Company Quick10K Filing
Senseonics Holdings
Price1.00 EPS-0
Shares203 P/E-2
MCap203 P/FCF-2
Net Debt12 EBIT-83
TEV215 TEV/EBIT-3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-09
10-Q 2020-06-30 Filed 2020-08-10
10-Q 2020-03-31 Filed 2020-06-09
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-15
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-13
10-Q 2017-09-30 Filed 2017-10-31
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-02-19
10-Q 2015-09-30 Filed 2015-11-13
10-K 2015-06-30 Filed 2015-09-18
10-Q 2015-03-31 Filed 2015-05-15
10-Q 2014-12-31 Filed 2015-02-17
10-Q 2014-09-30 Filed 2014-12-18
8-K 2020-11-11
8-K 2020-11-09
8-K 2020-10-22
8-K 2020-09-30
8-K 2020-09-15
8-K 2020-08-13
8-K 2020-08-09
8-K 2020-06-30
8-K 2020-06-09
8-K 2020-05-18
8-K 2020-05-07
8-K 2020-04-21
8-K 2020-04-21
8-K 2020-03-26
8-K 2020-03-22
8-K 2020-03-12
8-K 2019-12-12
8-K 2019-11-27
8-K 2019-11-12
8-K 2019-08-07
8-K 2019-07-25
8-K 2019-07-17
8-K 2019-07-16
8-K 2019-06-17
8-K 2019-05-30
8-K 2019-05-09
8-K 2019-03-12
8-K 2019-01-31
8-K 2019-01-07
8-K 2018-12-20
8-K 2018-11-30
8-K 2018-11-08
8-K 2018-06-25
8-K 2018-06-21
8-K 2018-05-30
8-K 2018-05-30
8-K 2018-05-10
8-K 2018-03-30
8-K 2018-03-13
8-K 2018-01-26
8-K 2018-01-25
8-K 2018-01-25

SENS 10Q Quarterly Report

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part Ii: Other Information
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2: Unregistered Sales of Equity and Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Mine Safety Disclosures
Item 5: Other Information
Item 6: Exhibits
EX-10.1 sens-20200930xex10d1.htm
EX-31.1 sens-20200930xex31d1.htm
EX-31.2 sens-20200930xex31d2.htm
EX-32.1 sens-20200930xex32d1.htm

Senseonics Holdings Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
2101641187226-202014201620182020
Assets, Equity
10.01.0-8.0-17.0-26.0-35.02015201620182020
Rev, G Profit, Net Income
1501127436-2-402014201620182020
Ops, Inv, Fin

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-37717

Senseonics Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

3841
(Primary Standard Industrial
Classification Code Number)

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

20451 Seneca Meadows Parkway

Germantown, MD 20876-7005

(301515-7260

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

SENS

NYSE American

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

There were 245,666,611 shares of common stock, par value $0.001, outstanding as of November 4, 2020.

Table of Contents

TABLE OF CONTENTS

PART I: Financial Information

ITEM 1: Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for three and nine months ended September 30, 2020 and 2019

4

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019

5

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

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

26

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

44

ITEM 4: Controls and Procedures

44

PART II: Other Information

45

ITEM 1: Legal Proceedings

45

ITEM 1A: Risk Factors

45

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

50

ITEM 3: Defaults Upon Senior Securities

50

ITEM 4: Mine Safety Disclosures

51

ITEM 5: Other Information

51

ITEM 6: Exhibits

51

SIGNATURES

52

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Senseonics Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

September 30, 

December 31, 

 

2020

2019

(unaudited)

Assets

    

    

Current assets:

Cash and cash equivalents

$

26,192

$

95,938

Restricted cash

200

Accounts receivable, net

250

3,239

Accounts receivable - related parties

251

7,140

Inventory, net

4,284

16,929

Prepaid expenses and other current assets

 

4,588

 

4,512

Total current assets

 

35,765

 

127,758

Purchase put option

4,224

Deposits and other assets

 

2,409

 

3,042

Property and equipment, net

 

1,665

 

2,001

Total assets

$

44,063

$

132,801

Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable

$

949

$

4,285

Accrued expenses and other current liabilities

 

9,153

 

