | | | | | | | | | | | | | |
Three months ended September 30, 2023: | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2023 | | 492,827 | | $ | 493 | | $ | 880,129 | | $ | (120) | | $ | (827,965) | | $ | 52,537 | | $ | 37,656 |
Issued common stock for vested RSUs and ESPP purchase | | 210 | | | 1 | | | 117 | | | — | | | — | | | 118 | | | — |
Exercise of stock options and warrants | | — | | | — | | | 5 | | | — | | | — | | | 5 | | | — |
Exchange of 2025 Notes | | 35,139 | | | 35 | | | 20,967 | | | — | | | — | | | 21,002 | | | — |
Issuance of warrants, net of issuance costs | | — | | | — | | | 363 | | | — | | | — | | | 363 | | | — |
Stock-based compensation expense | | — | | | — | | | 2,084 | | | — | | | — | | | 2,084 | | | — |
Net loss | | — | | | — | | | — | | | — | | | (24,103) | | | (24,103) | | | — |
Other comprehensive income, net of tax | | — | | | — | | | — | | | 61 | | | — | | | 61 | | | — |
Balance, September 30, 2023 | | 528,176 | | $ | 528 | | $ | 903,665 | | $ | (59) | | $ | (852,069) | | $ | 52,065 | | $ | 37,656 |
| | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2023: | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2022 | | 479,637 | | $ | 480 | | $ | 806,488 | | $ | (678) | | $ | (808,866) | | $ | (2,576) | | $ | 37,656 |
Issuance of common stock, net of issuance costs |
| 9,945 | | | 10 | | | 7,366 | | | — | | | — | | | 7,376 | | | — |
Issued common stock for vested RSUs and ESPP purchase | | 5,581 | | | 6 | | | 199 | | | — | | | — | | | 205 | | | — |
Issuance of warrants, net of issuance costs | | — | | | — | | | 63,645 | | | — | | | — | | | 63,645 | | | — |
Exercise of stock options and warrants |
| 6 | | | — | | | 3 | | | — | | | — | | | 3 | | | — |
Exchange of 2025 Notes | | 35,139 | | | 35 | | | 20,967 | | | — | | | — | | | 21,002 | | | — |
Stock-based compensation expense | | — | | | — | | | 6,735 | | | — | | | — | | | 6,735 | | | — |
Shares withheld related to net share settlement of equity awards |
| (2,132) | | | (2) | | | (1,601) | | | — | | | — | | | (1,603) | | | — |
Other | | — | | | — | | | (137) | | | — | | | — | | | (137) | | | — |
Net loss | | — | | | — | | | — | | | — | | | (43,202) | | | (43,202) | | | — |
Other comprehensive income, net of tax |
| — | | | — | | | — | | | 619 | | | — | | | 619 | | | — |
Balance, September 30, 2023 |
| 528,176 | | $ | 528 | | $ | 903,665 |
| $ | (59) | | $ | (852,069) | | $ | 52,065 | | $ | 37,656 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| | | | | |
| Nine Months Ended | ||||
| September 30, | ||||
| 2022 | | 2021 | ||
Cash flows from operating activities | | |
| | |
Net income (loss) | $ | 130,558 | | | (386,907) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
Depreciation and amortization expense |
| 751 | | | 918 |
Non-cash interest expense (debt discount and deferred costs) |
| 8,858 | | | 5,825 |
Change in fair value of derivatives | | (152,169) | | | 255,185 |
(Gain) Loss on fair value adjustment of option | | (41,333) | | | 74,848 |
Gain on extinguishment of debt and option | | — | | | (330) |
Impairment of option, net | | 138 | | | 1,650 |
Stock-based compensation expense |
| 6,543 | | | 7,134 |
Changes in assets and liabilities: | | | | | |
Accounts receivable | | (151) | | | (686) |
Prepaid expenses and other current assets |
| 504 | | | 41 |
Inventory | | (941) | | | (2,597) |
Deposits and other assets | | 163 | | | (30) |
Accounts payable |
| (519) | | | (971) |
Accrued expenses and other liabilities | | (1,070) | | | 1,319 |
Accrued interest | | (257) | | | 326 |
Net cash used in operating activities |
| (48,925) | | | (44,275) |
Cash flows from investing activities | | | | | |
Capital expenditures |
| (255) | | | (75) |
Purchase of marketable securities | | (82,807) | | | (154,918) |
Proceeds from sale and maturity of marketable securities | | 102,594 | | | — |
Net cash provided by (used in) investing activities |
| 19,532 | |
| (154,993) |
Cash flows from financing activities | | | | | |
Issuance of common stock, net | | 34,443 | | | 200,440 |
Proceeds from exercise of stock options, stock warrants and ESPP purchases | | 1,083 | | | 4,701 |
Taxes paid related to net share settlement of equity awards | | (1,184) | | | — |
Proceeds from issuance of Masters preferred stock, net |
| — | | | 22,783 |
Repayment of term loans | | (2,926) | | | (650) |
Net cash provided by financing activities |
| 31,416 | |
| 227,274 |
Net increase in cash and cash equivalents |
| 2,023 | |
| 28,006 |
Cash and cash equivalents, at beginning of period |
| 33,461 | | | 18,205 |
Cash and cash equivalents, at ending of period | $ | 35,484 | | $ | 46,211 |
| | | | | |
Supplemental disclosure of cash flow information | | | | | |
Cash paid during the period for interest | $ | 5,137 | | $ | 6,149 |
Lease liabilities arising from obtaining right-of-use assets | | 2,944 | | | — |
Supplemental disclosure of non-cash investing and financing activities | | | | | |
Issuance of common stock converted from preferred shares | | — | | | 54,166 |
Issuance of common stock converted from notes payables | | — | | | 4,925 |
| | | | | |
| Nine Months Ended | ||||
| September 30, | ||||
| 2023 | | 2022 | ||
Cash flows from operating activities | | |
| | |
Net (loss) income | $ | (43,202) | | $ | 130,558 |
Adjustments to reconcile net (loss) income to net cash used in operating activities: | | | | | |
Depreciation and amortization expense | | 641 | | | 751 |
Non-cash interest expense (debt discount and deferred costs) |
| 6,581 | | | 8,858 |
Net amortization of premiums and accretion of discounts on marketable securities | | (2,253) | | | — |
Gain on change in fair value of derivatives | | (6,505) | | | (152,169) |
Gain on fair value adjustment of option | | — | | | (41,333) |
Exchange related (gain) loss, net | | (14,207) | | | — |
Impairment of option, net | | — | | | 138 |
Stock-based compensation expense |
| 6,735 | | | 6,543 |
Provision for inventory obsolescence and net realizable value | | 89 | | | — |
Loss on disposal of assets | | 5 | | | — |
Other | | 56 | | | — |
Changes in assets and liabilities: | | | | | |
Accounts receivable | | (998) | | | (151) |
Prepaid expenses and other current assets |
| (129) | | | 504 |
Inventory | | (2,509) | | | (941) |
Deposits and other assets | | (342) | | | 163 |
Accounts payable |
| 669 | | | (519) |
Accrued expenses and other liabilities | | 1,161 | | | (1,070) |
Accrued interest | | (292) | | | (257) |
Operating lease liabilities | | (596) | | | — |
Net cash used in operating activities |
| (55,096) | | | (48,925) |
Cash flows from investing activities | | | | | |
Capital expenditures |
| (180) | | | (255) |
Purchase of marketable securities | | (68,537) | | | (82,807) |
Proceeds from sale and maturity of marketable securities | | 122,235 | | | 102,594 |
Net cash provided by investing activities |
| 53,518 | |
| 19,532 |
Cash flows from financing activities | | | | | |
Issuance of common stock, net of issuance costs | | 7,376 | | | 34,443 |
Issuance of stock options, net of issuance costs | | 71 | | | 1,083 |
Taxes paid related to net share settlement of equity awards |
| (1,603) | | | (1,184) |
Repayment of 2023 Notes |
| (15,700) | | | — |
Repayment of 2025 Notes | | (7,500) | | | — |
Repayment of term loans |
| — | | | (2,926) |
Proceeds from issuance of Loan and Security Agreement, net |
| 24,446 | | | — |
Payment of debt issuance costs | | (244) | | | — |
Proceeds from issuance of warrants, net | | 14,698 | | | — |
Net cash provided by financing activities |
| 21,544 | |
| 31,416 |
Net increase in cash, cash equivalents |
| 19,966 | |
| 2,023 |
Cash, cash equivalents, at beginning of period |
| 35,793 | | | 33,461 |
Cash, cash equivalents, at ending of period | $ | 55,759 | | $ | 35,484 |
| | | | | |
Supplemental disclosure of cash flow information | | | | | |
Cash paid during the period for interest | $ | 3,100 | | $ | 5,137 |
Lease liabilities arising from obtaining right-of-use assets | | 3,831 | | | 2,944 |
Supplemental disclosure of non-cash investing and financing activities | | | | | |
Issuance of warrants in exchange for PHC Notes | | 48,564 | | | — |
Issuance of warrants for Loan and Security Agreement | | 364 | | | — |
Issuance of common stock converted from 2025 Notes | | 21,002 | | | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Senseonics Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. | Organization and Nature of Operations |
Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the development and commercializationmanufacturing of long-term, implantable continuous glucose monitoring (“CGM”) systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy.
Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings, Inc. and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings, Inc. and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.
2. | Liquidity and Capital Resources |
From its founding in 1996 until 2010, the Company has devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the Company narrowed its focus to developing and refining a commercially viable glucose monitoring system. However, to date, the Company has not generated any significant revenue from product sales. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996. The Company has never been profitable from operations,1996 and its netexpects to incur additional losses were $302.5in the near future. We incurred total gross profit (loss) of $2.7 million, $175.2($0.8) million, and $115.5($17.4) million for the years ended December 31, 2022, 2021 and 2020, and 2019, respectively. As ofFor the three months ending September 30, 2022,2023, the Company had gross profit of $1.2 million and an accumulated deficit of $820.4$852.1 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, warrants, convertible notes and debt. As of September 30, 2022,2023, the Company had cash, cash equivalents and marketable securities of $163.0 $125.4million.
On September 8, 2023 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with the several institutions or entities party thereto (collectively, the “Lenders") and Hercules Capital, Inc., a Maryland corporation (“Hercules”) in its capacity as administrative agent and collateral agent for itself and the Lenders, pursuant to which the Lenders have agreed to make available to the Company up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on September 1, 2027 (the “Maturity Date”).
On August 10, 2023, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (the “Noteholders”) of the Company’s currently outstanding 5.25% Convertible Senior Notes due 2025 (the “2025 Notes”). Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $30.8 million in aggregate principal amount of the 2025 Notes (the “Exchanged Notes”) for a combination of $7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”). The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.
In August 2023, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC (“GS”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $106.6 million through GS as its sales agent in an “at the market” offering. GS will receive a commission up to 3.0% of the gross proceeds of any common stock sold through GS under the Equity Distribution Agreement. The shares will be offered and sold pursuant
7
to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on August 10, 2023. As of September 30, 2023, no sales have been made under the Equity Distribution Agreement.
In November 2021, the Company entered into an Open Market Sale Agreement, (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as its sales agent in an “at the market” offering. Jefferies will receive a commissionreceived commissions up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During 2023, the Company received $7.4 million in net proceeds from the sale of 9,944,663 shares of its common stock under the 2021 Sales Agreement. For the nine months ended September 30, 2022, the Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement.
In November 2019,Effective August 7, 2023, the Company entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) withand Jefferies under which the Company could offer and sell, from timemutually agreed to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Jefferies as its sales agent in an “at the market” offering. In June 2021, the Company received $48.4 million in net proceeds from the sale of 12,830,333 shares of its common stock utilizing the full capacity under the 2019 Sales Agreement.
On January 21, 2021, the Company entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the United States Securities and Exchange Commission (“the SEC”) (the “2021 Public Offering”). The price to the public interminate the 2021 Public Offering was $1.925 per shareSales Agreement. At the time of common stock. The Underwriters agreed to purchase the shares from the Companytermination, approximately $106.6 million remained available for issuance pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the 2021 Public Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of common stock. Total net proceeds from the 2021
7
Public Offering were $106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.
On January 17, 2021, the Company entered into a Securities Purchase Agreement with certain institutional purchasers (the “Purchasers”), pursuant to which the Company sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50.0 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the SEC on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by the Company, were approximately $46.1 million.
On November 9, 2020, the Company entered into an Equity Line Agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that the Company have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company had the right, at its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provided that the Company was not permitted to affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock. The excess of the Purchase Price and the fair value of the Energy Capital option in the total amount of $37.6 million was recorded in additional-paid-in-capital as convertible preferred stock.
On August 9, 2020, the Company entered into a financing agreement with the parent company of Ascensia Diabetes Care Holdings AG (“Ascensia”), PHC Holdings Corporation (“PHC”), pursuant to which the Company issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC. The Company also issued 2,941,176 shares of common stock to PHC as a financing fee. The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining U.S. Food and Drug Administration (“FDA”) approval for the 180-day Eversense product for marketing in the United States before such date. The Company successfully obtained FDA approval in February 2022. The Company has2022 and the option was not exercised this option as of September 30, 2022.
Additionally,exercised. As described in Note 12, on August 9, 2020,March 13, 2023, the Company entered into a Stock Purchasean Exchange Agreement (the “PHC Exchange Agreement”) with Masters Special Solutions, LLC and certain affiliates thereof (collectively, “Masters”),PHC, pursuant to which PHC agreed to exchange (the “PHC Exchange”) its $35.0 million aggregate principal amount of the Company issuedPHC Notes, including all accrued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stockunpaid interest thereon, for a warrant (the “Series A Preferred Stock”“PHC Exchange Warrant”), at a price of $1,000 per share in an initial closing. Masters also had the option to purchase up to an additional 27,00068,525,311 shares of Series A Preferred Stock atthe Company’s common stock, $0.001 par value per share (the “PHC Exchange Warrant Shares”). The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $1,000$0.001 per sharePHC Exchange Warrant Share. On March 31, 2023, the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in subsequent closings, subject toconsideration for the terms and conditionscancellation of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds to the Company of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All shares of Series A Preferred StockPHC Notes.
8
have been convertedOn March 13, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with PHC, pursuant to which the Company issued and sold to PHC in a private placement (the “Private Placement”) a warrant (the “Purchase Warrant”) to purchase 15,425,750 shares of the Company’s common stock.stock, $0.001 par value per share (the “Purchase Warrant Shares”). The purchase price of the Purchase Warrant was approximately $0.97 per Purchase Warrant Share, representing the undiscounted, trailing 10-day volume weighted average price of the Company’s common stock through March 10, 2023. The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share. The issuance of the Purchase Warrants enabled PHC to maintain, as of the closing of the transaction, a 15% beneficial ownership for purposes of the Investor Rights Agreement, dated August 9, 2020, between the Company and PHC. The Private Placement closed on March 13, 2023 (the “Private Placement Closing Date”) and the Company received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by the Company.
3. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Although the Company considers the disclosures in these unaudited consolidated financial statements to be adequate to make the information presented not misleading, certain information or footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the SEC. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position at September 30, 2022,2023, and December 31, 2021,2022, results of operations, comprehensive income (loss), and changes in stockholder’s deficit for the three and nine month periodsmonths ended September 30, 2022,2023 and 20212022 and cash flows for the nine months ended September 30, 2022,2023 and 20212022 have been included. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, as filed with the SEC on March 1, 2022.16, 2023. The interim results for September 30, 20222023 are not necessarily indicative of the results to be expected for the year ending December 31, 2022,2023, or for any future interim periods.
The consolidated financial statements reflect the accounts of Senseonics Holdings, Inc. and its wholly owned operating subsidiary Senseonics, Incorporated. The Company views its operations and manages its business in one segment, glucose monitoring products. Operating segments are defined as components of an enterprise about which separate discrete 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.
Certain prior year amounts have been reclassified to conform to the current-year presentation. An adjustment has been made to the Consolidated Statements of Operations and Comprehensive Income (Loss) to consolidate the line items Sales and marketing expenses and General and administrative expenses to Selling, general and administrative expenses in order to conform to current year presentation. These reclassifications had no effect on the reported results of operations.
