UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 001-37717
Senseonics Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 3841 | 47-1210911 |
20451 Seneca Meadows Parkway
Germantown, MD 20876-7005
(301) 515-7260
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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.
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 465,447,258 shares of common stock, par value $0.001, outstanding as of August 5, 2022.
TABLE OF CONTENTS
2
Senseonics Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
June 30, | December 31, |
| |||||
2022 | 2021 | ||||||
(unaudited) | |||||||
Assets |
|
| |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 45,425 | $ | 33,461 | |||
Short term investments, net | 93,758 | 96,445 | |||||
Accounts receivable, net | 220 | 205 | |||||
Accounts receivable, net - related parties | 3,824 | 1,768 | |||||
Inventory, net | 7,251 | 6,316 | |||||
Prepaid expenses and other current assets |
| 7,818 |
| 6,218 | |||
Total current assets |
| 158,296 |
| 144,413 | |||
Option | 1,085 | 239 | |||||
Deposits and other assets |
| 3,347 |
| 1,086 | |||
Long term investments, net | 11,334 | 51,882 | |||||
Property and equipment, net |
| 1,263 |
| 1,308 | |||
Total assets | $ | 175,325 | $ | 198,928 | |||
Liabilities and Stockholders’ Equity (Deficit) | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 1,734 | $ | 1,204 | |||
Accrued expenses and other current liabilities |
| 10,731 |
| 10,667 | |||
Accrued expenses and other current liabilities- related parties | 3,692 | 3,597 | |||||
Note payable, current portion, net | 14,874 | — | |||||
Derivative liability, current portion | 438 | — | |||||
Term Loans, net | — | 2,926 | |||||
Total current liabilities |
| 31,469 |
| 18,394 | |||
Long-term debt and notes payables, net | 50,650 | 59,798 | |||||
Derivative liabilities |
| 54,737 |
| 236,291 | |||
Option | 19,476 | 69,401 | |||||
Other liabilities | 3,052 | 579 | |||||
Total liabilities |
| 159,384 |
| 384,463 | |||
Commitments and contingencies | |||||||
Stockholders’ equity (deficit): | |||||||
Common stock, $0.001 par value per share; 900,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 465,326,135 shares and 447,282,263 shares and as of June 30, 2022 and December 31, 2021 |
| 465 |
| 447 | |||
Additional paid-in capital |
| 776,640 |
| 765,215 | |||
Accumulated other comprehensive loss | (1,128) | (212) | |||||
Accumulated deficit |
| (760,036) |
| (950,985) | |||
Total stockholders' equity (deficit) |
| 15,941 |
| (185,535) | |||
Total liabilities and stockholders’ equity (deficit) | $ | 175,325 | $ | 198,928 | |||
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 Income (Loss)
(in thousands, except share and per share data)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenue, net | $ | 137 | 433 | $ | 429 | $ | 920 | |||||
Revenue, net - related parties | 3,577 | 2,856 | 5,767 | 5,215 | ||||||||
Total revenue | 3,714 | 3,289 | 6,196 | 6,135 | ||||||||
Cost of sales | 2,890 | 2,897 | 4,845 | 5,217 | ||||||||
Gross profit | 824 | 392 | 1,351 | 918 | ||||||||
Expenses: | ||||||||||||
Research and development expenses | 9,299 |
| 7,107 | 17,103 | 12,362 | |||||||
Selling, general and administrative expenses | 8,561 |
| 9,175 | 16,445 |
| 15,762 | ||||||
Operating loss | (17,036) |
| (15,890) | (32,197) |
| (27,206) | ||||||
Other income (expense), net: | ||||||||||||
Interest income | 241 | 247 | 334 | 256 | ||||||||
Gain (Loss) on fair value adjustment of option | 28,224 | (35,730) | 49,925 | (88,405) | ||||||||
Gain on extinguishment of debt and option | — | — | — | 330 | ||||||||
Interest expense | (4,510) | (4,034) | (9,005) | (8,092) | ||||||||
Gain (Loss) on change in fair value of derivatives | 96,548 | (124,361) | 181,117 | (305,260) | ||||||||
Net gain (impairment) | 816 | (381) | 846 | (1,163) | ||||||||
Other expense | (52) | (157) | (71) | (280) | ||||||||
