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

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those 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, 2015, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2016.

Overview

We were originally incorporated as ASN Technologies, Inc. in Nevada on June 26, 2014. On December 4, 2015, we were reincorporated in Delaware and changed our name to Senseonics Holdings, Inc. Also, on December 4, 2015, we entered into a merger agreement with Senseonics, Incorporated and SMSI Merger Sub, Inc., or the Merger Agreement, to acquire Senseonics, Incorporated. Senseonics, Incorporated was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. The transactions contemplated by the Merger Agreement were consummated on December 7, 2015, referred to herein as the Acquisition. Pursuant to the terms of the Merger Agreement, (i) all issued and outstanding shares of Senseonics, Incorporated's preferred stock were converted into shares of Senseonics, Incorporated common stock, $0.01 par value per share, or the Senseonics Shares, (ii) all outstanding Senseonics Shares were exchanged for 57,739,953 shares of our common stock, $0.001 par value per share, or the Company Shares, reflecting an exchange ratio of one Senseonics Share for 2.0975 Company Shares, or the Exchange Ratio, and (iii) all outstanding options and warrants to purchase Senseonics Shares, or the Senseonics Options and Senseonics Warrants, respectively, were each exchanged or replaced with options and warrants to acquire shares of our common stock, or the Company Options and Company Warrants, respectively. Accordingly, Senseonics, Incorporated became our wholly-owned subsidiary.

Following the closing of the Acquisition, the business of Senseonics, Incorporated became our sole focus and all of our operations following the closing of the Acquisition consist of the historical Senseonics, Incorporated business. 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 (i) Senseonics, Incorporated prior to the closing of the Acquisition, and (ii) Senseonics Holdings, Inc. and its subsidiaries subsequent to the closing of the Acquisition and all share and per share information in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section gives retroactive effect to the exchange of Senseonics Shares, Senseonics Options and Senseonics Warrants for Company Shares, Company Options and Company Warrants, respectively, in the Acquisition, as well as the corresponding exercise price adjustments for the such options and warrants.

We are a medical technology company focused on the design, development and commercialization of glucose monitoring systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. Our first generation continuous glucose monitoring, or CGM, system, Eversense, is a reliable, long ‑term, implantable CGM system that we have designed to continually and accurately measure glucose levels in

people with diabetes for a period of up to 90 days, as compared to five to seven days for currently available CGM systems. We believe Eversense 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 European pivotal clinical trial, we observed that Eversense measured glucose levels over 90 days with a degree of accuracy comparable or superior to that of other currently available CGM systems.

Corporate History

From our founding in 1996 until 2010, we devoted substantially all of our resources to researching various sensor technologies and platforms. Beginning in 2010, we narrowed our focus to designing, developing and refining a commercially viable glucose monitoring system. On May 10, 2016, we received regulatory approval to commercialize Eversense in Europe. In June 2016, we made our first product shipment of Eversense through our distribution agreement with Rubin Medical, or Rubin. Since our inception, we have funded our activities primarily through equity and debt financings.

In March 2016, we completed a public offering of our common stock, or the Offering, selling 15,800,000 shares of common stock at a price to the public of $2.85 per share, for aggregate gross proceeds of $45.0 million. Net cash proceeds from the Offering were approximately $40.9 million, after deducting underwriting discounts and commissions and estimated Offering-related transaction costs payable by us. In April 2016, the underwriters for the Offering partially exercised their option to purchase additional shares of common stock, purchasing an additional 1,439,143 shares, from which we received additional net cash proceeds of approximately $3.9 million, after deducting underwriting discounts and commissions and estimated Offering-related transaction costs payable by us.