Recent Accounting Pronouncements
Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). This new guidance is intended to reduce the complexity of accounting for convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either partial retrospective or fully retrospective method of transition. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2022 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company currently holds investments in available-for-sale securities. The Company has not historically experienced collection issues or bad
9
debts with trade receivables. Accordingly, theThe Company doesadopted this guidance as of January 1, 2023 and its adoption did not expect this to have a significantmaterial impact on itsthe consolidated financial statements and related disclosures at this time. The Company will adopt this guidance on the effective date for smaller reporting companies, January 1, 2023.disclosures.
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 revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, fair value of investments, derivative assets and liabilities, obsolete inventory, warranty
9
obligations, variable consideration related to revenue, allowance for credit losses, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. The Company considered COVID-19 related impactsbases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable, including assumptions as to itsfuture events. These estimates as appropriate, within its unaudited condensed consolidated financial statementsform the basis for making judgments about the carrying values of assets and there may be changes to those estimates in future periods due to the uncertainties surrounding the severityliabilities and duration of the COVID-19 pandemic.recorded revenues and expenses. Actual results could differ from those estimates.estimates; however, management does not believe that such differences would be material.
Significant Accounting Policies
The accounting policies used by the Company in its presentation of interim financial results are consistent with those presented in Note 3 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
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4. Revenue Recognition
The Company generates product revenue from sales of the Eversense system and related components and supplies to Ascensia, through a collaboration and commercialization agreement (the “Ascensia Commercialization Agreement”), third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively, the “Customers”), who then resell the products to health care providers and patients. Customers pay the Company for sales, regardless of whether or not the Customers resell the products to health care providers and patients. The Company’s policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Revenue by Geographic Region
The following table sets forth net revenue derived from the Company’s two 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, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | Three Months Ended | | | Nine Months Ended | | ||||||||||||||
| September 30, 2022 | | | September 30, 2022 | | September 30, 2023 | | | September 30, 2023 | | ||||||||||||
| | | % | | | | | % | | | | % | | | | | % | | ||||
(Dollars in thousands) | Amount | | of Total | | | Amount | | of Total | | Amount | | of Total | | | Amount | | of Total | | ||||
Revenue, net: | | | | | | | | | | | | | | | | | | | | | | |
United States | $ | 3,930 | | 64.5 | % | | $ | 7,885 | | 54.9 | % | |||||||||||
Outside of the United States | $ | 2,688 | | 58.2 | % | | $ | 6,910 | | 63.9 | % | | 2,167 | | 35.5 | | | | 6,475 | | 45.1 | |
United States | | 1,934 | | 41.8 | | | | 3,908 | | 36.1 | | |||||||||||
Total | $ | 4,622 | | 100.0 | % | | $ | 10,818 | | 100.0 | % | $ | 6,097 | | 100.0 | % | | $ | 14,360 | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended | | |||||||||||||||
| September 30, 2021 | | | September 30, 2021 | | September 30, 2022 | | | September 30, 2022 | | ||||||||||||
| | | % | | | | | % | | | | % | | | | | % | | ||||
(Dollars in thousands) | Amount | | of Total | | | Amount | | of Total | | Amount | | of Total | | | Amount | | of Total | | ||||
Revenue, net: | | | | | | | | | | | | | | | | | | | | | | |
United States | $ | 1,934 | | 41.8 | % | | $ | 3,908 | | 36.1 | % | |||||||||||
Outside of the United States | $ | 2,928 | | 82.9 | % | | $ | 7,771 | | 80.4 | % | | 2,688 | | 58.2 | | | | 6,910 | | 63.9 | |
United States | | 604 | | 17.1 | | | | 1,896 | | 19.6 | | |||||||||||
Total | $ | 3,532 | | 100.0 | % | | $ | 9,667 | | 100.0 | % | $ | 4,622 | | 100.0 | % | | $ | 10,818 | | 100.0 | % |
Contract Assets
Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia Commercialization Agreement. Accounts receivable –
10
related parties, net as of September 30, 2022,2023 and December 31, 20212022 included unbilled accounts receivable of $1.1$1.3 million and $1.8$1.7 million, respectively. The Company expects to invoice and collect all unbilled accounts receivable within 12 months.
Concentration of Revenue and Customers
For the three months ended September 30, 20222023 and 2021,2022, the Company derived 97%93% and 92%97%, respectively, of its total revenue from one customer, Ascensia. For the nine months ended September 30, 20222023 and 2021,2022, the Company derived 95%92% and 88%95%, respectively of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.
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5. Net Income (Loss) per Share
Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. DilutedAn aggregate of 83,951,061shares of common stock issuable upon the exercise of the PHC Exchange Warrant Shares and the Purchase Warrant Shares held by PHC are included in the number of outstanding shares used for the computation of basic net income (loss) per share for the three and nine months ended September 30, 2023. Since the shares are issuable for little or no consideration, sometimes referred to as “penny warrants”, they are considered outstanding in the context of earnings per share, as discussed in ASC 260-10-45-13.
Dilutive net income (loss) per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents.
Potentially dilutive common shares consist of shares issuable from restricted stock units, stock options, warrants and the Company’s convertible notes. Potentially dilutive common shares issuable upon vesting of restricted stock units and exercise of stock options and warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Company’s convertible notes are determined using the if converted method. The if-converted method assumes conversion of convertible securities at the beginning of the reporting period. Interest expense, dividends, and the changes in fair value measurement recognized during the period are added back to the numerator. The denominator includes the common shares issuable upon conversion of convertible securities.
In periods of net loss, all potentially dilutive common shares are excluded from the computation of the diluted net loss per share for those periods, as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net income per share for the periods shown:
| | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||
| | 2022 |
| 2021 | | 2022 |
| 2021 |
| | | | | | | | |
Net income (loss) | | (60,391) | | 42,914 | | 130,558 | | (386,907) |
Impact of conversion of dilutive securities | | — | | 1,385 | | (188,563) | | — |
| | | | | | | | |
Dilutive Net income (loss) | | (60,391) | | 44,299 | | (58,005) | | (386,907) |
| | | | | | | | |
Net income (loss) per share | | | | | | | | |
Basic | | (0.13) | | 0.10 | | 0.28 | | (0.93) |
Diluted | | (0.13) | | 0.08 | | (0.10) | | (0.93) |
| | | | | | | | |
Basic weighted average shares outstanding | | 472,475,747 | | 445,378,308 | | 464,244,736 | | 414,128,283 |
Dilutive potential common stock outstanding | | | | | | | | |
Stock-based awards | | — | | 15,520,414 | | 6,499,671 | | — |
2023 Notes | | — | | 4,617,646 | | 4,617,646 | | — |
2025 Notes | | — | | 39,689,142 | | 39,211,358 | | — |
PHC Notes | | — | | 65,348,857 | | 67,625,174 | | — |
Energy Capital Option | | — | | — | | 23,335,635 | | — |
Warrants | | — | | 11,206,148 | | 2,811,493 | | — |
Diluted weighted average shares outstanding | | 472,475,747 | | 581,760,516 | | 608,345,713 | | 414,128,283 |
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The following table sets forth the computation of basic and diluted net income (loss) per share for the periods shown:
| | | | | | | | | | | |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | ||||||
| | 2023 | |
| 2022 | | | 2023 |
| | 2022 |
| | | | | | | | | | | |
Net (loss) income | $ | (24,103) | | $ | (60,391) | | $ | (43,202) | | $ | 130,558 |
| | | | | | | | | | | |
Impact of conversion of dilutive securities | | — | | | — | | | — | | | (188,563) |
| | | | | | | | | | | |
Dilutive Net loss | $ | (24,103) | | $ | (60,391) | | $ | (43,202) | | $ | (58,005) |
| | | | | | | | | | | |
Net (loss) income per share | | | | | | | | | | | |
Basic | $ | (0.04) | | $ | (0.13) | | $ | (0.08) | | $ | 0.28 |
Diluted | $ | (0.04) | | $ | (0.13) | | $ | (0.08) | | $ | (0.10) |
| | | | | | | | | | | |
Basic weighted average shares outstanding | | 592,452,262 | | | 472,475,747 | | | 552,703,546 | | | 464,244,736 |
Dilutive potential common stock outstanding | | | | | | | | | | | |
Stock-based awards | | — | | | — | | | — | | | 6,499,671 |
2023 Notes | | — | | | — | | | — | | | 4,617,646 |
2025 Notes | | — | | | — | | | — | | | 39,211,358 |
PHC Notes | | — | | | — | | | — | | | 67,625,174 |
Energy Capital Option | | — | | | — | | | — | | | 23,335,635 |
Warrants | | — | | | — | | | — | | | 2,811,493 |
Diluted weighted average shares outstanding | | 592,452,262 | | | 472,475,747 | | | 552,703,546 | | | 608,345,713 |
Outstanding anti-dilutive securities not included in the diluted net income (loss) per share calculations were as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 | | 2021 |
| 2023 |
| 2022 |
| 2023 | | 2022 |
Stock-based awards | | 24,940,972 | | 1,949,958 | | 10,426,560 | | 28,502,846 | | 31,953,024 | | 24,940,972 | | 31,953,024 | | 10,426,560 |
2023 Notes | | 4,617,646 | | — | | — | | 4,617,646 | | — | | 4,617,646 | | — | | — |
2025 Notes | | 39,211,358 | | — | | — | | 39,689,142 | | 15,622,814 | | 39,211,358 | | 15,622,814 | | — |
PHC Notes | | 68,322,952 | | — | | — | | 65,757,177 | | — | | 68,322,952 | | — | | — |
PHC Option | | 31,512,605 | | — | | 22,717,076 | | — | | — | | 31,512,605 | | — | | 22,717,076 |
Energy Capital Option | | 30,372,058 | | — | | | | — | | — | | 30,372,058 | | — | | — |
Energy Capital Preferred Shares | | 30,372,058 | | — | | 30,372,058 | | — | ||||||||
Warrants | | 3,177,821 | | 116,581 | | 427,821 | | 13,177,822 | | 1,260,183 | | 3,177,821 | | 1,260,183 | | 427,821 |
Total anti-dilutive shares outstanding | | 202,155,412 | | 2,066,539 | | 33,571,457 | | 151,744,633 | | 79,208,079 | | 202,155,412 | | 79,208,079 | | 33,571,457 |
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6. | Marketable Securities |
Marketable securities available for sale, were as follows (in thousands):
| | | | | | | | | | | | | | | | | ||||||||
| | September 30, 2022 | | September 30, 2023 | ||||||||||||||||||||
| | | | Gross | | Gross | | Estimated | | | | Gross | | Gross | | Estimated | ||||||||
| | Amortized | | Unrealized | | Unrealized | | Market | | Amortized | | Unrealized | | Unrealized | | Market | ||||||||
|
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||
Commercial Paper | | $ | 32,614 | | — | | — | | $ | 32,614 | | $ | 26,281 | | $ | — | | $ | — | | $ | 26,281 | ||
Corporate debt securities | | $ | 37,209 | | — | | (425) | | $ | 36,784 | | 7,944 | | — | | (24) | | 7,920 | ||||||
Asset backed securities | | $ | 13,979 | | — | | (130) | | $ | 13,849 | | — | | — | | — | | — | ||||||
Government and agency securities | | $ | 44,949 | | | — | | | (630) | | $ | 44,319 | | | 35,482 | | | — | | | (35) | | | 35,447 |
Total | | $ | 128,751 | | $ | — | | $ | (1,185) | | $ | 127,566 | | $ | 69,707 | | $ | — | | $ | (59) | | $ | 69,648 |
| | | | | | | | | | | | | | | | | ||||||||
| | December 31, 2021 | | December 31, 2022 | ||||||||||||||||||||
| | | | Gross | | Gross | | Estimated | | | | Gross | | Gross | | Estimated | ||||||||
| | Amortized | | Unrealized | | Unrealized | | Market | | Amortized | | Unrealized | | Unrealized | | Market | ||||||||
|
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||
Commercial Paper | | $ | 57,369 | | — | | — | | $ | 57,369 | | $ | 41,503 | | $ | — | | $ | — | | $ | 41,503 | ||
Corporate debt securities | | $ | 39,825 | | — | | (77) | | $ | 39,748 | | 32,331 | | — | | (189) | | 32,142 | ||||||
Asset backed securities | | $ | 26,736 | | — | | (29) | | $ | 26,707 | | 8,363 | | — | | (103) | | 8,260 | ||||||
Government and agency securities | | $ | 24,609 | | | — | | | (106) | | $ | 24,503 | | | 38,956 | | | — | | | (386) | | | 38,570 |
Total | | $ | 148,539 | | $ | — | | $ | (212) | | $ | 148,327 | | $ | 121,153 | | $ | — | | $ | (678) | | $ | 120,475 |
The following are the scheduled maturities as of September 30, 20222023 (in thousands):
| | | | | | | | ||
2022 (remaining three months) |
| $ | 29,625 | ||||||
2023 | |
| 90,175 | ||||||
| | Net | | Fair | |||||
| | Carrying Amount | | Value | |||||
2023 (remaining three months) |
| $ | 36,156 | | $ | 39,231 | |||
2024 | | | 2,221 | |
| 33,551 | |
| 30,417 |
2025 | | | 6,730 | ||||||
Total |
| $ | 128,751 |
| $ | 69,707 | | $ | 69,648 |
The Company periodically reviews its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For debt securities where the fair value of the investment is less than the amortized cost basis, the Company assesses at the individual security level, for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst
13
reports, and the severity of impairment. Unrealized losses on available-for-sale securities at September 30, 20222023 were not significant and were primarily due to changes in interest rates and not due to increased credit risk associated with specific securities. The Company does not intend to sell these impaired investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
7. Inventory, net
Inventory, net of reserves, consisted of the following (in thousands):
| | | | | | | | | | | | |
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
| | 2022 |
| 2021 | | 2023 |
| 2022 | ||||
Finished goods |
| $ | 1,428 |
| $ | 1,012 |
| $ | 2,440 |
| $ | 1,697 |
Work-in-process | |
| 4,306 | |
| 3,770 | |
| 5,981 | |
| 4,057 |
Raw materials | |
| 1,523 | |
| 1,534 | |
| 1,305 | |
| 1,552 |
Total | | $ | 7,257 | | $ | 6,316 | | $ | 9,726 | | $ | 7,306 |
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The Company charged $0.5less than $0.1 million and $1.1 million, respectively, to cost of sales for each of the three and nine months ended September 30, 20222023 and $1.8$0.5 million to cost of sales for each of the three and nine months ended September 30, 20212022 to reduce the value of inventory for items that are potentially obsolete due to expiry, in excess of product demand, or to adjust costs to their net realizable value.
