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 June 30, ~~2019~~2020

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

20451 Seneca Meadows Parkway

Germantown, MD ~~20876‑7005~~20876-7005

~~(301) 515‑7260~~(301) 515-7260

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

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes ~~☒No~~ ◻☒ 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~~ ◻☒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 ~~203,168,205~~231,557,506 shares of common stock, par value $0.001, outstanding as of August ~~6, 2019.~~7, 2020.

Table of Contents

TABLE OF CONTENTS

PART I: Financial Information

ITEM 1: Financial Statements

Condensed Consolidated Balance Sheets as of June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	2 3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	3 4
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019	4 5
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019	5 6
Notes to Unaudited Condensed Consolidated Financial Statements	6 7

ITEM 2: Management Discussion and Analysis of Financial Condition and Results of Operations	23 26

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk	36 44

ITEM 4: Controls and Procedures	36 45

PART II: Other Information	46

ITEM 1: Legal Proceedings	37 46

ITEM 1A: Risk Factors	37 46

ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds	38 51

ITEM 3: Defaults Upon Senior Securities	39 51

ITEM 4: Mine Safety Disclosures	39 51

ITEM 5: Other Information	39 51

ITEM 6: Exhibits	39 52

SIGNATURES	41 53

Table of Contents

Senseonics Holdings, Inc.

Condensed Consolidated Balance ~~Sheets~~Sheets

(in thousands, except share and per share data)


	June 30,		December 31,
	2020		2019

		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	21,397	$	95,938
Restricted cash		200		—
Accounts receivable, net		670		3,239
Accounts receivable - related parties		—		7,140
Inventory, net		4,150		16,929
Prepaid expenses and other current assets		5,688		4,512
Total current assets		32,105		127,758

Derivative assets		4,245		—
Deposits and other assets		2,716		3,042
Property and equipment, net		1,771		2,001
Total assets	$	40,837	$	132,801

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	106	$	4,285
Accrued expenses and other current liabilities		12,174		18,636
Term Loans, net		—		43,434
2025 Notes, net		—		60,353
Total current liabilities		12,280		126,708

Long-term debt and notes payables, net		61,192		11,800
Derivative liabilities		5,075		664
Other liabilities		1,895		2,278
Total liabilities		80,442		141,450

Commitments and contingencies

Stockholders’ deficit:
Common stock, $0.001 par value per share; 450,000,000 shares authorized; 230,551,676 and 203,452,812 shares issued and outstanding as of June 30, 2020 and December 31, 2019		231		203
Additional paid-in capital		483,615		464,491
Accumulated deficit		(523,451)		(473,343)
Total stockholders' deficit		(39,605)		(8,649)
Total liabilities and stockholders’ deficit	$	40,837	$	132,801

June 30,

December 31,


2019

2018

(unaudited)

Assets





Current assets:

Cash and cash equivalents

$
65,296

$
136,793

Accounts receivable

839

830

Accounts receivable - related parties

4,963

6,267

Inventory, net

16,787

10,231

Prepaid expenses and other current assets

6,091

3,985

Total current assets

93,976

158,106

Deposits and other assets

2,142

117

Property and equipment, net

2,278

1,750

Total assets

$
98,396

$
159,973

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$
4,779

$
4,407

Accrued expenses and other current liabilities

16,922

13,851

Deferred revenue

—

628

Term Loans, accrued interest

2,002

—

Term Loans, current portion

9,901

10,000

Total current liabilities

33,604

28,886

Term Loans, net of discount and current portion

—

4,783

2023 Notes, net of discount

37,815

36,103

Derivative liability

10,130

17,091

Term Loans, accrued interest

—

1,764

Other liabilities

1,674

85

Total liabilities

83,223

88,712

Commitments and contingencies (Note 8)

Stockholders’ equity:

Common stock, $0.001 par value per share; 450,000,000 shares authorized; 177,031,842 and 176,918,381 shares issued and outstanding as of June 30, 2019 and December 31, 2018

177

177

Additional paid-in capital

433,229

428,878

Accumulated deficit

(418,233)

(357,794)

Total stockholders' equity

15,173

71,261

Total liabilities and stockholders’ equity

$
98,396

$
159,973

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

Table of Contents

Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue, net	$	216	$	1,475	$	247	$	2,718
Revenue, net - related parties		45		3,132		50		5,312
Total revenue		261		4,607		297		8,030
Cost of sales		1,404		9,160		21,074		15,893
Gross profit		(1,143)		(4,553)		(20,777)		(7,863)

Expenses:
Sales and marketing expenses		3,142		14,179		14,287		27,013
Research and development expenses		3,796		10,504		11,159		17,612
General and administrative expenses		4,445		5,417		10,134		11,933
Operating loss		(12,526)		(34,653)		(56,357)		(64,421)
Other income, net:
Interest income		8		410		217		1,037
Loss on extinguishment of debt		(6,385)		—		(10,931)		—
Interest expense		(3,555)		(1,965)		(7,928)		(3,999)
Change in fair value of derivatives		15,238		4,889		25,549		6,961
Other (expense) income		(295)		245		(658)		(17)
Total other income, net		5,011		3,579		6,249		3,982

Net loss		(7,515)		(31,074)		(50,108)		(60,439)
Total comprehensive loss	$	(7,515)	$	(31,074)	$	(50,108)	$	(60,439)

Basic and diluted net loss per common share	$	(0.03)	$	(0.17)	$	(0.24)	$	(0.34)
Basic and diluted weighted-average shares outstanding		220,305,606		177,012,497		212,025,792		176,983,467

Three Months Ended

Six Months Ended

June 30,

June 30,


2019

2018

2019

2018

Revenue, net

$
1,475

$
553

$
2,718

$
931

Revenue, net - related parties

3,132

3,070

5,312

5,638

Cost of sales

9,160

3,839

15,893

7,147

Gross profit

(4,553)

(216)

(7,863)

(578)

Expenses:

Sales and marketing expenses

14,179

6,177

27,013

9,618

Research and development expenses

10,504

8,289

17,612

16,402

General and administrative expenses

5,417

5,382

11,933

9,393

Operating loss

(34,653)

(20,064)

(64,421)

(35,991)

Other income (expense), net:

Interest income

410

241

1,037

425

Interest expense

(1,965)

(2,236)

(3,999)

(4,007)

Change in fair value of derivative liability

4,889

(10,166)

6,961

(15,013)

Other income (expense)

245

(271)

(17)

(183)

  Total other income (expense), net

3,579

(12,432)

3,982

(18,778)

Net loss

(31,074)

(32,496)

(60,439)

(54,769)

Total comprehensive loss

$
(31,074)

$
(32,496)

$
(60,439)

$
(54,769)

Basic and diluted net loss per common share

$
(0.17)

$
(0.23)

$
(0.34)

$
(0.40)

Basic and diluted weighted-average shares outstanding

177,012,497

138,767,873

176,983,467

137,923,135

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

Table of Contents

Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands)

Additional

Total

Common Stock

Paid-In

Accumulated

Stockholders'


Shares

Amount

Capital

Deficit

Equity (Deficit)

Three months ended June 30, 2018:

Balance, March 31, 2018

137,240

$
137

$
272,787

$
(286,096)

$
(13,172)

Issued shares of common stock

37,341

38

149,058

—

149,096

Exercise of stock options for cash and warrants

900

1

433

—

434

Conversion of 2023 Notes

735

1

249

—

250

Stock-based compensation expense and vesting of RSUs

26

—

1,603

—

1,603

Net loss

—

—

—

(32,496)

(32,496)

Balance, June 30, 2018

176,242

$
177

$
424,130

$
(318,592)

$
105,715

Six months ended June 30, 2018:

Balance, December 31, 2017

136,883

$
137

$
270,953

$
(263,823)

$
7,267

Issued shares of common stock

37,341

38

149,058

—

149,096

Exercise of stock options and warrants

1,212

1

813

—

814

Conversion of 2023 Notes

735

1

249

—

250

Stock-based compensation expense and vesting of RSUs

71

—

3,057

—

3,057

Net loss

—

—

—

(54,769)

(54,769)

Balance, June 30, 2018

176,242

$
177

$
424,130

$
(318,592)

$
105,715

Three months ended June 30, 2019:

Balance, March 31, 2019

176,958

$
177

$
430,926

$
(387,159)

$
43,944

Exercise of stock options for cash and warrants

36

—

71

—

71

Stock-based compensation expense and vesting of RSUs

37

—

2,232

—

2,232

Net loss

—

—

—

(31,074)

(31,074)

Balance, June 30, 2019

177,031

$
177

$
433,229

$
(418,233)

$
15,173

Six months ended June 30, 2019:

Balance, December 31, 2018

176,918

$
177

$
428,878

$
(357,794)

$
71,261

Exercise of stock options

51

—

94

—

94

Stock-based compensation expense and vesting of RSUs

62

—

4,257

—

4,257

Net loss

—

—

—

(60,439)

(60,439)

Balance, June 30, 2019

177,031

$
177

$
433,229

$
(418,233)

$
15,173


				Additional				Total
	Common Stock			Paid-In		Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit		Equity (Deficit)
Three months ended June 30, 2019:
Balance, March 31, 2019	176,958	$	177	$	430,926	$	(387,159)	$	43,944
Issuance of common stock	—		—		—		—		—
Exercise of stock options	36		—		71		—		71
Conversion of convertible notes	—		—		—		—		—
Stock-based compensation expense and vesting of RSUs	37		—		2,232		—		2,232
Net loss	—		—		—		(31,074)		(31,074)
Balance, June 30, 2019	177,031	$	177	$	433,229	$	(418,233)	$	15,173

Six months ended June 30, 2019:
Balance, December 31, 2018	176,918	$	177	$	428,878	$	(357,794)	$	71,261
Issuance of common stock	—		—		—		—		—
Exercise of stock options	51		—		94		—		94
Conversion of convertible notes	—		—		—		—		—
Stock-based compensation expense and vesting of RSUs	62		—		4,257		—		4,257
Net loss	—		—		—		(60,439)		(60,439)
Balance, June 30, 2019	177,031	$	177	$	433,229	$	(418,233)	$	15,173

Three months ended June 30, 2020:
Balance, March 31, 2020	204,445	$	204	$	466,771	$	(515,936)	$	(48,961)
Exercise of stock options, vesting of RSUs, and ESPP purchases	214		—		—		—		—
Exchange and conversion of convertible notes, net	25,893		27		14,223		—		14,250
Stock-based compensation expense	—		—		1,409		—		1,409
Issuance of warrants related to debt, net	—		—		1,212		—		1,212
Net loss	—		—		—		(7,515)		(7,515)
Balance, June 30, 2020	230,552	$	231	$	483,615	$	(523,451)	$	(39,605)

Six months ended June 30, 2020:
Balance, December 31, 2019	203,453	$	203	$	464,491	$	(473,343)	$	(8,649)
Issuance of common stock, net	175		—		(86)		—		(86)
Exercise of stock options, vesting of RSUs, and ESPP purchases	1,031		1		497		—		498
Exchange and conversion of convertible notes, net	25,893		27		14,223		—		14,250
Stock-based compensation expense	—		—		3,278		—		3,278
Issuance of warrants related to debt, net	—		—		1,212		—		1,212
Net loss	—		—		—		(50,108)		(50,108)
Balance, June 30, 2020	230,552	$	231	$	483,615	$	(523,451)	$	(39,605)

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

Table of Contents

Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

Six Months Ended

June 30,


2019

2018

Cash flows from operating activities

Net loss

$
(60,439)

$
(54,769)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

418

104

Non-cash interest expense (debt discount and deferred costs)

1,830

1,519

Change in fair value of derivative liability

(6,961)

15,012

Stock-based compensation expense

4,257

3,058

Provision for lower of cost or net realizable value

80

202

Provision for inventory obsolescence

2,256

—

Net realized gain on marketable securities

—

(69)

Changes in assets and liabilities:

Accounts receivable

1,295

394

Prepaid expenses and other current assets

(2,106)

(2,103)

Inventory

(8,892)

(5,611)

Deposits and other assets

—

(76)

Accounts payable

372

(2,540)

Accrued expenses and other current liabilities

2,626

4,118

Payments on right of use liability, building

(201)

—

Deferred revenue

(628)

—

Term Loans, accrued interest

238

390

    Deferred rent

—

4

Net cash used in operating activities

(65,855)

(40,367)

Cash flows from investing activities

Capital expenditures

(736)

(176)

Purchases of marketable securities

—

(7,935)

Sales and maturities of marketable securities

—

20,350

Net cash (used in) provided by investing activities

(736)

12,239

Cash flows from financing activities

Proceeds from issuance of common stock, net of issuance costs

—

149,379

Proceeds from exercise of stock options and stock warrants

94

813

Proceeds from 2023 Notes, net of costs

—

50,734

Principal payments on Term Loans

(5,000)

(5,000)

Principal payments under capital lease obligations

—

(20)

Net cash (used in) provided by financing activities

(4,906)

195,906

Net (decrease) increase in cash and cash equivalents

(71,497)

167,778

Cash and cash equivalents, at beginning of period

136,793

16,150

Cash and cash equivalents, at end of period

$
65,296

$
183,928

Supplemental disclosure of cash flow information

Cash paid during the period for interest

$
1,858

$
954

Supplemental disclosure of non-cash investing and financing activities

Common stock offering costs incurred

$
—

$
282

Convertible debt offering costs incurred

$
—

$
29

Property and equipment purchases included in accounts payable and accrued expenses

$
170

$
73


	Six Months Ended
	June 30,
	2020		2019
Cash flows used in operating activities
Net loss	$	(50,108)	$	(60,439)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		569		418
Non-cash interest expense (debt discount and deferred costs)		4,650		1,830
Loss on extinguishment of debt		10,931		—
Change in fair value of derivatives		(25,549)		(6,961)
Stock-based compensation expense		3,278		4,257
Provision for inventory obsolescence and net realizable value		11,981		2,336
Loss on disposal of assets		181		—
Changes in assets and liabilities:
Accounts receivable		9,709		1,295
Prepaid expenses and other current assets		(1,177)		(2,106)
Inventory		798		(8,892)
Deposits and other assets		(15)		—
Accounts payable		(4,179)		372
Accrued expenses and other liabilities		(6,062)		2,626
Deferred revenue		—		(628)
Accrued interest		(401)		238
Operating lease liabilities		(383)		(201)
Net cash used in operating activities		(45,777)		(65,855)
Cash flows used in investing activities
Capital expenditures		(178)		(736)
Net cash used in investing activities		(178)		(736)
Cash flows used in financing activities
Issuance of common stock, net		(87)		—
Proceeds from exercise of stock options and ESPP purchases		499		94
Proceeds from the PPP loan		5,763		—
Proceeds from issuance of First Lien Notes, net		14,437		—
Payments of notes payable		(48,396)		(5,000)
Costs for the issuance of Second Lien Notes		(602)		—
Net cash used in financing activities		(28,386)		(4,906)
Net decrease in cash, cash equivalents and restricted cash		(74,341)		(71,497)
Cash, cash equivalents and restricted cash, at beginning of period		95,938		136,793
Cash, cash equivalents and restricted cash, at ending of period	$	21,597	$	65,296

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	3,690	$	1,858
Supplemental disclosure of non-cash investing and financing activities
Property and equipment purchases included in accounts payable and accrued expenses	$	20	$	170
Issuance of common stock and warrants - Highbridge transactions	$	8,534	$	—
Exchange of 2025 Notes for Second Lien Notes	$	(24,000)	$	—
Issuance of Second Lien Notes	$	15,675	$	—

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

Table of Contents

Senseonics Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

~~1.Organization~~

1.	Organization and Nature of Operations

Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the ~~design,~~ 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~~wholly owned subsidiary of Senseonics Holdings and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.

2.	Going Concern and Liquidity Update

~~2.Liquidity~~

The Company’s operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, lack of operating history and uncertainty of future profitability. Since inception, the Company has ~~incurred~~suffered substantial operating losses, principally from expenses associated with the Company’s research and development ~~programs.~~programs and commercial launch of the Eversense® CGM System (for use up to 90 days) in the United States and the Eversense CGM and Eversense XL CGM Systems (for use up to 180 days) in Europe, the Middle East, and Africa. The Company has not generated significant ~~revenues~~revenue from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability ~~alone or with others,~~ to ~~complete~~successfully expand the commercialization of Eversense, continue the development of its products orand product ~~candidates,~~upgrades, and to obtain necessary regulatory approvals for the ~~manufacture, marketing and sales~~sale of those ~~products.~~products, including approval by the FDA for the new 180-day Eversense product in the United States. These activities will require significant uses of working capital through ~~the remainder of 2019~~2020 and beyond.

AtThe Company generated a net loss of $50.1 million for the six months ended June 30, ~~2019,~~2020 and had an accumulated deficit of $523.5 million at June 30, 2020. During the six months ended June 30, 2020, the Company ~~had $65.3~~repaid in full its term loan with Solar Capital Ltd. (“Solar”) in the amount of $48.5 million, and as a result, and in consideration of the evolving impact of the coronavirus (“COVID-19”) pandemic, the Company made significant reductions in its cost structure to improve operating cash flow and generate future capital expenditure savings to ensure the long-term success of Eversense. Specifically, the Company temporarily suspended commercial sales of the Eversense CGM system in the United States to new patients and streamlined its operational strategy to focus on the development and regulatory submission efforts for its new 180-day Eversense product in the United States.

On April 22, 2020, the Company received $5.8 million in ~~cash~~loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus Aid, Relief, and ~~cash equivalents. In July 2019,~~Economic Security Act (“the CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”), and administered by the U.S. Small Business Administration (the “SBA”), to support payroll, rent, and utilities incurred during a defined period. On April 24, 2020, the Company ~~completed financing~~received $15.0 million through the issuance and ~~debt transactions totaling gross proceeds~~sale of ~~$106.2 million, after repayment~~First Lien Secured Notes due October 2021 (the “First Lien Notes”) pursuant to a Loan and Security Agreement (the “Highbridge Loan Agreement”) with certain funds managed by Highbridge Capital Management, LLC (“Highbridge”), as the lenders, together with the other lenders from time to time party thereto (the “Lenders”). Under the terms of the ~~Term Loans (as defined below) and~~Highbridge Loan Agreement, the Company may issue up to an additional $5.0 million in aggregate principal amount of First Lien Notes in a ~~portion~~subsequent closing. Highbridge was a current holder of $24.0 million in principal amount of the Company’s convertible senior subordinated notes due ~~2023~~2025 (the ~~“2023~~“2025 Notes”)~~, as~~. In connection with the Highbridge Loan Agreement, the Company entered into a Note and Purchase Exchange Agreement with the Lenders, pursuant to which those 2025 Notes were exchanged for (i) $15.7 million aggregate principal amount of newly issued Second Lien Secured Notes, (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of 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.

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As described further below in Note 13 – Subsequent ~~Events.~~Events, on August 9, 2020, the Company entered into a Collaboration and Commercialization Agreement with Ascensia Diabetes Care Holdings AG (“Ascensia”) and entered into a financing agreement pursuant to which the Company has agreed to issue $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due in October 2024 (the “2024 Notes”) to Ascensia’s parent company, PHC Holdings Corporation (“PHC”) on or about August 14, 2020 (the “Closing Date”). 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 receipt of any stockholder approval required by the listing rules of the NYSE American and the Company obtaining approval for the 180-day Eversense product for marketing in the United States before such date. Upon the closing of the 2024 Notes, the Company intends to prepay the First Lien Notes in full in the amount of approximately $17.6 million, which includes the discounted prepayment premium. Additionally, on August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters Special Situations, LLC and certain affiliates thereof (“Masters”) pursuant to which the Company has agreed to issue and sell to Masters 3,000 shares of convertible preferred stock, designated as “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”), at a price of $1,000.00 per share in an initial closing, expected to occur on the Closing Date. Masters also has the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in a subsequent closing, subject to the terms and conditions of the Stock Purchase Agreement.

The Company believes that these agreements provide the financial resources and mutual commitment to support the growth of Eversense and specifically for the Company, the manufacturing of Eversense and continued product development, including the U.S. launch of the new 180-day Eversense product, if approved. The timing and success of these collaborations and financings are dependent on certain events occurring in accordance with the Company’s plans, and may be influenced by uncontrollable external factors, including restrictions or impacts of COVID-19. As a result of these ~~transactions, management has concluded that, based on the Company’s current operating plans, its existing cash~~recent subsequent events and ~~cash equivalents, will be sufficient to meet the Company’s anticipated operating needs through the end of 2020. Accordingly, management has concluded~~ that the transactions have not yet closed, management’s doubt ~~about the Company’s~~regarding its ability to continue as a going concern ~~over~~for the next twelve months ~~has been~~from the date this Quarterly Report on Form 10-Q is filed is not yet alleviated.

3.	Summary of Significant Accounting Policies

Historically, the Company has financed its operating activities through the sale of equity and equity linked securities and the issuance of debt. The Company plans to continue financing its operations with external capital for the foreseeable future. However, the Company may not be able to raise additional funds on acceptable terms, or at all. If the Company is unable to secure sufficient capital to fund its research and development and other operating activities, the Company may be required to delay or suspend operations, enter into collaboration agreements with partners that could require the Company to share commercial rights to its products to a greater extent or at earlier stages in the product development process than is currently intended, merge or consolidate with other entities, or liquidate.

~~3.Summary of Significant Accounting Policies~~

Basis of Presentation

The accompanying unaudited ~~interim condensed~~ consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)~~. In~~ for interim financial information and the ~~Company’s opinion,~~instructions to Form 10-Q and Article 10 of Regulation S-X. Although the ~~accompanying~~Company considers the disclosures in these unaudited ~~interim condensed~~ consolidated financial statements ~~include all adjustments, consisting of normal recurring adjustments, which are necessary~~ to present fairly its financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2018, has been derived from audited financial statements as of that date. The interim condensed consolidated results of operations arebe adequate to make the information presented not ~~necessarily indicative of the results that may occur for the full fiscal year. Certain~~misleading, certain information ~~and~~or footnote ~~disclosure~~information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted ~~pursuant to instructions,~~as permitted under the rules and regulations ~~prescribed by~~of the ~~U.S.~~United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position at June 30, 2020 and December 31, 2019, results of operations, comprehensive loss, and changes in stockholder’s equity (deficit) for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019 have been included. The ~~Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these~~ unaudited

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~~interim~~ condensed consolidated financial statements ~~are~~should be read in conjunction with ~~the audited financial statements and notes previously included in~~ the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, as filed with the SEC on March 16, 2020, and amended on April 28, 2020. The interim results for June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 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.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of ~~revenues~~revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes

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and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and ~~estimated~~ accruals for clinical study costs, which are accrued based on estimates of work performed under ~~contract~~.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; however, management does not believe that such differences would be material.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in ~~one~~1 segment, glucose monitoring products.