Total other income (expense), net | 121,267 | (164,416) | 223,146 | (402,614) | ||||||||
Net Income (Loss) | 104,231 | (180,306) | 190,949 | (429,820) | ||||||||
Other comprehensive loss | ||||||||||||
Unrealized loss on marketable securities | (291) | (16) | (916) | (16) | ||||||||
Total other comprehensive loss | (291) | (16) | (916) | (16) | ||||||||
Total comprehensive income (loss) | $ | 103,940 | $ | (180,322) | $ | 190,033 | $ | (429,836) | ||||
Basic net income (loss) per common share | $ | 0.22 | (0.42) | $ | 0.42 | $ | (1.08) | |||||
Basic weighted-average shares outstanding | 464,133,903 | 431,840,854 | 460,061,022 | 398,244,296 | ||||||||
Diluted net income (loss) per common share | $ | (0.03) | (0.42) | $ | (0.06) | $ | (1.08) | |||||
Diluted weighted-average shares outstanding | 601,330,959 | 431,840,854 | 604,342,540 | 398,244,296 | ||||||||
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 | Accumulated | Total |
| Series A | |||||||||||||||||
Common Stock | Paid-In | Other | Accumulated | Stockholders' |
| Convertible | |||||||||||||||
| Shares |
| Amount |
| Capital |
| Comprehensive Loss | Deficit | Equity (Deficit) |
| Preferred Stock Temporary Equity |
| |||||||||
Three months ended June 30, 2021: | |||||||||||||||||||||
Balance, March 31, 2021 | 427,915 | 428 | 711,698 | — | (898,025) | (185,899) | $ | — | |||||||||||||
Issuance of common stock, net | 12,831 | 13 | 48,340 | — | — | 48,353 |
| — | |||||||||||||
Exercise of stock options and warrants | 1,588 | 1 | 2,190 | — | — | 2,191 | — | ||||||||||||||
Issued common stock for vested RSUs and ESPP purchase | 2,791 | 3 | — | — | — | 3 | — | ||||||||||||||
Stock-based compensation expense | — | — | 3,034 | — | — | 3,034 | — | ||||||||||||||
Net loss | — | — | — | — | (180,306) | (180,306) | — | ||||||||||||||
Other comprehensive loss, net of tax | — | — | — | (16) | — | (16) | — | ||||||||||||||
Balance, June 30, 2021 | 445,125 | $ | 445 | $ | 765,262 | $ | (16) | $ | (1,078,331) | $ | (312,640) | $ | — | ||||||||
Six months ended June 30, 2021: | |||||||||||||||||||||
Balance, December 31, 2020 |
| 265,582 | 266 | 504,162 | — | (648,511) | (144,083) | $ | 2,811 | ||||||||||||
Issuance of convertible preferred stock, net | — | — | — | — | 42,756 | ||||||||||||||||
Conversion of preferred stock | 54,166 | 54 | 45,512 | — | — | 45,566 | (45,567) | ||||||||||||||
Issuance of common stock, net | 112,571 | 113 | 200,327 | — | — | 200,440 | — | ||||||||||||||
Exercise of stock options and warrants |
| 5,027 | 4 | 3,885 | — | — | 3,889 | — | |||||||||||||
Exchange and conversion of convertible notes, net | 4,925 | 5 | 6,496 | — | — | 6,501 | — | ||||||||||||||
Issued common stock for vested RSUs and ESPP purchase | 2,854 | 3 | 47 | — | — | 50 | — | ||||||||||||||
Stock-based compensation expense | — | — | 4,833 | — | — | 4,833 | — | ||||||||||||||
Net loss | — | — | — | — | (429,820) | (429,820) | — | ||||||||||||||
Other comprehensive loss, net of tax |
| — | — | — | (16) | — | (16) | — | |||||||||||||
Balance, June 30, 2021 |
| 445,125 | $ | 445 | $ | 765,262 |
| $ | (16) | $ | (1,078,331) | $ | (312,640) | $ | — | ||||||
Three months ended June 30, 2022: | |||||||||||||||||||||
Balance, March 31, 2022 | 463,229 | 463 | 775,172 | (837) | (864,267) | (89,469) | — | ||||||||||||||
Exercise of stock options and warrants | 127 | — | 68 | — | — | 68 | — | ||||||||||||||
Issued common stock for vested RSUs and ESPP purchase | 3,063 | 3 | (2) | — | — | 1 | — | ||||||||||||||
Stock-based compensation expense | — | — | 2,585 | — | — | 2,585 | — | ||||||||||||||
Shares withheld related to net share settlement of equity awards | (1,093) | (1) | (1,183) | — | — | (1,184) | — | ||||||||||||||
Net income | — | — | — | — | 104,231 | 104,231 | — | ||||||||||||||
Other comprehensive loss, net of tax | — | — | — | (291) | — | (291) | — | ||||||||||||||
