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Item 1A. Risk Factors

2021-03-05 compared with 2020-03-16 · 297 added, 198 removed, 739 unchanged (40% of the section changed)

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If any of the following events actually occur or risks actually materialize, it could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our common stock to decline.

Summary of Risks Affecting Our Business

Our business is subject to numerous risks.

The following summary highlights some of the risks you should consider with respect to our business and prospects.

This summary is not complete, and the risks summarized below are not the only risks we face.

You should review and consider carefully the risks and uncertainties described in the “Risk Factors” section of this Annual Report on Form 10-K, which includes a more complete discussion of the risks summarized below as well as a discussion of other risks related to our business and an investment in our common stock, as well as our other public filings with the Securities and Exchange Commission, or SEC.

Any of the following risks could have a material adverse effect on our business, financial condition, results of operations and prospects and cause the trading price of our common stock to decline:

● We have incurred significant operating losses since inception and cannot assure you that we will ever achieve or sustain profitability.

Our results of operations may fluctuate significantly from quarter to quarter or year to year.

● Our actual operating results may differ significantly from any guidance provided.

If our actual results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline significantly.

● Medical device development involves a lengthy and expensive process, with an uncertain outcome.

We may incur additional costs or experience delays in completing, or ultimately be unable to complete, ongoing development for lifecycle management of our products.

● Our products and operations are subject to extensive governmental regulation, and failure to comply with applicable requirements could cause our business to suffer.

In particular, the FDA regulatory clearance process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing Eversense and future versions of Eversense.

● We expect that a substantial majority of our future revenue will result from our collaboration and commercialization agreement with Ascensia.

If Ascensia fails to perform satisfactorily under this agreement, including among other things if they are delayed or unsuccessful in growing the adoption of our product, our commercialization efforts and financial results would be directly and adversely affected.

● The COVID-19 pandemic has, and may continue to, materially affect our operations, including at our headquarters in Maryland and at our clinical trial sites, as well as the business and operations of our manufacturers, distributors or other third parties with whom we conduct business.

We are unable to predict the extent to which the pandemic and related restrictions will impact our business, operations, financial performance and the achievement of our strategic objectives.

● Failure to secure or retain coverage or adequate reimbursement for Eversense or future versions of Eversense systems, including the related insertion and removal procedures, by third-party payors could adversely affect our business, financial condition and operating results.

● The markets in which we participate are highly competitive, and our primary competitors, as well as a number of other companies, medical researcher and existing medical device companies, are pursuing new delivery devices, delivery technologies, sensing technologies, procedures, drugs and other therapies for the monitoring, treatment and prevention of diabetes.

Any technological breakthroughs in diabetes monitoring, treatment or prevention could reduce the potential market for Eversense or render Eversense less competitive or obsolete, which would significantly reduce our potential sales.

● We have limited operating history as a commercial-stage company and may face difficulties encountered by companies early in their commercialization in competitive and rapidly evolving markets.

● Our stock price has been highly volatile and may continue to be highly volatile.

The stock market in general and the market for innovative, emerging medtech and biotechnology companies in particular, has experienced volatility that has often been unrelated to the operating performance of particular companies.

We cannot predict the action of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

● Our operating results are subject to significant fluctuations.

● We contract with third parties for the manufacture of Eversense.

Risks associated with the manufacturing of our products, loss of key suppliers or disruption to their facilities could reduce our gross margins and negatively affect our operating results.

● We operate in a regulated industry and our business, operations and the business and operations of our third-party manufacturers are subject to various foreign, U.S.

federal, state and local laws and regulations, including those promulgated by the FDA and equivalent foreign regulatory agencies, among others.

Failure to comply with applicable laws and regulations should harm our business and we may incur significant expenditures related to compliance efforts.

● Holders of the convertible preferred stock and convertible notes may exert substantial influence over us and may exercise their control in a manner adverse to the interests of our common stockholders.

Risks Relating to our Business and our Industry

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To implement our business strategy we need to, among other things, gain regulatory approval in other regions where we intend to sell our products, expand our commercial launch in the United States and Europe, and develop future generations of Eversense.

We have never been profitable and do not expect to be profitable in the foreseeable future.

We have never been profitable and do not expect to be profitable for at least the next several years.

We expect our expenses to increase significantly as we pursue these objectives.

The extent of our future operating losses and the timing of profitability are highly uncertain, and we expect to continue incurring significant expenses and operating losses over the next several years.

The extent of our future operating losses and the timing of profitability are highly uncertain, and we expect to continue incurring expenses and operating losses over the next several years.

Any additional operating losses may have an adverse effect on our stockholders' equity, and we cannot assure you that we will ever be able to achieve profitability.

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Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals, diversify our product offerings or continue our operations.

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

We have entered into a collaboration and commercialization agreement with Ascensia, pursuant to which we have granted Ascensia the exclusive right to distribute Eversense worldwide, subject to initial exceptions based on our other current exclusive distribution agreements.

Pursuant to this agreement, our future success will be dependent on Ascensia effectively marketing and selling Eversense.

We expect that the substantial majority of our future revenue will come pursuant to this agreement in future years.

The agreement is terminable by Ascensia under a number of circumstances, including if Eversense 180-day product is not approved in the United States by August 31, 2021 or if we undergo a change of control.

The agreement is terminable by either party if the other party materially breaches its obligations under the agreement;

provided, however, that if Ascensia is unable to achieve the specified minimum spending or revenue targets described above, then we will only have the right to covert Ascensia’s exclusive rights to nonexclusive rights, which may make it difficult for us to successfully engage with another commercial partner.

The agreement is also terminable by either party if the other party undergoes bankruptcy, dissolution or winding up.

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

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

The terms of our agreements with Ascensia and PHC may discourage a third party from acquiring, or attempting to acquire, control of our company, even if a change of control was considered favorable by some or all of our stockholders.

For example, because of the exclusivity of the distribution arrangements with Ascensia and the minimum five-year term of that exclusivity (which may be extended under certain circumstances), prospective strategic acquirors may be unwilling to undertake an acquisition of our company.

In addition, under the terms of the PHC Notes

and our convertible preferred stock, we may be required to make significant payments to redeem these notes and to satisfy liquidation preference of our convertible preferred stock upon a change of control.

Our business, product sales and results of operations could be adversely affected by the effects of health epidemics, including the recent COVID-19 outbreak, in regions where we or third parties distribute our products or where we or third parties on which we rely have significant manufacturing facilities, concentrations, clinical trial sites or other business operations.

The COVID-19 pandemic has and may continue to, materially affect our operations, including at our headquarters in Maryland and at our clinical trial sites, as well as the business or operations of our manufacturers, distributors or other third parties with whom we conduct business.

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

For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China.

Since then, COVID-19 has spread to multiple countries, including the United States and several European countries.

Our headquarters is located in Maryland, and our contract manufacturers are located in Germany, the United Kingdom and the United States.

Our distributors are located in the United States and various countries in Europe.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the U.S.

government imposed travel restrictions on travel between the United States, Europe and certain other countries.

Further, the President of the United States declared the COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response.

Similarly, the Governor of Maryland has issued an order closing all non-essential businesses, which took effect on March 23, 2020.

Substantially all of our workforce is now working from home either all or substantially all of the time.

The effects of the Maryland order and our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain.

In particular, some of our suppliers of certain materials used in the production of our sensors and transmitters are located in Germany, the United Kingdom, China, Japan and the United States.

For example, any manufacturing supply interruption of Eversense or future generation products, could adversely affect our ability to conduct planned clinical trials and commercialization activities.

Sales and demand for Eversense have been and may be adversely affected by the global COVID-19 pandemic.

Disruptions in the distributions of Eversense could result if patients are physically quarantined, if physicians restrict access to their facilities for a material period of time, if we are unable to train new physicians, if patients are unable or unwilling to visit health care providers, or if health care providers prioritize treatment of acute or communicable illnesses over diabetes management.

At various times during the COVID-19 pandemic, (i) our or our partners’ ability to visit physician offices have been restricted, and (ii) insertions of Eversense have been adversely impacted.

During the pandemic, these and other risks could recur or continue.

In addition, in the spring of 2020 we announced changes in our ability to market Eversense in the U.S., substantially reduced our sales and marketing capabilities, and limited or ceased our efforts to secure new Eversense patients in the U.S.