8. 8. Prepaid Expenses and Other Current Assets and Deposits and other assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| | | | | | | | | | | | |
| | September 30, | | December 31, | | September 30, | | December 31, | ||||
| | 2022 |
| 2021 | | 2023 |
| 2022 | ||||
Contract manufacturing⁽¹⁾ | | $ | 4,028 | | $ | 5,036 | | $ | 4,577 | | $ | 4,097 |
Tax credits receivable(2) | | | 1,793 | | | — | ||||||
Insurance | | | 506 | | | 74 | | | 340 | | | 1,243 |
Clinical and Preclinical | | | 472 | | | 142 | | | 180 | | | 924 |
Interest receivable | |
| 369 | |
| 443 | |
| 218 | |
| 336 |
Rent and utilities | | | 151 | | | 132 | ||||||
Research and development | | | 9 | | | 39 | | | 135 | | | 67 |
Accounting and Audit | | | 148 | | | — | | | 117 | | | 270 |
Rent and utilities | | | 108 | | | 105 | ||||||
IT and software |
| | 21 | |
| 225 | ||||||
Sales and Marketing | | | 17 | | | 98 | ||||||
Other | | | 36 | | | 56 | | | 46 | | | 359 |
Total prepaid expenses and other current assets | | $ | 5,714 | | $ | 6,218 | | $ | 7,557 | | $ | 7,428 |
(1) | Includes deposits to contract manufacturers for manufacturing process. |
(2) | Refundable employee retention credits, enacted under the CARES Act. |
9. | Accrued Expenses and Other Current Liabilities |
DepositsAccrued expenses and other assets ascurrent liabilities consisted of September 30, 2022 and December 31, 2021, were $3.2 million and $1.1 million, respectively. As of September 30, 2022, deposits and other assets is mainly comprised of $3.1 million for our right-of-use asset related to our operating lease ofthe following (in thousands):
| | | | | | |
| | September 30, | | December 31, | ||
| | 2023 |
| 2022 | ||
Research and development | | $ | 4,168 | | $ | 3,502 |
Professional and administrative services | | | 3,947 | | | 1,053 |
Compensation and benefits | |
| 3,569 | |
| 4,699 |
Contract manufacturing |
| | 1,396 |
| | 2,480 |
Product warranty and replacement obligations | | | 517 | | | 781 |
Operating lease | |
| 413 | |
| 725 |
Interest on notes payable | | | 381 | | | 149 |
Sales and marketing services | | | 242 | | | 2,050 |
Other | | | — | | | 14 |
Total accrued expenses and other current liabilities | | $ | 14,633 | | $ | 15,453 |
10. | Leases |
The Company leases approximately 33,000 square feet of research and office space for ourits corporate headquarters.headquarters under a non-cancelable operating lease. In June 2022,May 2023, the Company extendedamended our lease, extending the lease term through May 31, 2033, and obtained a tenant improvement allowance of $1.3 million. The Company accounted for the amendment as a lease modification and remeasured the ROU asset and lease liability as of the amendment date, which resulted in an increase of $2.5 million to the ROU asset, and an increase of $3.8 million to the lease liability. The Company has one option to extend the term for an additional five-year term. Weperiod of five years beginning on June 1, 2033. The rent expense is recognized on a straight-line basis through the end of the lease term, excluding option renewals. The difference between the straight-line rent amounts and amounts payable under the lease is recorded a modification to our right-of-use asset for the right-to-use the underlying asset for the additional lease term.as deferred rent.
Operating lease expense for the nine months ended September 30, 2023 and 2022 was $0.6 million and $0.5 million, respectively.
14
|
|
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | |
| | September 30, | | December 31, | ||
| | 2022 |
| 2021 | ||
Compensation and benefits | | $ | 3,462 | | $ | 3,484 |
Research and development | | | 3,417 | | | 2,145 |
Interest on notes payable | | | 1,887 | | | 2,144 |
Sales and marketing services | | | 155 | | | 1,962 |
Product warranty and replacement obligations | |
| 661 | |
| 1,697 |
Professional and administration services | |
| 1,334 | |
| 1,011 |
Contract manufacturing |
| | 1,675 |
| | 914 |
Operating lease | | | 730 | | | 904 |
Other | | | 24 | | | 3 |
Total accrued expenses and other current liabilities | | $ | 13,345 | | $ | 14,264 |
Other liabilities as of September 30, 2022 and December 31, 2021, were $2.9 million and $0.6 million, respectively. Other liabilities is comprised of the non-current portion of our operating lease liability for our corporate headquarters. In June 2022, the Company extended our lease for an additional five-year term. We recorded a modification to the lease liability upon renewal to reflect our obligation to make the additional lease payments.
The current portion of our operating lease liability is included in the line-item accrued expenses and other current liabilities on our balance sheet. As of September 30, 2022 and December 31, 2021, the current portion of the operating lease liability was $0.7 million and $0.9 million, respectively.
The following table summarizes the lease assets and liabilities as of September 30, 2023 and December 31, 2022 (in thousands):
| | | | | | | | |
| | | | | | September 30, | | December 31, |
Operating Lease Assets and Liabilities | | Balance Sheet Classification | | 2023 | 2022 | |||
Assets |
| | | | | | | |
Operating lease ROU assets | | | Deposits and other assets | | $ | 5,261 | $ | 3,032 |
Tenant improvement allowance receivable | | | Deposits and other assets | | | 1,312 | | — |
Liabilities | | | | | | | | |
Current operating lease liabilities | | | Accrued expenses and other current liabilities | | $ | 413 | $ | 725 |
Non-current operating lease liabilities | | | Other non-current liabilities | | | 6,312 | | 2,689 |
Total operating lease liabilities | | | | | $ | 6,725 | $ | 3,414 |
The following table summarizes the maturity of undiscounted payments due under operating lease liabilities and the present value of those liabilities as of September 30, 2023 (in thousands):
| | | |
2023 (remaining 3 months) |
| $ | 283 |
2024 | | | 912 |
2025 | | | 939 |
2026 | | | 967 |
2027 | | | 996 |
Thereafter | | | 5,934 |
Total | | | 10,031 |
Less: Present value adjustment | | | (3,306) |
Present value of lease liabilities | | $ | 6,725 |
The following table summarizes the weighted-average lease term and weighted-average discount rate as of September 30, 2023:
| | | |
Remaining lease term (years) | | 2023 | |
Operating leases | | 9.6 | |
Discount rate | | | |
Operating leases | | 8.5 | % |
| | | |
| Product Warranty Obligations |
The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual replacements to revenue.
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At each of September 30, 2022,2023 and December 31, 2021,2022, the warranty reserve was $0.7$0.5 million and $0.8 million, respectively. The following table provides a reconciliation of the change in estimated warranty liabilities for the nine months ended September 30, 20222023, and for the twelve months ended December 31, 20212022 (in thousands):
| | | | | | | | | | | | |
| | September 30, | | December 31, | | September 30, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Balance at beginning of the period | | $ | 723 | | $ | 646 | | $ | 781 | | $ | 723 |
Provision for warranties during the period | | | (53) | | | 781 | | | 136 | | | 166 |
Settlements made during the period | | | (8) | | | (704) | | | (400) | | | (108) |
Balance at end of the period | | $ | 662 | | $ | 723 | | $ | 517 | | $ | 781 |
15
| Notes Payable, Preferred Stock and Stock Purchase Warrants |
Term Loans
Loan and Security Agreement
On September 8, 2023 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. and its managed fund (collectively, the “Lenders"), pursuant to which the Lenders have agreed to make available to Senseonics up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to Senseonics upon Senseonics’ satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on September 1, 2027 (the “Maturity Date”).
The loans under the Loan Agreement bear interest at an annual rate equal to the greater of (i) the prime rate as reported in The Wall Street Journal plus 1.40% and (ii) 9.90%. Borrowings under the Loan Agreement are repayable in monthly interest-only payments through (a) initially, September 1, 2026 and (b) if the Company satisfies the Interest Only Extension Conditions (as defined in the Loan Agreement), the Maturity Date. After the interest-only payment period, borrowings under the Loan Agreement are repayable in equal monthly payments of principal and accrued interest until the Maturity Date.
At the Company’s option, the Company may prepay all or any portion of the outstanding borrowings under the Loan Agreement, subject to a prepayment fee equal to (a) 3.0% of the principal amount being prepaid if the prepayment occurs within one year of the Effective Date, 2.0% of the principal amount being prepaid if the prepayment occurs during the second year following the Effective Date, and 1.00% of the principal amount being prepaid if the prepayment occurs more than two years after the Effective Date and prior to the Maturity Date. In addition, the Company paid a $375,000 facility fee upon closing and will pay additional facility charges in connection with any borrowing of the Tranche 2 Loan or Tranche 3 Loan, in each case in the amount of 0.50% of the amount of such tranche of loans. The Loan Agreement also provides for an end of term fee in an amount equal to 6.95% of the aggregate principal amount of loan advances actually made under the Loan Agreement, which fee is due and payable on the earliest to occur of (i) the Maturity Date, (ii) the date the Company prepays the outstanding loans in full, and (iii) the date that the secured obligations become due and payable. The end of term fee is accreted to interest expense over the term of the loans.
The Company’s obligations under the Loan Agreement are secured, by a first-priority security interest in substantially all of its assets. The Loan Agreement contains a minimum cash covenant that requires the Company to hold unrestricted cash equal to 30% of the outstanding loan amount under the Loan Agreement. The Loan Agreement also contains a performance covenant, commencing on July 1, 2024, that requires the Company to generate net product revenue on a trailing six-month basis in excess of specified percentage for applicable measuring periods, subject to certain exceptions.
In addition, the Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers,
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corporate changes, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions. The Loan Agreement also contains events of default including, among other things, payment defaults, breach of covenants, material adverse effect, breach of representations and warranties, cross-default to material indebtedness, bankruptcy-related defaults, judgment defaults, revocation of certain government approvals, and the occurrence of certain adverse events. Following an event of default and any applicable cure period, a default interest rate equal to the then-applicable interest rate plus 4.0% may be applied to the outstanding amount, and the Lenders will have the right to accelerate all amounts outstanding under the Loan Agreement, in addition to other remedies available to them as secured creditors of the Company.
In addition, in connection with the issuance of the Tranche 1 Loan, the Company issued warrants to the Lenders (collectively, the “Warrants”) to acquire an aggregate of 832,362 shares of the Company’s common stock at an exercise price of $0.6007 per share (the “Warrant Shares”). The Warrants may be exercised through the earlier of (i) the seventh anniversary of the Effective Date and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the Warrants. The number of Warrant Shares for which the Warrants are exercisable and the associated exercise price are subject to certain customary proportional adjustments for fundamental events, including stock splits and reverse stock splits, as set forth in the Warrants. The proceeds from the Loan Agreement were allocated between the Tranche 1 Loan and the Warrants based on their respective fair value of $25.0 million and $0.4 million, and the amount allocated to the Warrants was recorded in equity resulting in a debt discount to the Tranche 1 Loan that is being amortized as additional interest expense over the term of the loan agreement using the effective interest method.
In connection with Loan Agreement, the Company incurred $1.1 million in debt issuance costs and debt discounts which are netted against the principal balance of the initial term loan and amortized as interest expense over the term of the initial term loan using an effective interest rate of 13.01%.
Pursuant to the Loan Agreement, the Company also agreed to issue additional seven year term warrants upon the funding of the Tranche 2 and Tranche 3 Loans, which warrants would be exercisable for an aggregate number of shares equal to 2.0% of the funded loan amount divided by the exercise price equal to the three-day volume-weighted average price at the time of each advance.
PPP Loan
On April 22, 2020, the Company received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) was evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).
Under the terms of the PPP Note and the PPP Loan, interest accrued on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note was two years. In April 2022, the Company repaid the outstanding principal and accrued interest in full.
Convertible Preferred Stock and Warrants
Equity Line Agreement
On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital, which providesprovided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital iswas committed to purchase up to an aggregate of $12.0 million of shares of the Company’s Series B Preferred Stock at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including the Company having less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company hashad the right, at sole discretion, to present Energy Capital with a Regular Purchase Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at the Purchase Price equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share,
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subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement providesprovided that the Company shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there have been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital hashad the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock.
The Company accounted for the Equity Line Agreement as a put/call option (the “Energy Capital Option”). This put/call option iswas classified as a liability in accordance with ASC 480, Distinguishing liabilities from equity, on the Company’s balance sheet and was recorded at the estimated fair value of $4.2 million upon issuance. The put/call option iswas required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense). In connection with the execution of the Equity Line Agreement, the Company incurred $7.6 million in debt issuance costs in fiscal year 2020. The fair value of the Energy Capital Option as of September 30, 2022 and December 31, 2021 was $28.1$69.4 million. The Company adjusted the Energy Capital Option to its fair value of $25.7 million and $69.4 million, respectively.on the exercise date, recognizing a fair value adjustment gain of $43.7 million.
Concurrently with entry into the Equity Line Agreement, the Company issued a warrant to Energy Capital, exercisable beginning on May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share (the “Warrant”“Energy Capital Warrant”). The Energy Capital Warrant was exercised on a net basis in February 2022 and Energy Capital received 8,917,535 shares of common stock upon the net exercise of the Energy Capital Warrants.
Securities Purchase Agreement
On August 9, 2020,March 13, 2023, pursuant to the Company entered into a StockSecurities Purchase Agreement with Masters, pursuant to whichPHC, the Company issued and sold Masters 3,000to PHC in a private placement a warrant (the “Purchase Warrant”) to purchase 15,425,750 shares of Series A Preferred Stock, atcommon stock (the “Purchase Warrant Shares”). The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $1,000$0.001 per sharePurchase Warrant Share. On the private placement closing date, the Company received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by the Company. All or any part of the Purchase Warrant shall is exercisable by the holder at any time and from time to time.
The Company determined that the Purchase Warrant shall be classified as equity in accordance with ASC Topic 480, Distinguishing Liabilities from Equity and ASC Topic 815. At issuance, the Company recorded the estimated fair value of the Purchase Warrant in the amount of $14.3 million as additional paid-in-capital in the Company’s consolidated balance sheets.
Because PHC was an initial closing. Masters also hadexisting stockholder of the optionCompany at the time of the transaction, the $0.7 million excess of the purchase price over the fair value of the Purchase Warrant was recognized as an equity transaction and recorded as a capital contribution made by PHC to the Company as additional paid-in-capital in the Company’s consolidated balance sheets.
Additionally, on March 13, 2023, the Company entered into the Exchange Agreement with PHC, pursuant to which PHC agreed to exchange (the “PHC Exchange”) its $35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “PHC Exchange Warrant”) to purchase up to an additional 27,00068,525,311 shares of Series A Preferred Stock atcommon stock (the “PHC Exchange Warrant Shares”). The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $1,000$0.001 per share in subsequent closings, subject to the terms and conditionsPHC Exchange Warrant Share. All or any part of the Stock Purchase Agreement, as amended,PHC Exchange Warrant is exercisable by the holder at any time and from time to time. The number of PHC Exchange Warrant Shares represents the number of shares of common stock previously issuable upon conversion of the PHC Notes, in accordance with the original terms of the notes, including a number of shares in respect of accrued and unpaid interest through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate anthe closing date, plus additional shares with a value of $675,000 reflecting a portion of the future interest payments forgone by PHC. On March 31, 2023 (6:00 am Japan Standard Time on April 1, 2023), the PHC Exchange
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22,783 shareswas consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of Series A Preferred Stock, resultingthe PHC Notes.
The Company determined that the PHC Exchange Warrant shall be classified as equity in additional gross proceedsaccordance with ASC 480 and ASC 815. At March 31, 2023, the Company recorded the estimated fair value of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, includingPHC Exchange Warrant in the eventamount of any stock split. All 25,783$48.6 million as additional paid-in-capital in the Company’s consolidated balance sheets.
As of September 30, 2023, the Purchase Warrant and the PHC Exchange Warrant remained unexercised and outstanding. As they are prefunded warrants, the Company included the entirety of the warrant shares as weighted average outstanding shares in the calculation of Series A Preferred Stock have been converted to shares of common stock. Masters’ option to purchase the remaining unissued shares of Series A Preferred Stock expired on January 11, 2021, resulting in a gain on extinguishment of $3.5 million.its basic earnings per share.
Convertible Notes
PHC Notes
On August 9, 2020, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PHC, as the purchaser (together with the other purchasers from time to timetime-to-time party thereto, the “Note Purchasers”) and Alter Domus (US) LLC, as collateral agent. Pursuant to the Note Purchase Agreement, the Company borrowed $35.0 million in aggregate principal through the issuance and sale of the PHC Notes on August 14, 2020 (the “Closing Date”). The Company also issued 2,941,176 shares of its common stock, $0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date. The Financing Fee Shares are accounted for as debt discount in the amount of $1.5 million.
The PHC Notes arewere senior secured obligations of the Company and will bewere guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at the Company’s option, payment in kind. The interest rate decreased to 8.0% in April 2022 as a result of the Company having obtained FDA approval for the 180-day Eversense E3 system for marketing in the United States. The maturity date for the PHC Notes iswas October 31, 2024 (the “Maturity Date”). The obligations under the PHC Notes arewere secured by substantially all of the Company’s and its subsidiary’s assets.