Comprehensive Loss

Comprehensive loss comprises net loss and other changes in equity that are excluded from net loss. For the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

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Cash and Cash Equivalents ~~and Concentration of Credit Risk~~

The Company considers highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash and cash equivalents consisted of the following as of the periods listed below (in thousands):


	June 30,		December 31,
	2020		2019
Cash ⁽¹⁾	$	21,394	$	38,043
Money market funds		3		37,769
Commercial paper		—		13,870
Corporate bonds		—		6,256
Cash and cash equivalents	$	21,397	$	95,938

⁽¹⁾ Includes overnight repurchase agreements

Restricted Cash

The Company’s restricted cash ~~and~~includes pledged cash ~~equivalents potentially subject the Company~~as collateral related to its credit ~~and liquidity risk. The Company maintains cash deposits at major financial institutions~~card program with high credit quality and, at times, the balances of those deposits may exceed the Federal Deposit Insurance Corporation limits of $250,000. The Company has not experienced and does not anticipate any losses on deposits with commercial banks and financial institutions that exceed the federally insured amounts.

~~Concentration of Revenues and Customers~~

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

During the three and six months ended June 30, 2019 and 2018, the Company derived a majority of its total net revenue from two customers. During the three months ended June 30, 2019 and 2018, the Company derived 68 percent and 85 percent of its total net revenue from one of those two customers, respectively. During the six months ended June 30, 2019 and 2018, the Company derived 66 percent and 86 percent of its total net revenue from one of those two customers, respectively.

~~Revenues by geographic region~~

Silicon Valley Bank. The following table ~~sets forth net revenues derived from~~provides a reconciliation of cash, cash equivalents and restricted cash reported within the ~~Company’s two primary geographical markets,~~consolidated balance sheets that sum to the ~~United States and outside~~total of the ~~United States, based on the geographic location to which the Company delivers the~~

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~~product, for the three and six months ended June 30, 2019. All of the Company’s net revenues were earned from sales outside of the United States for the three and six months ended June 30, 2018.~~

Three Months Ended

Six Months Ended

June 30, 2019

June 30, 2019

%

%

(Dollars in thousands)
Amount

of Total

Amount

of Total

Revenues, net:

Outside of the United States
$
3,509

76.2
%

$
6,117

76.2
%
United States

1,098

23.8

1,913

23.8

Total
$
4,607

100.0
%

$
8,030

100.0
%

~~Inventory~~

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

~~Accounts Receivable~~

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


	June 30,		December 31,
	2020		2019
Cash and cash equivalents	$	21,397	$	95,938
Restricted cash		200		—
Cash, cash equivalents and restricted cash	$	21,597	$	95,938

~~Property and Equipment~~Long-lived Assets

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

~~Management reviews property and equipment~~ for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ~~Recoverability~~As a result of COVID-19 and the events described above in Note 2, the Company identified an indicator of impairment and completed an impairment assessment. As part of the ~~long-lived asset is measured by a comparison of~~assessment, the ~~carrying amount of~~Company concluded the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of some of its property and equipment exceeded its carrying values. Accordingly, an impairment of property and equipment in the ~~assets. Management did not identify any indicators~~amount of ~~impairment through~~$0.2 million for the six months ended June 30, ~~2019.~~

~~Derivative Financial Instruments~~

In connection with the Company’s issuance of the 2023 Notes in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and2020 was recorded ~~the embedded conversion option as a derivative liability~~ in the Company’s unaudited condensed consolidated ~~balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815,~~ ~~Derivatives and Hedging. The financial instrument is remeasured at the end of each reporting period with changes in fair value recorded in the consolidated statements~~statement of operations ~~in other income (expense) as change in fair value~~and comprehensive loss.

Warranty Obligation

The Company provides a warranty of ~~2023 derivative.~~

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~~In July 2019,~~one year on its smart transmitters. Additionally, the Company ~~issued $82.0 million in aggregate principal amount of convertible senior subordinated notes due 2025 (the “2025 Notes”).~~ The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon, as described in Note 13 – Subsequent Events.

~~Warranty Reserve~~

~~The Company~~ may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs ~~associated with a product~~ are recorded at the time of ~~shipment. The Company estimates future replacement costs~~shipment 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, ~~for~~including comparing actual return management authorizations to revenue.

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At June 30, 2020 and December 31, 2019, the ~~timing~~warranty reserve was $1.6 million and ~~amount~~$2.2 million, respectively. The following table provides a reconciliation of ~~returned product,~~the change in estimated warranty liabilities as of June 30, 2020 and ~~the Company evaluates the reserve quarterly and makes adjustments when appropriate.~~December 31, 2019 (in thousands):


	June 30,		December 31,
	2020		2019
Balance at beginning of the year	$	2,197	$	816
Provision for warranties during the period		403		3,296
Settlements made during the period		(1,011)		(1,915)
Balance at end of the year	$	1,589	$	2,197

Revenue ~~Recognition~~

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

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

~~Revenues from product sales are~~Revenue is recognized, at a point in time, when the Customers obtain control of the ~~Company’s~~ product ~~which occurs at a point in time,~~ based upon the delivery terms as defined in the ~~distributor agreement.~~contract at an amount that reflects the consideration which is expected to be received in exchange for the product. Contracts with the Customers include performance obligations for supply of goods and the performance obligation is typically satisfied upon transfer of control of the product. Distribution contracts may also contain requirements for training and customer service support, however these are not assessed as performance obligations given the activities are considered immaterial in the context of the contract. The payment terms and conditions of the Customers vary, but the Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

~~In March 2019,~~Revenue is recognized only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in a future period. The Company’s contracts may contain variable consideration such as prompt-pay discounts or tier-volume price discounts. Variable consideration, including the reimbursements paid by the Company ~~introduced~~to its Customers in accordance with the Eversense Bridge Program ~~(the “program”)~~initiated in ~~the United States. Under the program, the Company provides financial assistance, in the form of reimbursement,~~March 2019 and to ~~eligible patients based on their insurance coverage. Reimbursement payments to the patient under the program are~~a lesser extent, other discounts and prompt-pay incentives, is treated as a reduction in revenue when the product sale is recognized. Depending on the variable consideration, the Company estimates the expected value based on the terms of ~~revenue~~the agreements, historical data, insurance payor mix, reimbursement rates, and market conditions. In connection with the Eversense Bridge Program, the Company reimburses participating Customers an amount up to a fixed maximum for the difference in the ~~period in~~cost of the Eversense CGM System and what they collect from insurance payors and the patient’s fee of $99. The Customers are responsible for confirming patient insurance coverage, obtaining pre-authorizations, determining eligibility, and continuously provide the Company with data regarding which patient orders

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are under the ~~corresponding gross revenue is recognized.~~program and which are not. Customer supplied data, along with actual reimbursements that have been validated to patient claims, are used to support expected reimbursement estimates. Estimated reimbursement payments for product shipped to ~~the Company’s customers~~Customers but not ~~sold~~provided to a patient within the same reporting period ~~is based on historical experience and~~are recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. ~~Because~~The Company’s estimates used in determining the variable consideration on a sale transaction may be adjusted each reporting period depending on actual results, provided a change does not reflect a modification to the original contract.

Contract assets consist of trade receivables from Customers and contract liabilities consist of amounts due to Customers in connection with the Eversense Bridge Program, classified as patient access and incentive programs within accrued liabilities on the accompanying unaudited condensed consolidated balance sheets. Trade receivables for customers in the United States are recorded at net realizable value, which is generally the contractual price but may be net of anticipated prompt-pay or promotional discounts.

Concentration of Revenue and Customers

For the three months ended June 30, 2020 and 2019, the Company derived 17% and 68% of its total revenue, respectively, from one customer, Roche Diabetes Care GmbH. For the six months ended June 30, 2020 and 2019, the Company derived 17% and 66% of its total revenue, respectively, from one customer, Roche Diabetes Care GmbH. During the three and six months ended June 30, 2020, Roche did not place commercial sales orders in accordance with their quarterly requirements or towards their annual binding minimum requirements for sensors and transmitters. Revenues for these corresponding periods in 2020 represent purchases for miscellaneous Eversense system components.

Revenue by Geographic Region

The following table sets forth net revenue derived from the Company’s 2 primary geographical markets, the United States and outside of the ~~limited experience with~~United States, based on the ~~program as of~~geographic location to which the Company delivers the product, for the three and six months ended June 30, ~~2019,~~2020 and 2019.


	Three Months Ended				Six Months Ended
	June 30, 2020				June 30, 2020
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
Outside of the United States	$	55	21.1	%	$	67	22.6	%
United States		206	78.9			230	77.4
Total	$	261	100.0	%	$	297	100.0	%


	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
Outside of the United States	$	3,509	76.2	%	$	6,117	76.2	%
United States		1,098	23.8			1,913	23.8
Total	$	4,607	100.0	%	$	8,030	100.0	%

Accounts Receivable

Accounts receivable consist of amounts due from the Company’s ~~estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods,~~Customers and ~~such changes could be material.~~are recorded at net realizable value, which may include reductions for allowances for doubtful accounts at the time potential collection risk is identified or for promotional or prompt-pay discounts offered. The Company ~~also, at~~extended payment terms and provided one-time COVID-19 pandemic relief concessions to some of its ~~discretion, offers discounts and other allowances under defined promotional programs to the Customers which result~~customers in the ~~establishment of reserves against product revenue.~~

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~~Cost of Sales~~

~~The Company uses third-party contract manufacturers~~United States for allowances up to ~~manufacture~~a specified amount if they are unable to sell through Eversense and related components and supplies. Cost of sales includes raw materials, contract manufacturing service fees, reserves for expected warranty costs, reserves for inventory valuation and obsolescence, scrap, and shipping and handling expenses associated with product delivery.

~~Research and Development Costs~~

~~Research and development costs are expensed as incurred. Research and development expenses include costs related~~on hand prior to employee compensation, consultants, contracted services, supplies, outsourced testing, depreciation and other expenses associated with the Company’s process development, clinical, regulatory, and quality assurance activities.

~~Stock‑Based Compensation~~

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

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

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

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

~~Income Taxes~~

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

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In the ordinary course of business, transactions occur forexpiry, which the ultimate outcome may be uncertain. Management does not expect the outcome related to accrued uncertain tax provisions to have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company recognizes interest and penalties accrued on any

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~~unrecognized tax exposures as a component~~Company expects to occur in the third and fourth quarters of ~~income tax expense.~~2020. The Company’s accounts receivables at June 30, 2020 included an allowance for these estimated concessions in the amount of $0.2 million. The Company ~~did~~does not have ~~any amounts accrued relating to interest~~a history of collectability concerns and ~~penalties as of~~there have been 0 provisions for uncollectible accounts recorded against accounts receivable at June 30, ~~2019 and~~2020 or December 31, ~~2018.~~2019.

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

~~Fair Value of Financial Instruments~~

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

Net Loss per Share

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

For periods of net loss, diluted net loss per share is calculated similarly to basic loss per share because the impact of all potential common shares is anti-dilutive. ~~At June 30, 2019 and 2018, the~~The total number of anti-dilutive shares at June 30, 2020 and 2019, consisting of common stock options and stock purchase warrants, ~~and the 2023 Notes using the if-converted method,~~ which have been excluded from the computation of diluted net loss per share, ~~were~~was as follows:


	June 30,
	2019	2018

			June 30,
			2020	2019
Stock-based awards	27,618,668	21,305,247	19,303,537	27,618,668
First Lien Notes			23,912,514	—
Second Lien Notes			21,395,957	—
2023 Notes	21,321,038	15,499,998	6,672,500	21,321,038
2025 Notes			44,961,235	—
Warrants	4,071,581	4,082,544	9,696,581	4,071,581
Total anti-dilutive shares outstanding	53,011,287	40,887,789	125,942,324	53,011,287

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

Exit or Disposal Costs

Costs associated with exit or disposal activities, such as restructuring, sale or termination of a line of business, the closure of business activities in a particular location, the relocation of business activities, changes in management structure and a fundamental reorganization that affects the ~~2023 Notes using~~nature and focus of operations, are recognized and measured initially at their fair values during the ~~if-converted method.~~period in which an obligation meets the definition of a liability. The Company’s workforce reduction on March 26, 2020 did not permit continuation of service past March 31, 2020 and associated one-time employee termination benefit costs in the amount of $1.4 million were paid and recorded in the Company’s accompanying unaudited consolidated financial statements for the six months ended June 30, 2020.

Recent Accounting Pronouncements

Recently Adopted

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board (“~~FASB”)~~FASB “) issued Accounting Standards Update (“ASU”) ~~No. 2016-02, Leases~~2018-13, Fair Value Measurement (Topic ~~842) (“ASC 842”).~~820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements on fair value measurements. The ~~guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands~~new standard includes additional disclosure requirements regarding ~~leasing arrangements. In July 2018,~~ the ~~FASB issued ASU 2018-11~~range and weighted average to provide another transition method, allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The guidance is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption.develop significant unobservable inputs within Level 3 fair value measurements. The Company adopted ~~the new standard~~this on its effective date, January 1, ~~2019 using the modified retrospective approach. The Company~~2020 and did not elect the transition option, but elected certain practical expedients, including not separating lease components from nonlease components for all classes of underlying assets. Additionally, all leases with a term at commencement of 12 months or less will be excluded from analysis under ASC 842. The standard did not materially affect the Company’s consolidated net loss or cash flows.

~~Table of Contents~~

~~Impact of Adopting ASC 842 on the Financial Statements~~

January 1, 2019

January 1, 2019


Prior to ASC




��

842 Adoption

ASC 842 Adoption

As Adjusted
Consolidated Balance Sheet Data (in thousands)

Operating lease assets (1)

$
—

$
2,235

$
2,235
Deferred rent non-current (2)

$
84

$
(84)

$
—
Operating lease liabilities (3)

$
—

$
417

$
417
Non-current operating lease liabilities (3)

$
—

$
1,902

$
1,902

~~(1) Represents capitalization of operating lease assets, including reclassification of deferred rent to operating lease assets.~~

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

~~(3) Represents recognition of operating lease liabilities.~~

~~The Company has evaluated all other issued unadopted ASUs and believes the adoption of these standards will~~ not have a material impact on the consolidated financial statements and related disclosures.

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Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, 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 does not currently hold or plan to invest in available-for-sale securities and has not historically experienced collection issues or bad 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 its effective date for smaller reporting companies, January 1, 2023.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of ~~earnings, balance sheets, or cash flows.~~the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

4. Inventory, net

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


	June 30,		December 31,
	2019		2018

					June 30,		December 31,
					2020		2019
Finished goods	$	1,707	$	1,457	$	278	$	3,944
Work-in-process		13,518		7,211		1,259		10,938
Raw materials		1,562		1,563		2,613		2,047
Total	$	16,787	$	10,231	$	4,150	$	16,929

The Company charged $15.1 million and $2.2 million to cost of sales for the six months ended June 30, 2020 and 2019, respectively, to reduce the value of inventory for items that are potentially obsolete, in excess of product demand, or to adjust costs to their net realizable value.

5. Prepaid Expenses and Other Current Assets

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


	June 30,		December 31,
	2019		2018
Contract manufacturing	$	3,614	$	2,962
Financing services		712		—

					June 30,		December 31,
					2020		2019
Contract manufacturing⁽¹⁾					$	4,158	$	3,043
Insurance						678		44
Marketing and sales		598		287		375		605
Insurance		442		—
Clinical and preclinical		257		111		140		240
Consulting						125		—
IT and software		199		244		107		294
Rent						101		—
Other						4		179
Interest receivable		100		239		—		107
Other		169		142
Total prepaid expenses and other current assets	$	6,091	$	3,985	$	5,688	$	4,512

(1)

Includes deposits for manufacturing and amounts for materials procured by contract manufacturers on behalf of the Company following its March 2020 announcement of its streamlined operational focus and may be applied when manufacturing resumes.

1214

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6.	Accrued Expenses and Other Current Liabilities

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

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

June 30,

December 31,

2019

2018
Contract manufacturing

$
4,299

$
6,068
Compensation and benefits

3,457

3,685
Sales and marketing services

1,942

738
Professional services

1,586

727
Clinical and preclinical

1,472

147
Product warranty

1,386

816
Interest on notes payable and 2023 Notes


1,226


1,268
Patient access program

831

—
Right of use liability - building

445

—
Other

278

402
Total accrued expenses and other current liabilities

$
16,922

$
13,851


	June 30,		December 31,
	2020		2019
Compensation and benefits	$	3,007	$	5,630
Contract manufacturing		2,685		2,452
Interest on notes payable		1,751		2,153
Product warranty and replacement obligations		1,589		2,197
Patient access programs		831		1,578
Operating lease		744		696
Professional and administration services		705		1,384
Research and development		559		1,956
Sales and marketing services		255		553
Other		48		37
Total accrued expenses and other current liabilities	$	12,174	$	18,636

~~7.Leases~~7.Notes Payable and Stock Purchase Warrants

Repayment of Solar Term Loan

On March 22, 2020, the Company and Solar terminated its Loan and Security Agreement, dated as of July 16, 2019 (the “Solar Loan Agreement”). As previously disclosed in the Company’s Annual Report on Form 10-K, the Company expected to default on its obligations under the Solar Loan Agreement and was seeking a waiver from Solar of any default under the Solar Loan Agreement. Following discussions with Solar, the parties were unable to negotiate such a waiver and, as a result, the parties determined to terminate the Solar Loan Agreement.

In connection with the termination, the Company paid $48.5 million representing all amounts outstanding under the Solar Loan Agreement, including the principal amount and interest of the loans, a payoff fee of 6.45% of the loans outstanding, a prepayment premium of 3.0% of the loans outstanding and other obligations owed to Solar thereunder. The Company issued warrants in connection to the Solar Loan Agreement to purchase an aggregate of 1,125,000 shares of the Company’s common stock with an exercise price of $1.20 per share, which are exercisable until July 25, 2029.

A loss on the extinguishment of debt in the amount of $4.5 million reflecting the difference between the repayment amount and the carrying value of the principal balance, accrued interest, unamortized debt issuance costs and unaccreted prepayment fee at March 22, 2020 was recorded to other income (expense) in the Company’s unaudited condensed consolidated statement of operations and comprehensive loss during the six months ended June 30, 2020.

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 SBA. The unsecured loan (the “PPP Loan”) is evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (the “Bank”).

Under the terms of the PPP Note and the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning after determination of forgiveness by the Bank. The Company may apply for forgiveness any time on or before the maturity date of the loan. If the Company does not apply for loan forgiveness within ten months after the last day of the covered period, the PPP loan is no longer deferred, and we must begin paying principal and interest.

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The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for forgiveness for all or a part of the Company’s PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the specified period after the loan origination for certain purposes including payroll costs, interest on debt obligations incurred prior to February 15, 2020, rent payments on certain leases, ~~approximately 33,000 square feet~~and certain qualified utility payments, provided that at least 60% of ~~research~~the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and ~~office space~~maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered specified period will qualify for forgiveness. As a result of the Company’s workforce reduction, the amount of forgiveness will correspondingly decrease.

The PPP Note may be prepaid in part or in full, at any time, without penalty. The PPP Note provides for certain customary events of default, including (i) failing to make a payment when due under the PPP Note, (ii) failure to do anything required by the PPP Note or any other loan document, (iii) defaults of any other loan with the Bank, (iv) failure to disclose any material fact or make a ~~non‑cancelable operating lease expiring~~materially false or misleading representation to the Bank or SBA, (v) default on any loan or agreement with another creditor, if the Bank believes the default may materially affect the Company’s ability to pay the PPP Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of the Company’s business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in ~~2023.~~ financial condition or business operation that the Bank believes may materially affect the Company’s ability to pay the PPP Note, (ix) if the Company reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the Bank’s prior written consent, or (x) becoming the subject of a civil or criminal action that the Bank believes may materially affect the Company’s ability to pay the PPP Note. Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.

Highbridge Credit Facility

Highbridge Loan Agreement

On April 21, 2020, the Company entered into the Highbridge Loan Agreement with certain funds managed by Highbridge, the Lenders and Wilmington Savings Fund Society, SCB, as collateral agent.

Pursuant to the Highbridge Loan Agreement, the Company may borrow up to an aggregate of $20.0 million in aggregate principal through the issuance and sale of First Lien Notes. The Company received the first tranche of borrowing in the aggregate principal amount of $15.0 million on April 24, 2020. Under the terms of the Highbridge Loan Agreement, the Company may issue up to an additional $5.0 million in aggregate principal amount of First Lien Notes in a subsequent closing. In connection with the Highbridge Loan Agreement and receipt of the first tranche of borrowing, the Company issued 1,500,000 shares of its common stock to the Lenders as a commitment fee.

The First Lien Notes are secured, senior obligations that bear interest at the annual rate of 12% or, at the Company’s election, payment in kind at an annual rate of 13%, payable monthly in arrears. The First Lien Notes will mature on October 24, 2021 (the “First Lien Maturity Date”) unless earlier repurchased, redeemed or converted in accordance with their terms. The obligations under the First Lien Notes are secured by substantially all the Company’s assets.

The Company has ~~an option~~the right to ~~renew~~prepay the ~~lease for one additional five‑year term.~~ ~~With the adoption of ASC 842,~~First Lien Notes at any time, subject to a prepayment premium, which in certain circumstances the Company may elect to pay in its common stock, equal to the aggregate amount of interest payments through maturity. However, if the date of payment in cash of such prepayment premium is on or before August 22, 2020, the prepayment premium will be reduced by 25%.