The impact of these actions on patients and health care providers could delay or negatively impact our ability to stabilize and grow sales of Eversense in the U.S.

In addition, our clinical trials may be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic.

Some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare

Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically.

While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity.

In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

The review of our products by the FDA and other regulators has been and may continue to be adversely affected by the COVID-19 pandemic.

On September 30, 2020 we submitted a PMA supplement application to extend the wearable life of the Eversense CGM System to 180 days to the FDA.

Following the submission of the PMA, we have received communication from the FDA advising us that the reallocation of agency resources to address Emergency Use Authorization (EUA) applications for products related to the COVID-19 public health emergency is affecting marketing application reviews, including the Eversense 180-day product.

Based on a February 19, 2021 communication, we understand that the FDA expects to assign a reviewer, and that our PMA will be placed under review, no later than April 15, 2021.

Based on the passage of time and this new information from the FDA, we are anticipating approval no earlier than the second half of 2021.

The timing to completion and outcome of such a review is uncertain, as is the impact of COVID-19 on agency review timelines or possible delays.

A delay in the approval of our 180-day product in the U.S.

could delay Ascensia from being able to market a product with longer duration and other additional patient benefits to the U.S.

market and could adversely affect our net revenues and financial results.

The global pandemic of COVID-19 continues to rapidly evolve.

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, commercialization efforts, healthcare systems or the global economy as a whole.

However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.

We have limited commercialization experience in the United States and Europe.

If we are unable to successfully expand our commercialization of Eversense in the United States and Europe, our business will be harmed.

If we are unable to successfully expand our commercialization of Eversense in the United States and Europe, or if Ascensia experiences difficulties is establishing support for Eversense, our business will be harmed.

We have limited commercialization experience in both the United States and Europe.

We have invested substantially all of our efforts and financial resources to the development and commercialization of Eversense.

Our ability to generate revenue from our products will depend heavily on successful commercialization of products in the

United States and Europe and on continuing development of future generations of our Eversense system.

Our ability to generate revenue from our products will depend heavily on successful commercialization of products in the United States and Europe, including through our new collaboration with Ascensia, and on continuing development of future generations of our Eversense system.

The success of any products that we develop will depend on several factors, including:

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● market acceptance of Eversense by people with diabetes, the medical community and third-party payors;

our ability to obtain coverage and adequate reimbursement for Eversense and the related insertion and removal procedures from third-party payors;

● our ability to obtain and maintain coverage and adequate reimbursement for Eversense and the related insertion and removal procedures from third-party payors;

● our success in educating healthcare providers and people with diabetes about the benefits, administration and use of Eversense and future versions of Eversense;

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If the number of people with diabetes we target is not as significant as we estimate or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products.

Our revenue is also dependent on the success of Ascensia in commercializing our product.

Our product is a new product for Ascensia globally and they must additionally establish certain functions of their U.S.

commercial organization to successfully market and sell our CGM system.

If Ascensia experiences difficulties or delays in establishing sales and other functions that are required to support the product or adjusting to the requirements of supporting our product, there could be a materially negative impact on our net revenues from Eversense.

Approval in the United States by the FDA or by a regulatory agency in another country does not guarantee approval by the regulatory authorities in other countries or jurisdictions or ensure approval for the same conditions of use.

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These inspections can result in observations or reports, warning letters or other similar notices or forms of enforcement action.

If the FDA, the corresponding Notified Body in the European Union and EEA or any comparable foreign authority concludes that we are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose an unreasonable health risk, such authority could ban these products, suspend or cancel our marketing authorizations, impose "stop-sale" and "stop-import" orders, refuse to issue export certificates, detain or seize adulterated or misbranded products, order a recall, repair, replacement, correction or refund of such products, or require us to notify health providers and others that the products present unreasonable risks of substantial harm to the public health.

and "stop-import"

orders, refuse to issue export certificates, detain or seize adulterated or misbranded products, order a recall, repair, replacement, correction or refund of such products, or require us to notify health providers and others that the products present unreasonable risks of substantial harm to the public health.

Discovery of previously unknown problems with our product's design or manufacture may result in restrictions on the use of Eversense, restrictions placed on us or our suppliers, or withdrawal of an existing regulatory clearance for Eversense.

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Foreign governmental regulations have become increasingly stringent and more extensive, and we may become subject to even more rigorous regulation by foreign governmental authorities in the future.

Penalties for a company's

noncompliance with foreign governmental regulation could be severe, including revocation or suspension of a company's business license and civil or criminal sanctions.

Penalties for a company's noncompliance with foreign governmental regulation could be severe, including revocation or suspension of a company's business license and civil or criminal sanctions.

In some jurisdictions, such as Germany, any violation of a law related to medical devices is also considered to be a violation of unfair competition law.

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Our current business strategy is highly dependent on the successful commercialization of Eversense and achieving and maintaining market acceptance.

In order for us to sell Eversense to people with diabetes, we must educate them, their caregivers and healthcare providers that Eversense is an attractive alternative to competitive products for the monitoring of glucose levels, including SMBG, as well as other competitive CGM systems and alternatives to CGM methodologies.

In order to sell Eversense to people with diabetes, we or our commercialization partners must educate them, their caregivers and healthcare providers that Eversense is an attractive alternative to competitive products for the monitoring of glucose levels, including SMBG, as well as other competitive CGM systems and alternatives to CGM methodologies.

Market acceptance and adoption of Eversense depends on educating people with diabetes, as well as their caregivers and healthcare providers, as to the distinct features, ease-of-use, positive lifestyle impact, and other perceived benefits of Eversense as compared to competitive products.

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● loss of regulatory approval for Eversense, adverse publicity or other adverse events including any product liability lawsuits;

In addition, Eversense may be perceived by people with diabetes, their caregivers or healthcare providers to be more complicated or less effective than traditional monitoring methodologies, including SMBG, and people may be unwilling to change their current regimens.

● any limitations in the ability of Ascensia to effectively communicate and promote product benefits.

In addition, Eversense may be perceived by people with diabetes, their caregivers or healthcare providers to be more complicated or less effective than traditional monitoring methodologies, including SMBG or CGM systems which require less calibration, and people may be unwilling to change their current regimens.

Moreover, healthcare providers tend to be slow to change their medical treatment practices because of perceived liability risks arising from the use of new products and the uncertainty of third-party payor reimbursement.

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In order to capture and grow market share in the intensively managed diabetes market, we will need to enhance and broaden our product offerings in response to the evolving demands of people with diabetes and healthcare providers, as well as competitive pressures and technologies.

These development needs include additional features, extended product life and other attributes we believe may be desired by patients.

We may not be successful in developing, obtaining regulatory approval for, or marketing future versions of Eversense.

In addition, notwithstanding our market research efforts, our future products may not be accepted by people with diabetes, their caregivers, healthcare providers or third-party payors who reimburse people with diabetes for Eversense and healthcare providers for their services.

The success of Eversense or future versions of Eversense will depend on numerous factors, including our ability to:

The success of Eversense or future versions of Eversense will depend on numerous factors, including our ability, and the ability of our commercial partners, to:

● identify the product features that people with diabetes, their caregivers and healthcare providers are seeking in a CGM system and successfully incorporate those features into our products;

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If we fail to generate demand by developing products that incorporate features requested by people with diabetes, their caregivers or healthcare providers, or if we do not obtain regulatory clearance or approval for future versions of Eversense in time to meet market demand, we may fail to generate sales sufficient to achieve or maintain profitability.

We have in the past experienced, and we may in the future experience, delays in various phases of product development and commercial launch, including during research and development, manufacturing, limited release testing, marketing and customer education efforts.

We have in the past experienced, and we may in the future experience, delays in various phases of product development, approval and commercial launch, including during research and development, regulatory submission and approval, manufacturing, limited release testing, marketing and customer education efforts.

Any delays in our anticipated product launches may significantly impede our ability to successfully compete in our markets.

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Even if we are able to successfully develop future versions of Eversense when anticipated, these products may not produce sales in excess of the costs of development, and they may be quickly rendered obsolete by the changing preferences of people with diabetes or the introduction by our competitors of products embodying new technologies or features.