The Note Purchasers arewere entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes (including any interest added thereto as payment in kind), equivalent to a conversion price of approximately $0.54$0.53 per share, subject to specified anti-dilution adjustments, including adjustments for the Company’s issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or certain corporate events that occuroccurred prior to the maturity date, the Company will,would have been required, in certain circumstances, to increase the conversion rate for a holder who electselecting to convert its PHC Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will bewould have been required to pay cash in lieu of delivering make whole shares unless the Company obtainsobtained stockholder approval to issue such shares.
Subject to specified conditions, on or after October 31, 2022, the PHC Notes arewould have become redeemable by the Company if the closing sale price of the common stock exceedswere to exceed 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes arewould have become redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which hashad been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at least six months prior to the Maturity Date or a call premium of 125% if redeemed within six months of the Maturity Date.
The Note Purchase Agreement containscontained customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions arewere subject to certain minimum thresholds and exceptions. The
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Note Purchase Agreement also containscontained customary events of default, after which the PHC Notes would have become due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross defaults to certain other agreements, judgments against the Company, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.
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The Company also hashad the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022 (the “PHC Option”), which was initially contingent upon obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date, and which approval the Company successfully obtained in February 2022.2022. The PHC Option represents a freestanding financial instrumentoption was not exercised and is recognized as an asset in the Company’s consolidated balance sheets at fair valueexpired on the date of issuance and subject to impairment testing in each reporting period prior to the options exercise or expiration. The Company acknowledges that while the PHC Option is subject to impairment testing, there is no explicit guidance regarding how impairment should be assessed and measured for the PHC Option. As such, the measurement alternative in ASC Topic 321, Investments—Equity Securities, for equity securities without readily determinable fair values can be applied by analogy to assess and measure impairment of the PHC Option. The Company developed an estimated fair value at September 30,December 31, 2022 and December 31, 2021 to be $0.1 million and $0.2 million, respectively, andthe Company recognized a loss on extinguishment of less than $0.1 million was recognized in net income as the difference between the fair value of the investment and its carrying amount for the nine months ended September 30, 2022.million.
The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default. On the date of issuance, the Company recorded the fair value of the embedded features in the amount of $25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.815. The derivative iswas adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at September 30, 2022 and December 31, 2021 was $63.8 million and $149.1 million, respectively.
In connection with the issuance of the Note Purchase Agreement,PHC Notes, the Company incurred $2.9 million in debt issuance costs and debt discounts. The associated debt issuance costs were recorded as a contra liability in the amount of $1.4 million and arewere deferred and amortized as additional interest expense over the term of the notes.notes at an effective interest rate of 29.19%. There have beenwere no conversions of the PHC Notes since inceptionprior to the exchange of the Note Purchase Agreement.PHC Notes for the PHC Exchange Warrant described above.
As described above, the PHC Exchange Agreement with PHC was consummated on March 31, 2023, whereby PHC exchanged the PHC Notes in $35.0 million principal amount and all accrued and unpaid interest for the PHC Exchange Warrant. On March 31, 2023, the Company was released from its obligation under the PHC Notes.
Upon execution of the PHC Exchange Agreement, the exercise of the original conversion feature of the PHC Notes became remote. Accordingly, the Company remeasured the embedded derivative to its fair value of $0. The Company recognized a change in fair value of the embedded derivative of $44.2 million in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.
The Company accounted for the PHC Exchange as an extinguishment of the PHC Notes, and thus, it derecognized the PHC Notes in its consolidated balance sheets and recognized a loss of $25.4 million as the difference between the carrying value plus accrued interest of the PHC Notes of $23.2 million and the $48.6 million fair value of the PHC Exchange Warrant as an extinguishment loss in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. As a result of the PHC Exchange, the Company recognized a total net gain on exchange of the PHC notes of $18.8 million representing the gain on change in the fair value of the PHC Notes conversion feature recognized as an embedded derivative and the loss on extinguishment of the PHC Notes in exchange for the PHC Exchange Warrant.
2025 Notes
In July 2019, the Company issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. 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).
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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 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. The fair value of the derivative at September 30, 2022 and December 31, 2021 was $19.9 million and $81.4 million, respectively.
In connection with the Exchange onOn April 24, 2020, $24.0 million aggregate principal of the Company’s outstanding 2025 Notes held by Highbridge Capital Management, LLC (“Highbridge”) were exchanged for (i) $15.7 million of Second Lien Notes (the “Second Lien Notes”), (i)(ii) 11,026,086 shares of common stock, (ii)(iii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iii)(iv) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”).exchanged. This transaction modified the original 2025 Notes outstanding with Highbridge and resulted in $13.2 million of deferred issuance fees and debt discounts associated with the exchanged 2025 Notes being transferred as a discount to the Second Lien Notes.
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As of December 31,In January 2021, there were conversions of $6.5 million of outstanding principal amount of the 2025 notes for 4,924,998 shares of common stock. Accordingly, $3.2 million of allocated deferred issuance costs and debt discounts were recognized as a loss on extinguishment of debt.
On August 10, 2023, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (the “Noteholders”) of the Company’s currently outstanding 2025 Notes. Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $30.8 million in aggregate principal amount of the 2025 Notes (the “Exchanged Notes”) for a combination of $7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”). The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.
The Company accounted for the Exchanges as an extinguishment of the Exchanged Notes and the associated embedded derivative and recognized a loss of $4.6 million in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The extinguishment loss represents the difference between (i) the carrying value of the Exchanged Notes (inclusive of the fair value of the embedded derivative) and (ii) the sum of $7.5 million cash payment, the fair value of the Exchanged Shares, and transaction costs incurred in the Exchange.
Following the Exchanges, approximately $20.4 million aggregate principal amount of the 2025 Notes remain outstanding. The remaining unamortized debt discount and debt issuance costs are amortized as interest expense over the term of the loan at an effective interest rate of 15.54%. The fair value of the derivative at September 30, 2023 and December 31, 2021. There were no conversions of 2025 Notes during the nine months ended September 30, 2022.2022 was $0.2 million and $4.7 million, respectively.
2023 Notes
In the first quarter of 2018, the Company issued $53.0 million in aggregate principal amount of senior convertible notes due February 1, 2023 (the “2023 Notes”). 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. 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 will 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
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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.
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 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 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 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. On January 31, 2023, the Company repaid the outstanding principal and accrued interest in full. The derivative was unexercised upon maturity and the fair value in the amount of $0.02 million was recognized as an extinguishment gain in the derivative at September 30, 2022caption “Other income (expense)” in Company’s consolidated statement of operations and December 31, 2021 was $0.3 million and $5.8 million, respectively.comprehensive loss.
There were no conversions of 2023 Notes during the nine months ended September 30, 2022. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as other current liability on the Company’s consolidated balance sheet at September 30, 2022.
The following carrying amounts were outstanding under the Company’s notes payable as of September 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | | | |||||||
| September 30, 2023 | |||||||||||||
| Principal ($) | | Debt (Discount) Premium ($)⁽¹⁾ | | Issuance Costs ($) | | Carrying Amount ($) | |||||||
2025 Notes | 20,399 | | (3,732) | | (62) | | 16,605 | |||||||
Loan and Security Agreement | 25,000 | | (880) | | (240) | | 23,880 | |||||||
| | | | | | | | | | | | | | |
| September 30, 2022 | December 31, 2022 | ||||||||||||
| Principal ($) | | Debt Discount ($) | | Issuance Costs ($) | | Carrying Amount ($) | Principal ($) | | Debt (Discount) Premium ($)⁽¹⁾ | | Issuance Costs ($) | | Carrying Amount ($) |
2023 Notes | 15,700 | | (477) | | - | | 15,223 | 15,700 | | (121) | | - | | 15,579 |
2025 Notes | 51,199 | | (16,500) | | (276) | | 34,423 | 51,199 | | (15,029) | | (252) | | 35,918 |
PHC Notes | 35,000 | | (15,068) | | (921) | | 19,011 | 35,000 | | (13,698) | | (837) | | 20,465 |
| | | | | | | | |||||||
| December 31, 2021 | |||||||||||||
| Principal ($) | | Debt Discount ($) | | Issuance Costs ($) | | Carrying Amount ($) | |||||||
2023 Notes | 15,700 | | (1,499) | | - | | 14,201 | |||||||
2025 Notes | 51,199 | | (20,535) | | (344) | | 30,320 | |||||||
PHC Notes | 35,000 | | (18,587) | | (1,136) | | 15,277 | |||||||
PPP Loan | 2,926 | | - | | - | | 2,926 |
(1) | Includes accretion of end of term fees payable at maturity |
Interest expense related to the notes payable for the nine months ended September 30, 2023 and 2022 was as follows (dollars in thousands):
| | | | | | | | | |
| Nine Months Ended September 30, 2023 | ||||||||
| Interest Rate | | Interest ($) | | Debt Discount and Fees ($)⁽¹⁾ | | Issuance Costs ($) | | Total Interest Expense ($) |
2023 Notes | 5.25% | | 69 | | 120 | | - | | 189 |
2025 Notes | 5.25% | | 1,881 | | 4,808 | | 81 | | 6,770 |
PHC Notes | 8.00% | | 700 | | 1,442 | | 88 | | 2,230 |
Loan and Security Agreement | 9.90% | | 158 | | 38 | | 3 | | 199 |
Total | | | 2,808 | | 6,408 | | 172 | | 9,388 |
| | | | | | | | | |
| | | | | | | | | |
| Nine Months Ended September 30, 2022 | ||||||||
| Interest Rate | | Interest ($) | | Debt Discount and Fees ($)⁽¹⁾ | | Issuance Costs ($) | | Total Interest Expense ($) |
2023 Notes | 5.25% | | 618 | | 1,022 | | - | | 1,640 |
2025 Notes | 5.25% | | 2,002 | | 4,035 | | 68 | | 6,104 |
PHC Notes | 8.00% | | 2,319 | | 3,519 | | 215 | | 6,053 |
PPP Loan | 1.00% | | 6 | | - | | - | | 6 |
Total | | | 4,945 | | 8,576 | | 283 | | 13,803 |
(1) | Includes accretion of end of term fees payable at maturity |
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Interest expense related to the notes payable for the nine months ended September 30, 2022 and 2021 was as follows (dollars in thousands):
| | | | | | | | | | | |
| Nine Months Ended September 30, 2022 | ||||||||||
| Interest Rate | | Interest ($) | | Debt Discount and Fees ($) | | Issuance Costs ($) | | Loss on Extinguishment ($) | | Total Interest Expense ($) |
2023 Notes | 5.25% | | 618 | | 1,022 | | - | | - | | 1,640 |
2025 Notes | 5.25% | | 2,002 | | 4,035 | | 68 | | - | | 6,104 |
PHC Notes | 8.00% | | 2,319 | | 3,519 | | 215 | | - | | 6,053 |
PPP Loan | 1.00% | | 6 | | - | | - | | - | | 6 |
Total | | | 4,945 | | 8,576 | | 283 | | - | | 13,803 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2021 | ||||||||||
| Interest Rate | | Interest ($) | | Debt Discount and Fees ($) | | Issuance Costs ($) | | Loss on Extinguishment ($) | | Total Interest Expense ($) |
2023 Notes | 5.25% | | 618 | | 931 | | - | | - | | 1,549 |
2025 Notes | 5.25% | | 2,044 | | 3,362 | | 56 | | 3,183 | | 8,645 |
PHC Notes | 9.50% | | 2,456 | | 2,627 | | 161 | | - | | 5,244 |
PPP Loan | 1.00% | | 44 | | - | | - | | - | | 44 |
Total | | | 5,162 | | 6,920 | | 217 | | 3,183 | | 15,482 |
The following are the scheduled maturities of the Company’s notes payable (including end of term fees) as of September 30, 20222023 (in thousands):
| | | |
2022 (remaining three months) |
| $ | — |
2023 | |
| 15,700 |
2024 | | | 35,000 |
2025 | | | 51,199 |
Total |
| $ | 101,899 |
| | | |
2023 (remaining three months) |
| $ | — |
2024 | |
| — |
2025 | | | 20,399 |
2026 | | | 7,397 |
Thereafter | | | 19,341 |
Total |
| $ | 47,137 |
| Stockholders’ Equity (Deficit) |
In November 2021, the Company entered into the 2021 Sales Agreement with Jefferies, under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as the sales agent in an “at the market” offering. Jefferies will receive a commissionreceived commissions up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the nine months ended September 30, 2023, the Company received $7.4 million in net proceeds from the sale of 9,944,663 shares of its common stock under the 2021 Sales Agreement. In 2022, the Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement. On August 7, 2023, the Company and Jefferies mutually agreed to terminate the 2021 Sales Agreement, effective as of August 7, 2023. At the time of termination, approximately $106.6 million remained available for issuance pursuant to the 2021 Sales Agreement.
In November 2019,August 2023, the Company entered into the 2019 Salesan Equity Distribution Agreement (the “Equity Distribution Agreement”) with JefferiesGoldman Sachs & Co. LLC (“GS”), under which allowed the Company to issuecould offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0$106.6 million through GS as its sales agent in an “at the market” offering. GS will receive a commission up to 3.0% of the gross proceeds of its common stock. In June 2021, the Company sold 12,830,333 shares ofany common stock sold through GS under the 2019 Sales Agreement, resulting in gross proceedsEquity Distribution Agreement. The shares will be offered and sold pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on August 10, 2023. As of $48.4 million.
During the nine months ended September 30, 2021, in addition to the shares sold2023, no sales have been made under the 2019 Sales Agreement, the Company sold 99,740,259 shares of common stock, of which 59,740,259 shares of common stock were sold in the 2021 Public Offering and 40,000,000 shares of common stock were sold in the Registered Direct Offering. For additional information on the 2021 Public Offering and the Registered Direct Offering, see Note 2—Liquidity and Capital Resources.Equity Distribution Agreement.
13.14. Stock-Based Compensation
2015 Plan
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 units may be granted to the Company’s employees and certain other persons, such as officers and directors, in accordance with the 2015 Plan provisions. In February 2016, the Company’s Board of Directors adopted, and the Company’s stockholders approved, an Amended and
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Restated 2015 Equity Incentive Plan (the “Amended and Restated 2015 Plan”), which became effective on February 20, 2016. The Company’s Board of Directors may 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 of the Company’s common stock reserved for issuance automatically increases on January 1 of each year, ending on January 1, 2026, by 3.5% of the total number of shares of its common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by its Board of Directors. As of September 30, 2022, 20,390,9402023, 28,974,957 shares remained available for grant under the Amended and Restated 2015 Plan.
Inducement 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
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only persons eligible to receive grants of awards 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 non-statutory options, restricted stock unit awards and other equity incentive awards. As of September 30, 2022, 701,0712023, 172,256 shares remained available for grant under the Inducement Plan.
Commercial Equity Plan
On January 30, 2023, the Company adopted the Senseonics Holdings, Inc. 2023 Commercial Equity Plan (the “Commercial Equity Plan”), pursuant to which the Company reserved 10,000,000 shares of common stock for issuance. Eligible recipients under the plan are non-employees of Senseonics, including employees of our global commercial partner, Ascensia, who assist with the commercialization of our products. An “Award” is any right to receive the Company’s common stock pursuant to the Commercial Equity Plan, consisting of non-statutory options and restricted stock unit awards. The Company has issued 2,937,500 shares under the Commercial Equity Plan since adoption. As of September 30, 2023, 7,062,500shares remained available for grant under the Commercial Equity Plan.
2016 Employee Stock Purchase Plan
In February 2016, the Company adopted the 2016 Employee Stock Purchase Plan, (the “2016 ESPP”). The 2016 ESPP became effective on March 17, 2016. The maximum number of shares of common stock that may be issued under the 2016 ESPP was initially 800,000 shares and automatically increases on January 1 of each year, ending on and including January 1, 2026, by 1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; provided, however, the Board of Directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock. AtAs of September 30, 20222023, there were 13,050,52317,624,582 shares of common stock available for issuance under the 2016 ESPP. For the nine months ended September 30, 2022,2023, there were purchases of 93,053222,312 shares of common stock pursuant to this plan.the 2016 ESPP.