18,636

Term Loans, net

43,434

2025 Notes, net

 

 

60,353

Total current liabilities

 

10,102

 

126,708

Long-term debt and notes payables, net

59,649

11,800

Derivative liabilities

 

24,590

 

664

Other liabilities

1,693

2,278

Total liabilities

 

96,034

 

141,450

Preferred stock and additional paid-in-capital, subject to possible redemption: $0.001 par value per share; 3,000 shares and 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019

2,811

Total temporary equity

2,811

Commitments and contingencies

Stockholders’ deficit:

Common stock, $0.001 par value per share; 450,000,000 shares authorized; 244,238,638 and 203,452,812 shares issued and outstanding as of September 30, 2020 and December 31, 2019

 

244

 

203

Additional paid-in capital

 

491,853

 

464,491

Accumulated deficit

 

(546,879)

 

(473,343)

Total stockholders' deficit

 

(54,782)

 

(8,649)

Total liabilities and stockholders’ deficit

$

44,063

$

132,801

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

 

Revenue, net

$

514

    

$

959

$

761

    

$

3,678

 

Revenue, net - related parties

253

3,360

303

8,671

Total revenue

767

4,319

1,064

12,349

Cost of sales

(68)

7,659

21,006

23,552

Gross profit (loss)

835

(3,340)

(19,942)

(11,203)

Expenses:

Sales and marketing expenses

3,234

 

11,560

 

17,521

 

38,573

Research and development expenses

4,568

 

11,076

 

15,726

 

28,688

General and administrative expenses

5,501

 

5,388

 

15,635

 

17,321

Operating loss

(12,468)

(31,364)

 

(68,824)

 

(95,785)

Other (expense) income, net:

Interest income

1

519

173

1,556

Loss on extinguishment and issuance of debt

(9,527)

 

(398)

 

(20,458)

 

(398)

Interest expense

(3,632)

(3,460)

(11,560)

(7,459)

Debt issuance costs

(931)

(3,344)

(1,216)

(3,344)

Gain on fair value and change in fair value of derivatives

3,520

19,186

29,069

26,147

Other expense

(391)

 

(638)

 

(720)

 

(655)

Total other (expense) income, net

(10,960)

11,865

(4,712)

15,847

Net loss

(23,428)

(19,499)

(73,536)

(79,938)

Total comprehensive loss

$

(23,428)

$

(19,499)

$

(73,536)

$

(79,938)

Basic and diluted net loss per common share

$

(0.10)

$

(0.10)

$

(0.33)

$

(0.43)

Basic and diluted weighted-average shares outstanding

236,519,812

 

197,223,419

 

220,250,060

 

183,804,257

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

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Senseonics Holdings, Inc.

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

(in thousands)

Additional

Total

 

Common Stock

Paid-In

Accumulated

Stockholders'

 

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity (Deficit)

 

Three months ended September 30, 2019:

Balance, June 30, 2019

177,031

$

177

$

433,228

$

(418,233)

$

15,172

Issuance of common stock

26,136

 

26

 

26,731

26,757

Exercise of stock options

179

Stock-based compensation expense and vesting of RSUs

20

 

 

2,194

2,194

Issuance of warrants related to debt

723

723

Net loss

 

 

(19,499)

(19,499)

Balance, September 30, 2019

203,366

$

203

$

462,876

$

(437,732)

$

25,347

Nine months ended September 30, 2019:

Balance, December 31, 2018

 

176,918

$

177

$

428,878

 

$

(357,794)

$

71,261

Issuance of common stock

26,136

 

26

 

26,731

 

 

26,757

Exercise of stock options

 

230

 

 

93

 

 

 

93

Stock-based compensation expense and vesting of RSUs

82

 

 

6,451

 

 

 

6,451

Issuance of warrants related to debt

723

723

Net loss

 

 

 

 

 

(79,938)

 

(79,938)

Balance, September 30, 2019

 

203,366

$

203

$

462,876

 

$

(437,732)

$

25,347

Three months ended September 30, 2020:

Balance, June 30, 2020

230,553

$

231

$

483,615

$

(523,451)

$

(39,605)

Exercise of stock options and ESPP purchases

1,188

 