Failure to secure or retain coverage or adequate reimbursement for Eversense or future versions of Eversense systems, including the related insertion and removal procedures, by third-party payors could adversely affect our business, financial condition and operating results.

Failure to secure or retain coverage or adequate reimbursement for Eversense or future versions of Eversense systems, including the related insertion and removal procedures, by third-party payors, and an inability of patients to be able to access the product, could adversely affect our business, financial condition and operating results.

We plan to derive nearly all of our revenue from sales of Eversense in the United States and Europe and expect to do so for the next several years.

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Similarly, healthcare providers may choose not to order a product unless third-party payors cover and reimburse a substantial portion of the product.

Coverage determinations and reimbursement levels of both our products and the healthcare provider's performance of the insertion and removal procedures are critical to the commercial success of our product, and if we are not able to secure positive coverage determinations and reimbursement levels for our products or the insertion and removal procedures, our business would be materially adversely affected.

Coverage determinations and reimbursement levels of both our products and the healthcare provider's performance of the insertion and removal procedures are critical to the commercial success of our product, and if we or our commercial partners are not able to secure positive coverage determinations and reimbursement levels for our products or the insertion and removal procedures, our business would be materially adversely affected.

Within and outside the United States, reimbursement is obtained from a variety of sources, including government sponsored and private health insurance plans.

These third-party payors determine whether to provide reimbursement for specific products and procedures.

A third-party payor's decision to provide coverage for our products

does not imply that an adequate reimbursement rate will be obtained.

A third-party payor's decision to provide coverage for our products does not imply that an adequate reimbursement rate will be obtained.

Further, one third-party payor's decision to cover our products does not assure that other payors will also provide coverage for the products or will provide coverage at an adequate reimbursement rate.

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Our dependence on the commercial success of our Eversense products makes us particularly susceptible to any cost containment or reduction efforts.

If third-party coverage and reimbursement of products for which we may receive regulatory approval is not available or adequate in either the United States or international markets, or if our production costs increase faster than increases in reimbursement levels, we may be unable to sell Eversense or future versions of Eversense profitably and our business would be adversely impacted.

If third-party coverage and reimbursement of products for which we may receive regulatory approval is not available or adequate in either the United States or international markets, or if our production costs increase faster than increases in reimbursement levels, we or our commercial partners may be unable to sell Eversense or future versions of Eversense profitably and our business would be adversely impacted.

In March 2019, we launched a patient access program, the Eversense Bridge Program, to assist those patients who do not have insurance coverage for Eversense, or whose insurance is denied or insufficient.

Pursuant to this program, we provide financial assistance to eligible patients purchasing Eversense, which may be substantial depending on a patient’s insurance coverage.

We also assist patients in their appeal of adverse coverage decisions made by insurance providers.

We may not be able to recognize a substantial portion of the revenue related to Eversense insertions for the patients participating in this access program.

Pursuant to this program, we provided financial assistance to eligible patients purchasing Eversense, which may have been substantial depending on a patient’s insurance coverage.

We also assisted patients in their appeal of adverse coverage decisions made by insurance providers.

In December 2020, we terminated the Eversense Bridge Program.

We expect our partner Ascensia to implement a patient assistance program and related programs as part of its commercialization efforts.

The lack of a patient assistance program, or a program’s design being ineffective, could adversely impact the sales of

Eversense and, consequently our net revenues.

In addition, we may not be able to recognize a substantial portion of the revenue related to Eversense insertions for the patients participating in these access programs.

The amount of time required to obtain favorable coverage and reimbursement decisions, including navigating the appeals process with third-party payors, is uncertain, and we may see increased product utilization without corresponding recognized revenue.

Our operating results may be adversely impacted if we are unable to obtain successful appeals or favorable coverage decisions by insurance providers.

Our operating results may be adversely impacted if we are unable to obtain successful appeals or favorable coverage decisions by insurance providers, or if there are not effective patient access programs in place.

If important assumptions we have made about what people with intensively managed diabetes are seeking in a CGM system are inaccurate, our business and operating results may be adversely affected.

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Each of these companies has received approval from the FDA to market their respective CGM system.

Dexcom’s CGM system was the first CGM system to be approved by the FDA for marketing as a non-adjunctive device, and Abbott’s Freestyle Libre was also approved for non-adjunctive use.

Both Dexcom (G6) and Abbott (Freestyle Libre) systems have factory calibration, and do not require user calibration.

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As the industry evolves, we anticipate encountering increasing competition from companies that integrate CGM with insulin pumps.

We expect all other CGM companies besides Dexcom to pursue an iCGM indication including Abbott and Medtronic.

Abbott also received an iCGM indication for their Freestyle Libre 2 product and we expect all other CGM companies to pursue an iCGM indication including Medtronic.

In addition to CGM providers, we also compete with providers of SMBG systems.

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In addition, our internal estimates are based in large part on current treatment patterns by healthcare providers using CGM systems and our belief that the incidence of diabetes in the United States and worldwide is increasing.

While we believe these factors have historically provided and may continue to provide us with effective tools in estimating the total market for CGM systems and CGM related products and our products, these estimates may not be correct and the conditions supporting our estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors.

estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors.

The actual incidence of diabetes, and the actual demand for our products or competitive products, could differ materially from our projections if our assumptions are incorrect.

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If the actual number of people with diabetes who would benefit from Eversense and the size and future growth in the market for Eversense is smaller than we have estimated, it may impair our projected sales growth and have an adverse impact on our business.

Our distribution agreements to market Eversense may not be successful.

We have entered into distribution agreements with strategic fulfillment partners in the United States and with distributors in our overseas markets, including our distribution agreement with Roche, to market Eversense in Europe, the Middle East, Africa (EMEA), excluding Scandinavia and Israel, and 17 additional countries, including Brazil, Russia, India and China.

Under these agreements, the distributors are generally responsible for the promotion, sale and distribution of Eversense in the specified countries or territories at such prices as they determine in their sole discretion.

The agreements do not require our distributors to sell our products exclusively, and therefore they are free to sell products of our competitors.

Additionally, if any of our distributors fail to perform satisfactorily under the agreements, our commercialization efforts would be adversely affected.

Net revenue from our distribution arrangement with Roche accounted for 77% of our total net revenues for the year ended December 31, 2019.

Net revenue from our distribution arrangement with Advanced Diabetes Supply, a strategic fulfillment partner and supplier of CGM systems to diabetic patients in the United States, accounted for 12% of our total net revenues for the year ended December 31, 2019.

We cannot guarantee these relationships, or any of our distribution agreements, will continue or that we will be able to maintain or increase the volume of sales from these relationships in the future.

A substantial decrease or loss of sales from our distributors, including Roche and Advanced Diabetes Supply, could materially impact future operating results.

Our sales and marketing infrastructure may not be successful in commercializing Eversense in the United States.

To achieve commercial success in the United States for Eversense, we will need to rely on and expand our sales and marketing infrastructure to further drive adoption of our products and market penetration.

If we are unable to attract and retain sufficient, and skilled, sales and marketing representatives, our sales could be adversely affected.

If one of our sales or marketing representatives were to depart and be retained by one of our competitors, they could help competitors solicit business from our existing customers, which could further harm our sales.

In addition, if our sales and marketing representatives or field clinical managers fail to achieve their objectives we may not be able to successfully train healthcare providers and people with diabetes on the use of Eversense, which could delay new sales and harm our reputation.

As we commercialize Eversense or future versions of Eversense, we will need to hire, train, retain and motivate skilled sales and marketing representatives with significant industry-specific knowledge in various areas, such as diabetes treatment techniques and technologies and reimbursement practices.

Our success will depend largely on the competitive landscape for our products and the ability of our personnel to obtain access to healthcare providers, educate those healthcare providers on the benefits of Eversense with the hope that they will recommend Eversense to people who intensively manage their diabetes, and navigate commercial third-party payor policies.

We anticipate that we will derive nearly all of our U.S.

revenue from the sales of Eversense or future versions of Eversense and that this will continue for the next several years.

As a result, our financial condition and operating results will be highly dependent on the ability of our sales representatives and marketing initiatives to adequately promote, market and sell Eversense.