The 2016 ESPP permits participants to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time and deductions not yet used in a purchase are refundable upon employment termination. The Company initiated its first 2016 ESPP offering period on August 1, 2019 and new offering periods occur every six months thereafter, each consisting of two purchase periods of six months in duration ending on or about January 31st and July 31st of each year. A participant may only be in one offering at a time. On February 1, 2020, there were 566,573 shares purchased in connection with the initial offering period. The 2016 ESPP contains an offering reset provision whereby if the fair market value of a share on offering date of an ongoing offering is less than or equal to the fair market value of a share on a new offering date, the ongoing offering will terminate immediately after the purchase date and rolls over to the new offering.
The 2016 ESPP is considered compensatory for financial reporting purposes.
1997 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 1,223,2731,026,870 shares of the Company’s common stock underlying options have vested under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the
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| Fair Value Measurements |
The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 20222023 and December 31, 20212022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2022 |
| | September 30, 2023 |
| ||||||||||||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds⁽¹⁾ | | $ | 33,610 | | $ | 33,610 | | | — | | | — | | | $ | 52,696 | | $ | 52,696 | | | — | | | — | |
Commercial paper | | | 32,614 | | | — | | | 32,614 | | | — | | | | 26,281 | | | — | | | 26,281 | | | — | |
Corporate debt securities | | | 36,784 | | | — | | | 36,784 | | | — | | | | 7,920 | | | — | | | 7,920 | | | — | |
Asset backed securities | | | 13,849 | | | — | | | 13,849 | | | — | | | | — | | | — | | | — | | | — | |
Government and agency securities | | | 44,319 | | | 37,403 | | | 6,916 | | | — | | | | 35,447 | | | 35,447 | | | — | | | — | |
PHC Option | | | 101 | | | — | | | — | | | 101 | | |||||||||||||
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | |
Energy Capital Option | | $ | 28,068 | | $ | — | | | — | | | 28,068 | | |||||||||||||
Embedded features of the 2023 Notes | | | 328 | | | — | | | 328 | | | — | | |||||||||||||
Embedded features of the PHC Notes | | | 63,847 | | | — | | | — | | | 63,847 | | |||||||||||||
Embedded features of the 2025 Notes | | | 19,947 | | | — | | | 19,947 | | | — | | | $ | 245 | | $ | — | | | — | | | 245 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | December 31, 2022 |
| ||||||||||||||||||||
|
| Total |
| Level 1 |
| Level 2 | �� | Level 3 |
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||||||
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds⁽¹⁾ | | $ | 29,197 | | $ | 29,197 | | | — | | | — | | | $ | 34,658 | | $ | 34,658 | | | — | | | — | |
Commercial paper | | | 57,369 | | | — | | | 57,369 | | | — | | | | 41,503 | | | — | | | 41,503 | | | — | |
Corporate debt securities | | | 39,748 | | | — | | | 39,748 | | | — | | | | 32,142 | | | — | | | 32,142 | | | — | |
Asset backed securities | | | 26,707 | | | — | | | 26,707 | | | — | | | | 8,260 | | | — | | | 8,260 | | | — | |
Government and agency securities | | | 24,503 | | | 19,957 | | | 4,546 | | | — | | | | 38,570 | | | 31,627 | | | 6,943 | | | — | |
PHC Option | | | 239 | | | — | | | — | | | 239 | | |||||||||||||
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | |
Energy Capital Option | | $ | 69,401 | | $ | — | | | — | | | 69,401 | | |||||||||||||
Embedded features of the 2023 Notes | | | 5,817 | | | — | | | — | | | 5,817 | | | $ | 20 | | $ | — | | | 20 | | | — | |
Embedded features of the PHC Notes | | | 149,058 | | | — | | | — | | | 149,058 | | | | 44,191 | | | — | | | — | | | 44,191 | |
Embedded features of the 2025 Notes | | | 81,417 | | | — | | | 81,417 | | | — | | | | 7,859 | | | — | | | — | | | 7,859 | |
The following table provides a reconciliation of the beginning and ending net balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):
| | | |
| | | |
| | Level 3 | |
|
| Instruments | |
December 31, 2021 | | $ | 224,037 |
Gain on fair value adjustment of option | | | (41,333) |
Gain on change in fair value of derivatives | | | (85,211) |
Financial asset (gain) impairment cost, net | | | 138 |
Change in fair value hierarchy classification | | | (5,817) |
September 30, 2022 | | $ | 91,814 |
| | | |
| | | |
| | Level 3 | |
|
| Instruments | |
December 31, 2022 | | $ | 52,050 |
Conversion of financial instruments | | | (1,109) |
Gain on change in fair value of embedded features of the PHC Notes | | | (44,191) |
Gain on change in fair value of embedded features of the 2025 Notes | | | (6,505) |
September 30, 2023 | | $ | 245 |
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Transfers into Level 2 of liabilities previously classified in Level 3 were due to increased trade activity associated with these instruments providing better price transparency, permitting classification to Level 2.
The recurring Level 3 fair value measurements of the embedded features of the notes payable and preferred stock, include the following significant unobservable inputs at September 30, 2022:2023:
| | | | | | | |||||||
|
| | | | |
| |||||||
| | | | | | | | | As of September 30, 2023 | | | | |
| | PHC Notes | | PHC Option | | Energy Capital Option | | | 2025 Notes | | | |
|
Unobservable Inputs | | Assumptions | | Assumptions | | Assumptions | | ` | Assumptions | | | | |
Stock price volatility |
| 110.0 | % | 104.0 | % | 88.0 | % |
| 45.0 | % | | | |
Probabilities of conversion provisions | | 5.0 - 10.0 | % | 5.0 - 10.0 | % | 5.0 - 10.0 | % |
| 5.0 - 85.0 | % | | | |
Time period until maturity (yrs) |
| 2.09 | | 0.25 | | 0.00 - 0.11 | | ||||||
Dividend yield |
| — | % | — | % | — | % | ||||||
Credit spread | | 9.5 | % | | | | |||||||
| | | | | | | |||||||
| | | | | | | |||||||
| | As of December 31, 2022 | | | |||||||||
| | 2025 Notes | | PHC Notes | | | |||||||
Unobservable Inputs | | Assumptions | | Assumptions | | | |||||||
Stock price volatility |
| 110.0 | % | 99.0 | % | | |||||||
Probabilities of conversion provisions | | 5.0 - 10.0 | % | 5.0 - 10.0 | % | | |||||||
Credit spread | | 13.96 | % | 13.96 | % | | |||||||
Recovery rate |
| -1.56 | % | -5.51 | % | |
| Income Taxes |
The Company has not recorded any tax provision or benefit for the nine months ended September 30, 20222023 or September 30, 2021.2022. 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, 20222023 and December 31, 2021.
On March 27, 2020, Congress enacted the CARES Act, as amended by the Flexibility Act, to provide certain relief as a result of the COVID-19 pandemic. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision or net deferred tax assets for the nine months ended September 30, 2022.
16.17. Related Party Transactions
PHC has a noncontrolling ownership interest in the Company. In addition, PHC has representation on the Company’s board of directors. The Company entered into a financing agreement with PHC on August 9, 2020 and entered into an exchange agreement with PHC during 2023 (see Note 12 for further discussion). Ascensia, through the ownership interests of its parent company, PHC, hasis a noncontrolling ownership interest in the Company. Ascensia also has representation on the Company’s board of directors.related party. Revenue from Ascensia during the nine months ended September 30, 2023 and 2022 was $13.2 million and $10.3 million, respectively. We also purchase certain medical supplies from Ascensia for our clinical trials. We paid Ascensia $0.6 million and $0.2 million during the nine months ended September 30, 2021 was $10.3 million2023 and $8.5 million,2022, respectively. under this arrangement.
The amount due from Ascensia as of September 30, 20222023 and December 31, 20212022 was $2.0$2.7 million and $1.8$2.3 million, respectively. The amount due to Ascensia as of September 30, 20222023 and December 31, 20212022 was $0.7$0.5 million and $2.5$0.9 million, respectively.
17.18. Subsequent Events
The Company has evaluated all subsequent events through the filing date of this Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of September 30, 2022,2023, and events which occurred subsequently but were not recognized in the financial statements. Except as described below thereThere were no other subsequent events whichthat required recognition adjustment to or disclosure in the financial statements.
On November 7, 2022, Energy Capital, LLC delivered a Regular Purchase Notice pursuant to the Equity Line Agreement, exercising their right to purchase $12.0 million of Series B Preferred Stock, having a conversion price of $0.3951 per share.
disclosure.
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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, uncertainties, and assumptions, including the duration and severity of the COVID-19 pandemic and its impact on our business and financial performance, 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, and in 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 Quarterly Report on 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, 2021,2022, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2022.16, 2023. 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 subsidiary.
Overview
We are a medical technology company focused on the development and manufacturing of glucose monitoring products designed to transform lives in the global diabetes community with differentiated, long-term implantable glucose management technology. Our implantable CGM (“Eversense”), including 90-day Eversense, Eversense XL and Eversense E3 continuous glucose monitoring (“CGM”) systemsCGM system versions are designed to continually and accurately measure glucose levels in people with diabetes via an under-the-skin sensor, a removable and rechargeable smart transmitter, and a convenient app for real-time diabetes monitoring and management for a period of up to six months in the case of Eversense E3XL and Eversense XL,E3, as compared to seven to 14 days for non-implantable CGM systems. We affixed the CE mark to the original 90-day Eversense CGM system in June 2016, which marked the first certification for the product to be sold within the European Economic Area (being the European Union plus Norway, Iceland, and Liechtenstein) (“EEA”). Subsequently, we affixed the CE mark to the extended life Eversense XL CGM system in September 2017 which is currently availableto be sold in select markets in Europe and the Middle East. In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system and Ascensia began commercialization in select markets in Europe during the third quarter of 2022. In June 2018, the U.S. Food and Drug Administration (“FDA”),FDA, approved the 90-day Eversense CGM system and it is currently availablefor distribution throughout the United States. In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the 90-day Eversense system. With this approval and the availability of a new app in December 2019, the Eversense system can now be used as a therapeutic CGM in the United States to replace fingerstick blood glucose measurement to make treatment decisions, including insulin dosing. In February 2022, the 180-day extended life Eversense E3 CGM system was approved by the FDA and Ascensia Diabetes Care Holdings AG (“Ascensia”) began commercializing Eversense E3 in the United States in the second quarter of 2022. In June 2022, we affixed the CE mark to the Eversense E3 CGM system and Ascensia Diabetes Care Holdings AG (“Ascensia”) began commercializing Eversense E3 in Europe in the third quarter of 2022.
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Our net revenues are derived from sales of the Eversense system which is sold in two separate kits: the disposable Eversense Sensor Pack which includes the sensor, insertion tool, and adhesive patches, and the durable Eversense Smart Transmitter Pack which includes the transmitter and charger.
We sell directly to our network of distributors and strategic fulfillment partners, who provide the Eversense system to healthcare providers and patients through a prescribed request and invoice insurance payors for reimbursement. Sales of the Eversense system are widely dependent on the ability of patients to obtain coverage and
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adequate reimbursement from third-party payors or government agencies. We leverage and target regions where we have coverage decisions for patient device use and provider insertion and removal procedure payment. We have reached more than 250approximately 300 million covered lives in the U.S.United States through positive insurance payor coverage decisions. In August 2022,June 2023, we received positive payor coverage decision from Elevance Health, formerly Anthem, who has more than 45 million covered lives.UnitedHealthcare, the largest healthcare insurance company in the United States that effective July 1, 2023, Eversense E3 CGM system would be covered. On August 3, 2020, the Center for Medicare and Medicaid Services (“CMS”) released its Calendar Year 2021 Medicare Physician Fee Schedule Proposed Rule that announces proposed policy changes for Medicare payments, including the proposed establishment of national payment amounts for the three CPT© Category III codes describing the insertion (CPT 0446T), removal (0447T), and removal and insertion (0048T) of an implantable interstitial glucose sensor, which describes our Eversense CGM systems, as a medical benefit, rather than as part of the Durable Medical Equipment channel that includes other CGMs. In December 2021, CMS released its Calendar Year 2022 Medicare Physician Fee Schedule that updated global payments for the device cost and procedure fees. In July 2022, CMS provided temporary G-codes to enable immediate access to Eversense E3 for all eligible Medicare beneficiaries. In November 2022, CMS released its Calendar Year 2023 Medicare Physician Fee Schedule Proposed Rule that updates the payment amounts for the three CPT© Category III codes to account for the longer 6-month sensor.
In February 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants was left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Information gathered from this sub-set and additional development efforts provided us the confidence to start the Pivotal study for the Eversense 365-day System. The ENHANCE pivotal study for the Eversense 365-day system completed enrollment in the third quarter of 2022 weand the last patient of the adult cohort completed the study in the third quarter of 2023. We expect to have been working with payorsdata by the end of 2023, which is intended to transition their policies to Eversense E3 and have confirmed immediate coverage policy transition from select payors.support an FDA submission for a new product in early 2024.
We are in the early commercialization stages of the Eversense brand and are focused on driving awareness of our CGM system amongst intensively managed patients and their healthcare providers. In both the United States and our overseas markets, we have entered into strategic partnerships and distribution agreements that allow third party collaborators with direct sales forces and established distribution systems to market and promote Senseonics CGM systems, including 90-day Eversense, Eversense XL, Eversense E3 and future generation products.
COVID-19
The current COVID-19 pandemic (“COVID-19”) has presented a substantial public health and economic challenge around the world and is affecting our employees, customers, communities and business operations, as well as the U.S. economy and financial markets. We will continue to monitor the overall impact of the COVID-19 pandemic on our business, financial condition, liquidity, assets and operations, including our personnel, programs, expected timelines, expenses and third-party contract manufacturing and distribution.
As a result of the COVID-19 pandemic’s disruption to our operations, suppliers, employees, and the healthcare community in which we sell to and support, and our limited cash resources, in March 2020, we made significant reductions in our cost structure and operations to improve cash flow and generate future expenditure savings to ensure the long-term success of Eversense. Specifically, commercial sales and marketing of the Eversense CGM System were temporarily suspended and a strategic review of the business was performed. As a result of the strategic review, in the third quarter of 2020, we entered into the Ascensia Commercialization Agreement, granting commercial and distribution responsibilities of Eversense. As we continue to recover from the pandemic we have expanded operations focusing on the design, development and manufacturing of Eversense.
In addition, in response to the ongoing spread of COVID-19, we have established safety protocols for personnel access to our headquarter offices. The effects of the COVID-19 pandemic could adversely impact our business, assets, operations and sales, particularly if the COVID-19 pandemic continues to persist for an extended period of time. See “Our business, product sales and results of operations could be adversely affected by the effects of health epidemics, including the recent COVID-19 outbreak, in regions where we or third parties distribute our products or where we or third parties on which we rely have significant manufacturing facilities, concentrations, clinical trial sites or other business operations. The COVID-19 pandemic has and may continue to, materially affect our operations, including at
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our headquarters in Maryland and at our clinical trial sites, as well as the business or operations of our manufacturers, distributors or other third parties with whom we conduct business” in the Risk Factors section of our most recent Annual Report on Form 10-K for more information regarding the potential impact of the COVID-19 pandemic on our business and operations. We continue to actively monitor this situation and the possible effects on our business and operations.
United States Development and Commercialization of Eversense
In 2016, we completed our 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 (“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. Based on the data from this trial, in October 2016 we submitted a pre-market approval (“PMA”), application to the FDA to market Eversense in the United States for 90-day use. On June 21, 2018, we received PMA approval from the FDA for the Eversense system. In July 2018, we began distributing the 90-day Eversense system directly in the United States through our own direct sales and marketing organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor.
In December 2018, we initiated the PROMISE pivotal clinical trial to evaluate the safety and accuracy of Eversense for a period of up to six months in the United States and in September 30, 2019, we completed enrollment of the PROMISE trial. In the trial, we observed performance matching that of the then current Eversense 90-day product available in the United States, with a MARD of 8.5%. This result was achieved with reduced calibration, down to one per day, while also doubling the sensor life to six months. Following the results of the PROMISE trial, on September 30, 2020, a Premarket Approval, or PMA supplement application to extend the wearable life of the Eversense CGM System to six months was submitted to the FDA. In February 2022, the extended life Eversense E3 CGM system was approved by the FDA.