Subject to certain conditions, if the Company retains or reinvests proceeds of an asset sale pursuant to the asset sale prepayment provisions in the Highbridge Loan Agreement, the Lenders shall be entitled to convert First Lien Notes

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and Holders (defined below) shall be entitled to convert Second Lien Notes (as defined below) in aggregate combined principal amount equal to 45% of such net proceeds retained or reinvested (together with any applicable prepayment premium) to the Company’s common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.57 per share. This conversion option has a daily limit of $1.0 million in aggregate converted principal (inclusive of principal amount of Second Lien Notes that are voluntarily converted by the Holders).

From and after a strategic transaction announcement (as defined in the form of First Lien Note), the Company may elect to convert up to $9.4 million in aggregate principal of the First Lien Notes to its common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.57 per share of its common stock. This conversion option has a daily limit of $0.3 million in aggregate converted principal. If the Company or the Lenders elect to convert any of the First Lien Notes, the amount converted will be equal to the principal and unpaid accrued interest plus the applicable prepayment premium.

The Highbridge Loan Agreement contains customary terms and covenants, including without limitation: financial covenants, such as operating within an approved budget and maintaining a minimum cash balance; 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 Highbridge Loan Agreement also contains customary events of default, after which the First Lien Notes may be due and payable immediately, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against the Company, and change of control, termination of any guaranty, governmental approvals, and lien priority.

As described further below in Note 13 – Subsequent Events, upon the closing of the 2024 Notes, the Company intends to prepay the First Lien Notes in full in the amount of approximately $17.6 million, which includes the discounted prepayment premium.

The First Lien Notes also contained redemption features that were evaluated for bifurcation as separate derivative instruments including the permitted prepayment put option, the mandatory accelerated redemption and the mandatory redemption and reinvestment upon an asset sale. The Company recorded the fair value of the embedded features in the amount of $1.0 million as a debt premium and derivative asset in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statements of operations and comprehensive loss.

The debt issuance costs incurred in connection with the Highbridge financings were allocated between the First Lien Notes, Second Lien Notes, common stock, and warrants. The Company incurred and deferred $1.5 million in debt issuance costs and debt discounts associated with the First Lien Notes, which will be amortized as interest expense over the term of the First Lien Notes, along with $1.0 million of debt premium from the derivative bifurcation.

Exchange Agreement with Highbridge

On April 21, 2020 the Company entered into a Note Purchase and Exchange Agreement (the “Exchange Agreement”), with certain funds managed by Highbridge providing for the exchange (the “Exchange”) of $24.0 million aggregate principal amount of the Company’s outstanding 2025 Notes for (i) $15.7 million aggregate principal amount of newly issued Second Lien Secured Notes (the “Second Lien Notes” and, together with the First Lien Notes, the “Senior Notes”), (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of 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 closed on April 24, 2020. The warrants may be exercised in cash or on a cashless basis at any time through the three year anniversary of the issuance date.

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The Second Lien Notes are secured, senior obligations of the Company, junior only to the First Lien Notes. Interest in cash at the annual rate of 7.5% or, at the Company’s option, payment in kind at an annual rate of 8.25%, on the Second Lien Notes will be payable monthly in arrears. The maturity date for the Second Lien Notes will be January 24, 2022 (the “Second Lien Maturity Date”), unless earlier repurchased, redeemed or converted in accordance with their terms. The obligations under the Second Lien Notes are secured by substantially all of the Company’s assets.

The Company will have the right to prepay the Second Lien Notes at any time, subject to a prepayment premium, which in certain circumstances the Company may elect to pay in common stock, equal to the aggregate amount of interest payments through maturity. However, if the date of payment in cash of such prepayment premium is on or before August 22, 2020, the prepayment premium will be reduced by 25%.

The holders of the Second Lien Notes (the “Holders”) have the right to convert up to $7.0 million aggregate principal of the Second Lien Notes (together with any applicable prepayment premium) to common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.57 per share. This conversion option has a daily limit of $1.0 million in aggregate converted principal (inclusive of principal amount of First Lien Notes that are voluntarily converted by the Lenders). Subject to certain conditions, if the Company retains or reinvests proceeds of an asset sale pursuant to the Asset Sale Prepayment Provisions in the Exchange Agreement, the Holders shall be entitled to convert additional Second Lien Notes and the Lenders shall be entitled to convert First Lien Notes in aggregate combined principal amount equal to 45% of such net proceeds retained or reinvested (together with any applicable prepayment premium).

From and after a strategic transaction announcement, the Company may elect to convert up to $8.7 million in aggregate principal of the Second Lien Notes to common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.57 per share. This conversion option has a daily limit of $0.3 million in aggregate converted principal. If the Company or the Holders elect to convert any of the Second Lien Notes, the amount converted will be equal to the principal and unpaid accrued interest plus the applicable premium.

The Exchange Agreement contains customary terms and covenants, including without limitation: financial covenants, such as maintaining a minimum cash balance; 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 Exchange Agreement also contains customary events of default, after which the Second Lien Notes may be due and payable immediately, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, and change of control, termination of any guaranty, governmental approvals, and lien priority.

The Second Lien Notes also contain redemption features that were evaluated for bifurcation as separate derivative instruments including the permitted prepayment put option, the mandatory accelerated redemption and the mandatory redemption and reinvestment upon an asset sale. Unlike the First Lien Notes, the Second Lien Notes also permit voluntary conversion at the option of the holder up to $7.0 million in aggregate outstanding principal amount. The Company recorded the fair value of these embedded features in the amount of $1.2 million as a debt discount and derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

Since Highbridge was a noteholder of the 2025 Notes and exchanged $24.0 million of outstanding principal of the 2025 Notes for Second Lien Notes, the Exchange qualifies as a loan modification. The debt issuance costs incurred in connection with the Highbridge financings were allocated between the First Lien Notes, Second Lien Notes, common stock, and warrants. Loan modifications require third-party debt related costs to be expensed immediately, whereas fees paid to lenders of the modified loans are deferred. In connection with the issuance of the Second Lien Notes, the Company recorded a ~~right-of-use asset~~total of $14.1 million in debt issuance costs and ~~corresponding lease liability,~~debt discounts, including $13.2 million allocated

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from the 2025 Notes for the $24.0 million outstanding principal exchanged and ~~does not include~~ the ~~additional five year~~discount from the bifurcated derivative. These costs were deferred as discounts to the Second Lien Notes and are amortized as interest expense over the term ~~under~~of the ~~option.~~

~~The Company leases approximately 12,000 square feet~~Second Lien Notes. Allocated third-party debt related costs of office space under a cancelable operating lease that expired on June 30, 2019 and is now a cancellable month-to-month operating lease. The Company can terminate the lease agreement upon 60 days’ prior written notice.

~~Operating lease expense for~~$0.3 million were expensed during the three and six months ended June 30, ~~2019 was $0.2~~2020.

During the quarter ended June 30, 2020, Highbridge voluntarily converted a total of $6.0 million of outstanding principal amount of the Second Lien Notes for 13,366,339 shares of common stock, which included prepayment premiums and ~~$0.3~~were based off the Company’s election of PIK interest. Accordingly, $6.4 million ~~respectively. Short-term lease expense is included~~of allocated deferred issuance costs, debt discounts and prepayment premiums were recognized as a loss on extinguishment of debt in ~~total lease expense but was not significant for~~the Company’s unaudited condensed consolidated statements of operations and comprehensive loss during the three and six months ended June 30, ~~2019.~~2020.

~~Lease expense~~The Exchange Agreement was ~~$0.1 million and $0.3 million for~~subsequently amended on August 9, 2020, which modified certain of the ~~three and six months ended June 30, 2018, respectively.~~

~~The Company identified and assessed~~terms of the ~~following estimates in recognizing the right-of-use asset and corresponding liability:~~

~~Expected lease term~~: The expected lease term for those leases commencing prior to January 1, 2019 did not change with the adoption of ASC 842. The expected lease term for leases commencing after the adoption of ASC 842 includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

~~Incremental borrowing rate~~: As the discount rates in the Company’s lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

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~~The following table summarizes the lease assets and liabilities as of June 30, 2019 (in thousands):~~

Operating Lease Assets and Liabilities

Balance Sheet Classification

Amount
Assets

Operating lease ROU assets

Deposits and other assets

$
2,025
Liabilities

Current operating lease liabilities

Accrued expenses and other current liabilities

$
445
Non-current operating lease liabilities

Other non-current liabilities

1,674
Total operating lease liabilities

$
2,119

~~The following table summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those liabilities as of June 30, 2019 (in thousands):~~

2019 (remaining six months)

$
309
2020

629
2021

648
2022

668
2023

282
Total

2,536
Present value adjustment

(417)
Present value of lease liabilities

$
2,119

~~The following table summarizes the weighted-average lease term and weighted-average discount rate as of June 30, 2019:~~


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

~~8.Notes Payable~~

~~Term Loans~~

On June 30, 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and together with Oxford, the “Lenders”). Pursuant to the Amended and Restated Loan and Security Agreement, the Company borrowed an aggregate principal amount of $25.0 million in the following three tranches: $15.0 million (“Tranche 1 Term Loan”); $5.0 million (“Tranche 2 Term Loan”); and $5.0 million (“Tranche 3 Term Loan”) (each, a “Term Loan,” and collectively, the “Term Loans”). The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, the Company issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million (the “Notes”) on June 30, 2016. The Company used approximately $11.0 million from the proceeds from theSecond Lien Notes, to repay the outstanding balance under the Company’s previously existing Loan and Security Agreement with Oxford. The Company borrowed the Tranche 2 Term Loan and Tranche 3 Term Loan in November 2016 and March 2017, respectively. The maturity date for all Term Loans was June 1, 2020 (the “Maturity Date”).

~~On July 16, 2019, the Company entered into a Loan and Security Agreement (the “Solar Loan Agreement”) with Solar Capital, Ltd. a Maryland corporation (“Solar”),~~ as described in Note 13 – Subsequent Events. ~~Pursuant to the Solar Loan Agreement, on~~

Convertible Notes

2025 Notes

In July ~~25,~~ 2019, the Company ~~borrowed term loans in an aggregate principal amount of $45.0~~

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~~million, of which the~~ ~~Company used $11.6 million~~ ~~to repay in full the Term Loans and terminate the~~ ~~Amended and Restated Loan and Security Agreement~~ ~~with Oxford and SVB.~~

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

~~The Company elected to prepay all Term Loans prior to the Maturity Date subject to a prepayment fee equal to 1.00%.~~

The Amended and Restated Loan and Security Agreement contained customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company, the rendering of certain types of judgments against the Company, the revocation of certain government approvals of the Company, violation of covenants, and incorrectness of representations and warranties in any material respect.

~~Pursuant to the Amended and Restated Loan and Security Agreement, the Company also~~ issued ~~10-year stock purchase warrants to purchase an aggregate of 260,251 shares of common stock with an exercise price ranging from $1.86 to $3.86 per share (see Note 9, “Stockholders’ Equity”).~~

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

The Company was also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans. This fee is being accrued as additional interest expense over the term of the Notes using the effective interest method. At June 30, 2019 and December 31, 2018, the final payment fee accrual was $2.0 million and $1.8 million, respectively.

The Company estimates the fair value of the Notes based on borrowing rates currently available for loans with similar terms (Level 2). At June 30, 2019, the fair value of the Notes was $11.3 million based on prevailing market rates for secured debt.

~~2023 Notes~~

~~In January 2018, the Company issued $50.0~~$82.0 million in aggregate principal amount of 2025 Notes that will mature on January 15, 2025, 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).

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.

In connection with the Exchange on April 24, 2020, $24.0 million aggregate principal of the Company’s outstanding 2025 Notes held by Highbridge were exchanged for $15.7 million of Second Lien Notes, (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of 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. 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.

2023 ~~Notes.~~ Notes

In ~~February~~the first quarter of 2018, the Company issued ~~an additional $3.0~~$53.0 million in aggregate principal amount of senior convertible notes due February 1, 2023 (the “2023 Notes”). In July 2019, the ~~2023 Notes, pursuant to~~Company used the ~~partial exercise of the overallotment option by the underwriter. The~~ net proceeds from the issuance of the ~~2023~~2025 Notes ~~after deducting transaction costs, were $50.7 million. The 2023 Notes are general, unsecured, senior subordinated obligations~~to repurchase $37.0 million aggregate principal amount of the ~~Company. The Company pays interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. As the~~outstanding 2023 ~~Notes have a maturity date of February 1, 2023, they are classified as a long-term liability on the Company’s consolidated balance sheet at June 30, 2019.~~

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~~

~~Table of Contents~~

convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company would increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.

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

~~The derivative liability will be remeasured~~ at each reporting period, with ~~changes~~the change in the fair value recorded ~~in the consolidated statements of operations in~~to other income (expense).

~~In the second quarter of 2018, the Company issued 73,529 shares of common stock upon the conversion of $250,000 in aggregate principal amount of the 2023 Notes. There was no conversion of 2023 Notes~~ in the ~~second quarter~~Company’s consolidated statement of ~~2019.~~operations and comprehensive loss.

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The following carrying amounts were outstanding under the Company’s notes payable as of June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2020
	Principal ($)	Debt Discount ($)	Issuance Costs ($)	Carrying Amount ($)
2023 Notes	15,700	(3,341)	-	12,359
2025 Notes	58,000	(30,745)	(469)	26,786
First Lien Notes	15,371	(144)	(239)	14,988
Second Lien Notes	9,843	(8,431)	(116)	1,296
PPP Loan	5,763	-	-	5,763

	December 31, 2019
	Principal ($)	Debt Discount ($)	Issuance Costs ($)	Carrying Amount ($)
Solar Term Loan	45,000	(1,466)	(100)	43,434
2023 Notes	15,700	(3,900)	-	11,800
2025 Notes	82,000	(46,482)	(708)	34,810

Interest expense related to the notes payable for the three and six months ended June 30, 2020 was as follows (dollars in thousands):


	Three months ended June 30, 2020
	Effective Interest Rate	Interest ($)	Debt Discount and Fees ($)	Issuance Costs ($)	Final Payment Fee ($)	Total Interest Expense ($)
2023 Notes	5.25%	206	283	-	-	489
2025 Notes	5.25%	879	1,237	19	-	2,135
First Lien Notes	13.00%	371	20	33	-	424
Second Lien Notes	8.25%	168	323	5	-	496
PPP Loan	1.00%	11	-	-	-	11
Total		1,635	1,863	57	-	3,555

	Six months ended June 30, 2020
	Effective Interest Rate	Interest ($)	Debt Discount and Fees ($)	Issuance Costs ($)	Final Payment Fee ($)	Total Interest Expense ($)
Solar Term Loan	8.98%	1,001	301	-	-	1,302
2023 Notes	5.25%	412	559	-	-	971
2025 Notes	5.25%	1,966	2,712	41	-	4,719
First Lien Notes	13.00%	371	20	33	-	424
Second Lien Notes	8.25%	168	323	5	-	496
PPP Loan	1.00%	11	-	-	-	11
Total		3,929	3,915	79	-	7,923

The following are the scheduled maturities of the ~~2023 Notes and Term Loans~~Company’s notes payable as of June 30, ~~2019~~2020, including PIK interest on the First and Second Lien Notes (in thousands):


2019 (remaining six months)	$	5,000
2020		5,000

2020 (remaining six months)			$	—
2021		—		22,489
2022		—		12,754
2023		52,700		15,700
2024				—
Thereafter				58,000
Total	$	62,700	$	108,943

8.	Stockholders’ Deficit

The Company estimates the fair value of the 2023 Notes using commonly accepted valuation methodologies and market-risk measurements that are indirectly observable, such as credit risk (Level 2). At June 30, 2019, the fair value of the 2023 Notes, excluding the derivative liability, was $43.1 million.

In ~~July~~November 2019, the Company ~~issued $82.0~~entered into an Open Market Sale Agreement with Jefferies LLC which allows the Company to issue and sell up to $50 million in ~~aggregate principal amount~~gross proceeds of ~~2025 Notes.~~ The Company used $37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon, as described in Note 13 – Subsequent Events.

~~9.Stockholders’ Equity~~

~~Preferred Stock~~

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

~~Common Stock~~

~~As of June 30, 2019 and December 31, 2018, the Company’s authorized capital stock included 450,000,000 shares of~~its common ~~stock, par value $0.001 per share. The Company had 177,031,842 and 176,918,381 shares of common stock issued and outstanding at June 30, 2019 and December 31, 2018, respectively.~~

~~Table of Contents~~

~~Stock Purchase Warrants~~

In connection with the issuance of the Notes, the Company also issued to the Lenders 10-year stock purchase warrants to purchase an aggregate of 116,581, 63,025 and 80,645 shares of common stock at an exercise price of $3.86, $2.38 and $1.86 per share, respectively. The cumulative fair value of the warrants, which the Company estimated to be $0.5 million, was recorded as a discount to the Notes. These warrants expire on June 30, 2026, November 22, 2026, and March 29, 2027, respectively, and are classified in equity. In connection with the Company’s original Loan and Security Agreement with Oxford in 2014, the Company issued to Oxford 10-year stock purchase warrants to purchase an aggregate of 167,570 shares of common stock at an exercise price of $1.79 per share. The fair value of the warrants, which the Company estimated to be $0.2 million, was recorded as a discount to the promissory notes issued to Oxford in connection with the original Loan and Security Agreement. These warrants expire on November 2, 2020, July 14, 2021 and August 19, 2021, and are classified in equity. The unamortized deferred financing fees and debt discount related to the notes rollover amount is being amortized along with the deferred financing costs and the discount created by the new issuance of the warrants over the term of the loan using the effective interest method. For each ofstock. During the six months ended June 30, ~~2019 and 2018,~~2020 the Company ~~recorded amortization~~sold 175,289 shares of ~~discount of debt~~common stock resulting in gross proceeds of $0.1 ~~million within interest expense in the accompanying statements~~million.

Table of ~~operations and comprehensive loss.~~Contents

9. Stock-Based Compensation

~~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 ~~awards~~units may be granted to the Company’s employees and certain other persons in accordance with the 2015 Plan ~~provisions.~~provisions, such as officers and directors. In ~~connection with the March~~February 2016, ~~Offering,~~ the Company’s ~~board~~Board of ~~directors~~Directors adopted and the Company’s stockholders approved an Amended and Restated 2015 Equity Incentive Plan (the “amended and restated 2015 Plan”)~~. The amended and restated 2015 Plan~~, which became effective ~~as of the date of the pricing of the~~on March ~~2016 Offering.~~17, 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 initially reserved for issuance pursuant to equity awards was 17,251,115 shares, representing 8,000,000 shares plus up to an additional 9,251,115 shares in the event that options that were outstanding under the Company’s equity incentive plans as of February 16, 2016 expire or otherwise terminate without having been exercised (in such case, the shares not acquired will revert to and become available for issuance under the amended and restated 2015 Plan). The number of shares of the Company’s common stock reserved for issuance ~~under the amended and restated 2015 Plan will~~ automatically ~~increase~~increases on January 1 of each year, ~~beginning on January 1, 2017 and~~ ending on January 1, 2026, by 3.5% of the total number of shares of ~~the Company’s~~its common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by ~~the Company’s~~its board of directors. As of June 30, ~~2019, 670,452~~2020, 16,730,425 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 only persons eligible to receive grants of ~~Awards (as defined below)~~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 ~~nonstatutory~~non-statutory options, restricted stock unit awards and other equity incentive awards. As of June 30, ~~2019, 1,800,000~~2020, 1,090,586 shares remained available for grant under the Inducement 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. At June 30, 2020 there were 6,341,661 shares of common stock available for issuance under 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 2 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. During the six months ended June 30, 2020, 40 participants in the initial offering were automatically rolled over to the subsequent new offering as a result this reset provision and an incremental cost of less than $0.1 million.

Table of Contents

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~~non-qualified stock options, and restricted stock awards may be granted to the Company’s employees and certain other persons in accordance with the 1997 Plan provisions. Approximately ~~7,076,638~~3,509,429 shares of the Company’s

~~Table of Contents~~

common stock underlying options have vested ~~or are expected to vest~~ under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan.

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

~~10.Fair Value Measurements~~

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use to price the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

10.

~~Level 1—Quoted prices for identical assets or liabilities in active markets.~~Fair Value Measurements

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

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

The fair value of money market funds was derived from quoted prices in active markets for identical assets. The valuation technique used to measure the fair value of the Company’s debt instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices.

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

The Company has segregated its financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The inputs used in measuring the fair value of the Company’s money market funds included in cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of the funds.

~~Table of Contents~~

The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis ~~as follows~~at June 30, 2020 and December 31, 2019 (in thousands):


	June 30, 2019
	Total		Level 1		Level 2		Level 3

									June 30, 2020
									Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	47,745	$	47,745	$	—	$	—
Money market funds⁽¹⁾									$	3	$	3	$	—	$	—
Embedded features of the First Lien Notes										2,355		—		—		2,355
Embedded features of the Second Lien Notes									$	1,890	$	—	$	—	$	1,890
Liabilities
Embedded features of the 2023 Notes	$	10,130	$	—	$	—	$	10,130	$	93	$	—	$	—	$	93
Embedded features of the 2025 Notes										4,982		—		—		4,982


	December 31, 2018
	Total		Level 1		Level 2		Level 3

									December 31, 2019
									Total		Level 1		Level 2		Level 3
Assets
Money market funds	$	122,859	$	122,859	$	—	$	—
Money market funds⁽¹⁾									$	37,769	$	37,769	$	—	$	—
Commercial paper⁽¹⁾										13,870		—		13,870		—
Corporate bonds										6,256		—		6,256		—
Liabilities
Embedded features of the 2023 Notes	$	17,091	$	—	$	—	$	17,091	$	664	$	—	$	—	$	664
Embedded features of the 2025 Notes										25,543		—		25,543		—

⁽¹⁾ Classified as cash and cash equivalents due to their short-term maturity

At June 30, 2020, the 2025 Notes no longer had sufficient trading activity and therefore transferred from Level 2, to Level 3. 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):


	Embedded
	Features of
	the Notes
December 31, 2019	$	664
Initial fair value of embedded features of First Lien Notes		(1,034)
Initial fair value of embedded features of Second Lien Notes		1,206
Change in derivatives (including the partial settlement of the 2025 Notes)		(25,549)
Transfer of 2025 Notes to Level 3		25,543
June 30, 2020	$	830

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The recurring Level 3 fair value measurements of the embedded features of the notes payable include the following significant unobservable inputs at June 30, 2020:

Embedded

Features of the

2023 Notes
December 31, 2018

$
17,091
Change in fair value included in other income (expense)

(6,961)
June 30, 2019

$
10,130


	2023 Notes		2025 Notes		First Lien		Second Lien
Unobservable Inputs	Assumptions		Assumptions		Assumptions		Assumptions
Risky (bond) rate	27.2	%	24.9	%	18.3	%	21.6	%
Stock price volatility	76	%	76	%	76	%	76	%
Probabilities of conversion provisions	7.8 % - 83.7	%	6.5 % - 70.1	%	20.0 % - 60.0	%	20.0 % - 60.0	%
Time period until maturity (yrs)	1.00 - 2.59		1.00 - 4.54		0.25 - 1.32		0.25 - 1.57
Dividend yield	—	%	—	%	—	%	—	%

11.