Balance, June 30, 2022 | 465,326 | $ | 465 | $ | 776,640 | $ | (1,128) | $ | (760,036) | $ | 15,941 | $ | — | ||||||||
Six months ended June 30, 2022: | |||||||||||||||||||||
Balance, December 31, 2021 | 447,282 | 447 | 765,215 | (212) | (950,985) | (185,535) | — | ||||||||||||||
Issuance of common stock |
| 3,077 | 3 | 8,001 | — | — | 8,004 | — | |||||||||||||
Exercise of stock options and warrants |
| 9,211 | 9 | 230 | — | — | 239 | — | |||||||||||||
Issuance of common stock for vested RSUs and ESPP purchase | 6,849 | 7 | 56 | — | — | 63 | — | ||||||||||||||
Stock-based compensation expense | — | — | 4,321 | — | — | 4,321 | — | ||||||||||||||
Shares withheld related to net share settlement of equity awards |
| (1,093) | (1) | (1,183) | — | — | (1,184) | — | |||||||||||||
Net income | — | — | — | — | 190,949 | 190,949 | — | ||||||||||||||
Other comprehensive loss, net of tax |
| — | — | — | (916) | — | (916) | — | |||||||||||||
Balance, June 30, 2022 |
| 465,326 | $ | 465 | $ | 776,640 |
| $ | (1,128) | $ | (760,036) | $ | 15,941 | $ | — | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended | |||||
June 30, | |||||
2022 | 2021 | ||||
Cash flows from operating activities |
| ||||
Net income (loss) | $ | 190,949 | (429,820) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||
Depreciation and amortization expense |
| 520 | 612 | ||
Non-cash interest expense (debt discount and deferred costs) |
| 5,726 | 3,327 | ||
Change in fair value of derivatives | (181,117) | 305,260 | |||
(Gain) Loss on fair value adjustment of option | (49,925) | 88,405 | |||
Gain on extinguishment of debt and option | — | (330) | |||
(Gain) Impairment of option, net | (846) | 1,163 | |||
Stock-based compensation expense |
| 4,321 | 4,721 | ||
Changes in assets and liabilities: | |||||
Accounts receivable | (2,070) | 196 | |||
Prepaid expenses and other current assets |
| (1,600) | (761) | ||
Inventory | (934) | (3,535) | |||
Deposits and other assets | 163 | (30) | |||
Accounts payable |
| 530 | 1,269 | ||
Accrued expenses and other liabilities | 44 | (1,325) | |||
Accrued interest | (102) | 441 | |||
Net cash used in operating activities |
| (34,341) | (30,407) | ||
Cash flows from investing activities | |||||
Capital expenditures |
| (211) | (47) | ||
Sale of marketable securities | 42,319 | (145,271) | |||
Net cash provided by (used in) investing activities |
| 42,108 |
| (145,318) | |
Cash flows from financing activities | |||||
Issuance of common stock, net | 8,004 | 200,440 | |||
Proceeds from exercise of stock options, stock warrants and ESPP purchases | 302 | 4,051 | |||
Taxes paid related to net share settlement of equity awards | (1,183) | — | |||
Proceeds from issuance of Masters preferred stock, net |
| — | 22,783 | ||
Repayment of term loans | (2,926) | — | |||
Net cash provided by financing activities |
| 4,197 |
| 227,274 | |
Net increase in cash and cash equivalents |
| 11,964 |
| 51,549 | |
Cash and cash equivalents, at beginning of period |
| 33,461 | 18,205 | ||
Cash and cash equivalents, at ending of period | $ | 45,425 | $ | 69,754 | |
Supplemental disclosure of cash flow information | |||||
Cash paid during the period for interest | $ | 3,381 | $ | 4,310 | |
Lease liabilities arising from obtaining right-of-use assets | 2,944 | — | |||
Supplemental disclosure of non-cash investing and financing activities | |||||
Issuance of common stock converted from preferred shares | — | 54,166 | |||
Issuance of common stock converted from notes payables | — | 4,925 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Senseonics Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. | Organization and Nature of Operations |
Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the development and commercialization of long-term, implantable continuous glucose monitoring (“CGM”) systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy.
Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings, Inc. and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings, Inc. and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.
2. | Liquidity and Capital Resources |
From its founding in 1996 until 2010, the Company has devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the Company narrowed its focus to developing and refining a commercially viable glucose monitoring system. However, to date, the Company has not generated any significant revenue from product sales. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996. The Company has never been profitable from operations, and its net losses were $302.5 million, $175.2 million, and $115.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of June 30, 2022, the Company had an accumulated deficit of $760.0 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, convertible notes and debt. As of June 30, 2022, the Company had cash, cash equivalents and marketable securities of $150.5 million.
In November 2021, the Company entered into an Open Market Sale Agreement, (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as its sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the six months ended June 30, 2022, the Company received $8.0 million in net proceeds from the sale of 3,077,493 shares of its common stock under the 2021 Sales Agreement.
In November 2019, the Company entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which the Company could offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Jefferies as its sales agent in an “at the market” offering. In June 2021, the Company received $48.4 million in net proceeds from the sale of 12,830,333 shares of its common stock utilizing the full capacity under the 2019 Sales Agreement.
On January 21, 2021, the Company entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the United States Securities and Exchange Commission (“the SEC”) (the “2021 Public Offering”). The price to the public in the 2021 Public Offering was $1.925 per share of common stock. The Underwriters agreed to purchase the shares from the Company pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the 2021 Public Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of common stock. Total net proceeds from the 2021 Public Offering were $106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.
7
On January 17, 2021, the Company entered into a Securities Purchase Agreement with certain institutional purchasers (the “Purchasers”), pursuant to which the Company sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50.0 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the SEC on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by the Company, were approximately $46.1 million.
On November 9, 2020, the Company entered into an Equity Line Agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that the Company have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, at its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provides that the Company shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there have been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital has the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. There have been no issuances of Series B Preferred Stock as of June 30, 2022.
On August 9, 2020, the Company entered into a financing agreement with the parent company of Ascensia Diabetes Care Holdings AG (“Ascensia”), PHC Holdings Corporation (“PHC”), pursuant to which the Company issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC. The Company also issued 2,941,176 shares of common stock to PHC as a financing fee. The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining 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 Solutions, LLC and certain affiliates thereof (collectively, “Masters”), pursuant to which the Company issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $1,000 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds to the Company of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All shares of Series A Preferred Stock have been converted to common stock.
8
Note 3.Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Although the Company considers the disclosures in these unaudited consolidated financial statements to be adequate to make the information presented not misleading, certain information or footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the SEC. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position at June 30, 2022, and December 31, 2021, results of operations, comprehensive income (loss), and changes in stockholder’s deficit for the three and six month periods ended June 30, 2022, and 2021 and cash flows for the six months ended June 30, 2022, and 2021 have been included. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022. The interim results for June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any future interim periods.
The consolidated financial statements reflect the accounts of Senseonics Holdings, Inc. and its wholly owned operating subsidiary Senseonics, Incorporated. The Company views its operations and manages its business in one segment, glucose monitoring products. Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
Certain prior year amounts have been reclassified to conform to the current-year presentation. An adjustment has been made to the Consolidated Statements of Operations and Comprehensive Income (Loss) to consolidate the line items Sales and marketing expenses and General and administrative expenses to Selling, general and administrative expenses in order to conform to current year presentation. These reclassifications had no effect on the reported results of operations.
Recent Accounting Pronouncements
Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). This new guidance is intended to reduce the complexity of accounting for convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either partial retrospective or fully retrospective method of transition. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2022 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company currently holds investments in available-for-sale securities. The Company has not historically experienced collection issues or bad debts with trade receivables. Accordingly, the Company does not expect this to have a significant impact on its
9
consolidated financial statements and related disclosures at this time. The Company will adopt this guidance on the effective date for smaller reporting companies, January 1, 2023.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. The Company considered COVID-19 related impacts to its estimates, as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.
