ITEM 1A: Risk Factors Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Except as set forth below, there have been no material changes from our risk factors described in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 3, 2025. 34 Risks Relating to our Business and our Industry Our Commercialization Agreement with Ascensia to market Eversense may not be successful. We have a Commercialization Agreement with Ascensia, pursuant to which we have granted Ascensia the exclusive right to distribute Eversense worldwide, subject to certain exceptions. Pursuant to this agreement, Ascensia has been responsible for the substantial majority of our historical revenue and our success is dependent on Ascensia effectively marketing and selling Eversense. Prior to our Commercialization Agreement with Ascensia, Ascensia had limited experience with marketing durable medical equipment and no experience marketing CGM systems. In order to strengthen commercial execution, in 2024, Ascensia established an independent dedicated business unit responsible for commercializing Eversense, which reports directly to Ascensias parent company, PHC Holdings Corporation (PHC), and Ascensia engaged a new president of CGM to lead that business unit. In an effort to accelerate Ascensias commercialization efforts, we have taken steps to address challenges to Eversense adoption by establishing Eon Care, which maintains a network of nurses to perform insertions. insertions, fully transitioning a network of inserters to Eon Care from the Nurse Practitioner Group in the second quarter. We have also sought to complement Ascensias commercialization efforts by establishing a consignment program, whereby we sell the Eversense system and related components and supplies through a network of healthcare professionals, and supporting have seen an increase in the percentage of our U.S. sales that take place through the consignment program. We have also increased our support of certain commercial programs such as direct to consumer (DTC) spending, certain key account activities, and market access support. In recent quarters, we have invested greater amounts in commercial activities, and expect to continue enhanced investment, in DTC spending. Although the rate of Eversense adoption has increased following these initiatives, as well as the regulatory approval of Eversense 365, we continue to work closely with Ascensia to accelerate commercialization and further adoption of our product. The Commercialization 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 outlined in the agreement, we will only have the right to convert Ascensias exclusive rights to nonexclusive rights. We regularly engage in discussions with Ascensia regarding the market opportunity for Eversense, the degree of spending on commercialization, and the potential impact of greater commercial support on product uptake. We also assess ways in which we can modify our plans or arrangements, and expand or introduce new commercial activities to accelerate commercialization and product adoption. As of the date of this report, we are assessing continue to assess with Ascensia its spending against targets target requirements for Ascensias fiscal year ended March 31, 2025, collaborating the implications of any failure to determine meet such targets, and the commercial needs of the business. We continue to discuss with Ascensia what adjustments may be required in commercial support or our arrangements to better pursue the potential of Eversense, and considering consider any constraints to such support. support or arrangements. If we and/or Ascensia were to elect to modify our Commercialization Agreement or other commercial arrangements, such changes could subject us to additional risks or uncertainties associated with product commercialization. 37 The agreement is terminable by Ascensia under a number of circumstances, including if we undergo a change of control. 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. 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 experience as a commercial-stage company upon which to evaluate our business, future sales expectations and operating results is limited. In assessing our business prospects, you should consider the various risks and difficulties frequently encountered by companies early in their commercialization in competitive and rapidly evolving markets, particularly companies that develop and sell medical devices. These risks include our ability to: obtain regulatory clearance, certification or approval to commercialize our products; perform clinical trials with respect to current Eversense or future versions of Eversense; 35 implement and execute our business strategy; expand and improve the productivity of our sales and marketing infrastructure to grow sales of Eversense or future versions of Eversense; increase awareness of our brand and Eversense and build loyalty among people with diabetes, their caregivers and healthcare providers; manage expanding operations; manage and secure effective sales of our product through our 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; respond effectively to competitive pressures and developments; enhance Eversense and develop future versions of Eversense; and attract, retain and motivate qualified personnel in various areas of our business. Due to our limited operating history as a commercial-stage company, we may not have the institutional knowledge or experience to be able to effectively address these and other risks that may face our business. In addition, we may not be able to develop insights into trends that could emerge and negatively affect our business and may fail to respond effectively to those trends. Additionally, if our collaboration with Ascensia were to be modified, we could seek to take a greater role in the commercialization of Eversense, which would subject us to additional risks and uncertainties associated with those activities. As a result of these or other risks, we may not be able to execute key components of our business strategy, and