Income Taxes

The Company ~~reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels~~has 0t recorded any tax provision or benefit for certain financial instruments within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended June 30, 2019 and 2018. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

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

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

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

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

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

The Company measures its long‑lived assets, including property and equipment, at fair value on a non‑recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized in the three and six months ended June 30, 2019 and 2018.

~~Table of Contents~~

~~11.Income Taxes~~

~~The Company has not recorded any tax provision or benefit for the six months ended June 30, 2019~~2020 or June 30, ~~2018.~~2019. 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 June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~12. Related Party Transactions~~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 0t result in any material adjustments to the Company’s income tax provision or net deferred tax assets for the three and six months ended June 30, 2020.

12.

Related Party Transactions

Roche Holding A.G, through its ownership interests in Roche Finance Ltd (collectively, “Roche”), has a noncontrolling ownership interest in the Company. ~~For~~Revenue from Roche during the three and six months ended June 30, ~~2019 and 2018, revenues from Roche were $3.1 million and $3.1 million, respectively.~~2020 was less than $0.1 million. For the three and six months ended June 30, 2019, ~~and 2018, revenues~~revenue from Roche ~~were $5.3~~was $3.1 million and ~~$5.6~~$5.3 million, respectively. Amounts due from Roche aswere less than $0.1 million at June 30, 2020 and $7.1 million at December 31, 2019. At each of June 30, ~~2019~~2020 and December 31, ~~2018 were $5.0 million and $6.3 million, respectively.~~

~~Table of Contents~~

13~~.Subsequent Events~~

~~Convertible Notes~~

~~In July~~ 2019, the Company ~~issued $82.0~~had committed replacement obligations under warranties of $0.4 million.

13.	Subsequent Events

Ascensia Collaboration and Commercialization Agreement and Financing

On August 9, 2020, the Company entered into a Collaboration and Commercialization Agreement with Ascensia pursuant to which the Company has granted Ascensia the right to distribute Eversense, Eversense XL and the new Eversense 180-day product in the global market for an initial term of five years, subject to exceptions as set forth in the agreement. Pursuant to the agreement, Ascensia will receive a portion of net revenue at specified tiered percentages ranging from the mid-teens to the mid-forties based on levels of global net revenues. Ascensia is obligated to achieve specified minimum annual revenue targets and meet specified levels of sales and marketing spend. Ascensia will purchase Eversense, Eversense XL and the new Eversense 180-day product from the Company at prices to be negotiated based on parameters set forth in the agreement. Under the agreement, the Company will be responsible for product development and manufacturing, including regulatory submissions, approvals and registrations, and Ascensia will be responsible for sales, marketing, market access, patient and provider onboarding and customer support. The Company and Ascensia have agreed to establish a joint marketing committee with equal representation from each party.

Concurrently with the execution of the Collaboration and Commercialization Agreement with Ascensia, the Company entered into a note purchase agreement pursuant to which the Company has agreed to issue $35 million in aggregate principal amount of ~~2025 Notes.~~2024 Notes to PHC on the Closing Date. The ~~2025~~Company has also agreed to issue 2,941,176 shares of its common stock to PHC as a financing fee on the Closing Date. The 2024 Notes ~~are general, unsecured,~~will be senior ~~subordinated~~secured obligations of the Company and ~~bear interest~~will be guaranteed on a senior secured basis. Interest at athe annual rate of ~~5.25% per year,~~9.5% will be payable ~~semiannually~~semi-annually in ~~arrears on January 15 and July 15~~cash or, at the Company’s option, payment in kind. The interest rate will decrease to 8.0% if

Table of ~~each year, beginning on January 15, 2020.~~Contents

the Company obtains approval for the new 180-day Eversense product for marketing in the United States, subject to certain conditions. The ~~2025~~maturity date for the 2024 Notes will ~~mature on January 15, 2025, unless earlier repurchased or converted.~~

~~The~~be October 31, 2024 (the “Maturity Date”), provided that the Maturity Date will accelerate if the Company ~~used $37.9 million of~~has not repaid the ~~net proceeds from the issuance of the 2025~~Company’s outstanding Second Lien Notes ~~to repurchase $37.0 million~~(other than an aggregate principal amount of ~~the Company’s outstanding 2023 Notes, at a purchase price equal~~up to $1.0 million) by 91 days prior to the ~~principal amount thereof, plus accrued and unpaid interest thereon~~.

maturity of the Second Lien Notes. The ~~2025~~obligations under the 2024 Notes are ~~convertible, at the option of the holders, into shares~~secured by substantially all of the Company’s and its subsidiary’s assets.

The 2024 Note holders are entitled to convert the 2024 Notes to common stock at ~~an initial~~a conversion rate of ~~757.5758~~1,867.4136 shares per $1,000 principal amount of the ~~2025~~2024 Notes ~~(equivalent~~(including any interest added thereto as payment in kind), equivalent to ~~an initial~~a conversion price of approximately ~~$1.32~~$0.54 per ~~share).~~

~~The Company may redeem~~share, subject to specified anti-dilution adjustments, including adjustments for ~~cash all or part of the 2025 Notes, at its option, if (1) the last reported sale price of~~ the Company’s ~~common stock has been at least 150%~~issuance of equity securities on or prior to April 30, 2022 below the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (2) a registration statement covering the resale of the shares of the Company’s common stock issuable upon conversion of the 2025 Notes is effective and available for use and is expected to remain effective and available for use during the redemption period as of the date of the redemption notice date. The redemption price will be equal to 100% of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a fundamental change, holders may require the Company to repurchase for cash all or any portion of their 2025 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.price. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its ~~2025~~2024 Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue such shares.

~~The 2025~~Subject to specified conditions, on or after October 31, 2022, the 2024 Notes are ~~guaranteed on a senior unsecured basis~~redeemable by the ~~Company’s wholly-owned subsidiary, Senseonics, Incorporated,~~Company if the closing sale price of the common stock exceeds 275% of the conversion price for a specified period of time and ~~may be guaranteed~~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 2024 Notes are redeemable by ~~certain future subsidiaries.~~ 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 has 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 ~~subsidiary guarantor is 100% owned,~~Company will also have the ~~guarantee is full~~option to sell and ~~unconditional and joint and several~~issue PHC up to $15.0 million of convertible preferred stock (the “PHC Preferred Stock”) on or before December 31, 2022, contingent upon receipt of any stockholder approval required by the listing rules of the NYSE American and the ~~parent company has no independent assets or operations and any subsidiaries~~Company obtaining approval for 180-day Eversense XL for marketing in the United States before such date. The purchase price per share of the ~~parent company other than~~PHC Preferred Stock would be $1,000.00 per share. Each share of PHC Preferred Stock would be convertible into a number of shares of Common Stock equal to $1,000 divided by the ~~subsidiary guarantor are minor.~~conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The terms of the PHC Preferred Stock, if issued, will generally be the same as the terms of the Series A Preferred Stock described below. In addition, the Company has agreed to redeem all of the PHC Preferred Stock on the ten year anniversary of the issuance date for cash consideration equal to the liquidation amount.

~~Solar~~The Company intends to use the proceeds from the issuance of the 2024 Notes to prepay the First Lien Notes in full during August 2020, which is expected to be approximately $17.6 million including the prepayment premium discount.

Amendment to Highbridge Loan Agreement

On ~~July 16, 2019,~~August 9, 2020, the Company entered into ~~the Solar Loan~~a First Amendment to Note Purchase and Exchange Agreement and Notes (the “Amendment”) with ~~Solar, as collateral agent, and the lenders from time to time party thereto (collectively, the “Solar Lenders”).~~

Highbridge. Pursuant to the ~~Solar Loan Agreement, on July 25, 2019,~~Amendment, effective as of the ~~Company borrowed term loans~~Closing Date, Highbridge agreed to the consummation of the other transactions described in this subsequent events note and agreed to an extension of the maturity date for the Second Lien Notes to August 2023. Additionally, the holders of the Second Lien Notes will have the right to convert the aggregate principal ~~amount of $45.0 million (the “Solar Term Loan”).~~ ~~The Company used $11.6 million~~ of the ~~Solar Term Loan~~Second Lien Notes (together with any applicable prepayment premium) to ~~repay in full the Term Loans and terminate the Company’s existing credit facility with Oxford and SVB.~~

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~~Interest on the Solar Term Loan will be payable monthly~~common stock at a ~~floating annual rate~~price per share equal to 90% of ~~6.50% plus~~ the greater of (i) the ~~rate~~daily volume weighted average of the price per ~~annum rate published by~~share of the ~~Intercontinental Exchange Benchmark Administration Ltd. and (ii) 2.48%, provided that~~common stock, on the ~~minimum floor interest rate is 8.98%. The maturity~~conversion date, for the Solar Term Loan will be June 1, 2024 (the “Solar Maturity Date”). Commencing on August 1, 2021, the Company will be required to make monthly principal amortization payments; provided that the interest only period may be extended to (i) August 1, 2022or if the ~~Company’s product revenue~~conversion date is ~~greater than or equal to $40.0 million on~~not a ~~trailing six-month basis~~trading date, the trading day immediately prior to the ~~second anniversary of the effective~~conversion date and (ii) $0.33 per share. This conversion option has a daily limit of $1,000,000 in aggregate converted principal (inclusive of principal amount of First Lien Notes that are voluntarily converted). As of August ~~1, 2023 if~~8, 2020, approximately $9.9 million in principal amount of Second Lien Notes remained outstanding.

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Issuance and Sale of Convertible Preferred Stock to Masters

On August 9, 2020 the ~~Company’s product revenue is greater than~~Company entered into a Stock Purchase Agreement with Masters . Pursuant to the Stock Purchase Agreement, the Company has agreed to issue and sell to the Preferred Stock Purchasers 3,000 shares of Series A Preferred Stock, at a price of $1,000.00 per share in an initial closing. In addition, Masters or ~~equal~~their assignees have the option to ~~$75.0 million on~~purchase up to an additional 27,000 shares of Series A Preferred Stock at a ~~trailing six-month basis~~price of $1,000.00 per share in a subsequent closing, subject to the terms and conditions of the Stock Purchase Agreement, upon the later to occur of 90 days following the initial closing or the date 10 days after the ~~achievement~~Company receives stockholder approval to increase its authorized common stock by an amount sufficient to permit conversions of the ~~first extension.~~

The Company may elect to prepay the Solar Term Loan prior to the Solar Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the effective date, 2.00% if the prepayment occurs during the second year following the effective date, and 1.00% if the prepayment occurs moreSeries A Preferred Stock, but in any event no later than ~~two years~~150 days after the ~~effective date~~initial closing, and ~~prior to the Solar Maturity Date.~~

The Solar Loan Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Solar Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company and its subsidiaries, the rendering of certain types of judgments against the Company and its subsidiaries, the revocation of certain government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect. Upon the occurrence of an event of default, subject to specified ~~cure periods, all amounts owed~~conditions. Each share of Series A Preferred Stock will initially be convertible into a number of shares of common stock equal to $1,000 divided by the ~~Company would begin~~conversion price of $0.476 per share, subject to ~~bear interest at a rate that is 5.00% above the rate effective immediately before~~customary anti-dilution adjustments, including in the event of ~~default,~~any stock split. The Series A Preferred Stock will rank senior to the common stock. Upon a liquidation, dissolution or winding up of the Company, each share of Series A Preferred Stock will be entitled to receive an amount per share equal to the greater of the purchase price paid and ~~may~~the amount that the holder would have been entitled to receive at such time if the Series A Preferred Stock were converted into common stock. The holders will also be entitled to participate in dividends declared ~~immediately due and payable by~~or paid on the ~~Solar Lenders.~~

~~The Solar Term Loan is secured by substantially~~common stock on an as-converted basis. If the Company undergoes a change of control, each holder has the right to cause the Company to redeem any or all of the ~~Company and its subsidiaries’ assets. The Solar Loan Agreement also contains specified financial covenants related~~Series A Preferred Stock for cash consideration equal to the ~~Company’s liquidity and trailing six-month revenues.~~liquidation amount.

The ~~Solar Loan Agreement also contains~~holders of Series A Preferred Stock generally will be entitled to vote with the holders of the shares of common stock on all matters submitted for a vote of holders of shares of common stock (voting together with the holders of shares of common stock as one class) on an as-converted basis. Additionally, certain ~~restrictive covenants that limit~~matters will require the approval of the majority of the outstanding Series A Preferred Stock, voting as a separate class, including (i) altering or changing adversely the powers, privileges, preferences or rights of the Series A Preferred Stock, or (ii) amendments, modifications, repeal or waiver of any provision of the Company’s ~~ability~~certificate of incorporation, bylaws or of the certificate of designations that would adversely affect the rights, preferences, privileges or powers of the Series A Preferred Stock.

Restricted Stock Unit Awards

On July 20, 2020, the Company granted annual stock awards to ~~incur additional indebtedness and liens, merge with other companies or consummate certain changes~~its executive team in the form of ~~control, acquire other companies, engage~~restricted stock units under the 2015 Plan. The awards vest in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements.

~~Warrants~~

~~In connection~~8 installments over four years, with the borrowing of the Solar Term Loan, the Company issued the Solar Lenders warrants to purchase an aggregate of 1,125,000 shares of its common stock with an exercise price of $1.20 per share (the “Solar Warrants”). The Solar Warrants are exercisable untilfirst installment vesting on July ~~25, 2029. The Solar Lenders also have the right to net exercise the Solar Warrants for~~21, 2020. Accordingly, 853,850 shares of the Company’s common stock were issued on July 21, 2020 after withholding shares for tax obligations.

~~Public Offering of Common Stock~~

In July, 2019, pursuant to an underwriting agreement with Jefferies LLC, the Company closed a follow-on public offering of 26,136,363 shares of its common stock at a price of $1.10 per share, which included the exercise in full by Jefferies LLC of its option to purchase up to 3,409,090 additional shares. The Company received aggregate gross proceeds of $28.7 million from the offering ~~before deducing underwriting discounts and offering expenses~~.

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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 ~~uncertainties,~~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, our Annual Report on Form 10-K, particularly in Part I – Item 1A, “Risk Factors,” and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, ~~2018,~~2019, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March ~~15, 2019.~~16, 2020, as amended on April 28, 2020. 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 and Business Updates

We are a medical technology company focused on the ~~design,~~ development and commercialization of long-term, implantable continuous glucose monitoring, ~~products~~or CGM, systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. Our ~~continuous glucose monitoring, or CGM, systems,~~ Eversense and Eversense XL ~~are reliable, long‑term, implantable~~ CGM systems ~~that we have~~are designed to continually and accurately measure glucose levels in people with diabetes via a small under-the-skin sensor, a lightweight and rechargeable smart transmitter worn on the skin, and a convenient app for real-time glucose monitoring and management for a period of up to 90 and 180 days, respectively, as compared to ~~six~~seven to ~~fourteen~~14 days for non-implantable CGM systems.

The extended life Eversense XL CGM System, for use up to 180 days, is currently available ~~CGM systems. We believe Eversense and Eversense XL will provide people with diabetes with a more convenient method to monitor their glucose levels~~ in comparison with the traditional method of self‑monitoring of blood glucose, or SMBG, as well as currently available CGM systems. In our U.S. pivotal clinical trial, we observed that Eversense measured glucose levels over 90 days with a degree of accuracy superior to that of other currently available CGM systems. Our Eversense and Eversense XL systems are currently approved for saleselect markets in Europe, the Middle East, and Africa, ~~(EMEA) and our~~or EMEA. The Eversense ~~system is currently approved~~CGM System, for ~~sale~~use up to 90 days, launched commercially in the United ~~States.~~

~~Recent Developments~~

InStates in July 2019 we ~~closed~~and is currently available in the United States. We sell directly to our network of distributors and strategic fulfillment partners, who provide the Eversense system to healthcare providers and patients through a ~~follow-on public offering of 26,136,363 shares~~prescribed request and invoice insurance payors for reimbursement. Sales of our ~~common stock at~~Eversense systems are widely dependent on the ability of patients to obtain coverage and 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. During the six months ended June 30, 2020, we received positive payor coverage decisions from Cigna Corporation, who has more than 17 million medical customers and offers a ~~price~~Medicare Advantage plan in 17 states and Washington DC, Blue Cross and Blue Shield plans, and announced local coverage determinations, or LCD, proposals for implantable therapeutic CGMs such as Eversense by six Medicare Administrative Contractors to enable Eversense to be used by Medicare beneficiaries as a Part B physician service. We continue to see momentum of ~~$1.10 per share,~~broad national payor acceptance, including on August 3, 2020, the Centers for Medicare and Medicaid Services, or 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

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and insertion (0048T) of an implantable interstitial glucose sensor, which ~~included~~describes our Eversense CGM systems, as a medical benefit, rather than as part of the ~~exercise~~Durable Medical Equipment channel that includes other CGMs.

Development and Commercialization of Eversense

In December 2018, we initiated the PROMISE pivotal clinical trial to evaluate the safety and accuracy of Eversense XL for a period of up to 180 days in ~~full~~the United States. On September 30, 2019, we completed enrollment of the PROMISE trial and had our last patient complete their 180-day visit during the first quarter of 2020. We are in the process of confirming data from the PROMISE trial and compiling a regulatory submission to the FDA, which we expect to submit in the third quarter of 2020, to expand the Eversense system use for up to 180 days in the United States with reduced calibrations. If approved by the ~~underwriter~~FDA, this new product will double sensor duration of ~~its option~~Eversense in the United States, with half of the insertion and removal procedures required, and will provide more than 12 times longer sensor duration than other CGM systems available in the United States. We anticipate a decision in early 2021, and if positive, we will begin transitioning patients in the United States to ~~purchase up to 3,409,090 additional shares. We received aggregate gross proceeds of $28.7 million~~the new 180-day Eversense product. However, shelter-in-place orders and other impacts from the ~~offering~~ ~~before deducing underwriting discounts~~coronavirus, or COVID-19, pandemic could alter or delay the timing of response by the FDA regarding our submission.

We also intend to use data from the PROMISE trial, if positive, to support a regulatory submission to the FDA for an integrated, or iCGM, designation in the first quarter of 2021. This would allow Eversense to integrate with other compatible medical devices and ~~offering expenses~~.electronic interfaces, such as automated insulin dosing systems, insulin pumps, and blood glucose meters.

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 who all had sensors with the modified chemistry will be left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Following information gathered from this sub-set and continued development efforts, in the first half of 2021 we plan to seek Investigational Device Exemption, or IDE, from the FDA. If the IDE is approved, we would then begin enrollment of a clinical trial in the second half of 2021, which would also include a pediatric population.

In April 2020, we announced that we received regulatory approval in Europe 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.

COVID-19

On ~~July 25, 2019,~~January 30, 2020, the World Health Organization, or the WHO, announced a global health emergency because of a new strain of coronavirus, or COVID-19, and the risks to the international community as the virus spreads globally. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In response to the pandemic, many states and jurisdictions have issued stay-at-home orders and other measures aimed at slowing the spread of the coronavirus. The state of Maryland, where we are headquartered, has been affected by COVID-19. The Governor of Maryland issued ~~$82.0 million aggregate principal amount~~an order closing all non-essential businesses, which took effect on March 23, 2020. Although the state of Maryland is gradually undergoing a phased reopening plan, substantially all of our ~~5.25% Convertible Senior Notes due 2025,~~workforce is still working from home either all or substantially all of the ~~2025 Notes,~~time. Additionally, because our sensor requires an in-clinic procedure, we saw a reduction in access to ~~Jefferies LLC as~~clinics and sensor insertions during the initial ~~purchaser, or~~outbreak.

During the ~~Initial Purchaser, who subsequently resold~~second quarter of 2020, reinsertion rates for existing patients on Eversense were more favorable than we originally anticipated at the ~~2025 Notes~~start of the outbreak, leading to ~~qualified institutional buyers, or~~several new order requests from our distributors, and adjustments to concession allowances previously provided to some of our customers in the ~~Notes Offering,~~United States to reflect actual product usage. While these upward trends are promising, insertion volumes are still below pre-COVID-19 levels. Additionally, the recent COVID-19 pandemic infection rates in ~~reliance~~the United States have been increasing and it is difficult to predict the longevity and severity COVID-19 will have on ~~the exemption from registration provided by Rule 144A under the Securities Act of 1933, as amended.~~our business.

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Streamlined Operational Focus

~~We used $37.9 million~~

As a result of the ~~net proceeds from~~COVID-19 pandemic’s disruption to our operations, suppliers, employees, and the ~~Notes Offering~~healthcare community in which we sell to ~~repurchase $37.0 million aggregate principal amount~~and support, and our ~~outstanding 5.25% convertible senior subordinated notes due 2023, or the 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon.~~

~~On July 16, 2019, we entered into an Loan and Security Agreement, or~~limited cash on hand after repayment of the Solar Loan Agreement ~~with Solar Capital, Ltd. a Maryland corporation, or Solar, as collateral agent,~~(as defined below) 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, in the first quarter of 2020, we temporarily suspended commercial sales and marketing of the Eversense CGM System in the United States to new patients to solely focus our resources on supporting existing users, including ensuring broader insurance coverage for Eversense, and the ~~lenders from time to time party thereto, or collectively,~~development and regulatory submission of our new 180-day Eversense product in the ~~Lenders.~~United States. In connection with these actions, on March 26, 2020, we reduced our workforce by approximately 60%, over half of which were sales personnel. Associated one-time employee termination benefit costs in the amount of $1.4 million were paid and recorded in our accompanying unaudited condensed consolidated financial statements during the six months ended June 30, 2020.