Significant Accounting Policies
The accounting policies used by the Company in its presentation of interim financial results are consistent with those presented in Note 3 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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4. Revenue Recognition
The Company generates product revenue from sales of the Eversense system and related components and supplies to Ascensia, through a collaboration and commercialization agreement (the “Ascensia Commercialization Agreement”, third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively, “the Customers”), who then resell the products to health care providers and patients. Customers pay the Company for sales, regardless of whether or not the Customers resell the products to health care providers and patients. The Company’s policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.
Revenue by Geographic Region
The following table sets forth net revenue derived from the Company’s two primary geographical markets, the United States and outside of the United States, based on the geographic location to which the Company delivers the product, for the three and six months ended June 30, 2022 and 2021:
Three Months Ended | Six Months Ended | ||||||||||
June 30, 2022 | June 30, 2022 | ||||||||||
% | % | ||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | |||||||
Revenue, net: | |||||||||||
Outside of the United States | $ | 2,507 | 67.5 | % | $ | 4,222 | 68.1 | % | |||
United States | 1,207 | 32.5 | 1,974 | 31.9 | |||||||
Total | $ | 3,714 | 100.0 | % | $ | 6,196 | 100.0 | % | |||
Three Months Ended | Six Months Ended | ||||||||||
June 30, 2021 | June 30, 2021 | ||||||||||
% | % | ||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | |||||||
Revenue, net: | |||||||||||
Outside of the United States | $ | 2,310 | 70.2 | % | $ | 4,843 | 78.9 | % | |||
United States | 979 | 29.8 | 1,292 | 21.1 | |||||||
Total | $ | 3,289 | 100.0 | % | $ | 6,135 | 100.0 | % | |||
Contract Assets
Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia Commercialization Agreement. Accounts receivable as of June 30, 2022 and December 31, 2021 included unbilled accounts receivable of $1.1 million and $1.8 million, respectively. The Company expects to invoice and collect all unbilled accounts receivable within 12 months.
Concentration of Revenue and Customers
For the three months ended June 30, 2022 and 2021, the Company derived 96% and 87%, respectively, of its total revenue from one customer, Ascensia. For the six months ended June 30, 2022 and 2021, the Company derived 93% and 85%, respectively, of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.
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5. Net Income (Loss) per Share
Basic net income per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents. Basic net loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.
Potentially dilutive common shares consist of shares issuable from restricted stock units, warrants and the Company’s convertible notes. Potentially dilutive common shares issuable upon vesting of restricted stock units and exercise of stock options and warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Company’s convertible notes are determined using the if converted method. In periods of net loss, all potentially dilutive common shares are excluded from the computation of the diluted net loss per share for those periods, as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net income per share for the periods shown:
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For the three and six months ended June 30, 2021, the Company operated at a loss. Accordingly, all potentially dilutive shares were considered antidilutive, and basic and diluted EPS are the same.
Outstanding anti-dilutive securities not included in the diluted net income per share attributable to common stockholders calculations were as follows:
6. | Marketable Securities |
Marketable securities available for sale, were as follows (in thousands):
December 31, 2021 | ||||||||||||
Gross | Gross | Estimated | ||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||
| Cost |
| Gains |
| Losses |
| Value | |||||
Commercial Paper | $ | 57,369 | — | — | $ | 57,369 | ||||||
Corporate debt securities | $ | 39,825 | — | (77) | $ | 39,748 | ||||||
Asset backed securities | $ | 26,736 | — | (29) | $ | 26,707 | ||||||
Government and agency securities | $ | 24,609 | — | (106) | $ | 24,503 | ||||||
Total | $ | 148,539 | $ | — | $ | (212) | $ | 148,327 | ||||
The following are the scheduled maturities as of June 30, 2022 (in thousands):
2022 (remaining six months) |
| $ | 32,775 |
2023 |
| 62,013 | |
2024 | 6,591 | ||
Thereafter | 4,841 | ||
Total |
| $ | 106,220 |
The Company periodically reviews its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For debt securities where the fair value of the investment is less than the amortized cost basis, the Company assesses at the individual security level, for various quantitative factors including,
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but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment. Unrealized losses on available-for-sale securities at June 30, 2022 were not significant and were primarily due to changes in interest rates and not due to increased credit risk associated with specific securities. The Company does not intend to sell these impaired investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
7. Inventory, net
Inventory, net of reserves, consisted of the following (in thousands):
| June 30, |
| December 31, | |||
2022 |
| 2021 | ||||
Finished goods |
| $ | 1,020 |
| $ | 1,012 |
Work-in-process |
| 4,705 |
| 3,770 | ||
Raw materials |
| 1,526 |
| 1,534 | ||
Total | $ | 7,251 | $ | 6,316 | ||
The Company charged $0.6 million to cost of sales for the three and six months ended June 30, 2022, to reduce the value of inventory for items that are potentially obsolete due to expiry, in excess of product demand, or to adjust costs to their net realizable value. There was no corresponding charge for the three and six months ended June 30, 2021.
8. Prepaid Expenses, Other Current Assets, and Deposits and other assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| (1) | Includes deposits to contract manufacturers for manufacturing process. |
Deposits and other assets as of June 30, 2022 and December 31, 2021, were $3.3 million and $1.1 million, respectively. As of June 30, 2022, deposits and other assets is mainly comprised of $3.2 million for our right-of-use asset related to our operating lease of 33,000 square feet of research and office space for our corporate headquarters. In June 2022, the Company extended our lease for an additional five-year term. We recorded a modification to our right-of-use asset for the right-to-use the underlying asset for the additional lease term.
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9. | Accrued Expenses, Other Current Liabilities, and Other Liabilities |
Accrued expenses and other current liabilities consisted of the following (in thousands):
Other liabilities as of June 30, 2022 and December 31, 2021, were $3.1 million and $0.6 million, respectively. Other liabilities is comprised of the non-current portion of our operating lease liability for our corporate headquarters. In June 2022, the Company extended our lease for an additional five-year term. We recorded a modification to the lease liability upon renewal to reflect our obligation to make the additional lease payments.
10. | Product Warranty Obligations |
The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual replacements to revenue.
At June 30, 2022, and December 31, 2021, the warranty reserve was $0.8 million and $0.7 million, respectively. The following table provides a reconciliation of the change in estimated warranty liabilities for the six months ended June 30, 2022 and for the twelve months ended December 31, 2021 (in thousands):
11. | Notes Payable, Preferred Stock and Stock Purchase Warrants |
Term Loans
PPP Loan
On April 22, 2020, the Company received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured
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loan (the “PPP Loan”) was evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).
Under the terms of the PPP Note and the PPP Loan, interest accrued on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note was two years. In April 2022, the Company repaid the outstanding principal and accrued interest in full.
Convertible Preferred Stock and Warrants
On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $12.0 million of shares of the Company’s Series B Preferred Stock at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including the Company having less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, at sole discretion, to present Energy Capital with a Regular Purchase Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at the Purchase Price equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provides that the Company shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there have been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital has the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. There have been no issuances of Series B Preferred Stock as of June 30, 2022.
The Company accounted for the Equity Line Agreement as a put/call option (the “Energy Capital Option”). This put/call option is classified as a liability in accordance with ASC 480, Distinguishing liabilities from equity, on the Company’s balance sheet and was recorded at the estimated fair value of $4.2 million upon issuance. The put/call option is required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense). In connection with the execution of the Equity Line Agreement, the Company incurred $7.6 million in debt issuance costs in fiscal year 2020. The fair value of the Energy Capital Option as of June 30, 2022 and December 31, 2021 was $19.5 million and $69.4 million, respectively.
Concurrently with entry into the Equity Line Agreement, the Company issued a warrant to Energy Capital, exercisable beginning on May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share (the “Warrant”). The Warrant was exercised in full in February 2022.
On August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters, pursuant to which the Company issued and sold Masters 3,000 shares of Series A Preferred Stock, at a price of $1,000 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All 25,783 shares of Series A Preferred Stock have been converted to shares of common stock. Masters’ option to purchase the remaining unissued shares of Series A Preferred Stock expired on January 11, 2021, resulting in a gain on extinguishment of $3.5 million.