our business, financial condition and operating results may suffer. If we are unable to successfully expand our commercialization of Eversense in the United States and Europe through our Commercialization Agreement with Ascensia, 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, which is entirely dependent on our 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: receipt of timely marketing approvals from applicable regulatory authorities or CE Certificates Conformity from Notified Bodies in the EEA; our ability to procure and maintain suppliers and manufacturers of the components of Eversense and future versions of Eversense; 38 market acceptance of Eversense by people with diabetes, the medical community and 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; the prevalence and severity of adverse events experienced with Eversense and future versions of Eversense; the perceived advantages, cost, safety, convenience and accuracy of alternative diabetes management therapies; obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity for Eversense and otherwise protecting our rights in our intellectual property portfolio; maintaining compliance with regulatory requirements, including current good manufacturing practices; and maintaining a continued acceptable accuracy, safety, duration and convenience profile of Eversense. Our revenue is dependent, in part, upon the size of the markets in the territories for which we have regulatory approval or certification, the accepted price for the product, the ability to obtain coverage and reimbursement, and whether we own the commercial rights for that territory. If the number of people with diabetes we target is not as 36 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 dependent on the success of Ascensia in commercializing our product and its future versions. Our product is a new product for Ascensia globally and they must continue to establish certain functions of their U.S. commercial organization to successfully market and sell our CGM system. Ascensias continued organizational development of its sales and marketing capabilities will be critical to successful commercialization of our Eversense systems. If Ascensia is unable to maintain effective sales, marketing and other functions that are required to support the product, or achieve the increased levels of commercial support needed to support product expansion, it will have a materially negative impact on our net revenues from Eversense. As of the date of this report, we are assessing continue to assess with Ascensia its spending against targets for Ascensias fiscal year ended March 31, 2025, collaborating the implications of any failure to determine meet such targets, and the commercial needs of the business. We continue to discuss with Ascensia what adjustments may be required in commercial support or our arrangements to better pursue the potential of Eversense, and considering consider any constraints to such support. support or arrangements. If we and/or Ascensia were to elect to modify our Commercialization Agreement or other commercial arrangements, such changes could subject us to additional risks or uncertainties associated with product commercialization. Approval in the United States by the FDA or approval, or certification by a regulatory agency or Notified Body in another country does not guarantee approval, or certification by the regulatory authorities or Notified Bodies in other countries or jurisdictions or ensure approval, or certification for the same conditions of use. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval or certification processes vary among countries and can involve additional product testing and validation and additional administrative review periods. If we do not achieve one or more of these approvals, or certifications in a timely manner or at all, we could experience significant delays or an inability to fully commercialize Eversense and achieve profitability. Both before and after a product is commercially released, we will have ongoing responsibilities under U.S. and EU regulations. We will also be subject to periodic inspections by the FDA, the Notified Bodies in the EEA and comparable foreign authorities to determine compliance with regulatory requirements, such as the QSR, of the FDA, medical device reporting regulations, vigilance in reporting of adverse events and regulations regarding notification, corrections, and recalls. These inspections can result in observations or reports, warning letters or other similar notices or forms of enforcement action. If the FDA, or any comparable foreign regulatory 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, vary or cancel our marketing authorizations or CE Certificates of Conformity, impose "stop-sale" stop-sale and "stop-import" 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 or variation of an existing regulatory clearance or CE Certificate of Conformity for Eversense. The FDA, competent authorities of EEA countries and comparable 39 foreign regulatory authorities may also impose operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices, assess civil or criminal penalties against our officers, employees or us, or recommend criminal prosecution of our company. Adverse regulatory action may restrict us from effectively marketing and selling our products. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material adverse effect on our business, financial condition, and operating results. 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. In some jurisdictions, such as Germany, any violation of a law related to medical devices is also considered to be a violation of the unfair competition law. In such cases, governmental authorities, our competitors and business or consumer associations may then file lawsuits to prohibit us from commercializing Eversense in such jurisdictions. Our competitors may also sue us for damages. Any domestic or foreign governmental law or regulation imposed in the future may have a material adverse effect on our business, financial condition and operating results. 