~~Following our closing~~Net Revenue Impact

As a result of the ~~Notes Offering, we borrowed an aggregate principal amount~~COVID-19 pandemic, redistribution of ~~$45.0 million under~~country-specific government funding to COVID-19 efforts, overall excess inventory at our distributors, and the Solar Loan Agreement, or the Solar Term Loan. We used $11.6 million of the Solar Term Loan to terminate our existing Amended and Restated Loan and Security Agreement with Oxford Finance LLC, or Oxford, and Silicon Valley Bank, or SVB, and repay in full outstanding borrowings thereunder, or the Oxford/SVB Term Loans.

~~In addition, in connection with the borrowing of the Solar Term Loan, we issued the Lenders warrants to purchase an aggregate of 1,125,000 shares~~announcement of our ~~common stock with an exercise price of $1.20 per share, or the Solar Warrants. The Solar Warrants are exercisable until July 25, 2029.~~

~~European Commercialization of Eversense~~

In September 2015, we entered into a distribution agreement with Rubin Medical, or Rubin, pursuant to which we granted Rubin the exclusive right to market, sell and distribute Eversense in Sweden, Norway and Denmark through September 2020. Rubin markets and sells medical products for diabetes treatmentstreamlined focus in the ~~Scandinavian region, including as the exclusive Scandinavian distributor~~first quarter of 2020, our net revenue for the ~~insulin pump manufacturer Tandem Corporation.~~ three and six months ended June 30, 2020 was significantly lower than the three and six months ended June 30, 2019. We are uncertain as to the longevity or severity these factors may have on our future sales.

Under ~~the agreement, Rubin is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices.~~

~~In May 2016, we entered into a~~our exclusive distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH, ~~together referred to as~~or collectively, Roche, ~~pursuant to which~~ we have granted Roche the exclusive right to market, sell and distribute Eversense in ~~Germany, Italy and~~ the Netherlands. Under the agreement, Roche is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices. We began distributing Eversense through Roche in Germany in September 2016 and in Italy and the Netherlands in the fourth quarter of 2016. In November 2016, we entered into an amendment to the distribution agreement with Roche granting Roche the exclusive right to market, sell and distribute Eversense in Europe, the Middle East and Africa,EMEA, excluding ~~Sweden, Norway, Denmark, Finland~~Scandinavia and Israel. In ~~January 2019, we entered into an additional amendment to the distribution agreement with~~addition, Roche ~~to extend the agreement through January 31, 2021. Pursuant to the amendment to the agreement, Roche~~ has agreed to certain purchase levels of Eversense systems and pricing terms through the extended term of the agreement. In addition, under the amendment, Roche’s role as the exclusive distributor of Eversense was expanded to provide Roche with exclusive distribution rights in 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions. ~~To date, we have begun distributing~~This agreement expires in January 2021. During the three and six months ended June 30, 2020, Roche did not place any commercial sales orders in accordance with their quarterly requirements or towards their annual binding minimum requirements for sensors and transmitters. Revenues for these corresponding periods in 2020 represent purchases for miscellaneous Eversense ~~in an aggregate~~system components.

We extended payment terms and provided one-time COVID-19 pandemic relief concessions to some of ~~15 European countries through Rubin and Roche.~~

In September 2017, we received the CE mark for Eversense XL, which is indicated for a sensor life of up to 180 days. Eversense XL began commercialization in Europe in the fourth quarter of 2017. All such commercialization and marketing activities remain subject to applicable government approvals.

~~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, or MARD, of 8.5% utilizing two calibration points for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period. Based on the data from this trial, in October 2016 we submitted a pre-market approval, or PMA, application to the FDA to market Eversensecustomers in the United States for ~~90-day use. On June 21, 2018,~~allowances up to a specified amount of first quarter purchases if they are unable to sell through Eversense and related components on hand prior to expiry, which we ~~received~~

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~~PMA approval from the FDA for the Eversense system. In July 2018, we began distributing the Eversense system directly~~expect to occur in the ~~United States through~~third and fourth quarters of 2020. Our net revenues and corresponding accounts receivables have been reduced for these allowances at June 30, 2020. In efforts to continue supporting our ~~own direct sales and marketing organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor. We intend to pursue a Category I CPT code.~~

In December 2018, we initiated the PROMISE pivotal clinical trial to evaluate the safety and accuracy of Eversense for a period of up to 180 days in the United States. We plan to enroll over 200 subjects in this trial at up to 15 clinical sites. If the data from the PROMISE trial is positive, we intend to use the data in a regulatory submission to the FDA to expand the Eversense system use to 180 days in the United States. We expect to report topline data from the PROMISE trial in the first half of 2020.

~~In March 2019, we launched a~~installed patient ~~access program, the~~base, our Eversense Bridge Program ~~to assist those~~remains available for eligible existing patients ~~who do not~~on Eversense and we have ~~insurance coverage for Eversense, or whose insurance~~removed the two-sensor limit previously prescribed by the program.

Inventory

As a result of significant changes and uncertainty regarding our forecasted demand and related expiry concerns, $16.2 million of inventory and related assets is denied or insufficient. Pursuant to this program, we are providing financial assistance to eligible patients purchasing Eversense to enable more patients to access the Eversense system. The amount of assistance that we provide depends on a patient’s insurance coverage. The program establishes maximum limits per patient and excludes certain patients as ineligible, including government-insured patients and residents of certain states. Although this program has just recently begun, we already see stimulated interest and activity across patients and providers. The program provides opportunities to engage both regional and national payors, which we expect will lead to additional positive payor coverage decisions for the Eversense system.

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

~~We have never been profitable and our net losses were $31.1 million and $32.5 million for three months ended~~impaired at June 30, ~~2019~~2020 with a corresponding charge to cost of sales in our unaudited condensed consolidated results of operations and ~~2018, respectively, and $61.2 million and $54.8~~comprehensive loss of $15.1 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, our accumulated deficit totaled $418.2 million, primarily as a result of expenses incurred in connection with our research and development programs and from general and administrative expenses associated with our operations.2020. We ~~expect to~~will continue to ~~incur significant expenses~~assess our inventory and ~~increasing operations and net losses~~supplier related assets for ~~the foreseeable future.~~recoverability if conditions materially change or worsen.

Long-lived Assets

We ~~have incurred~~reviewed our long-lived assets, including property and ~~expect to continue to incur significant commercialization expenses related to product sales, marketing, manufacturing~~equipment and ~~distribution. In addition, we expect to continue incurring expenses associated with~~right-of-use assets, for recoverability, which resulted in a loss on disposal of property and equipment in the ~~research and development~~amount of our other products and maintaining, expanding and protecting our intellectual property portfolio and seeking regulatory approvals in other jurisdictions. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will need to obtain substantial additional funding in connection with our continuing operations through debt financings, public or private equity or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to successfully commercialize Eversense and develop and commercialize future products and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.

~~Financial Overview~~

~~Revenue~~

~~During three and~~$0.2 million for the six months ended June 30, 2020, which we recorded to other income (expense) in our unaudited condensed consolidated statement of operations and comprehensive loss. The impairment mostly related to the uncertainty of conducting validation efforts to be able to place new manufacturing equipment into service.

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The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

Recent Developments

On August 9, 2020, we entered into a Collaboration and Commercialization Agreement with Ascensia Diabetes Care Holdings AG, or Ascensia, and entered into a financing agreement pursuant to which we have agreed to issue $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due in October 2024, or the 2024 Notes, to Ascensia’s parent company, PHC Holdings Corporation, or PHC, on or about August 14, 2020, or the Closing Date. We also have agreed to issue PHC 2,941,176 shares of common stock to PHC as a financing fee. We also have the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon receipt of any stockholder approval required by the listing rules of the NYSE American and obtaining approval for the 180-day Eversense product for marketing in the United States before such date. Upon the closing of the 2024 Notes, we intend to prepay the First Lien Notes described below in full in the amount of approximately $17.6 million, which includes the discounted prepayment premium.

Additionally, on August 9, 2020, we entered into a Stock Purchase Agreement with Masters Special Situations, LLC and certain affiliates thereof, or Masters, pursuant to which we have agreed to issue and sell to Masters 3,000 shares of convertible preferred stock, or the Series A Preferred Stock, at a price of $1,000.00 per share in an initial closing, expected to occur on the Closing Date. Masters also has the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in a subsequent closing, subject to the terms and conditions of the Stock Purchase Agreement.

On August 9, 2020, we entered into a First Amendment to Note Purchase and Exchange Agreement and Notes, or the Amendment, with Highbridge Capital Management, LLC, or Highbridge. Pursuant to the Amendment, effective as of the Closing Date, Highbridge agreed to an extension of the maturity date for the Second Lien Notes to August 2023. Additionally, the holders of the Second Lien Notes will have the right to convert the aggregate principal of the Second Lien Notes (together with any applicable prepayment premium) to common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.33 per share. This conversion option has a daily limit of $1,000,000 in aggregate converted principal (inclusive of principal amount of First Lien Notes that are voluntarily converted). As of August 8, 2020, approximately $9.9 million in principal amount of Second Lien Notes remained outstanding.

Repayment of Solar Loan

On March 22, 2020, we and Solar Capital Ltd., or Solar, terminated our Loan and Security Agreement, dated as of July 16, 2019, or the Solar Loan Agreement. As previously disclosed in our Annual Report on Form 10-K, we ~~generated~~expected to default on our obligations under the Solar Loan Agreement and were seeking a waiver from Solar of any default under the Solar Loan Agreement. Following discussions with Solar, we were unable to negotiate such a waiver and, as a result, it was determined to terminate the Solar Loan Agreement.

In connection with the termination, we paid $48.5 million representing all amounts outstanding under the Solar Loan Agreement, including the principal amount and interest of the loans, a payoff fee of 6.45% of the loans outstanding, a prepayment premium of 3.0% of the loans outstanding and other obligations owed to Solar thereunder. We issued warrants in connection with the Solar Loan Agreement to purchase an aggregate of 1,125,000 shares of our common stock with an exercise price of $1.20 per share, which are exercisable until July 25, 2029.

We recorded a loss on the extinguishment of debt in the amount of $4.5 million reflecting the difference between the repayment amount, excluding interest accrued and due, and the carrying value of the principal balance, accrued interest, unamortized debt issuance costs and unaccreted prepayment fee at March 22, 2020 in other income (expense) in our accompanying unaudited condensed consolidated statement of operations and comprehensive loss during the six months ended June 30, 2020.

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April 2020 Financings

On April 22, 2020, we received $5.8 million in loan funding from the Paycheck Protection Program, or PPP, established pursuant to the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020, or the Flexibility Act, and administered by the U.S. Small Business Administration, or SBA, to support payroll, rent, and utilities incurred during a defined period.

On April 24, 2020, we received $15.0 million through the issuance and sale of First Lien Secured Notes due October 2021, or the First Lien Notes, pursuant to a Loan and Security Agreement, or the Highbridge Loan Agreement, with certain funds managed by Highbridge, as the lenders, together with the other lenders from time to time party thereto, or the Lenders, and Wilmington Savings Fund Society, SCB, as collateral agent. Under the terms of the Highbridge Loan Agreement, we may issue up to an additional $5.0 million in aggregate principal amount of First Lien Notes in a subsequent closing. In connection with the Highbridge Loan Agreement, we also issued 1,500,000 shares of common stock to the Lenders as a commitment fee.

Highbridge was current holders of $24.0 million principal amount of our convertible senior subordinated notes due 2025, or the 2025 Notes. In connection with the Highbridge Loan agreement, we entered into a Note and Purchase Exchange Agreement with the Lenders, pursuant to which those 2025 Notes were exchanged for (i) $15.7 million aggregate principal amount of newly issued Second Lien Secured Notes, or the Second Lien Notes, (ii) 11,026,086 shares of 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.

These credit facilities are further described under Liquidity and Capital Resources.

Going Concern

We believe that the transactions with Ascensia, PHC and Masters described above will provide the financial resources and mutual commitment to support manufacturing of Eversense and continued product development, including the expected launch of the new 180-day Eversense product. 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. As a result of these recent subsequent events and that the transactions have not yet closed, management’s doubt regarding our ability to continue as a going concern for the next twelve months from the date this Quarterly Report on Form 10-Q is filed is not yet alleviated.

Financial Overview

Revenue

We generate product revenue from sales of the Eversense ~~and Eversense XL~~ system ~~in Europe pursuant to distribution agreements with Roche and Rubin, and from sales of the Eversense system in the United States. We recognize revenue upon the sales of Eversense systems~~ and related components and supplies at a fixed price to ~~our~~third-party distributors ~~for sales outside of~~in the ~~United States~~European Union and to ~~our~~a network of strategic fulfillment partners ~~for sales~~ in the United States, or collectively, Customers, who then resell the products to health care providers and patients. We are paid for our sales directly to the Customers, regardless of whether ~~these customers~~or not the Customers resell ~~those~~the products to health care providers and patients. Under the terms of our distribution ~~agreements~~agreement with Roche, ~~and Rubin, these distributors are~~Roche is contractually obligated to

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make certain minimum purchases of Eversense XL systems from us and, accordingly, the revenue we recognize for any given period is not necessarily indicative of the level of sales to end users for that, or any other, period. ~~We expect that our revenue~~

Revenue from ~~both European and U.S.~~ product sales ~~will continue to increase~~is recognized at a point in time when the Customers obtain control of our product based upon the delivery terms as defined in the ~~remainder~~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. 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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We recognize revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in a future period. Our contracts may contain some form of variable consideration such as prompt-pay discounts or tier-volume price discounts. Variable consideration, including reimbursements paid by us to our Customers in accordance with the Eversense Bridge Program initiated in March 2019 and ~~future years~~to a lesser extent, other discounts, is treated as a reduction in revenue when the product sale is recognized. Depending on the variable consideration, we ~~continue our commercialization efforts. If we fail to successfully commercialize or are otherwise unable to complete~~develop estimates for the ~~development~~expected value based on the terms of ~~Eversense, our ability to generate future revenue,~~the agreements, historical data, insurance payor mix, reimbursement rates, and ~~our results of operations and financial position, will be adversely affected.~~

~~Under~~market conditions. In connection with the Eversense Bridge Program, we ~~account~~reimburse participating Customers an amount up to a fixed maximum for ~~reimbursements to~~ the ~~patient as a reduction of revenue~~difference in the ~~period in~~cost of the Eversense CGM System and what they collect from insurance payors and the patient’s fee of $99. Our Customers are responsible for confirming patient insurance coverage, obtaining pre-authorizations, determining eligibility, and continuously provide us with data regarding which patient orders are under the ~~corresponding gross revenue is recognized. For~~program and which are not. We use this data, along with actual reimbursements that have been validated to patient claims, to support our expected reimbursement estimates. Estimated reimbursement payments for product shipped to ~~our customers~~Customers but not ~~sold~~provided to a patient within the same reporting period ~~we estimate the amount of reimbursement based on our historical experience~~are recorded within accrued expenses and ~~record as an accrued expense within~~other current liabilities in ~~our~~the accompanying consolidated balance sheets. ~~Because~~Our estimates used in determining the variable consideration on a sale transaction may be adjusted each reporting period depending on actual results, provided a change does not reflect a modification to the original contract.

Contract assets consist of ~~our limited experience~~trade receivables from Customers and contract liabilities consist of amounts due to the Customers in connection with the Eversense Bridge Program, classified as ~~of June 30, 2019, our estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods,~~patient access and ~~such changes could be material.~~

~~Cost of Sales~~

~~We utilize contract manufacturers to produce Eversense. Cost of sales consists primarily of~~incentive programs within accrued liabilities on the ~~components of Eversense and assembly, as well as reserves~~accompanying unaudited consolidated balance sheets. Trade receivables for warranty costs and any obsolete inventory. Other cost of sales includes distribution-related expenses such as logistics and shipping costs of Eversense to Roche and Rubin for distribution in various regions in EMEA and costs associated with distribution through our strategic fulfillment partners in the United States. We calculate gross margin as revenue less costs of sales divided by revenue. We expect our overall gross margin to improve over the long term, as our sales increase and we have more opportunities to leverage our costs over larger production volumes. However, our gross margins may fluctuate from period to period.

~~Sales and Marketing~~

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

~~We anticipate that our sales and marketing expenses will increase in the future with appropriate investment as we continue to expand our commercialization of Eversense both~~customers in the United States are recorded at net realizable value, which is generally the contractual price but may be net of anticipated prompt-pay or promotional discounts.

Concentration of Revenue and ~~Europe.~~Customers

~~Research~~For the three months ended June 30, 2020 and ~~Development~~

~~Research~~2019, we derived 17% and ~~development expenses consist~~68% of expenses incurred in performing research and development activities in developing Eversense, including clinical trials and feasibility studies, and partnerships for strategic initiatives including insulin delivery and new indications. Research and development expenses include compensation and benefits for research and development employees including stock‑based compensation, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to contract research organizations and other consultants, and other outside expenses. Research and development costs are expensed as incurred.

~~We have incurred significant research and development expenses~~our total net revenue, respectively, from inception, with the substantial majority of the expenses spent on the development of Eversense. We expect to continue to commit significant resources to continue to develop future product enhancements for Eversense and to conduct ongoing and future clinical trials. We expect that our overall research and development expenses will increase for the PROMISE and other studies in support of future product enhancements.

~~General and Administrative~~

General and administrative expenses consist primarily of salaries and other related costs, including stock‑based compensation, for personnel in our executive, finance, accounting, business development, and human resources

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~~functions. Other significant costs include information technology, facility costs, legal fees relating to patent and corporate matters and fees for accounting and consulting services.~~

Our general and administrative expenses have increased, and we expect them to continue to increase at a lower rate in the future and to decline as a percentage of revenue. These increases include increased costs related to the hiring of additional personnel and increased fees to outside consultants, lawyers and accountants as well as expenses related to maintaining compliance with NYSE American listing rules and SEC requirements, insurance, and investor relations costs. These expenses may further increase when we no longer qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, which will require us to comply with certain reporting requirements from which we are currently exempt. We will no longer qualify as an “emerging growth company” effective December 31, 2019.

~~Other Income (Expense), Net~~

Interest income consists of interest earned on our cash equivalents. Interest expense primarily has consisted of interest expense on our convertible senior subordinated notes, and our obligations under the Amended and Restated Loan and Security Agreement with Oxford and SVB. This interest expense primarily consisted of contractual interest on the outstanding debt balances and amortization of debt discounts. Duringone customer, Roche Diabetes Care GmbH. For the six months ended June 30, ~~2018,~~2020 and 2019, we ~~issued~~derived 17% and 66% of our total net revenue, respectively, from one customer, Roche Diabetes Care GmbH. During the three and six months ended June 30, 2020, Roche did not place commercial sales orders in accordance with their quarterly requirements or towards their annual binding minimum requirements for sensors and transmitters. Revenues for these corresponding periods in 2020 represent purchases for miscellaneous Eversense XL 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 the three and six months ended June 30, 2020 and 2019:


	Three Months Ended				Six Months Ended
	June 30, 2020				June 30, 2020
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
Outside of the United States	$	55	21.1	%	$	67	22.6	%
United States		206	78.9			230	77.4
Total	$	261	100.0	%	$	297	100.0	%


	Three Months Ended				Six Months Ended
	June 30, 2019				June 30, 2019
			%				%
(Dollars in thousands)	Amount		of Total		Amount		of Total
Revenue, net:
Outside of the United States	$	3,509	76.2	%	$	6,117	76.2	%
United States		1,098	23.8			1,913	23.8
Total	$	4,607	100.0	%	$	8,030	100.0	%

Accounts Receivable

Accounts receivable consist of amounts due from our Customers and are recorded at net realizable value, which may include an ~~aggregate~~allowance for doubtful accounts at the time potential collection risk is identified or for promotional or prompt-pay discounts offered. We provided extended payment terms and one-time COVID-19 pandemic relief concessions to some of ~~$53.0 million~~our customers in ~~aggregate principal~~the United States for allowances up to a specified amount of ~~convertible senior subordinated notes,~~first quarter purchases if they are unable to sell through Eversense and related components on hand prior to expiry, which we expect to occur in the third and fourth quarters of 2020. Our accounts receivables at June 30, 2020 included an allowance for these estimated concessions in the amount of $0.2 million. We do not have a history of collectability concerns and there have been no provisions for uncollectible accounts recorded against accounts receivable at June 30, 2020 or December 31, 2019.

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the ~~2023 Notes.~~reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. In our 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. We ~~bifurcated~~considered COVID-19 related impacts to our estimates, as appropriate, within our unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the ~~embedded conversion option~~uncertainties surrounding the severity and duration of the ~~2023 Notes, along~~COVID-19 pandemic. Actual results could differ from those estimates; however, we do not believe that such differences would be material.

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Recent Accounting Pronouncements

Recently Adopted

In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements on fair value measurements. The new standard includes additional disclosure requirements regarding the range and weighted average to develop significant unobservable inputs within Level 3 fair value measurements. We adopted this on its effective date, January 1, 2020 and 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, 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. We do not currently hold or plan to invest in available-for-sale securities and have not historically experienced collection issues or bad debts with ~~the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as~~trade receivables. Accordingly, we do not expect this to have a ~~derivative liability in~~significant impact on our consolidated ~~balance sheets. This embedded derivate instrument~~financial statements and related disclosures at this time. We will adopt this guidance on its effective date for smaller reporting companies, January 1, 2023.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which is ~~remeasured at~~intended to simplify various aspects of the ~~end of each reporting period with~~income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in ~~fair value recorded to change~~investments, and interim-period accounting for enacted changes in ~~fair value of derivative liability in~~tax law. ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. We are currently evaluating the impact that this guidance will have on our consolidated ~~results~~financial statements.

