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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, 2022

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
(State or other jurisdiction of
incorporation or organization)

3841
(Primary Standard Industrial
Classification Code Number)

47-1210911
(I.R.S. Employer
Identification Number)

20451 Seneca Meadows Parkway

Germantown, MD 20876-7005

(301515-7260

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

SENS

NYSE American

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

There were 478,256,348 shares of common stock, par value $0.001, outstanding as of November 4, 2022.

TABLE OF CONTENTS

PART I: Financial Information

ITEM 1: Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for three and nine months ended September 30, 2022 and 2021

4

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2022 and 2021

5

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

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

24

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

37

ITEM 4: Controls and Procedures

37

PART II: Other Information

37

ITEM 1: Legal Proceedings

37

ITEM 1A: Risk Factors

38

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

39

ITEM 3: Defaults Upon Senior Securities

39

ITEM 4: Mine Safety Disclosures

39

ITEM 5: Other Information

39

ITEM 6: Exhibits

40

SIGNATURES

41

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

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

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 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)

$

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

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 commercialization 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, and its net losses were $302.5 million, $175.2 million, and $115.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of September 30, 2022, the Company had an accumulated deficit of $820.4 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, convertible notes and debt. As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of $163.0 million.

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 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, 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, the Company entered into an Open Market Sale Agreement (the “2019 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 $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 in the 2021 Public Offering was $1.925 per share of common stock. The Underwriters agreed to purchase the shares from the Company 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.

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 has not exercised this option as of September 30, 2022.

Additionally, on August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (collectively, “Masters”), pursuant to which the Company 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 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000 per share in subsequent closings, subject to 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 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 Stock

8

have been converted to common stock.

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, and December 31, 2021, results of operations, comprehensive income (loss), and changes in stockholder’s deficit for the three and nine month periods ended September 30, 2022, and 2021 and cash flows for the nine months ended September 30, 2022, and 2021 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, as filed with the SEC on March 1, 2022. The interim results for September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, 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, the Company does not expect this to have a significant impact on its 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.

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, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, 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 impacts to its estimates, as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.

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.

10

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.

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, 2022 and 2021:

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

%

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 – related parties, net as of September 30, 2022, and December 31, 2021 included unbilled accounts receivable of $1.1 million and $1.8 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, 2022 and 2021, the Company derived 97% and 92%, respectively, of its total revenue from one customer, Ascensia. For the nine months ended September 30, 2022 and 2021, the Company derived 95% and 88%, respectively, of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.

11

5. Net Income (Loss) per Share

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted 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

12

Outstanding anti-dilutive securities not included in the diluted net income per share calculations were as follows:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

2021

Stock-based awards

24,940,972

1,949,958

10,426,560

28,502,846

2023 Notes

4,617,646

4,617,646

2025 Notes

39,211,358

39,689,142

PHC Notes

68,322,952

65,757,177

PHC Option

31,512,605

22,717,076

Energy Capital Option

30,372,058

Warrants

3,177,821

116,581

427,821

13,177,822

Total anti-dilutive shares outstanding

202,155,412

2,066,539

33,571,457

151,744,633

6.

Marketable Securities

Marketable securities available for sale, were as follows (in thousands):

September 30, 2022

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Market

    

Cost

    

Gains

    

Losses

    

Value

Commercial Paper

$

32,614

$

32,614

Corporate debt securities

$

37,209

(425)

$

36,784

Asset backed securities

$

13,979

(130)

$

13,849

Government and agency securities

$

44,949

(630)

$

44,319

Total

$

128,751

$

$

(1,185)

$

127,566

December 31, 2021

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Market

    

Cost

    

Gains

    

Losses

    

Value

Commercial Paper

$

57,369

$

57,369

Corporate debt securities

$

39,825

(77)

$

39,748

Asset backed securities

$

26,736

(29)

$

26,707

Government and agency securities

$

24,609

(106)

$

24,503

Total

$

148,539

$

$

(212)

$

148,327

The following are the scheduled maturities as of September 30, 2022 (in thousands):

2022 (remaining three months)

    

$

29,625

2023

 

90,175

2024

2,221

2025

6,730

Total

    

$

128,751

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, 2022 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, 

2022

    

2021

Finished goods

    

$

1,428

    

$

1,012

Work-in-process

 

4,306

 

3,770

Raw materials

 

1,523

 

1,534

Total

$

7,257

$

6,316

The Company charged $0.5 million and $1.1 million, respectively, to cost of sales for the three and nine months ended September 30, 2022 and $1.8 million to cost of sales for the three and nine months ended September 30, 2021 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. 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, 

2022

    

2021

Contract manufacturing⁽¹⁾

$

4,028

$

5,036

Insurance

506

74

Clinical and Preclinical

472

142

Interest receivable

 

369

 

443

Research and development

9

39

Accounting and Audit

148

Rent and utilities

108

105

IT and software

    

21

 

225

Sales and Marketing

17

98

Other

36

56

Total prepaid expenses and other current assets

$

5,714

$

6,218

(1) Includes deposits to contract manufacturers for manufacturing process.

Deposits and other assets as 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 of 33,000 square feet of research and office space for our corporate headquarters. In June 2022, the Company extended our lease for an additional five-year term. We recorded a modification to our right-of-use asset for the right-to-use the underlying asset for the additional lease term.

14

9.

Accrued Expenses, Other Current Liabilities, and Other Liabilities

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