37 Our collaboration agreement with Sequel Med Tech may not lead to the benefits that we anticipate. In April 2025, we entered into a collaboration agreement with Sequel Med Tech (the Sequel Collaboration), for the purpose of integrating the companies technologies to jointly create the first ever automated insulin delivery system with a once-yearly CGM. The development program seeks to integrate Eversense 365 and Sequels twiist automated insulin delivery system to enable improved outcomes for people living with diabetes. We currently expect the integration of the companies products to be available to consumers in the third fourth quarter of 2025. The Sequel Collaboration subjects us to additional risks in our business operations, including but not limited to: costs and expenses associated with the Sequel Collaboration, including the possibility that the costs associated with the integration of the companies technologies materially exceed our current expectations; potential distraction from other development priorities that may provide more value to the Company; the possibility that either party to the Sequel Collaboration may not devote sufficient financial or other resources to the collaboration, including as a result of changes to corporate priorities; potential technological challenges that may be experienced in the course of the collaboration, which could delay the technology integration or prevent it from being completed at all; potential claims for infringement, misappropriation or violation of intellectual property rights of others, which could expose us to potential litigation or other legal proceedings; the potential for disputes to arise between the Company and Sequel Med Tech regarding the integration of the companies technologies or other aspects of the Sequel Collaboration; and compliance with regulatory and legal requirements. In addition, there is no guarantee that the Sequel Collaboration will result in the financial and economic benefits we anticipate. Any of the risks listed above and other risks may cause a delay in the technology integration under the Sequel Collaboration or even prevent us from completing the project altogether. If the Sequel Collaboration is not successful or if we are unable to generate sufficient revenue as a result of the Sequel Collaboration, it could adversely affect our business and results of operations, and may damage our reputation. International trade policies, including tariffs, sanctions and trade barriers may adversely affect our business, financial condition, results of operations and prospects . We operate in a global economy, and our business depends on a global supply chain for the development, manufacturing, and distribution of our products, and for the advancement of the development programs for our future generation products. There is inherent risk, based on the complex relationships among the U.S. and the countries in which we conduct our business, that political, diplomatic, and national security factors can lead to global trade restrictions and changes in trade policies and export regulations that may adversely affect our business and operations. The current international trade and regulatory environment is subject to significant ongoing uncertainty. 40 We do not own or operate any manufacturing facilities. We currently rely, and expect to continue to rely, on third parties for the manufacture of our products as well as the future generations of our products under development. Currently, several of our suppliers are located outside of the United States. Tariff policies, particularly those affecting countries where our suppliers are located and medical devices generally, could materially increase our costs and reduce our profitability, including as a result of our inability to adjust pricing for our products. Although these tariff policies have not, to date, had a material effect on our production costs, recent and potential future changes in international trade policies, and medical device-specific tariffs, could present material risks to our operations and financial performance. Recent policy discussions have included potential targeted tariffs or other trade measures specifically aimed at medical technologies as part of broader healthcare cost control or national security initiatives. Unlike consumer goods, medical devices are subject to unique regulatory constraints that make rapid supply chain adjustments particularly difficult and costly. Should additional tariffs be imposed specifically targeting medical device components, our production costs could rise significantly, and it may be difficult and costly to qualify alternative sources within another country with a lower tariff rate or within the United States, as developing and qualifying alternative sources typically requires at least several months and substantial investment and regulatory approvals. Moreover, the dynamic and unpredictable tariff and trade landscape creates substantial uncertainty and significant planning challenges for our 38 operations. Changes in tariff classifications, country-of-origin requirements, or customs procedures can occur with limited notice. This uncertainty complicates our long-term investment decisions regarding manufacturing facilities, supply chain optimization, and research and development activities. Unlike many industries, our ability to pass increased costs to customers is limited by the nature of medical device pricing and reimbursement systems. Many of our products are distributed pursuant to pricing established through annual or multi-year contracts with commercial, third-party payors, and reimbursement methodologies established by government programs, such as Medicare. These arrangements typically include fixed pricing terms that were negotiated prior to the implementation of the recently announced tariffs. As a result, and depending on the timing and scope of the implementation of these tariffs, cost increases due to tariffs may be difficult or