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In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system and launched with an updated app in December 2019. With this approval, the Eversense system can be used as a therapeutic CGM to replace fingerstick blood glucose measurement for treatment decisions, including insulin dosing.
On February 26, 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Information gathered from this sub-set and additional development efforts provided us the confidence to start the Pivotal study for the Eversense 365 System.
In April 2020, we announced that we received regulatory approvalan extension to our CE Certificate of Conformity in Europethe EEA such that the Eversense XL is no longer contraindicated for MRI, which means the sensor does not need to be removed from under the skin during MRI scanning. We had previously obtained this indication for Eversense in the United States in 2019. This MRI approval is a first for the CGM category, as all other sensors are required to be removed during an MRI scan.
On August 9, 2020, we entered into a collaboration and commercialization agreement with Ascensia (the “Commercialization Agreement”) pursuant to which we granted Ascensia the exclusive right to distribute our 90-day Eversense CGM system and our 180-day Eversense E3 CGM system worldwide, with the following initial exceptions: (i) until January 31, 2021, the territory did not include countries covered by our then existing distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH (together “Roche”), which are theincluded Europe, Middle East and Asia, excluding Scandinavia and Israel, and 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions; (ii) until September 13, 2021, the territory did not include countries covered by our then current distribution agreement with Rubin Medical, which areincluded Sweden, Norway and Denmark; and (iii) until May 31, 2022, the territory did not include Israel. Pursuant to the Commercialization Agreement, in the United States, Ascensia began providing sales support for the 90-day Eversense product on October 1, 2020 and Ascensia ramped up sales activities and assumed commercial responsibilities for the 90-day Eversense product during the second quarter of 2021.
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In February 2022, we received approval from the FDA for the Eversense E3 CGM System. The approval for our third-generation sensor, with proprietary sacrificial boronic acid (“SBA”) technology doubles the sensor life to six months with MARD of 8.5%. Ascensia began commercializing Eversense E3 in the United States during the second quarter of 2022.
The ENHANCE clinical study was initiated as a pivotal study with the purpose of gathering additional clinical data to support an integrated continuous glucose monitoring (iCGM) submission for the Eversense E3 system using the SBA technology. In March 2022, we extended the ongoing ENHANCE clinical study to evaluate the safety and accuracy of the Eversense 365 System for a period of up to one year in the United States. In September 2022, we completed enrollment of the ENHANCE study.study and the last patient of the adult cohort completed the study in the third quarter of 2023. In November 2022, we submitted and in the first quarter of 2023 we received approval of an IDE for the enrollment of a pediatric cohort in the ENHANCE study and, pending approval, planstudy. We began to begin enrollingenroll pediatric patients induring the first halfsecond quarter of 2023.
European Commercialization of Eversense
In September 2017, we receivedaffixed the CE mark for Eversense XL which indicates that the product may be sold freely in any part of the European Economic Area (“EEA”). The Eversense XL is indicated for a sensor life of up to 180 days. Eversense XL began commercialization in Europe in the fourth quarter of 2017. All such commercialization and marketing activities remain subject to applicable government approvals.
In May 2016, we entered into a distribution agreement with Roche. Pursuant to the agreement, as amended, we had granted Roche the exclusive right to market, sell and distribute Eversense in Europe, Middle East and Asia (“EMEA”),the EMEA, excluding Scandinavia and Israel. In addition, Roche had exclusive distribution rights in 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions. Roche was obligated to purchase from
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us specified minimum volumes of Eversense XL CGM components at pre-determined prices. On December 12, 2019, we further amended the distribution agreement to lower minimum volumes for 2020 and increase pricing for the remaining period of the contract. On November 30, 2020, we entered into a final amendment and settlement agreement with Roche to facilitate the transition of distribution to Ascensia as sales concluded on January 31, 2021, including final purchases, and transition support activities. The distribution rights under the agreement expired January 31, 2021.
In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system, and Ascensia began commercialization in select European markets during the third quarter of 2022, with the commercialization in all European markets in the fourth quartersecond half of 2022.
Financial Overview
Revenue
We generate product revenue from sales of the Eversense system and related components and supplies to Ascensia, through the Commercialization Agreement, third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively “Customers”), who then resell the products to health care providers and patients. We are generally paid for our sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.
Revenue from product sales is recognized at a point in time when the Customers obtain control of our product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which we expect to receive in exchange for the product. Contracts with our distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product. Additionally, a portion of revenue is recognized through our consignment program whereas small quantities of inventory are maintained securely at various health care provider locations within the United States. Under this model, the Company does not recognize revenue upon shipment of product. Rather, revenue is recognized when the product is consumed by a patient.
Customer contracts do not include the right to return unless there is a product issue, in which case we may provide replacement product. Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.
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Our contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Ascensia commercial agreement, revenue share. Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable considerations, such as revenue share, is treated as an addition in revenue when the product sale is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of management judgment. Depending on the variable consideration, we develop estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, and market conditions.
Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia Commercialization Agreement.
Concentration of Revenue and Customers
For the three months and nine months ended September 30, 2023 and 2022, the Company derived 93% and 2021, we derived the majority97%, respectively, of ourits total net revenue from one customer, Ascensia. During the three months ended September 30, 2022 and 2021, we derived 97% and 92%, respectively, of our total revenue from Ascensia. DuringFor the nine months ended September 30, 2023, and 2022, the Company derived 92% and 2021, we derived 95% and 88%, respectively of ourits total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.
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Revenue by Geographic Region
The following table sets forth net revenue derived from our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product, for three and nine months ended September 30, 20222023 and 2021:2022:
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||
| September 30, 2022 | | | September 30, 2022 | | ||||||
| | | % | | | | | % | | ||
(Dollars in thousands) | Amount | | of Total | | | Amount | | of Total | | ||
Revenue, net: | | | | | | | | | | | |
Outside of the United States | $ | 2,688 | | 58.2 | % | | $ | 6,910 | | 63.9 | % |
United States | | 1,934 | | 41.8 | | | | 3,908 | | 36.1 | |
Total | $ | 4,622 | | 100.0 | % | | $ | 10,818 | | 100.0 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||
| September 30, 2021 | | | September 30, 2021 | | ||||||
| | | % | | | | | % | | ||
(Dollars in thousands) | Amount | | of Total | | | Amount | | of Total | | ||
Revenue, net: | | | | | | | | | | | |
Outside of the United States | $ | 2,928 | | 82.9 | % | | $ | 7,771 | | 80.4 | % |
United States | | 604 | | 17.1 | | | | 1,896 | | 19.6 | |
Total | $ | 3,532 | | 100.0 | % | | $ | 9,667 | | 100.0 | % |
| | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | | ||||||
| September 30, 2023 | | | September 30, 2023 | | ||||||
| | | % | | | | | % | | ||
(Dollars in thousands) | Amount | | of Total | | | Amount | | of Total | | ||
Revenue, net: | | | | | | | | | | | |
United States | $ | 3,930 | | 64.5 | % | | $ | 7,885 | | 54.9 | % |
Outside of the United States | | 2,167 | | 35.5 | | | | 6,475 | | 45.1 | |
Total | $ | 6,097 | | 100.0 | % | | $ | 14,360 | | 100.0 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | |||||||
| September 30, 2022 | | | September 30, 2022 | | ||||||
| | | % | | | | | % | | ||
(Dollars in thousands) | Amount | | of Total | | | Amount | | of Total | | ||
Revenue, net: | | | | | | | | | | | |
United States | $ | 1,934 | | 41.8 | % | | $ | 3,908 | | 36.1 | % |
Outside of the United States | | 2,688 | | 58.2 | | | | 6,910 | | 63.9 | |
Total | $ | 4,622 | | 100.0 | % | | $ | 10,818 | | 100.0 | % |
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Results of Operations for the Three Months Ended September 30, 20222023 and 20212022
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | |
| | Three Months Ended | | | |
| ||||||||
| | September 30, | | Period-to- |
| | September 30, | | Period-to- |
| ||||||||||
| | 2022 | | 2021 | | Period Change |
| | 2023 | | 2022 | | Period Change |
| ||||||
| | (in thousands) | | | (in thousands) |
| | (in thousands) | | | (in thousands) |
| ||||||||
Revenue, net |
| $ | 126 |
| $ | 276 |
| $ | (150) | |
| $ | 426 |
| $ | 126 |
| $ | 300 | |
Revenue, net - related parties | | | 4,496 | | | 3,256 | | | 1,240 | | | | 5,671 | | | 4,496 | | | 1,175 | |
Total revenue | | | 4,622 | | | 3,532 | | | 1,090 | | | | 6,097 | | | 4,622 | | | 1,475 | |
Cost of sales | | | 3,866 | | | 4,778 | | | (912) | | | | 4,925 | | | 3,866 | | | 1,059 | |
Gross profit | | | 756 | | | (1,246) | | | 432 | | | | 1,172 | | | 756 | | | 416 | |
| | | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | | | |
Research and development expenses | |
| 10,985 | |
| 7,200 | |
| 3,785 | | |
| 12,769 | |
| 10,985 | |
| 1,784 | |
Selling, general and administrative expenses | |
| 7,340 | |
| 7,585 | |
| (245) | | |
| 7,425 | |
| 7,340 | |
| 85 | |
Operating loss | |
| (17,569) | |
| (16,031) | |
| (3,108) | | |
| (19,022) | |
| (17,569) | |
| (1,453) | |
Other (expense) income, net: | | | | | | | | | | | ||||||||||
Other income (expense), net: | | | | | | | | | | | ||||||||||
Interest income | | | 544 | | | 486 | | | 58 | | | | 1,460 | | | 544 | | | 916 | |
Gain (Loss) on fair value adjustment of option | | | (8,592) | | | 13,556 | | | (22,148) | | ||||||||||
(Loss) Gain on fair value adjustment of option | | | — | | | (8,592) | | | 8,592 | | ||||||||||
Exchange related loss, net | | | (4,569) | | | — | | | (4,569) | | ||||||||||
Interest expense | |
| (4,801) | |
| (4,245) | |
| (556) | | |
| (2,425) | |
| (4,801) | |
| 2,376 | |
Gain (Loss) on change in fair value of derivatives | | | (28,948) | | | 50,075 | | | (79,023) | | | | 438 | | | (28,948) | | | 29,386 | |
Impairment cost | | | (984) | | | (488) | | | (496) | | ||||||||||
Other expense | |
| (41) | |
| (439) | |
| 398 | | ||||||||||
Impairment cost, net | | | — | | | (984) | | | 984 | | ||||||||||
Other income (expense) | |
| 15 | |
| (41) | |
| 56 | | ||||||||||
Total other (expense) income, net | |
| (42,822) | |
| 58,945 | |
| (101,767) | | |
| (5,081) | |
| (42,822) | |
| 37,741 | |
Net Income (loss) | | $ | (60,391) | | $ | 42,914 | | $ | (104,875) | | ||||||||||
Net (Loss) Income | | $ | (24,103) | | $ | (60,391) | | $ | 36,288 | |
Total revenue
Our total revenue increased to $6.1 million for the three months ended September 30, 2023, compared to $4.6 million for the three months ended September 30, 2022, compared to $3.5 million for the three months ended September 30, 2021.an increase of $1.5 million. This increase was primarily due to the launchhigher shipments of Eversense E3 in the United States partiallyin the third quarter of 2023 driving higher revenue in the current year offset by slightly lower sales outside of the United States.a higher revenue share percentage due to Ascensia.
Cost of sales and gross profit
Our cost of sales decreasedincreased to $4.9 millionfor the three months ended September 30, 2023, compared to $3.9 million for the three months ended September 30, 2022, compared2022. Our gross profit increased to $4.8$1.2 millionfor the three months ended September 30, 2021. Our gross profit increased2023, compared to $0.8 millionfor the three months ended September 30, 2022, compared to ($1.2) million for the three months ended September 30, 2021.2022. Gross profit as a percentage of revenue, or gross margin, was 16.4%19.2% and (35.3)%16.4% for the three months ended September 30, 20222023 and September 20, 2021,30, 2022, respectively. The increaseimprovement in gross margin was primarily driven by the transition from the Eversense 90-day productan increase in revenue partially offset by an increase to the Eversense six-month product, sales channel mix, lower inventory write offs and manufacturing efficiencies.revenue share percentage due to Ascensia.
Research and development expenses
Research and development expenses were $11.0$12.8 million for the three months ended September 30, 2022,2023, compared to $7.2$11.0 millionfor the three months ended September 30, 2022, an increase of $1.8 million. The increase was primarily due to investments in next generation technologies including a $0.2 millionincrease in clinical studies activities and $1.6 million in personnel costs, consulting, contract fabrication and other research and development support services.
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Selling, general and administrative expenses
Selling, general and administrative expenses were $7.4 million for the three months ended September 30, 2021,2023, compared to $7.3 million for three months ended September 30, 2022, an increase of $3.8less than $0.1 million.
Total other income (expense), net
Total other expense, net, was $5.1 million for the three months ended September 30, 2023, compared to other expense, net, of $42.8 millionfor the three months ended September 30, 2022, an increase in other income of $37.7 million. The change was primarily due to a $8.6 million change in the fair value adjustment of options, a $29.4 millionchange in the fair value of derivatives, a $1.0 million change in impairment cost, an increase in interest income of $0.9 million, and a decrease in interest expense of $2.4 million, partially offset by a $4.6 million extinguishment loss due to a partial exchange of the 2025 notes.
Results of Operations for the Nine Months Ended September 30, 2023 and 2022
| | | | | | | | | | |
| | Nine Months Ended | | | |
| ||||
| | September 30, | | Period-to- |
| |||||
| | 2023 | | 2022 | | Period Change |
| |||
| | (in thousands) | | | |
| ||||
Revenue, net |
| $ | 1,176 |
| $ | 555 |
| $ | 621 | |
Revenue, net - related parties | | | 13,184 | | | 10,263 | | | 2,921 | |
Total revenue | | | 14,360 | | | 10,818 | | | 3,542 | |
Cost of sales | | | 12,358 | | | 8,711 | | | 3,647 | |
Gross profit | | | 2,002 | | | 2,107 | | | (105) | |
| | | | | | | | | | |
Expenses: | | | | | | | | | | |
Research and development expenses | |
| 38,003 | |
| 28,088 | |
| 9,915 | |
Selling, general and administrative expenses | |
| 22,598 | |
| 23,785 | |
| (1,187) | |
Operating loss | |
| (58,599) | |
| (49,766) | |
| (8,833) | |
Other income (expense), net: | | | | | | | | | | |
Interest income | |
| 3,879 | | | 878 | | | 3,001 | |
Gain on fair value adjustment of option | | | — | | | 41,333 | |
| (41,333) | |
Exchange related gain, net | | | 14,207 | | | — | | | 14,207 | |
Interest expense | | | (9,388) | | | (13,806) | | | 4,418 | |
Gain on change in fair value of derivatives | | | 6,505 | | | 152,169 | | | (145,664) | |
Impairment cost | | | — | | | (138) | |
| 138 | |
Other income (expense) | |
| 194 | |
| (112) | |
| 306 | |
Total other (expense) income, net | |
| 15,397 | |
| 180,324 | |
| (164,927) | |
Net (Loss) Income | | $ | (43,202) | | $ | 130,558 | | $ | (173,760) | |
Total revenue
Our total revenue increased to $14.3 million for the nine months ended September 30, 2023, compared to $10.8 million for the nine months ended September 30, 2022, an increase of $3.5 million. This increase was primarily due to higher shipments of Eversense E3 in the United States in the third quarter of 2023 driving higher revenue in the current year offset by a higher revenue share percentage due to Ascensia.
Cost of sales and gross profit
Our cost of sales were $12.4 million for the nine months ended September 30, 2023 compared to $8.7 million for the nine months ended September 30, 2022, an increase of $3.7 million. Our gross profit decreased to $2.0 million for the nine months ended September 30, 2023, compared to $2.1 million for the nine months ended September 30, 2022. Gross profit as a percentage of revenue, or gross margin, was 13.9% and 19.5% for the nine months ended September 30,
33
2023 and September 20, 2022, respectively. The reduction in gross margin was primarily driven by an increase in the revenue share percentage due to Ascensia, sales channel mix and increased manufacturing and logistics costs.