If we are unable to establish and expand our sales and marketing capabilities, or if our marketing programs are not successful, we may not be able to effectively commercialize our existing or planned products, or enhance the strength of our brand, either of which could impair our projected sales growth and have an adverse impact on our business.

Our ability to maintain and grow our revenue will depend on establishing a customer base and retaining a high percentage of our customer base.

A key to maintaining and growing our revenue will be establishing a customer base and retaining a high percentage of our customers due to the potentially significant revenue generated from ongoing purchases of disposable sensors.

We intend to continue developing customer loyalty programs to help with retention aimed at patients, their caregivers and healthcare providers, which include patient ambassadors, training specific to Eversense, ongoing support by sales and clinical employees and 24/7 technical support and customer service.

If demand for our products fluctuates as a result of the introduction of competitive products, changes in reimbursement policies, manufacturing problems,

perceived safety issues with our or our competitors' products, the failure to secure regulatory clearance or approvals, or for other reasons, our ability to attract and retain customers could be harmed.

Ascensia intends to continue developing customer loyalty programs to help with retention aimed at patients, their caregivers and healthcare providers, which include patient ambassadors, training specific to Eversense, ongoing support by sales and clinical employees and 24/7 technical support and customer service.

If demand for our products fluctuates as a result of the introduction of competitive products, changes in reimbursement policies, manufacturing problems, perceived safety issues with our or our competitors' products, the failure to secure regulatory clearance or approvals, or for other reasons, our ability to attract and retain customers could be harmed.

The failure to retain a high percentage of our customers would negatively impact our business, financial condition and operating results.

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● manage expanding operations;

● manage and secure effective sales of our product through our new collaboration with Ascensia, including its establishment of required commercial infrastructure in the U.S.

and elsewhere, and its adapting to a new product category in which it has limited experience;

● expand the capabilities and capacities of our third-party manufacturers, including increasing production of current products efficiently and having our vendors adapt their manufacturing facilities to the production of new products;

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● difficulty identifying and qualifying alternative manufacturers in a timely manner;

inability to establish agreements with future third-party manufacturers or to do so on acceptable terms;

● inability to establish agreements with current or future third-party manufacturers or to do so on acceptable terms;

● potential damage to or destruction of our manufacturers' equipment or facilities.

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As a result, there is a risk that certain components could be discontinued and no longer available to us.

We may be required to make significant "last time" purchases of component inventory that is being discontinued by the supplier to ensure supply continuity.

We may be required to make significant "last time"

purchases of component inventory that is being discontinued by the supplier to ensure

supply continuity.

If we fail to obtain sufficient quantities of high-quality components to meet demand for our products in a timely manner or on terms acceptable to us, we would have to seek alternative sources of supply.

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Each of our third-party suppliers operates at a facility in a single location and substantially all of our inventory of component supplies and finished goods is held at these locations.

We, and our suppliers, take precautions to safeguard facilities, including acquiring insurance, employing back-up generators, adopting health and safety protocols and

utilizing off-site storage of computer data.

We, and our suppliers, take precautions to safeguard facilities, including acquiring insurance, employing back-up generators, adopting health and safety protocols and utilizing off-site storage of computer data.

However, vandalism, terrorism or a natural or other disaster, such as an earthquake, health epidemic, such as the coronavirus, fire or flood, could damage or destroy equipment or our inventory of component supplies or finished products, cause substantial delays in our operations, result in the loss of key information, or cause us to incur additional expenses.

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Based on our experience, complications from use of Eversense may include sensor errors, sensor failures or skin irritation under the adhesive dressing of the transmitter.

Inflammation or redness, swelling, minor infection, and minor bleeding at the sensor insertion site are also possible risks with an individual's use of the device.

Inflammation or redness, swelling, minor infection, and minor

bleeding at the sensor insertion site are also possible risks with an individual's use of the device.

However, if unanticipated side-effects result from the use of Eversense or future versions of Eversense, we could be subject to liability and our systems would not be widely adopted.

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We rely on our information technology systems to effectively manage patient requisitions and data, customer service cases and replacement obligations, marketing data, accounting and financial functions, inventory and order management, product quality records, research and development data, and technical support functions.

Despite our security measures, our information technology systems are vulnerable to damage or interruption from earthquakes, fires, floods and other natural disasters, terrorist attacks, attacks by computer viruses or hackers, power losses, and computer system or data network failures.

network failures.

In addition, our data management application and a variety of our software systems, including the software in our smart transmitter, are hosted by third-party service providers whose security and information technology systems are subject to similar risks, which could be subject to computer viruses or hacker attacks or other failures.

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Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process.

Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or

arrangements.

Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements.

We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all.

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We will need to generate significant sales to achieve profitable operations.

We intend to increase our operating expenses in connection with the expanded commercialization of Eversense, growth of our sales and marketing infrastructure and programs, our ongoing research and development activities, and the commensurate development of our management and administrative functions.

We intend to increase our operating expenses in connection with the commercialization of Eversense with our collaboration partner Ascensia, our ongoing research and development activities including the development of next generation products and the clinical trials for those products, and the commensurate development of our management and administrative functions.

We will need to generate significant sales to achieve profitability, and we might not be able to do so.

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If our sales grow more slowly than we expect, or if our operating expenses exceed our expectations, our financial performance and operating results will be adversely affected.

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.

As a result, our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements included in this Annual Report.

At the time of issuance of our consolidated financial statements for the year ended December 31, 2019 in this Annual Report on Form 10-K, we did not have sufficient cash to fund our operations through the next twelve months 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 consolidated financial statements.

At December 31, 2019, we had approximately $95.9 million in cash and cash equivalents, and we have insufficient committed sources of additional capital to fund our operations as described in this Annual Report for more than a limited period of time.

We do not expect our existing cash and cash equivalents will be sufficient to fund our operations through the first quarter of 2021.

The continued growth of our business, including the commercialization of our CGM systems, potential regulatory submission to the FDA for Eversense XL in the United States, product development and product upgrades, 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:

the cost of obtaining and maintaining regulatory clearance or approval for Eversense or future versions of Eversense;

the costs associated with developing and commercializing our products;

any change in our development priorities regarding our future versions of Eversense;

the revenue generated by sales of Eversense or future versions of Eversense;

the costs associated with expanding our sales and marketing infrastructure;

any change in our plans regarding the manner in which we choose to commercialize our products in the United States;

the cost of ongoing compliance with regulatory requirements;

expenses we incur in connection with potential litigation or governmental investigations;

anticipated or unanticipated capital expenditures;

unanticipated general and administrative expenses.

As a result of these and other factors, we do not know whether and the extent to which we may 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 in the near team, we may not be able to successfully expand the commercialization of our Eversense CGM systems, enhance Eversense or develop 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, or obtain a waiver for noncompliance with our obligations, under the convertible senior subordinated notes due 2023, or the 2023 Notes, and the convertible senior subordinated notes due 2025, or the 2025 Notes, and our a Loan and Security Agreement, or the Solar Loan Agreement, with Solar Capital, Ltd., or Solar, 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 consolidated 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.

Our operating results may fluctuate significantly from quarter to quarter or year to year.

Our operating results may fluctuate from quarter to quarter or year to year.

We have limited operating history as a commercial-stage company and we anticipate that there will be meaningful variability in our operating results among years and quarters, as well as within each year and quarter.

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● regulatory clearance or approvals affecting our products or those of our competitors;

our ability to increase sales of Eversense and to commercialize and sell our future products, and the number of our products sold in each quarter;

our ability to establish and grow an effective sales and marketing infrastructure and third-party distribution network;

● Ascensia’s ability to increase sales of Eversense and to commercialize and sell our future products, and the number of our products sold in each quarter;

● Ascensia’s ability to establish and grow an effective sales and marketing infrastructure and third-party distribution network;

● acceptance of our products by people with diabetes, their caregivers, healthcare providers and third-party payors;

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● the ability of our suppliers to timely provide us with an adequate supply of components and CGM systems that meet our requirements;

● changes in the fair value of embedded derivative instruments in the terms of some of our financings, which are subject to potentially wide fluctuations from period to period as a result of changes in our stock price;

● the timing of revenue recognition associated with our product sales pursuant to applicable accounting standards.

As a result of our lack of operating history as a commercial-stage company, and due to the complexities of the industry and regulatory framework in which we operate, it will be difficult for us to forecast demand for our future products and to forecast our sales with any degree of certainty.