Table of ~~operations.~~Contents

Results of Operations

Comparison of the three months ended June 30, ~~2019~~2020 and ~~2018~~2019

The following table sets forth our results of operations for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


							Three Months Ended
							June 30,				Period-to-
							2020		2019		Period Change

	Three Months Ended
	June 30,				Period-to-
	2019		2018		Period Change
	(unaudited)
							(unaudited)
Revenue, net	$	1,475	$	553	$	922	$	216	$	1,475	$	(1,259)
Revenue, net - related parties		3,132		3,070		62		45		3,132		(3,087)
Total revenue								261		4,607		(4,346)
Cost of sales		9,160		3,839		5,321		1,404		9,160		(7,756)
Gross profit		(4,553)		(216)		(4,337)		(1,143)		(4,553)		3,410


Expenses:
Sales and marketing expenses		14,179		6,177		8,002		3,142		14,179		(11,037)
Research and development expenses		10,504		8,289		2,215		3,796		10,504		(6,708)
General and administrative expenses		5,417		5,382		35		4,445		5,417		(972)
Operating loss		(34,653)		(20,064)		(14,589)		(12,526)		(34,653)		22,127
Other income (expense), net:
Other income, net:
Interest income		410		241		169		8		410		(402)
Loss on extinguishment of debt								(6,385)		—		(6,385)
Interest expense		(1,965)		(2,236)		271		(3,555)		(1,965)		(1,590)
Change in fair value of derivative liability		4,889		(10,166)		15,055
Other income (expense)		245		(271)		516
Total other income (expense), net		3,579		(12,432)		16,011
Change in fair value of derivative liabilities								15,238		4,889		10,349
Other (expense) income								(295)		245		(540)
Total other income, net								5,011		3,579		1,432
Net loss	$	(31,074)	$	(32,496)	$	1,422	$	(7,515)	$	(31,074)	$	23,559

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Revenue, net

Our net ~~revenues increased~~revenue decreased $4.3 million to $0.3 million for the three months ended June 30, 2020, compared to $4.6 million for the three months ended June 30, ~~2019, compared~~2019. This decrease was a result of deferral of sales orders by Roche in the second quarter of 2020, and our decision to ~~$3.6~~streamline our operational focus in March 2020 and temporarily suspend commercial sales to new patients in the United States.

Cost of sales

Our cost of sales decreased $7.8 million to $1.4 million for the three months ended June 30, 2018. This increase was primarily due to sales of Eversense in the United States in the three months ended June 30, 2019 following our U.S. launch in July 2018, partially offset by gross to net reductions to revenue for the Eversense Bridge Program.

~~Cost of sales~~

~~Our cost of sales increased~~2020, compared to $9.2 million for the three months ended June 30, ~~2019, compared~~2019. The decrease was primarily due to ~~$3.8~~lower sales to our customers and temporary suspension of manufacturing activities resulting from changes made to our operational focus.

Gross profit was $(1.1) million and $(4.6) million for the three months ended June 30, 2018. The increase was primarily due to $1.9 million of U.S. sales, a $1.3 million increase in warranty expense, a $2.0 million increase in impairment charges for obsolete inventory associated with product design changes2020 and ~~yield losses at our contract manufacturers, and a $0.2 million increase in other selling costs in the three months ended June 30, 2019.~~

~~Gross profit was $(4.6) million and $(0.2) million for the three months ended June 30,~~ 2019, ~~and 2018,~~ respectively. Gross profit as a percentage of revenue, or gross margin, was ~~(99)~~(438.1)% and ~~(6)~~(98.8)% for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The decrease in gross profit was primarily due to ~~warranty expense and impairment charges associated with product design changes and yield losses at our contract manufacturers.~~lower sales.

Sales and marketing expenses

Sales and marketing expenses were $3.1 million for the three months ended June 30, 2020, compared to $14.2 million for the three months ended June 30, 2019, ~~compared~~a decrease of $11.0 million. The decrease was primarily the result of our headcount reduction on March 26, 2020, which impacted the majority of the sales organization, resulting in a decline

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in salary and personnel costs of $5.7 million and a decline of $5.3 million related to ~~$6.2~~travel, trade shows, consultants and other marketing programs to market Eversense.

Research and development expenses

Research and development expenses were $3.8 million for the three months ended June 30, ~~2018, an increase of $8.0 million. The increase was primarily due~~2020, compared to a $4.3 million increase in salaries, bonuses and payroll related costs for additional headcount, an increase in market research, consultants, and marketing costs of $2.2 million in connection with the U.S. launch of Eversense, and an increase of $1.5 million in other sales and general marketing expenses to support our European distribution of Eversense as well as in connection with our U.S. launch of Eversense.

~~Research and development expenses~~

~~Research and development expenses were~~ $10.5 million for the three months ended June 30, 2019, ~~compared~~a decrease of $6.7 million. The decrease was due to ~~$8.3~~decrease of $3.5 million of consulting, outside services and other expenses resulting from our change in operational plans to focus on our regulatory submission for the new 180-day Eversense product in the United States, $2.4 million for clinical trial costs primarily related to the PROMISE trial and $0.8 million for salary and other personnel related costs following our reduction in workforce in March 2020.

General and administrative expenses

General and administrative expenses were $4.4 million for the three months ended June 30, ~~2018, an increase~~2020, compared to $5.4 million for three months ended June 30, 2019, a decrease of ~~$2.2~~$1.0 million. The ~~increase~~decrease was primarily due to ~~a $2.4 million increase in expenses related to clinical studies, partially offset by a~~ $0.2 million ~~decrease in development efforts at our contract manufacturers~~for personnel related ~~to development~~costs, $0.4 million for legal fees, and $0.3 million of ~~future generations of Eversense.~~

~~General and administrative expenses~~

~~General and~~other administrative expenses ~~were $5.4~~resulting from our reduction in workforce in March 2020.

Total other income, net

Total other income, net, was $5.0 million for ~~both~~ the three months ended June 30, ~~2019, and June 30, 2018.~~

~~Total other income (expense), net~~

~~Total other income (expense), net, was~~2020, compared to $3.6 million for the three months ended June 30, 2019, ~~compared to $(12.4) million for the three months ended June 30, 2018,~~ an increase of ~~$16.0~~$1.4 million. The increase was primarily due to a ~~$15.1~~$15.2 million increase in the change in fair value of ~~the derivative liability in the three months ended June 30, 2019, compared~~our derivatives, offset by a $6.4 million loss on extinguishment for conversions of our Second Lien Notes, $1.6 million of additional interest expense due to the ~~three months ended June 30, 2018, partially offset by an increase~~2025 Notes entered into in July 2019 and the First and Second Lien Notes entered into in April 2020, a decline in interest income of ~~$0.9~~$0.4 million and a net decline of $0.5 million in ~~interest expense on our Oxford/SVB Term Loans and 2023 Notes.~~other income (expense).

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Comparison of the six months ended June 30, ~~2019~~2020 and ~~2018~~2019

The following table sets forth our results of operations for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands).:


	Six Months Ended
	June 30,				Period-to-
	2020		2019		Period Change

	(in thousands)
Revenue, net	$	247	$	2,718	$	(2,471)
Revenue, net - related parties		50		5,312		(5,262)
Total revenue		297		8,030		(7,733)
Cost of sales		21,074		15,893		5,181
Gross profit		(20,777)		(7,863)		(12,914)

Expenses:
Sales and marketing expenses		14,287		27,013		(12,726)
Research and development expenses		11,159		17,612		(6,453)
General and administrative expenses		10,134		11,933		(1,799)
Operating loss		(56,357)		(64,421)		8,064
Other income (expense), net:
Interest income		217		1,037		(820)
Loss on extinguishment of debt		(10,931)		—		(10,931)
Interest expense		(7,928)		(3,999)		(3,929)
Change in fair value of derivative liabilities		25,549		6,961		18,588
Other expense		(658)		(17)		(641)
Total other income, net		6,249		3,982		2,267

Net loss	$	(50,108)	$	(60,439)	$	10,331

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Six Months Ended

June 30,

Period-to-

2019

2018

Period Change

(in thousands)

Revenue, net

$
2,718

$
931

$
1,787

Revenue, net - related parties

5,312

5,638

(326)

Cost of sales

15,893

7,147

8,746

Gross profit

(7,863)

(578)

(7,285)

Expenses:

Sales and marketing expenses

27,013

9,618

17,395

Research and development expenses

17,612

16,402

1,210

General and administrative expenses

11,933

9,393

2,540

Operating loss

(64,421)

(35,991)

(28,430)

Other income (expense), net:

Interest income

1,037

425

612

Interest expense

(3,999)

(4,007)

8

Change in fair value of derivative liability

6,961

(15,013)

21,974

Other income (expense)

(17)

(183)

166

  Total other income (expense), net

3,982

(18,778)

22,760

Net loss

$
(60,439)

$
(54,769)

$
(5,670)

Revenue, net

Our net revenue ~~increased~~decreased $7.7 million to $0.3 million for the six months ended June 30, 2020, compared to $8.0 million for the six months ended June 30, ~~2019, compared~~2019. This decrease was a result of deferral of sales orders by Roche in the first and second quarters of 2020, and our decision to ~~$6.6~~streamline our operational focus in March 2020 and temporarily suspend commercial sales to new patients in the United States.

Cost of sales

Our cost of sales increased $5.2 million to $21.1 million for the six months ended June 30, 2018. This increase was primarily due to sales of Eversense in the United States in the six months ended June 30, 2019 following our U.S. launch in July 2018, partially offset by gross to net reductions to revenue for the Eversense Bridge Program.

~~Cost of sales~~

~~Our cost of sales increased~~2020, compared to $15.9 million for the six months ended June 30, ~~2019, compared~~2019. The increase was primarily due to ~~$7.1~~an increase of $14.8 million for impairment charges, scrap and write-offs for inventory and related assets during the six months ended June 30, 2020 due to uncertainty in demand forecasts from changes made to our operational focus and current economic conditions, offset by lower sales to our customers.

Gross profit was $(20.8) million and $(7.9) million for the six months ended June 30, ~~2018.~~2020 and 2019, respectively. The ~~increase~~decrease in gross profit was primarily due to ~~$3.0 million of U.S.~~lower sales ~~a $1.8 million increase in warranty expense~~ and ~~obligations as a result of the January 2019 amendment of the Roche distribution agreement, an increase of $2.2 million for~~ impairment charges for ~~obsolete~~ inventory ~~associated with product design changes~~ and ~~yield losses at our contract manufacturers,~~related assets.

Sales and ~~an increase of $1.7 million for lab supplies, shipping~~marketing expenses

Sales and ~~duties, and logistics costs.~~

~~Our gross profit was $(7.9) million and $(0.6)~~marketing expenses were $14.3 million for the six months ended June 30, ~~2019 and 2018, respectively. Gross profit as a percentage of revenue, or gross margin, was (98)% and (9)% in the six months ended June 30, 2019 and 2018.~~

~~Sales and marketing expenses~~

~~Sales and marketing expenses were~~2020, compared to $27.0 million for the six months ended June 30, 2019, ~~compared~~a decrease of $12.7 million. The decrease was primarily the result of our headcount reduction on March 26, 2020, which impacted the majority of the sales organization, resulting in a decline in

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salary and personnel costs of $4.9 million and a decline of $7.8 million related to ~~$9.6~~travel, trade shows, consultants and other marketing programs to market Eversense.

Research and development expenses

Research and development expenses were $11.2 million for the six months ended June 30, ~~2018, an increase of $17.4 million. The $17.4 million increase was primarily due~~2020, compared to a $9.0 million increase in salaries, bonuses and payroll related costs for additional headcount, an increase in sales related costs of $2.8 million in connection with the U.S. launch and commercialization of Eversense, and an increase of $5.6 million in other sales and general marketing expenses to support our European distribution of Eversense as well as the U.S. launch of Eversense, including travel, marketing programs and materials, and trade shows.

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~~Research and development expenses~~

~~Research and development expenses were~~ $17.6 million for the six months ended June 30, 2019, ~~compared~~a decrease of $6.5 million. The decrease was primarily due to ~~$16.4~~decreases of $4.2 million for consulting expenses, outside services and other development expenses, $2.0 million related to PROMISE and other clinical studies and $0.3 million in personnel related costs following our reduction in workforce in March 2020.

General and administrative expenses

General and administrative expenses were $10.1 million for the six months ended June 30, ~~2018, an increase~~2020, compared to $11.9 million for six months ended June 30, 2019, a decrease of ~~$1.2~~$1.8 million. The ~~increase of $1.2 million was~~decrease is primarily due to ~~a $0.5~~$1.0 million ~~increase in salaries, bonuses and payroll~~for net personnel related costs ~~for additional headcount~~from higher severance costs in the first quarter of 2019 and our reduction in workforce in 2020, along with a ~~$2.9 million increase in expenses related to clinical studies, partially offset by a $2.1~~net $0.8 million decrease ~~in development efforts at our contract manufacturers related to development of future generations of Eversense.~~

~~General~~for recruiting, legal and other administrative expenses in connection with operational changes and stay-at-home orders given the COVID-19 pandemic.

~~General and administrative expenses were $11.9~~Total other income, net

Total other income, net, was $6.2 million for the six months ended June 30, ~~2019,~~2020, compared to $9.4 million for the six months ended June 30, 2018, an increase of $2.5 million. The increase was primarily due to a $0.9 million increase in salaries, bonuses and payroll related costs for additional headcount, and an increase of $1.6 million in other general and administrative costs to support our operations.

~~Total other income (expense), net~~

~~Total other income (expense), net, was~~ $4.0 million for the six months ended June 30, 2019, ~~compared to $(18.8) million for the six months ended June 30, 2018,~~ an increase of ~~$22.8~~$2.3 million. The increase was primarily due to a ~~$22.0~~$18.6 million increase in the change in fair value of ~~the derivative liability during the six months ended June 30, 2019 compared to the six months ended June 30, 2019,~~our derivatives, partially offset by ~~an increase~~$10.9 million for the loss on extinguishment of ~~$2.2~~our Loan and Security Agreement with Solar and extinguishment of associated debt discount and prepayment premiums on the conversions of our Second Lien Notes, $3.9 million of additional interest expense due to the 2025 Notes entered into in July 2019 and the First and Second Lien Notes entered into in April 2020, a decline in interest income of $0.9 million and a net decline of $0.6 million in ~~interest expense on our Oxford/SVB Term Loans and 2023 Notes, and a $0.7 million increase in investment income.~~other expenses.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have not generated any significant revenue from product sales. We have incurred substantial losses and cumulative negative cash flows from operations since our inception in October 1996. We have never been profitable and our net losses were $60.4 million and $54.8 million for the six months ended ~~June 30, 2019 and 2018, respectively. As of~~ ~~June 30, 2019, our accumulated deficit totaled $418.2 million.~~

To date, we have funded our operations principally through the issuance of preferred stock, common stock and debt. As of June 30,~~, 2019,~~ 2020, we had cash, ~~and~~ cash equivalents, and restricted cash of ~~$65.3~~$21.6 million. ~~Under~~

On August 9, 2020, we entered into a financing agreement with Ascensia pursuant to which we have agreed to issue $35.0 million in aggregate principal amount 2024 Notes, to Ascensia’s parent company, PHC, on the ~~Amended~~Closing Date. We also have agreed to issue PHC 2,941,176 shares of common stock to PHC as a financing fee. We also have the option to sell and ~~Restated~~issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon receipt of any stockholder approval required by the listing rules of the NYSE American and obtaining approval for the 180-day Eversense product for marketing in the United States before such date. Upon the closing of the 2024 Notes, we intend to prepay the First Lien Notes in full in the amount of approximately $17.6 million, which includes the discounted prepayment premium.

Additionally, on August 9, 2020, we entered into a Stock Purchase Agreement with Masters, pursuant to which we have agreed to issue and sell to Masters 3,000 shares of Series A Preferred Stock, at a price of $1,000.00 per share in an initial closing, expected to occur on the Closing Date. Masters also has the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in a subsequent closing, subject to the terms and conditions of the Stock Purchase Agreement. Each share of Series A Preferred Stock will initially be 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. The Series A Preferred Stock will rank senior to the common stock. Upon a liquidation, dissolution or winding up of the Company, each share of Series A Preferred Stock will be entitled to receive an amount per share equal to the greater of the purchase price paid and the

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amount that the holder would have been entitled to receive at such time if the Series A Preferred Stock were converted into common stock. The holders will also be entitled to participate in dividends declared or paid on the common stock on an as-converted basis. If we undergo a change of control, each holder has the right to cause us to redeem any or all of the Series A Preferred Stock for cash consideration equal to the liquidation amount. The holders of Series A Preferred Stock generally will be entitled to vote with the holders of the shares of common stock on all matters submitted for a vote of holders of shares of common stock (voting together with the holders of shares of common stock as one class) on an as-converted basis. Additionally, certain matters will require the approval of the majority of the outstanding Series A Preferred Stock, voting as a separate class, including (i) altering or changing adversely the powers, privileges, preferences or rights of the Series A Preferred Stock, or (ii) amendments, modifications, repeal or waiver of any provision of our certificate of incorporation, bylaws or of the certificate of designations that would adversely affect the rights, preferences, privileges or powers of the Series A Preferred Stock.

Common Stock

In November 2019, we entered into an Open Market Sale Agreement with Jefferies LLC which allows us to issue and sell up to $50 million in gross proceeds of our common stock. As of June 30, 2019, the company has received $0.1 million in net proceeds from the sale of 175,289 shares under this agreement.

Indebtedness

Term Loans

As described in our Overview and Business Updates, on March 22, 2020 we terminated our Loan and Security Agreement with ~~Oxford~~Solar and ~~SVB,~~repaid the $45.0 million principal balance in full.

PPP Loan

On April 22, 2020, we ~~borrowed~~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 SBA. The unsecured loan, or the PPP Loan, is evidenced by the PPP Note dated April 21, 2020, or the PPP Note, in the principal amount of $5.8 million with Silicon Valley Bank, or the Bank.

Under the terms of the PPP Note and the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. To the extent the loan amount is not forgiven under the PPP, we are obligated to make equal monthly payments of principal and interest, beginning after determination of forgiveness by the Bank. We may apply for forgiveness any time on or before the maturity date of the loan. If we do not apply for loan forgiveness within ten months after the last day of the covered period, the PPP loan is no longer deferred, and we must begin paying principal and interest.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, we may apply for forgiveness for all or a part of our PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by us during the specified period after the loan origination for certain purposes including payroll costs, interest on debt obligations incurred prior to February 15, 2020, rent payments on certain leases, and certain qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered specified period will qualify for forgiveness. As a result of our workforce reduction, the amount of forgiveness will correspondingly decrease.

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to disclose any material fact or make a materially false or misleading representation to the Bank or SBA, (v) default on any loan or agreement with another creditor, if the Bank believes the default may materially affect our ability to pay the PPP Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of our business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in financial condition or business operation that the Bank believes may materially affect our ability to pay the PPP Note, (ix) if we reorganize, merge, consolidate, or otherwise change ownership or business structure without the Bank’s prior written consent, or (x) becoming the subject of a civil or criminal action that the Bank believes may materially affect our ability to pay the PPP Note. Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from us, and file suit and obtain judgment against us.

Highbridge Loan Agreement

On April 21, 2020, we entered into the Highbridge Loan Agreement, with certain funds managed by Highbridge Capital Management, LLC, or Highbridge, as the lenders (together with the other lenders from time to time party thereto, or the Lenders) and Wilmington Savings Fund Society, SCB, as collateral agent.

Pursuant to the Highbridge Loan Agreement, we may borrow up to an aggregate of $20.0 million in aggregate principal through the issuance and sale of the First Lien Notes. We received the first tranche of borrowing in the aggregate principal amount of ~~$25.0 million.~~

~~In January 2018,~~$15.0 million on April 24, 2020. Under the terms of the Highbridge Loan Agreement, we ~~issued $50.0~~may issue up to an additional $5.0 million in aggregate principal amount of ~~2023~~First Lien Notes in a subsequent closing. In connection with the Highbridge Loan Agreement and receipt of the first tranche of borrowing, we issued 1,500,000 shares of our common stock to the Lenders as a commitment fee.

The First Lien Notes are secured, senior obligations that bear interest at the annual rate of 12% or, at our election, payment in kind at an annual rate of 13%, payable monthly in arrears. The First Lien Notes will mature on October 24, 2021, or the First Lien Maturity Date, unless earlier repurchased, redeemed or converted in accordance with their terms. The obligations under the First Lien Notes are secured by substantially all our assets.

We have the right to prepay the First Lien Notes at any time, subject to a prepayment premium, which in certain circumstances we may elect to pay in our common stock, equal to the aggregate amount of interest payments through maturity. However, if the date of payment in cash of such prepayment premium is on or before August 22, 2020, the prepayment premium will be reduced by 25%.

Subject to certain conditions, if we retain or reinvest proceeds of an asset sale pursuant to the asset sale prepayment provisions in the Highbridge Loan Agreement, the Lenders shall be entitled to convert First Lien Notes and Holders (defined below) shall be entitled to convert Second Lien Notes in ~~February 2018,~~aggregate combined principal amount equal to 45% of such net proceeds retained or reinvested (together with any applicable prepayment premium) to our common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of our common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.57 per share. This conversion option has a daily limit of $1.0 million in aggregate converted principal (inclusive of principal amount of Second Lien Notes that are voluntarily converted by the Holders).

From and after a strategic transaction announcement (as defined in the form of First Lien Note), we may elect to convert up to $9.4 million in aggregate principal of the First Lien Notes to our common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of the Common Stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.57 per share of our common stock. This conversion option has a daily limit of $0.3 million in aggregate converted principal. If we or the Lenders elect to convert any of the First Lien Notes, the amount converted will be equal to the principal and unpaid accrued interest plus the applicable prepayment premium.

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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 Highbridge Loan Agreement also contains customary events of default, after which the First Lien Notes may be due and payable immediately, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, and change of control, termination of any guaranty, governmental approvals, and lien priority.