1

 

76

77

Exchange and conversion of convertible notes, net

12,498

12

5,859

5,871

Stock-based compensation expense and vesting of RSUs

2,303

2,303

Net loss

 

 

(23,428)

(23,428)

Balance, September 30, 2020

244,239

$

244

$

491,853

$

(546,879)

$

(54,782)

Nine months ended September 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 and ESPP purchases

 

2,220

 

2

 

573

 

 

 

575

Exchange and conversion of convertible notes, net

38,391

39

20,082

20,121

Stock-based compensation expense and vesting of RSUs

 

 

 

5,581

 

 

 

5,581

Issuance of warrants related to debt, net

1,212

1,212

Net loss

 

 

 

 

 

(73,536)

 

(73,536)

Balance, September 30, 2020

 

244,239

$

244

$

491,853

 

$

(546,879)

$

(54,782)

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

Nine Months Ended

September 30, 

    

2020

    

2019

Cash flows used in operating activities

 

Net loss

$

(73,536)

$

(79,938)

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

Depreciation and amortization expense

 

853

 

335

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

 

7,200

 

6,798

Loss on extinguishment and issuance of debt

20,458

Change in fair value of derivatives

(29,069)

(26,147)

Stock-based compensation expense

 

5,581

 

6,452

Provision for inventory obsolescence and net realizable value

9,441

2,077

Non-cash lease expense

336

Loss on disposal of assets

181

Changes in assets and liabilities:

Accounts receivable

9,880

829

Prepaid expenses and other current assets

 

(77)

 

(877)

Inventory

3,204

(11,708)

Deposits and other assets

117

(4)

Accounts payable

 

(3,336)

 

(1,154)

Accrued expenses and other liabilities

(8,608)

3,998

Deferred revenue

(628)

Accrued interest

(877)

(908)

Operating lease liabilities

(586)

Other

 

 

(947)

Net cash used in operating activities

 

(59,174)

 

(101,486)

Cash flows used in investing activities

Capital expenditures

 

(181)

 

(951)

Net cash used in investing activities

 

(181)

 

(951)

Cash flows used in financing activities

Issuance of common stock, net

(87)

26,757

Proceeds from exercise of stock options and ESPP purchases

576

94

Proceeds from debt issuance, net of costs

 

55,971

 

Proceeds from 2025 Notes, net of cost

77,699

Proceeds from Solar term loan, net of cost

42,951

Proceeds from issuance of warrants, net of costs

723

Payments of notes payable

(66,050)

(15,000)

Cost of modification of Second Lien Notes

(601)

Repurchase of 2023 Notes

(37,000)

Net cash (used in) provided by financing activities

 

(10,191)

 

96,224

Net decrease in cash, cash equivalents and restricted cash

 

(69,546)

 

(6,213)

Cash, cash equivalents and restricted cash, at beginning of period

 

95,938

 

136,793

Cash, cash equivalents and restricted cash, at ending of period

$

26,392

$

130,580

Supplemental disclosure of cash flow information

Cash paid during the period for interest

$

5,600

$

4,200

Supplemental disclosure of non-cash investing and financing activities

Property and equipment purchases included in accounts payable and accrued expenses

$

$

182

Issuance of common stock converted from notes payables

$

300

$

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.

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Senseonics Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.

Organization and Nature of Operations

Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the development and commercialization of long-term, implantable continuous glucose monitoring (“CGM”) systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy.

Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings 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

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 suffered substantial operating losses, principally from expenses associated with the Company’s research and development 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 revenue from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability to successfully expand the commercialization of Eversense, continue the development of its products and product upgrades, and to obtain necessary regulatory approvals for the sale of those 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 2020 and beyond.

The Company generated a net loss of $73.5 million for the nine months ended September 30, 2020 and had an accumulated deficit of $546.9 million at September 30, 2020. During the nine months ended September 30, 2020, the Company repaid in full its term loan with Solar Capital Ltd. (“Solar”) in the amount of $48.4 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 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 issued $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 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 obtaining approval for the 180-day Eversense product for marketing in the United States before such date. 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 issued and sold 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 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, as amended as set forth in Note 13 – Subsequent Events.