On June 30, 2016 we entered into an Amended and Restated Loan and Security Agreement with Oxford Finance LLC, or Oxford, and Silicon Valley Bank, or SVB, to potentially borrow up to an aggregate principal amount of $30.0 million. Under the terms of the agreement, we initially borrowed an aggregate of $15 million from Oxford and SVB on June 30, 2016. We used $11 million of the $15 million to retire existing loans with Oxford, including a final payment fee of $1 million. The agreement also permits us to borrow up to an additional $15 million upon the achievement of specified milestones, and the funding of specific tranches under the agreement, through the end of 2017. The agreement provides for monthly payments of interest only for a period of 12 months, followed by an amortization period of 36 months. However, if we satisfy certain milestones and borrow an additional $10 million under the agreement, the interest only period will be extended by an additional six months and the amortization period will be 30 months  

We have never been profitable and out net losses were $11.9 million and $7.2 million for the three months ended June 30, 2016 and 2015, respectively, and $23.1 million and $12.9 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, our accumulated deficit totaled $183.9 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. We expect to continue to incur significant expenses and increasing operations and net losses for the foreseeable future.

European Commercialization of Eversense

In July 2015, we applied for, and in May 2016, we received our CE mark, which allows us to market and sell Eversense in Europe. In connection with our CE Mark, we have agreed to conduct post market surveillance activities. In June 2016 we commenced commercialization of Eversense in Sweden through our distribution agreement with Rubin, which also has the right to distribute Eversense in Norway and Denmark. Rubin markets and sells medical products for diabetes treatment in the Scandinavian region, including as the exclusive Scandinavian distributor for the insulin pump manufacturer Animas Corporation.

In May 2016 we entered into a distribution agreement with Roche Diabetes Care. This agreement provides Roche Diagnostics International AG and Roche Diabetes Care GmbH, together referred to as Roche, pursuant to which we granted Roche the exclusive right to market, sell and distribute Eversense in Germany, Italy and the Netherlands . Roche is a pioneer in the development of blood glucose monitoring systems and a global leader for diabetes management

systems and services. We expect to begin distributing Eversense through Roche in Germany in the third quarter of 2016 and Italy and the Netherlands in the fourth quarter of 2016.

United States Development of Eversense

We recently completed our 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 are also assessing safety through 90 days after insertion or sensor removal.

During the trial, 75 subjects underwent unilateral sensor insertions and 15 subjects underwent bilateral sensor insertions in the clinic on day 1 and used Eversense’s smart transmitter and mobile app at home for the next 90 days.  Subjects were blinded to the real-time glucose readings and trends during home-use and sensor readings were not used to adjust their treatment. Clinic visits were scheduled at approximately 30-day intervals in order to obtain lab reference glucose values for comparison with the sensor values and to evaluate hyperglycemic and hypoglycemic challenges in a controlled setting.

In the trial, we observed a mean absolute relative difference, or MARD, of 8.8% across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period.  We intend to apply for regulatory approval by the fourth quarter of 2016 to market our product in the United States. We expect that the PMA process could take between six and 18 months. For commercialization in the United States, we intend to distribute our product through our own direct sales and marketing organization.

We expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. In addition, we expect that our expenses will increase substantially as we continue the research and development of our other products and maintain, expand and protect our intellectual property portfolio and seek regulatory approvals in other jurisdictions. Furthermore, we expect to 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 may need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to develop and commercialize Eversense and future products and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.

Financial Overview

Revenue

During the three months ended June 30, 2016, we generated product revenue from sales of the Eversense system in Europe pursuant to a distribution agreement with Rubin, and we expect to begin marketing Eversense in Norway and Denmark pursuant to the Rubin agreement in the second half of 2016. Additionally we expect to market Eversense in Germany, Italy and the Netherlands pursuant to our distribution agreement with Roche beginning in the second half of 2016. We expect our revenue from European product sales will increase as we ramp up our commercialization efforts in 2016 and 2017. In the future, subject to regulatory approval, we also intend to seek to commercialize Eversense in the United States, as well as other international markets, including Canada, Australia and Israel. If we fail to successfully commercialize or are otherwise unable to complete the development of Eversense, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.

Cost of Sales

We utilize contract manufacturers for the production of Eversense. Cost of sales consists primarily of the components of Eversense, as well as reserves for warranty costs and distribution-related expenses such as logistics and shipping costs.