Upon the closing of the 2024 Notes, we intend to prepay the First Lien Notes in full in the amount of approximately $17.6 million, which includes the discounted prepayment premium.

Exchange Agreement with Highbridge

On April 21, 2020 we entered into a Note Purchase and Exchange Agreement, or the Exchange Agreement, which we subsequently amended on August 9, 2020, with certain funds managed by Highbridge providing for the exchange of $24.0 million aggregate principal amount of our outstanding senior convertible notes due January 15, 2025, or the 2025 Notes, for (i) $15.7 million aggregate principal amount of newly issued Second Lien Secured Notes, or the Second Lien Notes, and, together with the First Lien Notes, the Senior 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 closed on April 24, 2020. The warrants may be exercised in cash or on a cashless basis at any time through the three year anniversary of the issuance date.

The Second Lien Notes are secured, senior obligations, junior only to the First Lien Notes. The Second Lien Notes bear interest in cash at the annual rate of 7.5% or, at our election, payment in kind at an annual rate of 8.25%, payable monthly in arrears. The Second Lien Notes mature on August 9, 2023 unless earlier repurchased, redeemed or converted in accordance with their terms. The obligations under the Second Lien Notes are secured by substantially all of our assets.

We have the right to prepay the Second Lien Notes at any time, subject to a prepayment premium, which in certain circumstances we may elect to pay in our common stock, equal to the aggregate amount of interest payments through maturity. However, if the date of payment in cash of such prepayment premium is on or before August 22, 2020, the prepayment premium will be reduced by 25%.

As amended by the Amendment, effective as of the Closing Date, the holders of the Second Lien Notes will have the right to convert the aggregate principal of the Second Lien Notes (together with any applicable prepayment premium) to common stock at a price per share equal to 90% of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $0.33 per share. This conversion option has a daily limit of $1,000,000 in aggregate converted principal (inclusive of principal amount of First Lien Notes that are voluntarily converted). During the quarter ended June 30, 2020, Highbridge elected to convert a total of $6.0 million of outstanding principal on the Second Lien Notes for issuance of 13,366,339 shares of common stock, which included prepayment premiums and were based off of our election of PIK interest. As of August 8. 2020, approximately $9.9 million principal amount of Second Lien Notes remained outstanding.

Subject to certain conditions, if we retain or reinvest proceeds of an asset sale pursuant to the asset sale prepayment provisions in the Exchange Agreement, the Second Lien Notes Holders shall be entitled to convert additional Second Lien Notes and the Lenders shall be entitled to convert First Lien Notes in aggregate combined principal amount equal to 45% of such net proceeds retained or reinvested (together with any applicable prepayment premium).

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Most of these restrictions are subject to certain minimum thresholds and exceptions. The Exchange Agreement also contains customary events of default, after which the Second Lien Notes may be due and payable immediately, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, and change of control, termination of any guaranty, governmental approvals, and lien priority.

Convertible Notes

In July 2019, we issued ~~an additional $3.0~~$82.0 million in aggregate principal amount of the ~~2023~~2025 Notes.

~~On June 28, 2018, pursuant to an underwriting agreement~~ In connection with ~~BTIG, LLC, we closed~~ the ~~June 2018 Offering~~Exchange on April 24, 2020, $24.0 million in aggregate principal of ~~38,076,561~~Highbridge’s outstanding 2025 Notes were exchanged for (i) $15.7 million aggregate principal amount of Second Lien Notes, (ii) 11,026,086 shares of our common stock, ~~including BTIG, LLC’s exercise in full of its option~~(iii) warrants to purchase ~~additional shares, at a price of $3.93 per share. We received aggregate net proceeds of $149.0 million from the June 2018 Offering.~~

~~In July 2019, we~~ ~~closed a follow-on public offering of 26,136,363~~up to 4,500,000 shares of our common stock at aan exercise price of ~~$1.10~~$0.66 per share, ~~which included~~and (iv) $0.3 million in accrued and unpaid interest on the ~~exercise in full by~~2025 Notes being exchanged.

In the ~~underwriter~~first quarter of ~~its option to purchase up to 3,409,090 additional shares. We received aggregate gross proceeds of $28.7 million from the offering,~~ ~~before deducing underwriting discounts and offering expenses~~.

~~On July 25, 2019,~~2018, we issued ~~$82.0~~$53.0 million in aggregate principal amount of ~~our~~senior convertible notes that will mature on February 1, 2023, or the 2023 Notes, of which $15.7 million in aggregate principal remains after some of the holders exchanged their 2023 Notes for 2025 Notes in July 2019. For additional information on the 2025 Notes ~~Offering.~~ ~~We used $37.9 million~~and the 2023 Notes, see Note 7—Notes Payable and Stock Purchase Warrants in the accompanying unaudited consolidated financial statements.

The following table summarizes our outstanding notes payable at June 30, 2020:

Aggregate

Initial Conversion

Conversion Price

Convertible

Issuance

Principal

Maturity

Rate per Share

per Share of

Note

Date

Coupon

(in millions)

Date

of Common Stock

Common Stock

2023 Notes

January 2018

5.25%

15.7

February 1, 2023

294.1176

3.40

2025 Notes

July 2019

5.25%

58.0

January 15, 2025

757.5758

1.32

First Lien Notes

April 2020

13.00%

15.4

October 24, 2021

n/a

90% of daily VWAP or 0.57

Second Lien Notes⁽¹⁾

April 2020

8.25%

9.8

January 24, 2022

n/a

90% of daily VWAP or 0.57

PPP Loan

April 2020

1.00%

5.8

April 22, 2022

n/a

Total

104.7

(1) As described above, pursuant to the Amendment, effective as of the ~~net proceeds from~~Closing Date, the maturity date for the Second Lien Notes ~~Offering~~was extended to ~~repurchase $37.0 million aggregate principal amount our outstanding~~August 9, 2023 ~~Notes at a purchase~~and the conversion price per share of common stock will be equal to 90% of the ~~principal amount thereof, plus accrued~~greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and ~~unpaid interest thereon.~~(ii) $0.33 per share.

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On ~~July 16, 2019,~~August 9, 2020, we entered into a note purchase agreement with PHC, pursuant to which we agreed to borrow $35.0 million in aggregate principal through the ~~Solar Loan Agreement. Following~~issuance and sale of 2024 Notes on or prior to August 14, 2020. The 2024 Notes will be senior secured obligations and will be guaranteed on a senior secured basis by our ~~closing~~wholly owned subsidiary, Senseonics, Incorporated. Interest at the annual rate of 9.5% will be payable semi-annually in cash or, at our option, payment in kind. The interest rate will decrease to 8.0% if we obtain approval for 180-day Eversense product for marketing in the United States, subject to certain conditions. The maturity date for the 2024 Notes ~~Offering,~~will be October 31, 2024, provided that the maturity date will accelerate if we ~~borrowed~~have not repaid our Second Lien Notes (other than an aggregate principal amount of ~~$45.0 million under~~up to $1.0 million) by 91 days prior to the ~~Solar Loan Agreement. We used $11.6 million~~maturity of the ~~Solar Term Loan~~Second Lien Notes.

PHC will be entitled to convert the 2024 Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the 2024 Notes (including any interest added thereto as payment in kind), 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

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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 2024 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 ~~repay~~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 ~~full~~kind interest which has been added to such amount), plus any accrued but unpaid interest. On or after October 31, 2023, the ~~Oxford/SVB Term Loans.~~2024 Notes are redeemable by us 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, 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.

~~Our ability to generate~~The note purchase agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and ~~achieve profitability depends~~liquidity targets, and negative covenants, such as limitations on ~~our completion of the development of Eversense~~indebtedness, liens, mergers, asset transfers, certain investing activities and future product candidates and obtaining and maintaining the necessary regulatory approvals for the manufacture, marketing and sales of those products. These activities, including our planned significant research and development efforts, will require significant uses of working capital through 2019 and beyond.

We expect our existing cash and cash equivalents, including the proceeds from the July 2019 follow-on public offering, the Notes Offering and the Solar Term Loans will be sufficient to fund our operations through the end of 2020. We have based this estimate on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Additionally, the process of clinical and regulatory development of medical devices is costly, and the timing of progressother matters customarily restricted in such agreements. Most of these ~~efforts is uncertain.~~restrictions are subject to certain minimum thresholds and exceptions. The note purchase agreement also contains customary events of default, after which the 2024 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

~~We anticipate that we will continue~~Funding Requirements and Outlook

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

~~Indebtedness~~

~~Term Loans~~

On June 30, 2016, we entered into an Amended and Restated Loan and Security Agreement with Oxford and SVB. Pursuant to the Amended and Restated Loan and Security Agreement, we borrowed an aggregate principal amount of $25.0 million. We refer to these borrowings as the Oxford/SVB Term Loans. ~~As described below, in July 2019, we used $11.6 million~~ ~~of the Solar Term Loan to repay in full the Oxford/SVB Term Loans and terminate our~~ ~~Amended and Restated Loan and Security Agreement~~ ~~with Oxford and SVB.~~

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

~~We elected to prepay all Oxford/SVB Term Loans prior to the Maturity Date subject to a prepayment fee equal to 1.00%. As of~~ ~~June 30, 2019, the outstanding balance of the Oxford/SVB Term Loans was $10.0 million.~~

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

We incurred issuance costs related to the Oxford/SVB Term Loans of approximately $0.6 million that are being amortized as additional interest expense over the term of the Oxford/SVB Term Loans using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a

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~~discount to the Oxford/SVB Term Loans, which is also being amortized as additional interest expense over the term of the Oxford/SVB Term Loans using the effective interest method.~~

We were also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Oxford/SVB Term Loans. This fee is being accrued as additional interest expense over the term of the Oxford/SVB Term Loans using the effective interest method.

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

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

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

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

~~The Solar Term Loan is secured by substantially all~~some of our ~~assets. The Solar Loan Agreement also contains specified financial covenants related to our liquidity and trailing six-month revenues.~~operating plans.

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

~~Convertible Notes~~

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

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

~~In the second quarter of 2018, we issued 73,529 shares of common stock upon the conversion of $250,000 in aggregate principal amount of the 2023 Notes.~~ ~~There was no conversion of 2023 Notes in the second quarter of 2019.~~

~~As of~~ ~~June 30, 2019, the aggregate outstanding principal amount of the 2023 Notes was $52.7 million.~~

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

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

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

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

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

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Cash Flows

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

Six Months Ended

June 30,

2019

2018

(unaudited)
Net cash used in operating activities

$
(65,855)

$
(40,367)

Net cash (used in) provided by investing activities

(736)

12,239

Net cash (used in) provided by financing activities

(4,906)

195,906

Net (decrease) increase in cash and cash equivalents

$
(71,497)

$
167,778


	Six Months Ended
	June 30,
	2020		2019
Net cash used in operating activities	$	(45,777)	$	(65,855)
Net cash used in investing activities		(178)		(736)
Net cash used in financing activities		(28,386)		(4,906)
Net decrease in cash, cash equivalents and restricted cash	$	(74,341)	$	(71,497)

Net cash used in operating activities

Net cash used in operating activities was $45.8 million for the six months ended June 30, 2020 and consisted of a net loss of $50.1 million, a net change in operating assets and liabilities of ($1.7) million mostly due to declines in accruals and accounts payables of $11.4 million reflecting reduced operational activities, partially offset by $9.7 million for collections of accounts receivable at December 31, 2019 from Roche in the first quarter of 2020 and reductions in inventory, net for increased impairment reserves, as well as net non-cash items of $4.1 million, primarily due to a change of $12.0 million for inventory obsolescence and net realizable value charges, $10.9 million for extinguishment loss on

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the Solar Loan Agreement and debt discounts and prepayment premiums related to the conversions of the Second Lien Notes, and $8.7 million for interest expense, depreciation, disposal of fixed assets and stock-based compensation expense partially offset by a decrease in fair value of derivatives of $25.5 million.

Net cash used in operating activities was $65.9 million for the six months ended June 30, 2019, and consisted of a net loss of $60.4 million and a net change in operating assets and liabilities of $7.3 million, partially offset by net non-cash items of $1.9 million. Net change in operating assets and liabilities consisted of an $8.9 million increase in inventory, a $0.4 million increase in accounts payable, a $2.1 million increase in prepaid expenses and other current assets, $0.2 million of lease payments, and a $0.6 million decrease in deferred revenue, partially offset by a $1.3 million decrease in accounts receivable, $0.2 million of accrued interest on ~~Term Loans,~~term loans, and a $2.6 million increase in accrued expenses and other current liabilities. Net non-cash items consisted of stock-based compensation expense of $4.3 million, non-cash interest expense of $1.9 million, depreciation and amortization of $0.4 million, and an increase in the provision for inventory obsolescence and net realizable value of $2.3 million, partially offset by decrease in fair value of derivative ~~liability~~liabilities of $7.0 million.

Net cash used in investing activities

Net cash used in ~~operating~~investing activities was ~~$40.4~~$0.2 million for the six months ended June 30, ~~2018,~~2020 and consisted of a net loss of $54.8 million and a net change in operating assets and liabilities of $5.4 million (consisting of a net increase in accounts receivable, prepaid expenses and other current assets, inventory, and deposits and other assets of $7.4 million, net of an increase in accounts payable, accrued expenses and other current liabilities, accrued interest, and deferred rent of $2.0 million), partially offset by stock-based compensation expense of $3.1 million, an increase in the fair value of derivative liability of $15.0 million, non-cash interest expense of $1.5 million, and depreciation and write-down of the carrying value of our inventory to net realizable value of an aggregate amount of $0.2 million.capital expenditures for laboratory equipment.

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

Net cash used in investing activities was $0.7 million for the six months ended June 30, 2019 and consisted of ~~$0.7 million of~~ capital expenditures for laboratory and production equipment at our contract manufacturers.

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

Net cash used in financing activities was ~~$12.2~~$28.4 million for the six months ended June 30, ~~2018,~~2020 and primarily consisted ~~sales~~of $45.0 for the repayment of outstanding principal on our Solar Loan Agreement and ~~maturities of marketable securities of $20.3~~$3.4 million for a final payoff fee and prepayment premium, offset by ~~purchases~~proceeds from the PPP loan of ~~marketable securities of $7.9~~$5.8 million and ~~capital expenditures~~net proceeds of ~~$0.2 million.~~$14.4 million from the issuance of First Lien Notes.

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

Net cash used in financing activities was $4.9 million for the six months ended June 30, 2019, and consisted of aggregate principal payments on our ~~Oxford/SVB Term Loans~~term loans of $5.0 million, partially offset by proceeds from the exercise of stock options of $0.1 million.

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~~Net cash provided~~

Contractual Obligations

The following summarizes our contractual obligations as of June 30, 2020:


	Payment due by period
			Remainder of						After
Contractual Obligations	Total		2020		2021-2022		2023-2024		2024
Operating lease obligations	$	3,047	$	475	$	1,972	$	600	$	-
Principal payments under PPP Loan		5,763		-		5,763		-		-
Interest payments under PPP Loan		117		-		117		-
Principal payment under 2023 Notes		15,700		-		-		15,700		-
Interest payments under 2023 Notes		2,473		412		1,649		412		-
Principal payment under 2025 Notes		58,000		-		-		-		58,000
Interest payments under 2025 Notes		15,556		1,523		6,090		7,613		330
Principal payment under First Lien Notes		15,371		-		15,371		-		-
Interest payments under First Lien Notes⁽¹⁾		2,892		-		2,892		-		-
Principal payment under Second Lien Notes		9,843		-		9,843		-		-
Interest payments under Second Lien Notes⁽¹⁾		1,374		-		1,374		-		-
Other Commitments ⁽²⁾		1,500		1,500		-		-		-
Total contractual obligations	$	131,636	$	3,910	$	45,071	$	24,325	$	58,330

(1)

We elected to PIK interest on these notes.

(2)

Other commitments include, among other things, minimum payment obligations and other obligations that we cannot cancel or where we would be required to pay a fee for termination before the contractual period ended.

Contingencies – Contract Manufacturer Obligations

As a result of the impact of the COVID-19 pandemic on the global healthcare community and our streamlined operational focus implemented at the end of the first quarter of 2020, we have been negotiating with certain of our major suppliers and contract manufacturers to pay for materials procured by ~~financing~~these parties on our behalf or for costs incurred related to Eversense manufacturing activities ~~was $195.9~~that we paused or delayed. Some of these fees are dependent on whether the materials will expire prior to when we resume production at normal operating levels, or if further delays in manufacturing occur. We expect to have to pay $1.3 million if certain manufacturing timelines are not met within a specified period. We will record any fees contingent upon future manufacturing timing in our consolidated financial statements if, and when, it is probable such obligations will become due. When we resume manufacturing activities, some of the amounts paid for materials may be credited back to us upon consumption.

Off-Balance Sheet Arrangements

During the six months ended June 30, 2018, and consisted primarily of $149.4 million from the issuance of common stock in our June 2018 Offering, $50.7 million from the issuance of the 2023 Notes, and $1.0 million from the exercise of stock options, partially offset by aggregate principal payments on our Oxford/SVB Term Loans of $5.0 million.

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~~Contractual Obligations~~

~~As of~~ ~~June 30~~, 2019, there was no material change in our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 15, 2019.

~~We issued the 2025 Notes subsequent to June 30, 2019. The $82.0 million principal amount of the 2025 Notes is payable in full at maturity on~~ ~~January 15, 2025. The interest payment schedule for the 2025 Notes is as follows: $0.0 million, $8.5 million, $8.6 million and $6.5 million for 2019, 2020-2021, 2022-2023 and after 2023, respectively.~~

As described elsewhere in this report, we repurchased $37.0 aggregate principal amount of the 2023 Notes with a portion of the proceeds from the offering of the 2025 Notes subsequent to June 30, 2019. The remaining $15.2 million principal amount of the 2023 Notes is payable in full at maturity on ~~February 1, 2023. The interest payment schedule for the 2023 Notes is as follows: $0.5 million, $1.7 million and $0.9 million for the remainder of 2019, 2020-2021 and 2022-2023, respectively.~~

We also borrowed the Solar Term Loan subsequent to June 30, 2019. The principal payment schedule for the Solar Term Loan is as follows: $0.0 million, $6.4 million, $30.8 million and $7.7 million for 2019, 2020-2021, 2022-2023 and after 2023, respectively. The interest payment schedule for the Solar Term Loan, based on the prevailing rate on such borrowings as of the date of the filing of this report, is as follows: $1.4 million, $8.1 million, $4.3 million and $0.2 million for 2019, 2020-2021, 2022-2023 and after 2023, respectively.

~~As described elsewhere in this report, we repaid all amounts outstanding under our~~ ~~Amended and Restated Loan and Security Agreement with Oxford and SVB with a portion of the procees from the Solar Term Loan.~~

~~Off‑Balance Sheet Arrangements~~

~~During three and six months ended June 30, 2019~~2020 we did not have ~~and we do not currently have,~~ any ~~off‑balance~~off-balance sheet arrangements as defined ~~under~~by SEC rules.

~~JOBS Act~~

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

At the end of the 2019 fiscal year, we will no longer be an emerging growth company and we will no longer be exempt from (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.

~~Critical Accounting Policies and Significant Judgments and Estimates~~

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

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may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

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

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

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of June 30, ~~2019,~~2020, we had cash, ~~and~~ cash equivalents, and restricted cash of ~~$65.3~~$21.6 million. We generally hold our cash in interest-bearing money market ~~accounts.~~accounts or short-term investments that meet our policy for cash equivalents. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. ~~Additionally, the interest rates on our 2025 Notes and 2023 Notes are fixed. The rate on borrowings under our Solar Term Loan is variable, subject to a minimum floor interest rate.~~ Due to the short-term maturities of our cash equivalents and the ~~minimum interest rate on the Solar Term Loan,~~low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our ~~results of operations.~~cash equivalents. The interest rates on our notes payable are all fixed. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.

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Foreign Currency Risk

The majority of our international sales are denominated in Euros. Therefore, our U.S. dollar value of sales is impacted by exchange rates versus the ~~dollar.~~Euro. Currency fluctuations or a strengthening U.S. dollar can decrease our revenue from these Euro-denominated international sales. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements, and we do not believe that the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have had a material impact on our operating results or financial condition. We do not currently engage in any hedging transactions to manage our exposure to foreign currency exchange rate risk.

In addition, the uncertainty that exists with respect to the economic impact of the global COVID-19 pandemic has introduced significant volatility in the financial markets subsequent to our quarter ended June 30, 2020, which could increase our foreign currency and interest rate risk.

ITEM 4: Controls and Procedures

Changes to Smaller Reporting Company Requirements

On March 12, 2020, the SEC voted to adopt amendments to the “accelerated filer” and “large accelerated filer” definitions in Rule 12b-2 under the Securities Exchange Act of 1934, or the Exchange Act. The amendments more appropriately tailor the types of issuers that are included in the categories of accelerated and large accelerated filers and promote capital formation, preserve capital, and reduce unnecessary burdens and compliance costs for certain smaller issuers while maintaining investor protections. As a result, certain low-revenue issuers will not be required to have their management’s assessment of the effectiveness of internal control over financial reporting, or ICFR, attested to, and reported on, by an independent auditor, as required by Section 404(b) of the Sarbanes-Oxley Act, or SOX. However, those issuers will remain obligated, among other things, to establish and maintain ICFR and, as required by SOX Section 404(a), have management assess the effectiveness of ICFR. Additionally, the amendments revise certain transition thresholds for accelerated and large accelerated filers and add an ICFR auditor attestation check box to the cover page of Form 10-K.

The 2019 fiscal year was the first year we were required to have an auditor’s attestation report on our system of ICFR pursuant to SOX. As a result of these amendments, we are no longer required to have our independent auditor attest to our ICFR. We expect material savings in our audit fees for 2020 as a result of this change, which become effective on April 27, 2020 and apply to our annual report on Form 10-K for the year ended December 31, 2020.