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On April 24, 2020, the Company received $15.0 million through the issuance and sale of 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”). Upon the closing of the 2024 Notes, the Company prepaid the First Lien Notes in full in the amount of approximately $17.6 million, which includes the discounted prepayment premium pursuant to the Highbridge Loan Agreement.

In connection with the entry into the Highbridge Loan Agreement on April 24, 2020, the Company entered into a Note and Purchase Exchange Agreement with the Lenders, pursuant to which the Company’s senior convertible notes maturing on January 15, 2025 (the “2025 Notes”) were exchanged for (i) $15.7 million aggregate principal amount of newly issued Second Lien Secured Notes (the “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.

On April 22, 2020, the Company received $5.8 million in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus Aid, Relief, and 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.

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. Even with these transactions and that the potential subsequent closings contemplated by the transactions have not yet occurred, management’s doubt regarding its 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.

3.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Although the Company considers the disclosures in these unaudited consolidated financial statements to be adequate to make the information presented not misleading, certain information or footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the 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 September 30, 2020 and December 31, 2019, results of operations, comprehensive loss, and changes in stockholder’s equity (deficit) for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019 have been included. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 16, 2020, and amended on April 28, 2020. The interim results for September 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 revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements,

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estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. The Company considered COVID-19 related impacts to its estimates, as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates; however, management does not believe that such differences would be material.

Segment Information

The Company views its operations and manages its business in one segment, glucose monitoring products.

Comprehensive Loss

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

Cash and Cash Equivalents

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):

September 30, 

December 31,

    

    

2020

    

2019

 

Cash ¹

$

26,189

$

38,043

Money market funds

3

37,769

Commercial paper

13,870

Corporate bonds

6,256

Cash and cash equivalents

$

26,192

$

95,938

(1)Includes overnight repurchase agreements

Restricted Cash

The Company’s restricted cash includes pledged cash as collateral related to its credit card program with Silicon Valley Bank. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):

September 30, 

December 31,

    

    

2020

    

2019

Cash and cash equivalents

$

26,192

$

95,938

Restricted cash

200

Cash, cash equivalents and restricted cash

$

26,392

$

95,938

Long-lived Assets

Management reviews long-lived assets, including property and equipment and right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 assessment, the Company concluded the fair value of some of its property and equipment exceeded its carrying values and recognized an impairment of property and

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equipment in the amount of $0.2 million for the nine months ended September 30, 2020 that was recorded in the Company’s unaudited condensed consolidated statement of operations and comprehensive loss.

Warranty Obligation

The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual return management authorizations to revenue.

At September 30, 2020 and December 31, 2019, the warranty reserve was $1.1 million and $2.2 million, respectively. The decrease in warranty reserve balance was attributable to the decrease in warranty provisions during the period as a result of the temporary suspension of commercial sales of Eversense. The following table provides a reconciliation of the change in estimated warranty liabilities as of September 30, 2020 and December 31, 2019 (in thousands):

September 30, 

December 31,

    

2020

    

2019

Balance at beginning of the year

$

2,197

$

816

Provision for warranties during the period

104

3,296

Settlements made during the period

(1,211)

(1,915)

Balance at end of the year

$

1,090

$

2,197

Revenue

The Company recognizes revenue in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition, 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, 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 revenue from sales of its Eversense CGM system and related components 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.

Revenue is recognized, at a point in time, when the Customers obtain control of the product based upon the delivery terms as defined in the 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

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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.

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 to its Customers in accordance with the Eversense Bridge Program initiated in March 2019 and to 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 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 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 are under the 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 Customers but not provided to a patient within the same reporting period are recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. 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 September 30, 2020 and 2019, the Company derived 33% and 78% of its total revenue, respectively, from one customer, Roche Diabetes Care GmbH (“Roche”). For the nine months ended September 30, 2020 and 2019, the Company derived 29% and 70% of its total revenue, respectively, from one customer, Roche. During the three and nine months ended September 30, 2020, Roche did not place commercial sales orders in accordance with their quarterly requirements or towards their annual binding minimum requirements for sensors. Revenues for these corresponding periods in 2020 represent purchases for transmitters and miscellaneous Eversense system components.

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