Research and development expenses
Research and development expenses were $38.0 million for the nine months ended September 30, 2023, compared to $28.1 million for the nine months ended September 30, 2022, an increase of $9.9 million. The increase was primarily due to investments for next generation technologies including a $2.2$6.1 million increase in clinical studies activities, an increase of $0.7$3.8 million in personnel related costs, due to the expansion of our research and development workforce and an increase of $0.9 million for consulting, contract fabrication and other research and development support services.
Selling, general and administrative expenses
Selling, general and administrative expenses were $7.3 million for the three months ended September 30, 2022, compared to $7.6 million for three months ended September 30, 2021, a decrease of $0.3 million. The decrease was
29
primarily the result of a $1.1 million reduction in spend related to marketing programs and support for Ascensia’s marketing programs including direct to consumer campaigns, partially offset by a $0.4 million increase in personnel costs and a $0.5 million in increase in professional fees and other administrative expenses.
Total other (expense) income, net
Total other expense, net, was $(42.8) million for the three months ended September 30, 2022, compared to other income, net, of $58.9 million for the three months ended September 30, 2021, a change of $101.8 million. The change was primarily due to a $79.0 million change in fair value of derivatives, a $22.1 million change in fair value of options and a $0.5 million increase in interest expense, partially offset by a decrease of $0.4 million in other expense.
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
| | | | | | | | | | |
| | Nine Months Ended | | | |
| ||||
| | September 30, | | Period-to- |
| |||||
| | 2022 | | 2021 | | Period Change |
| |||
| | (in thousands) | | | |
| ||||
Revenue, net |
| $ | 555 |
| $ | 1,196 |
| $ | (641) | |
Revenue, net - related parties | | | 10,263 | | | 8,471 | | | 1,792 | |
Total revenue | | | 10,818 | | | 9,667 | | | 1,151 | |
Cost of sales | | | 8,711 | | | 9,995 | | | (1,284) | |
Gross profit | | | 2,107 | | | (328) | | | 2,435 | |
| | | | | | | | | | |
Expenses: | | | | | | | | | | |
Research and development expenses | |
| 28,088 | |
| 19,562 | |
| 8,526 | |
Selling, general and administrative expenses | |
| 23,785 | |
| 23,347 | |
| 438 | |
Operating loss | |
| (49,766) | |
| (43,237) | |
| (6,529) | |
Other (expense) income, net: | | | | | | | | | | |
Interest income | |
| 878 | | | 743 | | | 135 | |
Gain (Loss) on fair value adjustment of option | | | 41,333 | | | (74,848) | |
| 116,181 | |
Gain on extinguishment of debt and option | | | — | | | 330 | | | (330) | |
Interest expense | | | (13,806) | | | (12,337) | | | (1,469) | |
Gain (Loss) on change in fair value of derivatives | | | 152,169 | | | (255,185) | | | 407,354 | |
Impairment cost | | | (138) | | | (1,650) | |
| 1,512 | |
Other expense | |
| (112) | |
| (723) | |
| 611 | |
Total other (expense) income, net | |
| 180,324 | |
| (343,670) | |
| 523,994 | |
Net Income (loss) | | $ | 130,558 | | $ | (386,907) | | $ | 517,465 | |
Total revenue
Our total revenue increased to $10.8$22.6 million for the nine months ended September 30, 2022,2023, compared to $9.7 million for the nine months ended September 30, 2021. This increase was primarily due to the launch of Eversense E3 in the United States partially offset by slightly lower sales outside of the United States.
Cost of sales and gross profit
Our cost of sales were $8.7 million for the nine months ended September 30, 2022 compared to $10.0 million for the nine months ended September 30, 2021, a decrease of $1.3 million, primarily driven by reduced inventory obsolescence charges. Our gross profit increased to $2.1 million for the nine months ended September 30, 2022, compared to $(0.3) million for the nine months ended September 30, 2021. Gross profit as a percentage of revenue, or gross margin, was 19.5% and (3.4)% for the nine months ended September 30, 2022 and September 30, 2021, respectively. The increase in gross margin was primarily driven by the transition from the Eversense 90-day product to the Eversense six-month product, sales channel mix, lower inventory write-offs and manufacturing efficiencies.
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Research and development expenses
Research and development expenses were $28.1 million for the nine months ended September 30, 2022, compared to $19.6 million for the nine months ended September 30, 2021, an increase of $8.5 million. The increase was due to investments for next generation technologies including a $4.4 million increase in clinical studies activities, an increase of $1.9 million in personnel related costs due to the expansion of our research and development workforce and an increase of $2.2 million for consulting, contract fabrication and other research and development support services.
Selling, general and administrative expenses
Selling, general and administrative expenses were $23.8 million for the nine months ended September 30, 2022, compared to $23.3 million for nine months ended September 30, 2021, an increase2022, a decrease of $0.5$1.2 million. The increasedecrease was primarily due primarily to an increase of $2.0a $0.6 million reduction in personnel costs, a $0.8 million reduction in other general and administrative costs to include recruiting and associated employee overhead and local tax expenses and legal expenses partially offset by a $1.5$0.2 million decreaseincrease in sales and marketing costs.legal expenses.
Total other income (expense) income,, net
Total other income (expense), net, was $15.4 million for the nine months ended September 30, 2023, compared to other income (expense), net, of $180.3 million for the nine months ended September 30, 2022, compared toa decrease in other expense, net,income of ($343.7) million for the nine months ended September 30, 2021, a change of $524.0$164.9 million. The change was primarily due to a $407.4$145.7 million change in fair value of derivatives, and a $116.2$41.3 million change in fair value of options primarily drivenoption, offset by volatilityan $14.2 million net extinguishment loss on the exchange of the PHC Notes and 2025 Notes, $3.0 million increase in our share price.
interest income, $4.4 million decrease in interest expense, change in impairment cost of $0.1 million, and an increase of $0.3 million in other income, net.
Liquidity and Capital Resources
Sources of Liquidity
From ourits founding in 1996 until 2010, wethe Company has devoted substantially all of ourits resources to researching various sensor technologies and platforms. Beginning in 2010, wethe Company narrowed ourits focus to developing and refining a commercially viable glucose monitoring system. However, to date, we have not generated any significant revenue from product sales. We haveThe Company has incurred substantial losses and cumulative negative cash flows from operations since ourits inception in October 1996.1996 and expects to incur additional losses in the near future. We have never been profitable and our net losses were $302.5incurred total gross profit of $2.7 million, $175.2($0.8) million, and $115.5($17.4) million for the years ended December 31, 2022, 2021 and 2020, and 2019, respectively. As ofFor the three months ending September 30, 2022, we2023, the Company had gross profit of $1.2 million and an accumulated deficit of $820.4$852.1 million. To date, we havethe Company has funded ourits operations principally through the issuance of preferred stock, common stock, warrants, convertible notes, and debt. As of September 30, 2022, we2023, the Company had cash, cash equivalents and marketable debt securities of $163.0 $125.4million.
On September 8, 2023 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with the several financial institutions or entities party thereto (collectively, the “Lenders") and Hercules Capital, Inc., a Maryland corporation (“Hercules”), pursuant to which the Lenders have agreed to make available to the Company up to $50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $10.0 million (the “Tranche 2 Loan”) and $15.0 million (the “Tranche 3 Loan”), respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on September 1, 2027 (the “Maturity Date”).
On August 10, 2023, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (the “Noteholders”) of the Company’s currently outstanding
34
5.25% Convertible Senior Notes due 2025 (the “2025 Notes”). Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $30.8 million in aggregate principal amount of the Company’s outstanding 2025 Notes (the “Exchanged Notes”) for a combination of $7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”). The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.
In August 2023, the Company entered into an Equity Distribution Agreement, (the “Equity Distribution Agreement”) with Goldman Sachs & Co. LLC (“GS”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $106.6 million through GS as its sales agent in an “at the market” offering. GS will receive a commission up to 3.0% of the gross proceeds of any common stock sold through GS under the Equity Distribution Agreement. The shares will be offered and sold pursuant to an effective shelf registration statement on Form S-3 (the “Registration Statement”), which was originally filed with the Securities and Exchange Commission (the “Commission”) on August 10, 2023.
In November 2021, we entered into an Open Market Salethe 2021 Sales Agreement (the “2021 Sales Agreement”) with Jefferies, LLC (“Jefferies”), under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jefferies as our sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. AsDuring 2023, the Company received $7.4 million in net proceeds from the sale of 9,944,663 shares of its common stock under the 2021 Sales Agreement. For the nine months ended September 30, 2022, weCompany received $34.4 million in net proceeds from the sale of 15,160,899 shares of ourits common stock under the 2021 Sales Agreement.
In November 2019, we entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) withOn August 7, 2023, the Company and Jefferies under which we could offer and sell, from timemutually agreed to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Jefferies as our sales agent in an “at the market” offering. In June 2021, we received $48.4 million in net proceeds from the sale of 12,830,333 shares of our common stock utilizing the full capacity under the 2019 Sales Agreement.
On January 21, 2021, we entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public
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offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “2021 Public Offering”). The price to the public interminate the 2021 Public Offering was $1.925 per shareSales Agreement, effective as of common stock. The Underwriters agreed to purchaseAugust 7, 2023. At the shares from ustime of termination, approximately $106.6 million remained available for issuance pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the 2021 Public Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of Common Stock. Total net proceeds from the 2021 Public Offering were $106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.
Sales Agreement.
On January 17, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”), pursuant to which we sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50.0 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by us are approximately $46.1 million.
On November 9, 2020, wethe Company entered into an equity line agreement, (“the Equity Line Agreement”),Agreement with Energy Capital LLC (“Energy Capital”), which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of ourthe Company’s newly designated series B convertible preferred stock (“the Series B Preferred Stock”),Stock at ourthe Company’s request from time to time during the 24-month term of the Equity Line Agreement.
Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that wethe Company have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), wethe Company had the right, in ourat its sole discretion, to present Energy Capital with a purchase notice (“Regular Purchase Notice”)Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of ourthe Company’s Series B Preferred Stock at a per share price (the “Purchase Price”), equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share.share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provided that we werethe Company was not permitted to affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital.
In addition, beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to usthe Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock.
Concurrently with entry into The excess of the Equity Line Agreement, we issued a warrant toPurchase Price and the fair value of the Energy Capital exercisable beginning May 9, 2021, to purchase up to 10,000,000 sharesoption in the total amount of common stock at an exercise price of $0.3951 per share, (the “Warrant”). The Warrant$37.6 million was exercisedrecorded in full in February 2022.additional-paid-in-capital.
On August 9, 2020, wethe Company entered into a financing agreement with AscensiaPHC, pursuant to which wethe Company issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to Ascensia’s parent company, PHC Holdings Corporation (“PHC”), on the Closing Date. WePHC. The Company also issued PHC 2,941,176 shares of common stock to PHC as a financing
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fee. WeThe Company also havehas the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date. UponThe Company successfully obtained FDA approval in February 2022 and the closingoption was not exercised.
On March 13, 2023, the Company entered into an Exchange Agreement with PHC, pursuant to which PHC agreed to exchange its $35.0 million aggregate principal amount of the PHC Notes, we prepaid in fullincluding all accrued and unpaid interest thereon, for the First Lien Notes, issued and sold pursuant a loan agreement with Highbridge Capital Management, LLC (“Highbridge”) (the “Highbridge Loan Agreement”), in the amount of approximately $17.6 million.
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Additionally, on August 9, 2020, we entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (collectively, “Masters”), pursuant to which we issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $1,000.00 per share in an initial closing (“the Stock Purchase Agreement”). Masters also had the optionPHC Exchange Warrant to purchase up to an additional 27,000 shares of Series A Preferred Stock at68,525,311 PHC Exchange Warrant Shares. The PHC Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $1,000.00$0.001 per share in subsequent closings, subject toPHC Exchange Warrant Share. The number of PHC Exchange Warrant Shares represents the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $22.8 million. Each share of Series A Preferred Stock is initially convertible into a number of shares of common stock equalpreviously issuable upon conversion of the PHC Notes, in accordance with the original terms of the notes, including a number of shares in respect of accrued and unpaid interest through the closing date, plus additional shares with a value of $675,000 reflecting a portion of the future interest payments forgone by PHC. On March 31, 2023, the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.
On March 13, 2023, the Company entered into a Securities Purchase Agreement with PHC, pursuant to $1,000 divided bywhich the conversionCompany issued and sold to PHC in a private placement a Purchase Warrant to purchase an aggregate of 15,425,750 Purchase Warrant Shares. The purchase price of $0.476the Purchase Warrant was approximately $0.97 per share, subjectPurchase Warrant Share, representing the undiscounted, trailing 10-day volume weighted average price of the Company’s common stock through March 10, 2023. The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $0.001 per Purchase Warrant Share. The issuance of the Purchase Warrants enabled PHC to customary anti-dilution adjustments, including inmaintain, as of the eventclosing of any stock split. All sharesthe transaction, a 15% beneficial ownership for purposes of Series A Preferred Stock have been converted to common stock.the Investor Rights Agreement, dated August 9, 2020, between the Company and PHC.
We believe that these agreements provideOn the financial resources and mutual commitment to support the growth of Eversense and specifically forPrivate Placement Closing Date, the Company received aggregate gross proceeds of $15.0 million, before deducting private placement expenses payable by the manufacturing of Eversense and continued product development, including the U.S. launch of Eversense E3. The timing and success of these collaborations and financings are dependent on certain events occurring in accordance with our plans, and may be influenced by uncontrollable external factors, including restrictions or impacts of COVID-19. Management has concluded that based on our current operating plans, existing cash and cash equivalents and cash flows from our future operations will be sufficient to meet our anticipated operating needs through 2023.Company.
Common Stock
In November 2021, we entered into the 2021 Sales Agreement with Jefferies, under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jefferies as the sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the nine months ended September 30, 2022, we received $34.4 million in net proceeds from the sale of 15,160,899 shares of our common stock under the 2021 Sales Agreement.
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Indebtedness
Term Loans
On the Effective Date, the Company entered into the Loan Agreement with the Lenders and Hercules, pursuant to which the Lenders have agreed to make available to the Company the Term Loan Facility, consisting of (i) an initial Tranche 1 Loan, which was funded on the Effective Date and (ii) the Tranche 2 Loan and Tranche 3 Loan, respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan Agreement. The loans under the Loan Agreement mature on the Maturity Date.
PPP Loan
On April 22, 2020, we received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) isPPP Loan was evidenced by the PPP Note, dated April 21, 2020 (the “PPP Note”), in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).
Under the terms of the PPP Note and the PPP Loan, interest accruesaccrued on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note was two years. In April 2022, the Company repaid the outstanding principal and accrued interest in full.
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Convertible Notes
The following table summarizes our outstanding convertible notes at September 30, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Aggregate | | | | Initial Conversion | | Conversion Price | | | | | | Aggregate | | | | Initial Conversion | | Conversion Price | | ||||||||||
Convertible | | Issuance | | | Principal | | Maturity | | Rate per $1,000 | | per Share of | | | Issuance | | | Principal | | Maturity | | Rate per $1,000 | | per Share of | | ||||||||||
Note | | Date | Coupon |
| (in millions) |
| Date |
| Principal Amount |
| Common Stock |
| | Date | Coupon |
| (in millions) |
| Date |
| Principal Amount |
| Common Stock |
| ||||||||||
2023 Notes | | January 1, 2018 | | 5.25% | | $ | 15.7 | | | February 1, 2023 | | | 294.1176 | | $ | 3.40 | | |||||||||||||||||
2025 Notes | | July 1, 2019 | | 5.25% | | $ | 51.2 | | | January 15, 2025 | | | 757.5758 | | $ | 1.32 | | | July 1, 2019 | | 5.25% | | $ | 20.4 | | | January 15, 2025 | | | 757.5758 | | $ | 1.32 | |
PHC Notes | | August 14, 2020 | | 8.00% | | $ | 35.0 | | | October 31, 2024 | | | 1867.4136 | | $ | 0.54 | |
As described above, on August 10, 2023, Notes
Inwe executed a series of exchange agreements with certain holders of the first quarter of 2018, we issued $53.0 million in2025 Notes to exchange an aggregate principal amount of senior convertible notes that will mature on February 1, 2023, (the “2023 Notes”),up to $30.8 million of which $15.7 million in aggregate principal remains outstanding as of September 30, 2022, after some of the holders exchanged their 20232025 Notes for 2025 Notes, as defined below, in July 2019.