Evaluation of Disclosure Controls and Procedures

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

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~~company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.~~

~~In designing and evaluating our disclosure controls and procedures, management~~June 30, 2020. Management recognizes that ~~disclosure~~any controls and procedures, no matter how well ~~conceived~~designed and operated, can provide only reasonable ~~not absolute,~~ assurance ~~that the~~of achieving their objectives ~~of the disclosure controls~~ and ~~procedures are met. Additionally, in designing disclosure controls and procedures, our~~ management necessarily ~~was required to apply~~applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and ~~procedures. The design~~procedures are designed to provide reasonable assurance of ~~any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in~~ achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in asuch control ~~system, misstatements due to error or fraud may occur and not be detected.~~objectives. Based on the evaluation of our disclosure controls and procedures as of June 30, ~~2019,~~2020, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There ~~was~~were no ~~change~~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 June 30, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

ITEM 1: Legal Proceedings

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

ITEM 1A: Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Except as described below, our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~15, 2019.~~16, 2020, as amended on April 28, 2020.

~~Risks Related~~Our collaboration and commercialization agreement with Ascensia to market Eversense may not be successful.

We have entered into a collaboration and commercialization agreement with Ascensia, pursuant to which we have granted Ascensia the exclusive right to distribute Eversense worldwide, subject to initial exceptions based on our other current exclusive distribution agreements. Pursuant to this agreement, our future success will be dependent on Ascensia effectively marketing and selling Eversense. We expect that the substantial majority of our future revenue will come pursuant to this agreement in future years. If Ascensia fails to perform satisfactorily under this agreement, our commercialization efforts and financial results would be directly and adversely affected.

The agreement is terminable by Ascensia under a number of circumstances, including if Eversense XL is not approved in the United States by August 31, 2021 or if we undergo a change of control. The agreement is terminable by either party if the other party materially breaches its obligations under the agreement; provided, however, that if Ascensia is unable to achieve the specified minimum spending or revenue targets described above, then we will only have the right to covert Ascensia’s exclusive rights to nonexclusive rights, which may make it difficult for us to successfully engage with another commercial partner. The agreement is also terminable by either party if the other party undergoes bankruptcy, dissolution or winding up.

We cannot guarantee this agreement with Ascensia will be successful, that it will continue, or that we will be able to maintain any particular volume of sales under the agreement or increase the volume of sales from this relationship in the future.

Our ~~Indebtedness~~collaboration and commercialization agreement with Ascensia and the terms of our recent debt and preferred stock transactions may discourage a change of control of our company.

~~If holders~~The terms of ~~2023 Notes object~~our agreements with Ascensia and PHC may discourage a third party from acquiring, or attempting to ~~the amendment~~acquire, control of our company, even if a change of control was considered favorable by some or all of our stockholders. For example, because of the ~~2023 Notes indenture, it~~exclusivity of the distribution arrangements with Ascensia and the minimum five-year term of that exclusivity, prospective strategic acquirors may be unwilling to undertake an acquisition of our company. In addition, under the terms of the notes to be issued to PHC and the convertible preferred stock to be issued to MSS and, potentially, PHC, we would be required to make significant payments to redeem our these notes and to satisfy liquidation preference of our convertible preferred stock upon a change of control.

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 could materially affect our operations, including at 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.

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Our business could be adversely affected by health epidemics in regions where we have concentrations of clinical trial sites or other business operations and could cause significant disruption in the operations of third-party manufacturers and distributors upon whom we rely.

For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States and several European countries. Our headquarters is located in Maryland, and our contract manufacturers are located in Germany, the United Kingdom and the United States. Our distributors are located in the United States and various countries in Europe.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the U.S. government-imposed travel restrictions on travel between the United States, Europe and certain other countries. Further, the President of the United States declared the COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response. Similarly, the Governor of Maryland has issued an order closing all non-essential businesses, which took effect on March 23, 2020. Substantially all of our workforce is now working from home either all or substantially all of the time. The effects of the Maryland order and our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain. In particular, some of our suppliers of certain materials used in the production of our sensors and transmitters are located in Germany, the United Kingdom, China, Japan and the United States. For example, any manufacturing supply interruption of Eversense or future generation products, could adversely affect our ability to conduct planned clinical trials and commercialization activities.

Sales and demand for Eversense may be adversely affected by the global COVID-19 pandemic. Disruptions in the distributions of Eversense could result if patients are physically quarantined, if physicians restrict access to their facilities for a material period of time, if patients are unable or unwilling to visit health care providers, or if health care providers prioritize treatment of acute or communicable illnesses over diabetes management. We have begun to receive indications that insertions of Eversense have slowed during the pandemic, and this slowing could continue or worsen.

In addition, our clinical trials may be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

The global pandemic of COVID-19 continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, commercialization efforts, healthcare systems or the global economy as a whole. However, these effects could have a material ~~adverse effect~~impact on our ~~business and financial condition.~~

~~In connection with the Notes Offering,~~ we launched a consent solicitation to holders of the 2023 Notes seeking consent to amend the indenture related to the 2023 Notes to remove a restrictive covenant that limited our ability to incur additional indebtedness. On July 25, 2019, we received the requisite consents from holders of the 2023 Notes to amend the indenture related to the 2023 Notes and entered into a Second Supplemental Indenture to reflect the foregoing amendment. The holders that consented to the amendment of the indenture related to the 2023 Notes may have interests that may differ from other holders of the 2023 Notes, including the fact that certain of such holders purchased a portion of the 2025 Notesoperations, and we ~~repurchased their 2023 Notes with a portion of~~will continue to monitor the net proceeds of the Notes Offering. If the remaining holders of the 2023 Notes object to the entry into the Second Supplemental Indenture, they could challenge the issuance of the 2025 Notes and the borrowing of the Solar Term Loan. Any such challenge could divert management's attention from our day-to-day operations and could have a material adverse effect on our business and financial condition.

COVID-19 situation closely.

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Restrictive covenants under the indentures related to the 2023 Notes and the 2025 Notes, the Highbridge Loan Agreement, the Exchange Agreement and the ~~Solar Loan~~PHC Note Purchase Agreement may limit the manner in which we operate.

The indentures related to the 2023 Notes and the 2025 Notes, the Exchange Agreement, the Highbridge Loan Agreement and the ~~Solar Loan~~PHC Note Purchase Agreement contain, and any future indebtedness we incur may contain, various negative covenants that restrict, among other things, our ability to:

●

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

●

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

●

make investments or acquisitions;

●

create liens;

●

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

●

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

●

enter into transactions with affiliates;

●

sell, transfer or otherwise convey certain assets; and

●

prepay certain types of indebtedness.

In addition, the ~~Solar~~Highbridge Loan Agreement ~~has~~and the Exchange Agreement have minimum liquidity ~~and monthly net product revenue~~ requirements and the ~~Solar Term~~Highbridge Loan Agreement includes a covenant requiring the Company to operate within an approved budget. The PHC Note Purchase Agreement also contains covenants requiring us to operate within an approved budget and ~~other~~achieving minimum revenue and liquidity targets. Moreover, pursuant to our collaboration and commercialization agreement with Ascensia, we will have less ability to influence our revenues and ability to satisfy these revenue targets. Our obligations under the ~~Solar~~Highbridge Loan Agreement, the Exchange Agreement and the PHC Note Purchase Agreement are be secured by substantially all of our assets. As a result, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities, repurchase shares of our common stock or finance future operations or capital needs.

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

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our ~~control.~~control, including uncertainties related to the COVID-19 pandemic. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

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

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

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The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plan, upon the conversion of our convertible senior subordinated notes or otherwise will dilute our existing stockholders.

Our certificate of incorporation authorizes us to issue up to 450,000,000 shares of common stock and up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue our shares of common stock, including by conversion of our convertible notes, in certain circumstances, conversion of our convertible preferred stock, in connection with a financing, acquisition, investment, our equity incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

The holders of the convertible preferred stock will rank senior to our common stock upon a liquidation of our company.

In the event of a liquidation, dissolution or winding up of our company, our convertible preferred stock that we have agreed to issue pursuant to our stock purchase agreement with Masters, along with any convertible preferred stock that we may issue to PHC, will rank senior to our common stock. Each share of preferred stock will be entitled to receive an amount per share equal to the greater of the purchase price paid and the amount that the holder would have been entitled to receive at such time if the convertible preferred stock were converted into common stock.

Until the holders of the convertible preferred stock have been paid their liquidation amount in full, no payment will be made to any holder of common stock. If our assets, or the proceeds from their sale, distributable among the holders of the convertible preferred stock are not sufficient to pay the liquidation amount in full, then those assets or proceeds will be distributed among the holders of the convertible preferred stock. In that case, there would be no assets or proceeds remaining to be distributed to holders of our common stock, which could impact the trading price of our common stock.

Shares of our convertible preferred stock and the PHC Notes will be convertible into shares of our common stock and, upon conversion, will dilute your percentage of ownership.

Each share of our convertible preferred stock will be convertible at any time at the option of the holder into 1,000 shares of our common stock (subject to customary anti-dilution adjustments, including in the event of any stock split). In addition, under the terms of our convertible preferred stock purchase agreement with MSS, MSS has the option, subject to the receipt of stockholder approval to increase our authorized capital stock, to purchase up to an additional $27 million of convertible preferred stock having a conversion price per share equal to $0.476 per share of common stock (the closing price of our common stock on August 7, 2020), and we would expect such additional shares of preferred stock would be issued within approximately three months and no later than 150 days of the initial closing of the convertible preferred stock.

The PHC Notes will also be convertible into our common stock at the option of the holder. Accordingly, any conversion of convertible preferred stock or the PHC Notes would dilute the ownership of our holders of common stock. The potential dilutive effect of the conversion of shares of convertible preferred stock or convertible notes may also adversely affect our ability to obtain additional financing on favorable terms or at all.

Holders of the convertible preferred stock and convertible notes will have the ability exert substantial influence over us in a manner adverse to your interests.

Subject to maintaining specified ownership thresholds, the holders of convertible preferred stock and the PHC Notes will have the ability to designate, in the aggregate, up to three members of our board of directors.

The holders of convertible preferred stock generally will be entitled to vote with the holders of the shares of common stock on all matters submitted for a vote of holders of shares of common stock (voting together with the holders of shares of common stock as one class) on an as-converted basis. Additionally, certain matters will require the approval of the majority of the outstanding convertible preferred stock, voting as a separate class, including (i) altering or changing adversely the powers, privileges, preferences or rights of the convertible preferred stock, or (ii) amendments, modifications, repeal or waiver of any provision of our certificate of incorporation or of the certificate of designations that would adversely affect the rights, preferences, privileges or powers of the convertible preferred stock.

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As a result, the holders of our convertible preferred stock and the PHC Notes will be able to influence our decisions, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate transactions. Some of these persons or entities may have interests different the interests of the holders of our common stock.

We have a limited number of authorized shares of common stock available for issuance and will need to seek stockholder approval to amend our certificate of incorporation to either effect an increase in our authorized shares of common stock or a reverse stock split.

After giving effect to the expected issuance of the PHC Notes and the initial closing of the convertible preferred stock offering to MSS, we will have reserved substantially all of our remaining authorized and unissued shares of common stock for issuance pursuant to outstanding convertible or exercisable securities and for issuance under our equity compensation plans. Additionally, our ability to issue a portion of the shares of common stock potentially issuable in certain circumstances upon conversion of the PHC Notes and the second lien notes held by Highbridge, as well as our ability to sell additional shares of convertible preferred stock to MSS or PHC Holdings Corporation, or to engage in other financing transactions, including the utilization of our at the market trading facility, will be dependent upon our stockholders’ approval of an amendment to our certificate of incorporation to either increase our authorized common stock or effect a reverse stock split. We intend to seek this stockholder approval as promptly as practicable, and we intend to hold a special stockholders meeting for this purpose in the fourth quarter of 2020. There can be no guarantee that we will be successful in receiving stockholder approval to amend the certificate of incorporation, and if we are unable to do so, it would likely have a material adverse effect on our ability to raise capital, our ability to fund our ongoing business operations and the trading price of our common stock.

The future funding pursuant to agreements to sell convertible preferred stock to PHC and Masters and is not guaranteed.

We have entered into agreements with Masters and PHC that, collectively, provide for our receipt of up to $42 million of funding pursuant to the sale of convertible preferred stock to MSS and PHC. Pursuant to our agreement with PHC, we will have the option to sell and issue to PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon the receipt of any stockholder approval required by the listing rules of the NYSE American and our obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date. Additionally, on August 9, 2020, we entered into a Stock Purchase Agreement with Masters pursuant to which we agreed to issue and sell to Masters $3 million of shares of convertible preferred stock per share in an initial closing, and provided Masters with an option to purchase up to an additional $27 million of shares of convertible preferred stock in a subsequent closing, subject to the terms and conditions of the stock purchase agreement. Our ability to sell convertible preferred stock to either PHC or Masters will also depend on our receiving stockholder approval of an amendment to our certificate of incorporation to provide for additional authorized shares of common stock or effect a reverse stock split. Because of the contingencies of each transaction, there can be no guarantee that we will be able to sell the additional convertible preferred stock to either PHC or Masters. If we are unable to do so, we may be forced to seek to raise additional capital on less advantageous terms, if available at all, which would likely have a material adverse effect on our liquidity and the trading price of our common stock.

We may not be entitled to forgiveness of our recently received PPP Loan, and our application for the PPP Loan could in the future be determined to have been impermissible or could result in damage to our reputation.

On April 22, 2020 we received proceeds of $5.8 million from a loan under the Paycheck Protection Program of the CARES Act, a portion of which may be forgiven, which we intend to use to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures on April 21, 2022 and bears annual interest at a rate of 1.0%. A portion of the PPP Loan may be forgiven by the SBA upon our application within ten months of the deferral period ending, but not later than December 31, 2020. Monthly payments of interest and principal will be required once approval of forgiveness is obtained. Under the CARES Act, as amended by the Flexibility Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. Not more than 40% of the forgiven amount may be for non-payroll costs. The amount of the PPP Loan eligible to be forgiven is limited because of certain headcount reductions that we implemented in March 2020 and will be reduced if our full-time headcount declines further, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. We will be

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required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, in accordance with the amortization schedule described above, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA. Furthermore, on April 28, 2020, the Secretary of the U.S. Department of the Treasury stated that the SBA will perform a full review of any PPP loan over $2.0 million before forgiving the loan. In accordance with the Flexibility Act, PPP loans received prior to June 5, 2020 may be extended to a five-year maturity if both the lender and the recipient agree. There can be no assurances made that we will seek a term or if we ask for a five-year term, that it will be agreed upon and granted by the lender.

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act, as amended by the Flexibility Act. The certification described above does not contain any objective criteria and is subject to interpretation. On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. Subsequently, on April 29, 2020 the SBA issued guidance that it will review all PPP loans of more than $2 million, following the lender’s submission of the borrower’s loan forgiveness application. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that given our Company's circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan in its entirety. In addition, receipt of a PPP Loan may result in adverse publicity and damage to reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Should we be audited or reviewed by federal or state regulatory authorities as a result of filing an application for forgiveness of the PPP Loan or otherwise, such audit or review could result in the diversion of management’s time and attention and legal and reputational costs. If we were to be audited or reviewed and receive an adverse determination or finding in such audit or review, we could be required to return the full amount of the PPP Loan. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

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

Between April 28, 2020 and June 9, 2020, Highbridge voluntarily converted a total of $6.0 million of outstanding principal amount of the Second Lien Notes for 13,366,339 shares of common stock, which included prepayment premiums in accordance with the terms of the Second Lien Notes. These conversions were exempt from registration under the Securities Act pursuant to Section 3(a)(9) of the Securities Act as a conversion of securities by our existing security holders in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such conversion.

~~Not applicable.~~

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ITEM 3: Defaults Upon Senior Securities

Not applicable.

ITEM 4: Mine Safety Disclosures

Not applicable.

ITEM 5: Other Information

None.

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ITEM 6: Exhibits

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


Exhibit No.		Document
~~Exhibit No.~~		~~Document~~

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

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

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

10.1 +		~~Senseonics Holdings, Inc. Inducement Plan (incorporated herein~~Registration Rights Agreement, dated as of April 21, 2020, by ~~reference to Exhibit 10.1 to~~and between the ~~Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on June 5, 2019).~~

~~10.2+~~		~~Form of Stock Option Grant Notice~~Registrant, and ~~Stock Option Agreement used in connection with the Senseonics Holdings, Inc. Inducement Plan~~Highbridge Tactical Credit Master Fund, L.P. (incorporated herein by reference to Exhibit 10.2 to the Registrant’s ~~Current Report on~~ Form ~~8-K~~10-K/A (File No. 001-37717), filed with the Commission on ~~June 5, 2019)~~April 28, 2020).

10.2		Registration Rights Agreement, dated as of April 21, 2020, by and between the Registrant, and Highbridge Tactical Credit Master Fund, L.P. (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Form 10-K/A (File No. 001-37717), filed with the Commission on April 28, 2020).

10.3		Loan and Security Agreement among Wilmington Savings Fund Society, SCB as collateral agent, Highbridge Tactical Credit Master Fund, L.P., the Registrant and Senseonics, Incorporated dated as of April 21, 2020 (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form 10-K/A (File No. 001-37717), filed with the Commission on April 28, 2020).

10.4		Note Purchase and Exchange Agreement among Wilmington Savings Fund Society, SCB, as collateral agent, Highbridge Tactical Credit Master Fund, L.P., the Company and Senseonics, Incorporated dated as of April 21, 2020 (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Form 10-K/A (File No. 001-37717), filed with the Commission on April 28, 2020).

10.5		Form of Note representing the Registrant's Secured Promissory First Lien Notes (incorporated herein by reference to Exhibit 10.6 to the Registrant’s Form 10-K/A (File No. 001-37717), filed with the Commission on April 28, 2020).

10.6		Form of Note representing the Registrant's Secured Promissory Second Lien Notes (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Form 10-K/A (File No. 001-37717), filed with the Commission on April 28, 2020).

10.7		Form of Warrant to Purchase Common Stock issued to Highbridge Tactical Credit Master Fund, L.P. (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Form 10-K/A (File No. 001-37717), filed with the Commission on April 28, 2020).

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

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

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

101.INS*		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)

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~+Indicates management contract or compensatory plan.~~

*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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~~Table of Contents~~SIGNATURES

~~SIGNATURES~~

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


	SENSEONICS HOLDINGS, INC.


Date: August ~~7, 2019~~10, 2020	By:	/s/ ~~Jon Isaacson~~Nick B. Tressler
		~~Jon Isaacson~~Nick B. Tressler
		Chief Financial Officer
		(Principal Financial Officer)

4153


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenue, net	$	1,475	$	553	$	2,718	$	931
Revenue, net - related parties		3,132		3,070		5,312		5,638
Cost of sales		9,160		3,839		15,893		7,147
Gross profit		(4,553)		(216)		(7,863)		(578)

Expenses:
Sales and marketing expenses		14,179		6,177		27,013		9,618
Research and development expenses		10,504		8,289		17,612		16,402
General and administrative expenses		5,417		5,382		11,933		9,393
Operating loss		(34,653)		(20,064)		(64,421)		(35,991)
Other income (expense), net:
Interest income		410		241		1,037		425
Interest expense		(1,965)		(2,236)		(3,999)		(4,007)
Change in fair value of derivative liability		4,889		(10,166)		6,961		(15,013)
Other income (expense)		245		(271)		(17)		(183)
Total other income (expense), net		3,579		(12,432)		3,982		(18,778)

Net loss		(31,074)		(32,496)		(60,439)		(54,769)
Total comprehensive loss	$	(31,074)	$	(32,496)	$	(60,439)	$	(54,769)

Basic and diluted net loss per common share	$	(0.17)	$	(0.23)	$	(0.34)	$	(0.40)
Basic and diluted weighted-average shares outstanding		177,012,497		138,767,873		176,983,467		137,923,135


				Additional				Total
	Common Stock			Paid-In		Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit		Equity (Deficit)
Three months ended June 30, 2018:
Balance, March 31, 2018	137,240	$	137	$	272,787	$	(286,096)	$	(13,172)
Issued shares of common stock	37,341		38		149,058		—		149,096
Exercise of stock options for cash and warrants	900		1		433		—		434
Conversion of 2023 Notes	735		1		249		—		250
Stock-based compensation expense and vesting of RSUs	26		—		1,603		—		1,603
Net loss	—		—		—		(32,496)		(32,496)
Balance, June 30, 2018	176,242	$	177	$	424,130	$	(318,592)	$	105,715

Six months ended June 30, 2018:
Balance, December 31, 2017	136,883	$	137	$	270,953	$	(263,823)	$	7,267
Issued shares of common stock	37,341		38		149,058		—		149,096
Exercise of stock options and warrants	1,212		1		813		—		814
Conversion of 2023 Notes	735		1		249		—		250
Stock-based compensation expense and vesting of RSUs	71		—		3,057		—		3,057
Net loss	—		—		—		(54,769)		(54,769)
Balance, June 30, 2018	176,242	$	177	$	424,130	$	(318,592)	$	105,715

Three months ended June 30, 2019:
Balance, March 31, 2019	176,958	$	177	$	430,926	$	(387,159)	$	43,944
Exercise of stock options for cash and warrants	36		—		71		—		71
Stock-based compensation expense and vesting of RSUs	37		—		2,232		—		2,232
Net loss	—		—		—		(31,074)		(31,074)
Balance, June 30, 2019	177,031	$	177	$	433,229	$	(418,233)	$	15,173

Six months ended June 30, 2019:
Balance, December 31, 2018	176,918	$	177	$	428,878	$	(357,794)	$	71,261
Exercise of stock options	51		—		94		—		94
Stock-based compensation expense and vesting of RSUs	62		—		4,257		—		4,257
Net loss	—		—		—		(60,439)		(60,439)
Balance, June 30, 2019	177,031	$	177	$	433,229	$	(418,233)	$	15,173


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



Operating Lease Assets and Liabilities	Balance Sheet Classification	Amount
Assets
Operating lease ROU assets	Deposits and other assets	$	2,025
Liabilities
Current operating lease liabilities	Accrued expenses and other current liabilities	$	445
Non-current operating lease liabilities	Other non-current liabilities		1,674
Total operating lease liabilities		$	2,119


	Embedded
	Features of the
	2023 Notes
December 31, 2018	$	17,091
Change in fair value included in other income (expense)		(6,961)
June 30, 2019	$	10,130