As a result of our lack of operating history as a commercial-stage company and Ascensia’s lack of experience selling CGM systems, and Eversense in particular, and due to the complexities of the industry and regulatory framework in which we operate, it will be difficult for us to forecast demand for our future products and to forecast our sales with any degree of certainty.

For example, many of the products we will seek to develop and introduce in the future will require regulatory approval or clearance and import licenses before we can sell such products and given that the timing of such approvals, clearances or licenses may be uncertain, it will be difficult for us to predict sales projections for these products with any degree of certainty before such approvals, clearances or licenses are obtained.

In addition, we will be significantly increasing our operating expenses as we expand our business.

In addition, we will be increasing our operating expenses as we expand our business.

Accordingly, we may experience substantial variability in our operating results from year to year and quarter to quarter.

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We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

Covenants under the Solar Loan Agreement and the indentures related to the 2023 Notes and the 2025 Notes may result in the acceleration of outstanding indebtedness and limit the manner in which we operate.

The Solar Loan Agreement has specified financial covenants related to our liquidity and trailing six-month revenues and the Solar Term Loan and other obligations under the Solar Loan Agreement are secured by substantially all of our assets.

Although we were in compliance with the financial covenants as of January 31, 2020 (the last month end for which we have completed our procedures to confirm covenant compliance as of the date of this filing),, based upon our current expectations for the remainder of the first quarter of 2020, we expect that we will not be in compliance with the trailing six-month revenue covenant as of March 31, 2020 and that, absent a waiver or amendment to the terms of the Solar Loan Agreement, we would likely remain in noncompliance with the trailing six-month revenue covenant for the foreseeable future thereafter.

Therefore, if we are not able to obtain a waiver of such default by Solar, it is possible that our outstanding indebtedness under the Solar Loan Agreement and the 2025 Notes could be accelerated and become immediately due and payable.

If this were to occur, based on our current capital resources, we would not be able to satisfy such indebtedness without raising additional capital from other sources, which may not be available on commercially reasonable terms or at all.

If we were unable to raise such capital to satisfy these obligations, we could be required to sell assets, potentially liquidate our business or be forced into bankruptcy, any of which would have a material adverse effect on the value of our common stock.

In addition, the indentures related to the 2023 Notes and the 2025 Notes and the Solar Loan Agreement contain, and any future indebtedness we incur may contain, various negative covenants that restrict, among other things, our ability to:

Covenants under the PHC Note Purchase Agreement and the indentures related to the 2023 Notes and the 2025 Notes may result in the acceleration of outstanding indebtedness and limit the manner in which we operate.

The PHC 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 be due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross defaults to certain other agreements, judgments against the Company, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.

In addition, the indentures related to the 2023 Notes and the 2025 Notes contain, and any future indebtedness we incur may contain, various negative covenants that restrict, among other things, our ability to:

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

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As a result, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities, repurchase shares of our common stock or finance future operations or capital needs.

The Solar Term Loan bears interest at variable interest rates based on USD London Inter-bank Offered Rate, or LIBOR.

Changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness and may otherwise adversely affect our financial condition and results of operations.

In July 2017, the Financial Conduct Authority, the authority that regulates the London Inter-bank Offered Rate, or LIBOR, announced that it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

The Solar Term Loan bears interest based on USD LIBOR.

As a result, changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest rates on our current or future indebtedness.

Any transition process may involve, among other things, increased volatility or illiquidity in markets for instruments that rely on LIBOR, reductions in the value of certain instruments or the effectiveness of related transactions such as hedges, increased borrowing costs, uncertainty under applicable documentation, or difficult and costly consent

The transition away from LIBOR may result in increased expenses, may impair our ability to refinance our indebtedness or hedge our exposure to floating rate instruments, or may result in difficulties, complications or delays in connection with future financing efforts, any of which could adversely affect our financial condition and results of operations.

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

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

Despite our current consolidated debt levels, subject to certain conditions and limitations in the indentures related to the 2023 Notes and the 2025 Notes and the Solar Loan Agreement, we may be able to incur substantial additional debt in the future, some of which may be secured debt.

Despite our current consolidated debt levels, subject to certain conditions and limitations in the indentures related to the 2023 Notes and the 2025 Notes and PHC Notes, we may be able to incur substantial additional debt in the future, some of which may be secured debt.

We may not be subject to any restrictions on incurrence of additional indebtedness under the terms of any future indebtedness.

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Risks Related to Development of our Products

If we modify our FDA-approved product, we may need to seek additional approvals, which, if not granted, would prevent us from selling our modified products.

A component of our strategy is to continue to modify and upgrade our Eversense system.

If we modify our approved product, we may need to seek additional approvals, which, if not granted, would prevent us from selling our modified products.

A component of our strategy is to continue to modify and upgrade our Eversense system, which requires approval by the FDA and analogous regulatory bodies in other jurisdictions.

We may not be able to obtain additional regulatory approvals for new products or for modifications to, or additional indications for, our existing products in a timely fashion, or at all.

Delays in obtaining future approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and potential future profitability.

Any modifications to the Eversense that could significantly affect its safety or effectiveness, including significant design and manufacturing changes, or that would constitute a major change in its intended use, manufacture, design, components, or technology requires approval of a new premarket approval application, or PMA, or PMA supplement.

However, certain changes to a PMA-approved device do not require submission and approval of a new PMA or PMA supplement and may only require notice to FDA in a PMA Annual Report.

The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any such decision.

Delays in obtaining future approvals, including potential delays in obtaining approval of our currently pending applications, would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and potential future profitability.

However, certain changes to a PMA-approved device do not require submission and approval of a new PMA or PMA supplement, or appropriate modifications in other jurisdictions, and may only require notice to FDA in a PMA Annual Report, or similar notifications.

In the U.S., the FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any such decision.

The FDA may not agree with our decisions regarding whether new approvals are necessary.

Our products could be subject to recall if the FDA determines, for any reason, that our products are not safe or effective or that appropriate regulatory submissions were not made.

Similar regulatory considerations apply outside the U.S.

If new regulatory approvals are required, this could delay or preclude our ability to market the modified system.

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We may incur additional costs or experience delays in completing, or ultimately be unable to complete, ongoing development for lifecycle management of our products.

While we have completed our initial pivotal trials in Europe and the United States, we are and may need to conduct future clinical trials in order to develop new versions of our system or to comply with requirements for post-approval studies.

For example, in December 2018 we initiated the PROMISE pivotal trial to support a future PMA supplement for 180-day use of the Eversense sensor in the U.S.

While we have completed pivotal trials in Europe and the United States, we are and may need to conduct future clinical trials in order to develop new versions of our system or to comply with requirements for post-approval studies.

For example, subject to regulatory clearance of our IDE, we are planning to initiate a pivotal trial to support a future PMA supplement for 365-day sensor.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.

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Although we have employment agreements with our executive officers, each of them may terminate their employment with us at any time and will continue to be able to do so.

We do not maintain "key person" insurance for any of our executives or employees.

We do not maintain "key person"

insurance for any of our executives or employees.

Recruiting and retaining qualified scientific and clinical personnel and, as we progress the development of our product pipeline toward scaling up for commercialization, manufacturing and sales and marketing personnel, will also be critical to our success.

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This liquidity may represent material wealth to such individuals and impact retention and focus of existing key members of management.

We expect to expand our development and regulatory capabilities and our sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to expand our development and regulatory capabilities and our marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of December 31, 2020, we had 82 employees.

As our commercialization progresses, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of research, product development, regulatory affairs and sales, marketing and distribution.

As our commercialization progresses, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of research, product development, clinical sciences, regulatory affairs, supply chain, and marketing.

To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel.

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We rely on our trademarks and trade names to distinguish our products from the products of our competitors and have registered or applied to register many of these trademarks.

For example, we have two pending applications in the United States for the "Eversense" trademark.

For example, we have two pending applications in the United States for the "Eversense"

We cannot assure you that our trademark applications will be approved in a timely manner or at all.

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We are subject to the patent laws of countries other than the United States, which may not offer the same level of patent protection and whose rules could seriously affect how we draft, file, prosecute and maintain patents, trademarks and patent and trademark applications.

Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties (for example, the patent owner has failed to "work" the invention in that country, or the third party has patented improvements).

the invention in that country, or the third party has patented improvements).

In addition, many countries limit the enforceability of patents against government agencies or government contractors.

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The regulations are very complex and are subject to rapid change and varying interpretations.

Regulatory restrictions or changes could limit our ability to carry on or expand our operations or result in

higher than anticipated costs or lower than anticipated sales.

Regulatory restrictions or changes could limit our ability to carry on or expand our operations or result in higher than anticipated costs or lower than anticipated sales.

These governmental authorities enforce laws and regulations that are meant to assure product safety and effectiveness, including the regulation of, among other things:

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Failure to comply with applicable regulations could jeopardize our ability to sell our products and result in enforcement actions such as fines, civil penalties, injunctions, warning letters, recalls of products, delays in the introduction of products into the market, refusal of the regulatory agency or other regulators to grant future clearances or approvals, and the suspension or withdrawal of existing approvals by such regulatory agencies.

For example, in September 2019 we voluntarily initiated a recall of Eversense Sensors that had not yet been implanted, due to premature loss of function due to inadequate hydration of the sensor’s glucose-sensing surface.

For example, in September 2019 we voluntarily initiated a recall of Eversense sensors that had not yet been implanted, due to premature loss of function due to inadequate hydration of the sensor’s glucose-sensing surface.

This recall, as well as any of the above sanctions, could result in higher than anticipated costs or lower than anticipated sales and harm our reputation, business, financial condition and operating results.

The FDA regulatory clearance process is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing Eversense and future versions of Eversense.

Products that are approved through a PMA application generally need FDA approval before they can be modified.

The FDA regulatory clearance process and regulatory processes in other countries is expensive, time-consuming and uncertain, and the failure to obtain and maintain required regulatory clearances and approvals could prevent us from commercializing Eversense and future versions of Eversense.

Products that are approved through a PMA application generally need FDA approval before they can be modified, and similar approval processes are required in other jurisdictions where we may want to market our products.

The process of obtaining regulatory approvals to market a medical device can be costly and time-consuming, and we may not be able to obtain these approvals on a timely basis, or at all for our products.

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In addition, the FDA may change approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval of our product modifications under development.

Following the submission of the PMA for our 180-day product, we received communication from the FDA advising us that the reallocation of agency resources to address Emergency Use Authorization (EUA) applications for products related to the COVID-19 public health emergency is affecting marketing application reviews, including the Eversense 180-day product.

Based on a February 19, 2021 communication, we understand that the FDA expects to assign a reviewer, and that our PMA will be placed under review, no later than April 15, 2021.

Based on the passage of time and this new information from the FDA, we are anticipating approval no earlier than the second half of the year and note that the timing to completion and outcome of such a review is uncertain.

Further reallocation of agency resources, shelter-in-place orders and other impacts from the COVID-19 pandemic are difficult to predict and could alter or delay the timing of response by the FDA regarding our submission.

Any delay in, or failure to receive or maintain, approval for our products could prevent us from generating revenue from these products or achieving profitability.

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A government-mandated or voluntary recall by us or one of our third-party distributors could occur as a result of an unacceptable risk to health, component failures, manufacturing errors, design or labeling defects or other deficiencies and issues.

Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our reputation, financial condition and operating results, which could impair our ability to produce our products in a cost-effective and timely manner.

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Our current and future global operations will expose us to trade and economic sanctions and other restrictions imposed by the United States, the European Union and other governments and organizations.

Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the Foreign Corrupt Practices Act, or the FCPA, and other federal statutes and regulations, including those established by the Office of Foreign Assets Control, or OFAC.

including those established by the Office of Foreign Assets Control, or OFAC.

In addition, the U.K.

Bribery Act of 2010, or the Bribery Act, prohibits both domestic and international bribery, as well as bribery across both private and public sectors.

An organization that "fails to prevent bribery" by anyone associated with the organization can be charged under the Bribery Act unless the organization can establish the defense of having implemented "adequate procedures" to prevent bribery.

may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions.

An organization that "fails to prevent bribery"

by anyone associated with the organization can be charged under the Bribery Act unless the organization can establish the defense of having implemented "adequate procedures"

to prevent bribery.

Under these laws and regulations, as well as other anti-corruption laws, anti-money-laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions.

A violation of these laws or regulations could adversely impact our business, results of operations and financial condition.

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● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementing regulations, which created federal criminal and civil statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which also imposes obligations on “covered entities,”

including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates”

that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with regarding the privacy, security and transmission of such individually identifiable health information;

federal "sunshine" requirements imposed by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care Education Reconciliation Act of 2010, or collectively, the PPACA, on device manufacturers regarding the annual reporting to the Centers for Medicare and Medicaid

Services, or CMS, of any "transfer of value" made or distributed to physicians, as defined by such law, and teaching hospitals.

● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which also imposes obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” that create, receive, maintain or transmit individually identifiable health

information for or on behalf of a covered entity and their subcontractors, regarding the privacy, security and transmission of such individually identifiable health information;

● federal "sunshine"

requirements imposed by the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care Education Reconciliation Act of 2010, or collectively, the PPACA, on device manufacturers regarding the annual reporting to the Centers for Medicare and Medicaid Services, or CMS, of any "transfer of value"

made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, and, beginning in 2022, will require the annual reporting of any payments and transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants, and certified nurse midwives during the previous year.

Failure to timely submit required information may result in significant civil monetary penalties;

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Any of these challenges could impact our reputation, business, financial condition and operating results.

In February 2021, in conjunction with a communication to users regarding our distribution changes and securing customer and technical support, we made an unintended disclosure of certain user e-mail addresses to other users in Italy.

To remedy this error, we communicated with affected parties and self-reported the disclosure to the appropriate authorities in Italy for GDPR.

This disclosure could cause adverse reaction by users of our product and negative regulatory implications under GDPR.

We are unable to predict at this time if there are any further impacts to this unintended disclosure.

Our activities, including our research, sales and marketing, and patient reimbursement support activities, may be subject to scrutiny under these laws.

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Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of the off-label use of our products.

Healthcare providers may use our products off-label, as the FDA does not restrict or regulate a physician's choice of treatment within the practice of

Healthcare providers may use our products off-label, as the FDA does not restrict or regulate a physician's choice of treatment within the practice of medicine.

However, if the FDA determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine and criminal penalties.

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On a global level, the regulatory environment is increasingly stringent and unpredictable.

Many countries have introduced or expanded their existing regulation of medical devices or are planning to expand their existing regulation in

Many countries have introduced or expanded their existing regulation of medical devices or are planning to expand their existing regulation in the future.

Regulatory requirements continue to differ significantly among countries.

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impose extensive compliance and monitoring obligations on our business.

These agencies review our design and manufacturing practices, labeling, record keeping, manufacturers’

required reports of adverse experiences and other information to identify potential problems with marketed medical devices.

These agencies review our design and manufacturing practices, labeling, record keeping, manufacturers’ required reports of adverse experiences and other information to identify potential problems with marketed medical devices.

We are subject to unannounced device inspections by European Notified Bodies, as well as other regulatory agencies overseeing the implementation and adherence of applicable regulations.

These inspections may include our suppliers’

These inspections may include our suppliers’ facilities.

In addition, EU member states have powers to suspend the marketing and use, or demand the recall, of unsafe or non-compliant devices.

They also have the power to bring enforcement action against companies or individuals for breaches of the device rules.

Non-compliance may also result in Notified Bodies revoking any certificate of conformity that they have issued for a device or the manufacturer’s quality system.

In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products.

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● implements payment system reforms including value-based payment programs, increased funding for comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments).

There remain judicial and Congressional challenges to certain aspects of the PPACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the PPACA.

Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA.

Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA.

While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the PPACA such as removing penalties, starting January 1, 2019, for not complying with the PPACA’s individual mandate to carry health insurance and delaying the implementation of certain PPACA-mandated fees.

In December 2018, CMS published a new final rule permitting further collections and payments to and from certain PPACA qualified health plans and health insurance issuers under the PPACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment.

Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the PPACA-mandated medical device tax and “Cadillac”

tax on high-cost employer-sponsored health coverage and, effective January 1, 2021, also eliminates the health insurer tax.