2025 Notes
In July 2019, wea combination of cash and newly issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. In connection with an exchange on April 24, 2020, $24.0 million in aggregate principal of Highbridge’s outstanding 2025 Notes were exchanged for (i) $15.7 million aggregate principal amount of Second Lien Notes (“Second Lien Notes”), (ii) 11,026,086 shares of our common stock, (iii) warrants to purchase up to 4,500,000 shares of our common stock at an exercise price of $0.66 per share, and (iv) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”).
stock. For additional information on the 2025 Notes, and the 2023 Notes, see Note 8—12—Notes Payable, Preferred Stock and Stock Purchase Warrants in the accompanying unaudited consolidated financial statements.
PHC Notes
On August 9, 2020, we entered into a note purchase agreement with PHC (the “Note Purchase Agreement”), pursuant to which we agreed to borrow $35.0 million in aggregate principal through the issuance and sale of PHC Notes on or prior to August 14, 2020. The PHC Notes will be senior secured obligations and will be guaranteed on a senior secured basis by our wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at our option, payment in kind. The interest rate will decrease to 8.0% beginning in April 2022 because we obtained FDA approval for the 180-day Eversense E3 product for marketing in the United States.
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The maturity date for the PHC Notes will be October 31, 2024, provided that the maturity date will accelerate if we have not repaid our Second Lien Notes (other than an aggregate principal amount of up to $1.0 million) by 91 days prior to the maturity of the Second Lien Notes.
PHC will be entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes, equivalent to a conversion price of approximately $0.54 per share, subject to specified anti-dilution adjustments, including adjustments for our issuance of equity securities on or prior to April 30, 2022 below the conversion price. 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 Notes in connection with such notice of redemption or 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 such shares.
Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by us if the closing sale price of the common stock exceeds 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount, plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes are redeemable by us upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount, plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at least six months prior to the maturity date or a call premium of 125% if redeemed within six months of the maturity date.
The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Note Purchase Agreement also contains customary events of default, after which the PHC Notes be due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.
Funding Requirements and Outlook
Our ability to generate revenuegrow revenues and achieve profitability depends on the successful commercialization and adoption of our Eversense CGM systems by diabetes patients and healthcare providers, along with future product development, regulatory approvals, and post-approval requirements. These activities, including our ongoing focus to grow covered lives through positive insurance payor policy decisions and continued development of Eversense 365-day product, will require significant uses of working capital through 20222023 and beyond.
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PHC and the Company to support the commercialization of Eversense and specifically for the Company, provide the financial resources for manufacturing of Eversense and continued product development. We expect that existing cash, cash equivalents and cash flows from our future operations will be sufficient to meet the Company’s current operating plans through 2023.into 2025. As part of our liquidity strategy, we will continue to monitor our capital structure and operating plansmarket conditions going forward and we may access the capital marketsdebt and equity or debtequity linked markets for additional funding if the opportunity arises to enhance our capital structure, for changes to our operating plans, for financing strategic initiatives and to provide financial flexibility.
Cash Flows
The following is a summary of cash flows for each of the periods set forth below (in thousands).
| | | | | | | | | | | | | | | |
|
| Nine Months Ended | |
| Nine Months Ended | | |||||||||
|
| September 30, | |
| September 30, | | |||||||||
|
| 2022 | | 2021 | |
| 2023 | | 2022 | | |||||
Net cash used in operating activities |
| $ | (48,925) |
| $ | (44,275) |
|
| $ | (55,096) |
| $ | (48,925) |
| |
Net cash provided by (used in) investing activities | |
| 19,532 | |
| (154,993) | | ||||||||
Net cash provided by investing activities | |
| 53,518 | |
| 19,532 | | ||||||||
Net cash provided by financing activities | |
| 31,416 | |
| 227,274 | | |
| 21,544 | |
| 31,416 | | |
Net increase in cash and cash equivalents | | $ | 2,023 | | $ | 28,006 | | ||||||||
Net (decrease) increase in cash and cash equivalents | | $ | 19,966 | | $ | 2,023 | |
Net cash used in operating activities
Net cash used in operating activities was $55.1 million for the nine months ended September 30, 2023 and consisted of a net loss of $43.2 million, $14.2 million net loss due to partial exchange of the 2025 Notes, a $6.5 million gain on change in the fair value of the 2025 Notes embedded derivative, a net change in operating assets and liabilities of $2.9 million (most notably increases in accounts receivable of $1.0 million and inventory of $2.5 million), partially offset by $5.1 million related to depreciation/amortization and other non-cash items, net and $6.7 million of stock-based compensation.
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Net cash used in operating activities was $48.9 million for the nine months ended September 30, 2022 and consisted of an $152.2 million change in fair value of derivatives on convertible notes, a $41.3 million loss on fair value adjustment of the option, and a net change in operating assets and liabilities of $2.3 million, (most notably increases in inventory of $0.9 million and a reduction of accrued expenses of $1.0 million), partially offset by net income of $130.6 million, $9.8 million related to depreciation/amortization and other non-cash items and $6.5 million of stock-based compensation.
Net cash provided by investing activities
Net cash used in operatingprovided by investing activities was $44.3$53.5 million for the nine months ended September 30, 20212023 and consisted of a net loss$122.2 million in proceeds from the sale and maturity of $386.9 million, a net decrease in operating assets and liabilities of $2.6 million (mostly due to an increase in inventory of $2.6 million, higher accounts receivable of $0.7 million, and a $1.0 million decrease in accounts payable, reflecting reduced operational activities,marketable securities, offset by an increase in accrued liabilities of $1.3 million and an increase of $0.3$68.5 million in accrued interest)purchase of marketable securities and $0.3$0.2 million for gain on extinguishment for the convertible notes and options, offset by $255.2 million due to the change in fair valuepurchase of derivatives on convertible notes, a $74.8 million loss on fair value adjustment of the option, $7.1 million of stock-based compensation, a $1.7 million net increase in impairment reserves, and $6.7 million related to depreciation/amortization and other non-cash items.
Net cash provided by (used in) investing activitiescapital expenditures.
Net cash provided by investing activities was $19.5 million for the nine months ended September 30, 2022 and primarily consisted of proceeds from the sale and maturity of marketable securities.
Net cash used in investing activities was $155.0 million for the nine months ended September 30, 2021 and primarily consisted of the purchase of marketable securities.
Net cash provided by financing activities
Net cash provided by financing activities was $21.5 million for the nine months ended September 30, 2023, and primarily consisted of $7.4 million in proceeds from issuance of common stock, $14.7 million in proceeds from the issuance of the PHC Warrants, and $24.5 million in proceeds from the issuance of the Loan and Security Agreement, partially offset by $15.7 million for the repayment of the 2023 Notes, $7.5 million for the partial repayment of the 2025 Notes, $1.6 million related to the settlement of equity awards, and $0.2 million for debt issuance costs.
Net cash provided by financing activities was $31.4 million for the nine months ended September 30, 2022, and primarily consisted of $34.4 million from the issuance of common stock pursuant to the 2021 Sales Agreement and $1.1 million for proceeds related to the exercise of stock options and warrants, partially offset by $2.9 million in repayment of the PPP loan and $1.2 million in tax payments related to the settlement of equity awards.
Net cash provided by financing activities was $227.3 million for the nine months ended September 30, 2021, primarily consisted of $200.4 million from issuance of common stock, proceeds of $22.8 million for the issuance of Series A preferred stock and $4.7 million for proceeds related to the exercise of stock options and warrants.
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Contractual Obligations
As of September 30, 2022,2023, there were no material changes in our contractual obligations and commitments from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.16, 2023.
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ITEM 3: Quantitative and Qualitative Disclosures aboutAbout Market Risk
Under SEC rules and regulations, because we are considered to be a “smaller reporting company”, we are not required to provide the information required by this item in this Quarterly Report on Form 10-Q.
ITEM 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the assistance of our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2022.2023. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving such control objectives. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022,2023, 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 were no changes 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, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
ITEM 1: LegalProceedings
From time to time, we are subject to litigation and claims arising in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties.
In February 2021, wethe Company received notice and accepted service of a civil complaint that had been filed in the Western District of Texas and styled Carew ex rel. United States v. Senseonics, Inc., No. SA20CA0657DAE. The complaint was filed by a relator under seal in May 2020 pursuant to the qui tam provisions in the federal False Claims Act. Prior to the unsealing of the complaint, the government declined to intervene in the case. The case, therefore, is being pursued only by the relator.relator and his counsel. The complaint alleges the Company’s marketing practices with physicians for its product, Eversense Continuous Glucose Monitoring System,CGM system, violated the False Claims Act, 31 U.S.C. § 3729 and the Texas Medicaid Fraud Prevention Law, Tex. Hum Res. Code § 36.002. Outside counsel, on behalf ofThe court granted the Company, filed aCompany’s motion to dismiss the action for failure to state a claim. Oncomplaint on March 31, 2022 the court granted the motion to dismiss the action without prejudice which allowsbut permitted the plaintiff 60 days to refilefile an amended complaint. The court dismissed the complaint. On May 27, 2022, the plaintiff filed
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an amended complaint and entered judgment in favor of Senseonics Holdings, Inc. on July 11, 2022, the CompanyMarch 30, 2023. The relator filed a motionnotice of appeal to dismiss the actionUnited States Court of Appeals for failurethe Fifth Circuit on April 28, 2023. As of September 8, 2023, the case was fully briefed before the Fifth Circuit. The parties are now waiting for the Court to state a claim. Briefingnotify the parties whether it will hear oral argument on the motion was completed in August 2022 andcase or decide the motion is beforecase on the court for consideration and decision.
As previously reported, since February 2021 the Company has been in communication with the Italian Data Protection Authority, or Garante, with respect to the Garante’s review of the Company’s unintended disclosure of certain Italian user e-mail addresses to other users in Italy and other GDPR-related obligations of the Company. On July 29, 2022, the Garante delivered its decision to the Company finding that the Company had breached certain provisions of the GDPR, assessing a fine of EUR 45,000 and directing the Company to make certain changes within three months to its European privacy notice, including simplifications to the privacy notice and the inclusion of certain references. In accordance with the Garante’s decision, the Company was permitted to settle the matter for EUR 22,500 if it made the payment within 30 days, undertook to update the privacy notice and did not appeal the decision. The Company made such payment, confirmed it would not appeal the decision and released a new privacy notice intended to comply with the directive of the Garante. It is possible under the applicable process that the Garante may, in the future, follow up further regarding the Company’s corrective measures.
briefs.
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. Other than the risk factorsExcept as set forth below, there have been no material changes from 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.
The ongoing military action by RussiaOur recent exchange agreements with certain holders of our 2025 Notes will result in Ukraineadditional dilution and could have negative impact on the global economy which could materially adversely affectcause our business, operations, operating results and financial condition.stock price to decline.
On February 24, 2022, Russian forces launched significant military action against Ukraine,August 10, 2023, we entered into separate, privately negotiated exchange agreements with certain holders of our 2025 Notes, pursuant to which the noteholders agreed to exchange an aggregate principal amount of up to $30.8 million of 2025 Notes for a combination of cash and sustained conflictnewly issued shares of common stock. The number of shares we issued in connection with these exchanges was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and disruptionending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the region is possible.Exchanges. The impactnumber of shares that issued in connection with the exchanges exceeded the number of shares underlying the 2025 Notes that were exchanged, resulting in incremental dilution to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by Canada, the United Kingdom, the European Union, the U.S. and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could adversely affect the global economy and financial markets and thus could affect our business, operations, operating results and financial condition as well as the price of our common stockholders. Additionally, the shares that we issued to the noteholders will be eligible for immediate resale in the open market without restriction, which could increase the number of shares of common stock sold over the near term and could cause our abilitystock price to raise additional capital when needed on acceptable terms. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in our Annual Report on Form 10-K.decline.
While our suppliers may source certain raw materials from Russia
ITEM 2: Unregistered Sales of Equity Securities and Ukraine, to date we have not been notified that the supplyUse of these materials has been significantly impacted by the conflict. We continue to monitor the situation closely and are proactively assessing and evaluating alternative sources to bolster supply of these materials moving forward, in addition to working closely with our suppliers in any product re-qualification that may be required. Revenue relating to products manufactured from raw materials sourced from this region does not constitute a material portion of our business. Further, there is uncertainty regarding the ultimate impact the conflict, including any escalation or further expansion of the conflict’s current scope, will have on our customers, the global economy, supply chains, logistics, fuel prices, raw material pricing and our business.Proceeds
Surging natural gasOn August 10, 2023 the Company entered into the Exchange Agreements with the Noteholders of the 2025 Notes. Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company up to $30.8 million in aggregate principal amount of the Exchanged Notes for a combination of $7.5 million of cash and electricity coststhe Exchange Shares. The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023. Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in Europe poses a threat to our contract manufacturers ability to maintain operations in Europe which can adversely affect or business supply chainthe Exchanges. The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.
Europe’s energy crisis driven by the impacts of Russia’s military action in Ukraine is quickly soaring and causing extreme disruption to the manufacturing industry across the continent. The reduced natural gas supply to Europe has resulted in higher gas costs which have been unsustainable for energy intensive companies that operate across Europe. Several manufacturers have shut down, suspended or reduced operations amidst the skyrocketing prices. Several of our suppliers operate in Europe and may be impacted by the energy crisis as the result of increased production costs.
Across Europe, these energy constraints could result in nations or regions enacting emergency energy related policies, limiting energy availability for manufacturers. The impact of these developments cannot be predicted with certainty, however, any such production constraints could further exacerbate an already ailing supply chain and could have a material, adverse effect on our operations and our ability to source materials that are required to manufacture our products. We continue to monitor the situation closely and continue to have discussions with our suppliers to determine
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whether there may be any uncertainty with regardsThe Exchange Shares were offered and sold pursuant to our ability to source materials that are required to manufacture our products. If the energy crisis or other supply chain challenges impact our ability to obtain raw materials onexemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended as a timely basis or without significant increases in costs, our financial results and business operations may be adversely affected.transaction by an issuer not involving a public offering.
Our business could be adversely affected by economic downturns, inflation, increases in interest rates, natural disasters, public health crises such as the COVID-19 pandemic, political crises, geopolitical events, such as the crisis in Ukraine, or other macroeconomic conditions, which have in the past and may in the future negatively impact our business and financial performance.
The global economy, including credit and financial markets, has experienced extreme volatility and disruptions,
including, among other things, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, supply chain shortages, increases in inflation rates, higher interest rates and uncertainty about economic stability. For example, the COVID-19 pandemic resulted in widespread unemployment, economic slowdown and extreme volatility in the capital markets. The Federal Reserve recently raised interest rates multiple times in response to concerns about inflation and it may raise them again. Higher interest rates, coupled with reduced government spending and volatility in financial markets may increase economic uncertainty and affect consumer spending. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates can adversely affect us by increasing our costs, including labor and employee benefit costs.
ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds
Not applicable.
ITEM 3: Defaults Upon Senior Securities
Not applicable.
ITEM 4: Mine Safety Disclosures
Not applicable.
ITEM 5: Other Information
None.Not applicable.
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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.
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Exhibit No. | | Document |
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3.1 | | |
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3.2 | | |
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3.3 | | |
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3.4 | | |
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3.5 | | |
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10.2 | | |
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31.1* | | Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act. |
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31.2* | | Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act. |
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32.1** | | |
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101.INS* | | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document) |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* 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.
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| SENSEONICS HOLDINGS, INC. | |
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Date: November | By: | /s/Rick Sullivan |
| | Rick Sullivan |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
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