We calculate gross margin as revenue less costs of sales divided by revenue. We expect our overall gross margin to improve over the long term, as our sales increase and we have more opportunities to spread our costs over larger production volumes. However, our gross margins may fluctuate from period to period.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and other related costs, including stock ‑based compensation, for personnel who perform sales and marketing functions. Other significant costs include promotional materials and tradeshow expenses.

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

Research and Development

The largest component of our total operating expenses has historically been research and development expenses. Research and development expenses consist of expenses incurred in performing research and development activities in developing Eversense, including our clinical trials and future product enhancements. Research and development expenses include compensation and benefits for research and development employees including stock ‑based compensation, overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to contract research organizations and other consultants, and other outside expenses. Research and development costs are expensed as incurred.

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

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 functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

We anticipate that our general and administrative expenses will increase in the future as a result of operating as a public company. These increases will 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-MKT listing rules and SEC requirements, insurance, and investor relations costs. These expenses may further increase when we no longer qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, which will require us to comply with certain reporting requirements from which we are currently exempt.

Other Income (Expense), Net

Interest income consists of interest earned on our cash equivalents and interest expense primarily consists of interest expense on the secured notes, or the Notes, we issued to Oxford in connection with our original Loan and Security Agreement in July and December 2014 and the Notes we issued to Oxford and SVB in connection with our Amended and Restated Loan and Security Agreement in June 2016. We refer to Oxford and SVB together as the Lenders. This interest expense primarily consists of (i) contractual interest on the Notes, (ii) amortization of debt discount related to warrants, or the warrants, that we issued to the Lenders in connection with the Notes, and (iii) the accrual into interest expense of a final payment obligation that we are required to pay to the Lenders at maturity of the Notes.

Other income (expense) for the three and six months ended June 30, 2015 primarily includes the change in the fair value of the warrant liability during the particular period, which results from the marking to market at the end of every reporting period of the fair value of the warrant liability related to warrants issued to Oxford. In December 2015, in

connection with the Acquisition, the warrants were amended. As a result, the warrants were reclassified from a liability to equity and will no longer be marked to market and, therefore, will not impact other income (expense) in future periods.

Revenue

Our revenue was $18,825 and $22,500 for the three months ended June 30, 2016 and 2015, respectively. Our revenue during the three months ended June 30, 2016 resulted from our first shipment of the Eversense product to Rubin, our third-partydistributor, for distribution in Sweden. Our revenue for the three months ended June 30, 2015 consisted of grant revenue for delivery of sensors for a National Health Institute grant from the University of California Santa Barbara. We do not expect to generate any future revenue from this source.

Cost of sales

Our costs of sales was $33,849 and $0 for the three months ended June 30, 2016 and 2015, respectively. Our cost of sales for the three months ended June 30, 2016 resulted from the initial manufacturing and distribution of our first shipment of the Eversense product to Rubin for distribution in Sweden.

Gross profit decreased to $(15,024) in the three months ended June 30, 2016 from $22,500 in the three months ended June 30, 2015, a decrease of $37,524. Gross profit as a percentage of revenue, or gross margin, decreased to (79.8)% in the three months ended June 30, 2016, compared to 100% in the three months ended June 30, 2015 as a result of our initial product launch and no cost of sales being recognized for our unrelated 2015 grant revenue.

Sales and marketing expenses

Sales and marketing expenses were $0.6 million for the three months ended June 30, 2016, compared to $0.3 million for the three months ended June 30, 2015, an increase of $0.3 million. The $0.3 million increase was primarily due to the salaries, bonuses and payroll-related expenses for additional headcount, as we supported our European commercial launch of Eversense.

Research and development expenses

Research and development expenses were $7.5 million for the three months ended June 30, 2016, compared to $5.2 million for the three months ended June 30, 2015, an increase of $2.3 million. The increase was primarily due to an increase in product development expenses of $1.2 million related to development of future versions of Eversense, a $0.4 million increase in additional salaries, bonus and payroll-related expenses, a $0.6 million increase related to our U.S. pivotal trial, and a $0.1 million increase in other costs, primarily the purchase of lab supplies to support research and development.