There have been executive, judicial and Congressional challenges to certain aspects of the PPACA.

Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the PPACA-mandated medical device tax and “Cadillac” tax on high-cost employer-sponsored health coverage and, effective January 1, 2021, also eliminated the health insurer tax.

On December 14, 2018, a Texas U.S.

District Court Judge ruled that the PPACA is unconstitutional in its entirety because

the “individual mandate”

was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017.

District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017.

Additionally, on December 18, 2019, the U.S.

Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the PPACA are invalid as well.

It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace the PPACA will impact the PPACA.

Supreme Court is currently reviewing the case, although it is unknown when a decision will be made.

Further, although the U.S.

Supreme Court has not yet ruled on the constitutionality of the PPACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the PPACA marketplace.

The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the PPACA.

It is unclear how the Supreme Court ruling, other such litigation, and the healthcare reform measures of the Biden administration will impact the PPACA and our business.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted.

On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2029 unless additional Congressional action is taken.

On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 with the exception of a temporary suspension from May 1, 2020 through March 31, 2021 unless additional Congressional action is taken.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

At this time, we cannot predict which, if any, additional healthcare reform proposals will be adopted, when they may be adopted or what impact they, or the PPACA, may have on our business and operations, and any of these impacts may be adverse on our operating results and financial condition.

The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, which could adversely affect our revenue and results of operations.

After significant negotiation between the United Kingdom and the EU, the United Kingdom withdrew from the EU on January 31, 2020 and there is currently a transition period during which the United Kingdom and EU negotiate additional arrangements, including their future trading terms.

The United Kingdom has stated that it wants the transition period to expire, and the future trading terms to be agreed, by December 31, 2020.

The uncertainties regarding the United Kingdom’s future relationship with the EU, have had and may continue to have an adverse effect on global economic conditions and the stability of global financial markets.

In particular, depending on what terms are agreed between the United Kingdom and the EU, if any, it could lead to a period of considerable uncertainty in relation to global financial and banking markets, as well as on regulatory processes in Europe and the EEA.

Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which EU rules and regulations to replace or replicate, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in all markets, increase costs, depress economic activity and restrict access to capital.

If the United Kingdom and the EU are unable to negotiate acceptable future trading terms or if other EU countries pursue withdrawal, barrier-free access between the United Kingdom and other EU or EEA countries could be diminished or eliminated, which could make our doing business in the EU more difficult.

As a result of Brexit, we may face disruptions in our supply chain, inventory management, manufacturing process and product distribution network, which could adversely affect our business and results of operations.

Moreover, Brexit may also lead to new regulatory costs and challenges that could have a material adverse effect on our operations.

Risks Related to our Common Stock

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The stock market in general and the market for innovative, emerging medtech and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.

From January 1, 2019 through December 31, 2019, the closing sale price of our common stock has been as low as $0.83 per share and as high as $3.27 per share.

The market price of our common stock may be influenced by many factors, including:

From December 23, 2020 through March 3, 2021, the trading price of our common stock has been as low as $0.43 per share and as high as $5.56 per share.

This recent extreme stock price volatility has been accompanied by extremely high trading volume in our common stock in comparison to historical experience.

During this period, the average daily trading volume of our common stock has been approximately 65 million shares and on January 19, 2021, our trading volume exceeded 409 million shares, whereas the average daily trading volume from January 1, 2020 to December 22, 2020 was 2.4 million shares.

The extreme recent increase in trading volume and volatility has not necessarily correlated to the company’s announcement of material developments and appears unrelated to changes in actual or expected operating performance.

Purchases or sales of large quantities of our stock, including the establishment and/or closing of significant short positions in our stock could have an unusual or adverse effect on our market price.

Market fluctuations may also cause short sellers to periodically enter the market in the belief that we will have poor results in the future.

Abnormal trading

activity, including activity that is considered market manipulation, can lead to irrational and/or temporary movements in the price of our common stock, which, in turn, may increase its risk and volatility.

We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our common stock will be stable or appreciate over time.

The market price of our common stock may also be influenced by many additional factors, including:

● analyst coverage, recommendations or changes in their estimates of our financial performance;

● future announcements about us or our competitors, including the results of technological innovations or new commercial products;

● announcement of operating results and other factors relating to the commercialization of our products;

● clinical trial and topline data results;

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● developments in our relationships with our collaboration partners;

● global market or financial developments, whether due to the global COVID-19 pandemic or otherwise;

● announcements relating to health care reform, legislation and reimbursement levels, including third-party payor coverage decisions;

● sales of substantial amounts of our stock by existing stockholders (including stock by insiders or 5% stockholders);

regulatory actions;

● regulatory approvals, timelines or other actions;

● litigation;

● public concern as to the safety of our products or recalls;

● the other factors described in this Risk Factors section.

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

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

Our certificate of incorporation authorizes us to issue up to 900,000,000 shares of common stock and up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors.

Subject to compliance with applicable rules and regulations, we may issue our shares of common stock, including by conversion of our convertible notes in certain circumstances, in connection with a financing, acquisition, investment, our equity incentive plans or otherwise.

Subject to compliance with applicable rules and regulations, we may issue our shares of common stock, including securities convertible into common stock, in connection with a financing, acquisition, investment, our equity incentive plans or otherwise.

Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Our GAAP operating results could fluctuate substantially due to the accounting for the embedded conversion option, interest make-whole provision and make-whole fundamental change provision features of the notes.

Our convertible senior subordinated notes contain certain embedded features that require bifurcation of the embedded conversion option along with the fundamental change make-whole provision, interest make-whole provision, and the cash settled fundamental make-whole shares provision, and recorded the fair value of these embedded features as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification, or ASC, Topic 815, Derivatives and Hedging .

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

In the event of a liquidation, dissolution or winding up of our company, our Series A convertible preferred stock, along with any convertible preferred stock that we may issue to PHC or Energy Capital, will rank senior to our common stock.

Each share of preferred stock will be entitled to receive an amount per share equal to the greater of the purchase price paid and the amount that the holder would have been entitled to receive at such time if the convertible preferred stock were converted into common stock.

Until the holders of the convertible preferred stock have been paid their liquidation amount in full, no payment will be made to any holder of common stock.

If our assets, or the proceeds from their sale, distributable among the holders of the convertible preferred stock are not sufficient to pay the liquidation amount in full, then those assets or proceeds will be distributed among the holders of the convertible preferred stock.

In that case, there would be no assets or proceeds remaining to be distributed to holders of our common stock, which could impact the trading price of our common stock.

Shares of our convertible preferred stock, including shares issuable under our Equity Line Agreement with Energy Capital, and the PHC Notes are convertible into shares of our common stock and, upon conversion, will dilute your percentage of ownership.

Each share of our convertible preferred stock is convertible at any time at the option of the holder into approximately 2,100 shares of our common stock (subject to customary anti-dilution adjustments, including in the event of any stock split).

Under the Equity Line Agreement, subject to the satisfaction of certain conditions, including that we have less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), we also have the right, in our sole discretion, to present Energy Capital with a 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 our Series B Preferred Stock, with such shares convertible into common stock at a price of $0.3951 per share.

Also, under the Equity Line Agreement, beginning January 1, 2022, subject to the satisfaction of certain conditions, Energy Capital has the option to purchase any Series B Preferred Stock that we have not already sold to it under the agreement at a price of $1,000 per share.

The PHC Notes are also convertible into our common stock at the option of the holder.

Accordingly, any conversion of convertible preferred stock or the PHC Notes would dilute the ownership of our holders of common stock.

The potential dilutive effect of the conversion of shares of convertible preferred stock or convertible notes may also adversely affect our ability to obtain additional financing on favorable terms or at all.

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

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

The holders of convertible preferred stock generally are entitled to vote with the holders of the shares of common stock on all matters submitted for a vote of holders of shares of common stock (voting together with the holders of shares of common stock as one class) on an as-converted basis.

Additionally, certain matters require the approval of the majority of the outstanding convertible preferred stock, voting as a separate class, including (i) altering or changing adversely the powers, privileges, preferences or rights of the convertible preferred stock, or (ii) amendments, modifications, repeal or waiver of any provision of our certificate of incorporation or of the certificate of designations that would adversely affect the rights, preferences, privileges or powers of the convertible preferred stock.