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Convertible Notes
PHC Notes
On August 9, 2020, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PHC, as the purchaser (together with the other purchasers from time to time party thereto, the “Note Purchasers”) and Alter Domus (US) LLC, as collateral agent. Pursuant to the Note Purchase Agreement, the Company borrowed $35.0 million in aggregate principal through the issuance and sale of the PHC Notes on August 14, 2020 (the “Closing Date”). The Company also issued 2,941,176 shares of its common stock, $0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date. The Financing Fee Shares are accounted for as debt discount in the amount of $1.5 million.
The PHC Notes are senior secured obligations of the Company and will be guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at the Company’s option, payment in kind. The interest rate decreased to 8.0% in April 2022 as a result of the Company having obtained FDA approval for the 180-day Eversense E3 system for marketing in the United States. The maturity date for the PHC Notes is October 31, 2024 (the “Maturity Date”). The obligations under the PHC Notes are secured by substantially all of the Company’s and its subsidiary’s assets.
The Note Purchasers are entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes (including any interest added thereto as payment in kind), equivalent to a conversion price of approximately $0.54 per share, subject to specified anti-dilution adjustments, including adjustments for the Company’s issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its PHC Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue such shares.
Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by the Company if the closing sale price of the common stock exceeds 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes are redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at least six months prior to the Maturity Date or a call premium of 125% if redeemed within six months of the Maturity Date.
The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Note Purchase Agreement also contains customary events of default, after which the PHC Notes become due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross defaults to certain other agreements, judgments against the Company, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.
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 (the “PHC Option”), which was initially contingent upon obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date, and which approval the Company successfully obtained in February 2022. The PHC Option represents a freestanding financial instrument and is recognized as an asset in the Company’s consolidated balance sheets at fair value on the date of issuance and subject to
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impairment testing in each reporting period prior to the options exercise or expiration. The Company acknowledges that while the PHC Option is subject to impairment testing, there is no explicit guidance regarding how impairment should be assessed and measured for the PHC Option. As such, the measurement alternative in ASC Topic 321, Investments—Equity Securities, for equity securities without readily determinable fair values can be applied by analogy to assess and measure impairment of the PHC Option. The Company developed an estimated fair value at June 30, 2022 and December 31, 2021 to be $1.1 million and $0.2 million, respectively, and a gain of less than $0.9 million was recognized in net income as the difference between the fair value of the investment and its carrying amount for the six months ended June 30, 2022
The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default. The Company recorded the fair value of the embedded features in the amount of $25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at June 30, 2022 and December 31, 2021 was $46.8 million and $149.1 million, respectively.
In connection with the issuance of the Note Purchase Agreement, the Company incurred $2.9 million in debt issuance costs and debt discounts. The associated debt issuance costs were recorded as a contra liability in the amount of $1.4 million and are deferred and amortized as additional interest expense over the term of the notes. There have been no conversions of PHC Notes since inception of the Note Purchase Agreement.
2025 Notes
In July 2019, the Company issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. The 2025 Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at an initial conversion rate of 757.5758 shares per $1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $1.32 per share).
The 2025 Notes also contained an embedded conversion option requiring bifurcation as a separate derivative liability, along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at June 30, 2022 and December 31, 2021 was $8 million and $81.4 million, respectively.
In connection with the Exchange on April 24, 2020, $24.0 million aggregate principal of the Company’s outstanding 2025 Notes held by Highbridge Capital Management, LLC (“Highbridge”) were exchanged for $15.7 million of Second Lien Notes (the “Second Lien Notes”), (i) 11,026,086 shares of common stock, (ii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iii) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”). This transaction modified the original 2025 Notes outstanding with Highbridge and resulted in $13.2 million of deferred issuance fees and debt discounts associated with the exchanged 2025 Notes being transferred as a discount to the Second Lien Notes.
As of December 31, 2021, there were conversions of $6.5 million of outstanding principal amount of the 2025 notes for 4,924,998 shares of common stock. Accordingly, $3.2 million of allocated deferred issuance costs and debt discounts were recognized as a loss on extinguishment of debt as of December 31, 2021. There were no conversions of 2025 Notes for the six months ended June 30, 2022.
2023 Notes
In the first quarter of 2018, the Company issued $53.0 million in aggregate principal amount of senior convertible notes due February 1, 2023 (the “2023 Notes”). In July 2019, the Company used the net proceeds from the
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