General and administrative expenses

General and administrative expenses were $3.4 million for the three months ended June 30, 2016, compared to $1.5 million for the three months ended June 30, 2015, an increase of $1.9 million. The increase was primarily due to a $0.8 million increase in salaries, bonuses and payroll-related expenses for additional headcount and an increase in legal expenses of $0.5 million to support our operations as a public company, a $0.2 million increase in occupancy expenses related to our expanded facilities, and a $0.4 million increase in other expenses to support administration.

Total other expense, net

Total other expense, net, for each of the three months ended June 30, 2016 and 2015 was $0.3 million, consisting primarily of interest expense on our debt facilities.

Revenue

Our revenue was $18,825 and $37,500 for the six months ended June 30, 2016 and 2015, respectively. Our revenue during the six months ended June 30, 2016 resulted from our first shipment of Eversense to Rubin, our third-

party distributor, for distribution in Sweden. Our revenue for the six months ended June 30, 2015 consisted of grant revenue for delivery of sensors for a National Health Institute grant from the University of California Santa Barbara. We do not expect to generate any future revenue from this source.

Cost of Sales

Our cost of sales was $33,849 and $0 for the six months ended June 30, 2016 and 2015, respectively. Our Cost of sales for the six months ended June 30, 2016 resulted from the initial manufacturing and distribution of our first shipment of the Eversense product to Rubin for distribution in Sweden.

Gross profit decreased to $(15,024) in the six months ended June 30, 2016 from $37,500 in the six months ended June 30, 2015, a decrease of $52,524. Gross margin, decreased to (79.8)% in the six months ended June 30, 2016, compared to 100% in the six months ended June 30, 2015 as a result of our initial product launch and no cost of sales being recognized for our unrelated 2015 grant revenue.

Sales and marketing expenses

Sales and marketing expenses were $1.3 million for the six months ended June 30, 2016, compared to $0.6 million for the six months ended June 30, 2015, an increase of $0.7 million. The $0.7 million increase was primarily due to a $0.6 million increase in salaries, bonuses and payroll related costs for additional headcount, and a $0.1 million increase in other sales and marketing expenses, as we supported our European commercial launch of Eversense.

Research and development expenses

Research and development expenses were $14.0 million for the six months ended June 30, 2016, compared to $8.9 million for the six months ended June 30, 2015, an increase of $5.1 million. The increase was primarily due to an increase in product development expenses of $2.8 million related to the development of future versions of Eversense, a $0.3 million increase in manufacturing expenses as we launched Eversense in Sweden, a $0.9 million increase in additional salaries, bonus and payroll related costs, a $0.8 million increase related to our U.S. pivotal trial, and a $0.3 million increase in other costs, primarily the purchase of lab supplies to support research and development.

General and administrative expenses

General and administrative expenses were $7.2 million for the six months ended June 30, 2016, compared to $2.9 million for the six months ended June 30, 2015, an increase of $4.3 million. The increase was primarily due to a $2.2 million increase in salaries, bonuses and payroll related costs for additional headcount and an increase in legal expenses of $0.9 million to support our operations as a public company, a $0.4 million increase in occupancy expenses related to our expanded facilities, and a $0.8 million increase in other expenses to support administration.

Total other expense, net

Total other expense, net, for each of the six months ended June 30, 2016 and 2015 was $0.6 million, consisting primarily of interest expense on our debt facilities.

Liquidity and Capital Resources

Sources of Liquidity

From our inception in 1996 until 2010, we devoted substantially all of our resources to researching various sensor technologies and platforms. Beginning in 2010, we narrowed our focus to designing, developing and refining a commercially viable glucose monitoring system. However, 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 out net losses were $11.9 million and $7.2 million for the three months ended June 30, 2016 and 2015, respectively, and $23.1 million and $12.9 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, our accumulated deficit totaled $183.9 million.

To date, we have funded our operations principally through the issuance of preferred stock, common stock and debt. As of June 30, 2016, we had cash and cash equivalents of $36.2 million. Currently, our funds are primarily held in money market funds consisting of U.S. government ‑backed securities.

Our ability to generate revenue and achieve profitability depends on our completion of the development of Eversense and future product candidates and obtaining of 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 2016 and beyond. Upon the completion of the audit of our financial statements for the three months ended June 30, 2016, we did not have sufficient cash to fund our operations through December 31, 2016 without additional financing and, therefore, we concluded there was substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph regarding this uncertainty in its report on those financial statements.

On March 23, 2016, we closed the Offering of our common stock. Additionally, we closed on the partial exercise by the underwriters of the Offering on their option to purchase additional shares on April 5, 2016. As a result of these events, we received aggregate net proceeds of $44.8 million (after deducting underwriters’ discounts and commissions of $2.7 million and additional offering related costs of $1.4 million). In June 2016, we entered into a debt facility with the Lenders. Under this debt facility, we initially borrowed an aggregate of $15 million from the Lenders on June 30, 2016. We used $11 million of the $15 million to retire existing loans with Oxford, including a final payment fee of $1 million. The debt facility also permits us to borrow up to an additional $15 million upon the achievement of specified milestones, and the funding of specific tranches under the agreement, through the end of 2017.

We expect our existing capital resources as of June 30, 2016 will enable us to fund our operations through the third quarter of 2017. We have based this estimate on assumptions, including that we will meet the conditions to borrow the full remaining $15 million of additional borrowing under our debt facility, that may prove to be wrong, and we could require additional capital resources sooner than we expect.

Indebtedness

On June 30, 2016, we entered into an Amended and Restated Loan and Security Agreement with the Lenders. Pursuant to the Amended and Restated Loan and Security Agreement, we may potentially borrow up to an aggregate principal amount of $30.0 million in the following four tranches: $15.0 million, or the Tranche 1 Term Loan; $5.0 million, or the Tranche 2 Term Loan; $5.0 million, or the Tranche 3 Term Loan; and $5.0 million, or the Tranche 4 Term Loan.  We refer to each of the tranches as 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, we issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million, or the Notes, on June 30, 2016. We used approximately $11.0 million from the proceeds from the Notes to repay the outstanding balance under our previously existing Loan and Security Agreement with Oxford, dated as of July 31, 2014, including the applicable final payment fee due thereunder of $1 million. We may borrow the Tranche 2 Term Loan on or before December 31, 2016 if the Lenders confirm that we received positive data in our U.S. pivotal trial of Eversense, and we file a pre-market approval, or PMA, application for Eversense in the United States with the FDA. We may borrow the Tranche 3 Term Loan on or before April 30, 2017 if we borrow the Tranche 2 Term Loan and complete the first commercial sale of our second-generation transmitter in the European Union. We may borrow the Tranche 4 Term Loan on or before December 31, 2017 if we borrow the Tranche 2 and Tranche 3 Term Loans, receive PMA approval from the FDA for Eversense, and achieve trailing six-month revenue for the applicable period of measurement of at least $4.0 million. The maturity date for all Term Loans is June 1, 2020 (the “Maturity Date”).

The Term Loans bear interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consist of interest-only. After twelve months, the monthly payments will convert to payments of principal and monthly accrued interest, with the principal amount being amortized over the ensuing 36 months. However, if we borrow the Tranche 2 Term Loan and the Tranche 3 Term Loan, the interest-only period will be extended by an additional six months, and the amortization period will be shortened to 30 months.

We may elect to prepay all Term Loans prior to the Maturity Date subject to a prepayment fee equal to 3.00% if

the prepayment occurs within one year of the funding date of any Term Loan, 2.00% if the prepayment occurs during the second year following the funding date of any Term Loan, and 1.00% if the prepayment occurs more than two years after the funding date of any Term Loan and prior to the Maturity Date. 

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

Pursuant to the Amended and Restated Loan and Security Agreement, we also issued to the Lenders 10 ‑year stock purchase warrants to purchase an aggregate of 116,581 shares of common stock with an exercise price of $3.86 per share.

The Notes are collateralized by all of our consolidated assets other than our intellectual property. The Notes also contain certain restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. We incurred issuance costs related to the Notes of approximately $568,648 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 $304,113, was recorded as a discount to the Notes, which is also being amortized as additional interest expense over the term of the Notes using the effective interest method.

At maturity (or earlier prepayment), we are 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. In the event that we achieve the requirements to borrow the Tranche 3 Term Loan or the Tranche 4 Term Loan, and elect not to borrow either tranche, we are obligated to pay the Lenders a non-utilization fee of 2.00% of the undrawn amounts.

On December 7, 2015, we entered into a Note Purchase Agreement with Energy Capital pursuant to which we were entitled to borrow an aggregate principal amount of up to $10.0 million, or the Energy Capital note, subject to the conditions specified in the Note Purchase Agreement. During the six months ended June 30, 2016, we borrowed an aggregate of $2.5 million from Energy Capital. We repaid these borrowings in full with a portion of the proceeds of the Offering prior to June 30, 2016, and the Note Purchase Agreement was terminated.

Net cash used in operating activities

Net cash used in operating activities was $17.7 million for the six months ended June 30, 2016, and consisted primarily of a net loss of $23.1 million partially offset by stock ‑based compensation expense of $1.1 million,

depreciation and non-cash interest expense of $0.1 million, and a net change in assets and liabilities of $4.2 million (consisting of an increase in accounts payable, accrued expenses and interest, and deferred rent of $4.3 million, net of decreases in prepaid expenses, inventory, deposits and other assets of $0.1 million).

Net cash used in operating activities was $10.5 million for the six months ended June 30, 2015, and consisted primarily of a net loss of $12.9 million, partially offset by stock-based compensation expense of $0.5 million and a net change in assets and liabilities of $1.7 million (consisting of an increase in accrued expenses and accounts payable of $1.5 million and an increase in accrued interest of $0.2 million).

Net cash used in investing activities

Net cash used in investing activities was $0.4 million for the six months ended June 30, 2016, and consisted of capital expenditures for laboratory equipment and leasehold improvements.

Net cash used in investing activities was $0.1 million for the six months ended June 30, 2015 and consisted entirely of capital expenditures for laboratory equipment.

Net cash provided by financing activities

Net cash provided by financing activities was $50.3 million for the six months ended June 30, 2016, and consisted primarily of the net proceeds received from the Offering of $46.1 million and notes payable of $4.2 million.

Net cash provided by financing activities was $19,000 for the six months ended June 30, 2015, and consisted primarily of the proceeds from the exercise of stock options.

Off ‑Balance Sheet Arrangements

During the three and six months ended June 30, 2016 we did not have, and we do not currently have, any off ‑balance sheet arrangements, as defined under SEC rules.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period 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.

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 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 GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

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, 2015 included in our final prospectus filed on March 18, 2016 with the SEC pursuant to Rule 424(b)(4) of the Securities Act of 1933, as amended.

U.S. dollar appreciates, products sales could be adversely impacted, as our products will become more expensive to the customers of our distributors. We do not currently engage in any hedging transactions to manage our exposure to foreign currency exchange rate risk.

1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on February 19, 2016 . 

Risks Related to our Financial Results and Need for Financing

Our future capital needs are uncertain and we may need to raise substantial additional funds in the future, and these funds may not be available on acceptable terms or at all. A failure to obtain this necessary capital when needed could force us to delay, limit, scale back or cease some or all operations.

At the time that the audit of our financial statements for the year ended December 31, 2015 was completed, we did not have sufficient cash to fund our operations through the end of 2016 without additional financing and, therefore, we concluded there was substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph regarding this uncertainty in its report on those financial statements. At December 31, 2015, we had approximately $3.9 million in cash and cash equivalents, and we had insufficient committed sources of additional capital to fund our operations as described in our Annual Report for the year ended December 31, 2015, for more than a limited period of time. Even though we raised net proceeds of $44.8 million in our public offering and have established an expanded debt facility that provides additional borrowing capacity if we satisfy certain funding conditions, we will need to access additional funds before we become financially self-sustaining through cash flow from operations. Although we believe our existing capital resources will be sufficient to fund our operations through the third quarter of 2017, we will need to secure additional funding in the future. The continued growth of our business, including the establishment of our sales and marketing infrastructure, and research and development activities will significantly increase our expenses. In addition, the amount of our future product sales is difficult to predict and actual sales may not be in line with our expectations. As a result, we may be required to seek substantial additional funds in the future. Our future capital requirements will depend on many factors, including:

As a result of these and other factors, we do not know whether and the extent to which we may be required to raise additional capital. We may in the future seek additional capital from public or private offerings of our capital stock, borrowings under credit lines or other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaborations, licensing, joint ventures, strategic alliances, partnership arrangements or other similar arrangements, it may be necessary to relinquish valuable rights to our potential future products or proprietary technologies, or grant licenses on terms that are not favorable to us.

If we are unable to raise additional capital, we may not be able to establish and expand our sales and marketing infrastructure, enhance Eversense or future versions of Eversense, take advantage of future opportunities, or respond to competitive pressures, changes in supplier relationships, or unanticipated changes in customer demand. Moreover, we may be unable to meet our obligations under the Amended and Restated Loan and Security Agreement or other agreements, which could result in an acceleration of our obligation to repay all amounts owed thereunder, and we may be forced to liquidate our assets. In such a scenario, the values we receive for our assets in liquidation or dissolution could

be significantly lower than the values reflected in our financial statements. Any of these events could adversely affect our ability to achieve our strategic objectives, which could negatively effect on our business, financial condition and operating results.

We may not be able to generate sufficient cash to service our indebtedness, which currently consists of our term loan with the Lenders. In addition, although we potentially have the ability to borrow additional funds under the Amended and Restated Loan and Security Agreement, we may be unable to borrow those additional funds or we may be unable to generate sufficient cash to service any additional indebtedness that we do incur.

In June 2016, we issued secured Notes to Oxford and SVB in a private placement for aggregate gross proceeds of $15.0 million, pursuant to a Term Loan under our Amended and Restated Loan and Security Agreement that matures on June 1, 2020 .   We used approximately $11.0 million from the proceeds from the Notes to repay the outstanding balance under our previously existing Loan and Security Agreement with Oxford, dated as of July 31, 2014, including the applicable final payment fee due thereunder of $1 million. Our obligations under the Amended and Restated Loan and Security Agreement are secured by a first priority security interest in substantially all of our assets, other than our intellectual property. Our Amended and Restated Loan and Security Agreement with the Lenders also contains certain restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. We were in compliance with the affirmative and restrictive cov enants as of June 30, 2016. We may also enter into other debt agreements in the future which may contain similar or more restrictive terms.

In addition, pursuant to the Amended and Restated Loan and Security Agreement, we may also have the ability to borrow up to an aggregate of an additional $15 million upon the achievement of specified milestones, and the funding of specific tranches under the agreement, through the end of 2017. We will not be able to borrow the additional $15 million under the Amended and Restated Loan and Security Agreement if we do not achieve the specified milestones.

Our ability to make scheduled monthly payments or to refinance our debt obligations depends on numerous factors, including the amount of our cash reserves and our actual and projected financial and operating performance. These amounts and our performance are subject to certain financial and business factors, as well as prevailing economic and competitive conditions, some of which may be beyond our control. We cannot assure you that we will maintain a level of cash reserves or cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our existing or future indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, or that these actions would permit us to meet our scheduled debt service obligations. Failure to comply with the conditions of the Amended and Restated Loan and Security Agreement could result in an event of default, which could result in an acceleration of amounts due under the Amended and Restated Loan and Security Agreement. We may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and the Lenders could seek to enforce security interests in the collateral securing such indebtedness, which would have a material adverse effect on our business.

Risks Related to our Common Stock

An active trading market for our common stock may not continue to develop or be sustained.

Prior to our public offering in March 2016, there was no liquid market for our common stock. Although our common stock is listed on The NYSE-MKT, we cannot assure you that an active trading market for our shares will continue to develop or be sustained. If an active market for our common stock does not continue to develop or is not sustained, it may be difficult for investors in our common stock to sell shares without depressing the market price for the shares or to sell the shares at all.

The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plan, or otherwise will dilute our existing stockholders.

Our certificate of incorporation authorizes us to issue up to 250,000,000 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 or securities convertible into our common stock from time to time 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.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.

There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change of control was considered favorable by some or all of our stockholders. For example, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change of control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.

Our charter documents also contain other provisions that could have an anti-takeover effect, including:

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change of control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

We have broad discretion in the use of proceeds from our recent public offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

We have broad discretion over the use of proceeds from our recent public offering. You may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. Our failure to apply the net proceeds effectively could compromise our ability to pursue our strategy and we might not be able to yield a significant return, if any, on our investment of these net proceeds. Stockholders will not have the opportunity to influence our decisions on how to use the net proceeds from the public offering.

We will incur increased costs and demands upon management as a result of being a public company.

As a newly public company in the United States, we have begun to incur, and will continue to incur, significant additional legal, accounting and other costs, particularly after we cease to be an “emerging growth company.” These additional costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the NYSE-

MKT, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.

Failure to establish and maintain an effective system of disclosure controls or internal controls could result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations or fail to prevent fraud in which case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the stock market on which our common stock is listed. The Sarbanes-Oxley Act requires, among other things, that we evaluate and report on the effectiveness of our disclosure controls and procedures and internal control over financial reporting. Commencing with our fiscal year ending December 31, 2016, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. To date, we have never been required to test our internal controls within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner. In addition, we may identify material weaknesses in our internal control over financial reporting that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our future reporting obligations.

Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports or help prevent fraud. Our failure to achieve and maintain effective internal control over financial reporting could prevent us from filing our periodic reports on a timely basis which could result in the loss of investor confidence in the reliability of our financial statements, harm our business and negatively impact the trading price of our common stock.

Our executive officers, directors and principal stockholders will maintain the ability to control all matters submitted to stockholders for approval.

Our executive officers, directors and stockholders who own more than 5% of our outstanding common stock beneficially own shares representing a majority of our capital stock. As a result, if these stockholders were to act

together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in management of our company that our public stockholders disagree with.  

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.

The shares sold in our recent public offering are freely tradable without restriction by stockholders who are not our affiliates. In addition, 18,000,108 additional shares held by legacy ASN Technologies stockholders, including Energy Capital LLC, SBLE, LLC and Kato Consulting, LLC, are not subject to lock-up agreements and are freely tradable without restriction. Of our outstanding shares, 20,000 shares that were outstanding before the Acquisition are "restricted securities" as defined in Rule 144. In the Acquisition, we issued an aggregate of 57,739,953 shares of our common stock to the former Senseonics, Incorporated stockholders pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act, and such shares are also "restricted securities" as defined in Rule 144. These restricted securities may be publicly resold under Rule 144 beginning on December 10, 2016.

In addition, we have filed a registration statement on Form S-8 registering the issuance of approximately 27 million shares of common stock subject to options, and reserved for issuance, under our equity incentive plans. Shares registered under this registration statement on Form S-8 are available for sale in the public market subject to vesting arrangements and exercise of options and the restrictions of Rule 144 in the case of our affiliates.

Additionally, the holders of an aggregate of up to 55,300,420 shares of our common stock, or their transferees, have rights, subject to some conditions, to require us to file one or more registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. If we were to register the resale of these shares, they could be freely sold in the public market. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. As a newly public company, we have only limited research coverage by securities or industry analysts. Securities or industry analysts may elect not to initiate or continue to provide coverage of our common stock, and such lack of coverage may adversely affect the market price of our common stock. Even if we have securities or industry analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more securities or industry analysts downgrade our stock or issue other unfavorable commentary or research. If one or more securities or industry analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

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

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action

asserting a claim for breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.