impossible to pass through to customers until the next negotiation cycle. Current or future tariffs will also result in increased research and development expenses, including with respect to increased costs associated with raw materials, laboratory equipment and research materials and components. Trade restrictions affecting the import of materials necessary for the clinical trials of our future generation products could result in delays to our development timelines. Increased development costs and extended development timelines could place us at a competitive disadvantage compared to companies operating in regions with more favorable trade relationships and could reduce investor confidence and negatively impact our business, results of operations, financial condition and growth prospects. The complexity of announced or future tariffs may also increase the risk that we or our customers or suppliers may be subject to civil or criminal enforcement actions in the United States or foreign jurisdictions related to compliance with trade regulations. Foreign governments may also adopt non-tariff measures, such as procurement preferences or informal disincentives to engage with, purchase from or invest in U.S. entities, which may limit our ability to compete internationally and attract non-U.S. investment, employees, customers and suppliers. Foreign governments may also take other retaliatory actions against U.S. entities, such as decreased intellectual property protection, increased enforcement actions, or delays in regulatory approvals, which may result in heightened international legal and operational risks. In addition, the United States and other governments have imposed and may continue to impose additional sanctions, such as trade restrictions or trade barriers, which could restrict us from doing business directly or indirectly in or with certain countries or parties and may impose additional costs and complexity to our business. Trade disputes, tariffs, restrictions and other political tensions between the United States and other countries may also exacerbate unfavorable macroeconomic conditions including inflationary pressures, foreign exchange volatility, financial market instability, and economic recessions or downturns. The ultimate impact of current or future tariffs and trade restrictions remains uncertain and could materially and adversely affect our business, financial condition, and prospects. While we actively monitor these risks, any prolonged economic downturn, escalation in trade tensions, or deterioration in international perception of U.S.-based companies could materially and adversely affect our business, ability to access the capital markets or other financing sources, results of operations, financial condition and 41 prospects. In addition, tariffs and other trade developments have and may continue to heighten the risks related to the other risk factors described elsewhere in this report and in our Annual Report for the fiscal year ended December 31, 2024. Risks Related to our Financial Results and Need for Financing We will need to generate significant sales to achieve profitable operations. We intend to continue 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. Even if we do generate significant sales, we might not be able to achieve, sustain or increase profitability on a quarterly or annual basis in the future. If our sales grow more slowly than we expect, if we take on additional commercialization responsibilities for Eversense, or if our operating expenses otherwise exceed our expectations, our financial performance and operating results will be adversely affected. 39 Risks Related to Employee Matters and Managing our Growth Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel. We are highly dependent on the management, research and development, clinical, financial and business development expertise of Tim Goodnow, our Chief Executive Officer, Rick Sullivan, our Chief Financial Officer, Mukul Jain, our Chief Operating Officer, and Ken Horton, our General Counsel and Corporate Development Advisor, as well as the other members of our scientific and clinical teams. 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. Recruiting and retaining qualified scientific, clinical and marketing personnel are critical to our success. The loss of the services of our executive officers or other key employees, or the inability to add required staff, could impede the achievement of our research, development and commercialization objectives or the expansion of activities to support Eversense, and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize our products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous medical device companies for similar personnel, many of which have greater financial and other resources dedicated to attracting and retaining personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited. Although it will be subject to restrictions on trading, a portion of the equity of our management team will not contain other contractual transfer restrictions. This liquidity may represent material wealth to such individuals and impact retention and focus of existing key members of management. We may need 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, 2024, we had 117 full-time employees. As our commercialization progresses, we may experience significant growth in the number of our employees and the scope of our operations, particularly in the areas 42 of research, product development, clinical sciences, regulatory affairs, supply chain, logistics, marketing, clinical/insertion services, or additional commercial activities. To manage our 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. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations. Additionally, we have and may undertake cost reduction plans, which may include reorganization of our workforce. These actions could disrupt the employee base, our ability to attract and retain qualified personnel, or cause other operational and administrative inefficiencies.