As a result, the holders of our convertible preferred stock and the PHC Notes are able to influence our decisions, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate transactions.

Some of these persons or entities may have interests different the interests of the holders of our common stock.

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

We have entered into agreements with PHC and Energy Capital that, collectively, provide for our receipt of up to $27 million of aggregate funding pursuant to the sale of convertible preferred stock to PHC and Energy Capital.

Pursuant to our agreement with PHC, we have the option to sell and issue to PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon our obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date.

On November 9, 2020, we entered into the Equity Line Agreement with Energy Capital.

Under the Equity Line Agreement, subject to the satisfaction of certain conditions, including that we have less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), we have the right, in our sole discretion, to present Energy Capital with a 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 our Series B Preferred Stock, with such shares convertible into common stock at a price of $0.3951 per share.

Also, under the Equity Line Agreement, beginning January 1, 2022, subject to the satisfaction of certain conditions, Energy Capital has the

option to purchase any Series B Preferred Stock that we have not already sold to it under the agreement at a price of $1,000 per share.

Because of the contingencies of each transaction, there can be no guarantee that we will be able to sell the additional convertible preferred stock to PHC or Energy Capital.

If we are unable to do so, we may be forced to seek to raise additional capital on less advantageous terms, if available at all, which would likely have a material adverse effect on our liquidity and the trading price of our common stock.

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

On April 22, 2020 we received proceeds of $5.8 million from a loan under the Paycheck Protection Program of the CARES Act, a portion of which may be forgiven, which used to retain current employees, maintain payroll and make lease and utility payments.

The PPP Loan matures on April 21, 2022 and bears annual interest at a rate of 1.0%.

Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval.

Not more than 25% of the forgiven amount may be for non-payroll costs.

The amount of the PPP Loan eligible to be forgiven is limited because of certain headcount reductions that we implemented in March 2020 and will be reduced if our full-time headcount declines further, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%.

We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest and we cannot provide any assurance that we will be eligible for loan forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA.

We expect to apply forgiveness and make payments on any unforgiven portion on the PPP Loan in the second half of 2021.

Furthermore, on April 28, 2020, the Secretary of the U.S.

Department of the Treasury stated that the SBA will perform a full review of any PPP loan over $2.0 million before forgiving the loan.

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations.

We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act.

The certification described above does not contain any objective criteria and is subject to interpretation.

On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.

Subsequently, on April 29, 2020 the SBA issued guidance that it will review all PPP loans of more than $2 million, following the lender’s submission of the borrower’s loan forgiveness application.

The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans.

If, despite our good-faith belief that given our Company's circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan in its entirety.

In addition, receipt of a PPP Loan may result in adverse publicity and damage to reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources.

Should we be audited or reviewed by federal or state regulatory authorities as a result of filing an application for forgiveness of the PPP Loan or otherwise, such audit or review could result in the diversion of management’s time and attention and legal and reputational costs.

If we were to be audited or reviewed and receive an adverse determination or finding in such audit or review, we could be required to return the full amount of the PPP Loan.

Any of these events could have a material adverse effect on our business, results of operations and financial condition.

Our GAAP operating results could fluctuate substantially due to changes in fair value of the liability options and the derivatives related to the embedded conversion option, interest make-whole provision and make-whole fundamental change provision features of the notes.

Our liability options related to the Energy Capital Agreement and Masters Capital Agreement are classified as liabilities in accordance with ASC 480 on the Company’s balance sheet and are recorded at fair value.

These options are

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).

ASC 815 requires companies to bifurcate certain embedded derivatives from their host instruments and account for them as free standing derivative financial instruments according to certain criteria.

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We utilize a third-party valuation expert and the binomial option pricing method to determine the fair value of the derivative instruments at each reporting date using inputs based on recent trading prices (Level 2) and other observable inputs, including our common stock price, implied volatility, interest rates and credit spreads, or unobservable inputs (Level 3) where there is an absence of recent trading prices.

We cannot predict the effect that the accounting for the notes and the associated fluctuations in the fair value of the embedded features will have on our future GAAP financial results, the trading of our common stock and the trading price of the notes, which could be material.

We cannot predict the effect that the accounting for the options and notes and the associated fluctuations in the fair value of the liability options and embedded features of the notes will have on our future GAAP financial results, the trading of our common stock and the trading price of the notes, which could be material.

Continued extreme volatility in our stock price, as we have experienced recently, could exacerbate such effects.

If our estimates relating to our critical accounting policies are based on assumptions or judgments that change or prove to be incorrect, our operating results could fall below expectations of financial analysts and investors, resulting in a decline in our stock price.

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Significant assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition and variable consideration, reserves for inventory obsolescence and warranties, stock-based compensation, embedded features of our senior convertible notes and income taxes.

Our financial results may be adversely affected by changes in accounting principles applicable to us.

GAAP are subject to interpretation by the FASB, the SEC, and other bodies formed to promulgate and interpret appropriate accounting principles.

For example, in May 2014, the FASB issued accounting standards update No.

2014-09 (Topic 606), Revenue from Contracts with Customers , which supersedes nearly all existing revenue recognition guidance under U.S.

We adopted this guidance as of January 1, 2018.

Any difficulties in implementing these pronouncements or adequately accounting after adoption could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors ’

confidence in us.

We do not intend to pay cash dividends in the foreseeable future.

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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.

all of our stockholders.

For example, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock.

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These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

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 and amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and 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 the following types of actions or proceedings under Delaware statutory or common law:

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However, this exclusive forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act.

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.

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

Our amended and restated bylaws further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.

We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

These exclusive forum provisions 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 lawsuits against us and our directors, officers and other employees.

Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions.

There is uncertainty as to whether a court would enforce such provisions, and the enforceability of similar choice of forum provisions in other companies’ charter documents has been challenged in legal proceedings.

While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions.

If a court were to find these types of provisions to be inapplicable or unenforceable, and if a court were to find the exclusive forum provision in our amended and restated bylaws to be

inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could materially adversely affect our business.

I f we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

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During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting that exists at the reporting date, we will be unable to assert that our internal control over financial reporting is effective.

As we are no longer an emerging growth company and adapted our system of internal controls over financial reporting pursuant to Section 404 (b) of the Sarbanes-Oxley Act, we identified a material weakness in our internal control over financing reporting during the fourth quarter of 2019 related to inventory controls.

This was successfully remediated during the same quarter of 2019.

As a result, we have

no material weaknesses in our internal control over financial reporting at December 31, 2019, which aligns with our independent registered public accounting firm’s attestation report included elsewhere in this Annual Report on Form 10-K, which is required to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting that existed at the reporting date.

We have no material weaknesses in our internal control over financial reporting at December 31, 2020.

While we have established certain procedures and controls over our financial reporting processes, we cannot assure you that these efforts will prevent future material weaknesses or restatements of our financial statements.

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In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places.

Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including passage of the newly enacted federal income tax law, changes in the mix of our profitability from state to state, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws.

taxes and changes in tax laws.

Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.

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These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities.

Under the Tax Cuts and Jobs Act of 2017, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses may be limited.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an "ownership change," which generally occurs if the percentage of the corporation's stock owned by 5% stockholders increases by more than 50% over a three-

year period, the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited.

Under the Tax Cuts and Jobs Act of 2017, as modified by the CARES Act, federal NOL carryforwards generated in tax years beginning after December 31, 2017 may be carried forward indefinitely, but in the case of tax years beginning after 2020, may only be used to offset 80% of our taxable income annually.

Federal NOL carryforwards generated in taxable years beginning in 2018, 2019 and 2020 will similarly carry forward indefinitely but will not be subject to such 80% of annual taxable income limitation.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an "ownership change,"

which generally occurs if the percentage of the corporation's stock owned by 5% stockholders increases by more than 50% over a three-year period, the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited.

We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our NOL and tax credit carryforwards are subject to an annual limitation under Section 382.

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If we determine that an ownership change has occurred and our ability to use our historical NOL and tax credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

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

As a public company in the United States, we have incurred, and will continue to incur, significant additional legal, accounting and other costs, particularly now that we have ceased 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 American, 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.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors