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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-05 · 341 added, 319 removed, 668 unchanged (50% of the section changed)

Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

SENSEONICS HOLDINGS, INC.

AND SUBSIDIARIES

Consolidated Financial Statements

Report of Ernst & Young LLP , PCAOB ID:

42 , Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2021 and 2020

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Valuation of Derivatives Instruments, Warrants and Options

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

Valuation of Derivatives Instruments and Options

Description of the Matter

As discussed in Note 15 of the consolidated financial statements, the Company measures financial assets and liabilities at fair value using level three inputs.

As discussed in Note 16 of the consolidated financial statements, the Company measures financial assets and liabilities at fair value using Level 3 inputs.

As of December 31, 2021, the financial liabilities measured at fair value are $224.3 million and the financial assets measured at fair value are $0.2 million.

To determine fair value of each financial asset and liability the Company determines the appropriate valuation methodology and assumptions, including unobservable inputs.

To determine fair value of each financial asset and liability the Company determines the appropriate valuation methodology and assumptions,

including unobservable inputs.

For example, the derivative liabilities are measured at fair value using a binomial option pricing model that uses observable and unobservable market data for inputs, including the Company’s stock price, implied volatility of the Company’s shares, and probability of conversion occurrence through maturity.

Auditing management’s estimate for the fair value of the financial assets and liabilities involved subjective auditor judgement because the fair value calculations were sensitive to changes in assumptions described above, and certain inputs used in the determination of fair values were based on unobservable data, including, but not limited to, the implied volatility and probability of conversion.

Auditing management’s estimate for the fair value of the financial assets and liabilities involved subjective auditor judgment because the fair value calculations were sensitive to changes in assumptions described above, and certain inputs used in the determination of fair values were based on unobservable data, including, but not limited to, the implied volatility and probability of conversion.

How We Addressed the Matter in Our Audit

To test the fair value of the Company’s financial assets and liabilities, we performed audit procedures that included, among others, evaluating the methodologies used in the valuation model and the significant assumptions.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's assets and liability valuation process.

This included controls over management's assessment of the significant inputs and estimates included in the fair value measurements.

Our audit procedures included, among others, evaluating the methodologies used in the valuation model and the significant assumptions.

We involved our valuation specialist to assist in the evaluation including to develop an independent valuation of the instruments.

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Restricted cash

Short term investments, net

Accounts receivable, net

Accounts receivable - related parties

Accounts receivable, net - related parties

Inventory, net

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Deposits and other assets

Long term investments, net

Property and equipment, net

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Accrued expenses and other current liabilities

Accrued expenses and other current liabilities- related parties

Term Loans, net

2025 Notes, net

Total current liabilities

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$ 0.001 par value per share;

3,000 shares and 0 shares issued and outstanding as of December 31, 2020 and December 31, 2019

0 shares issued and outstanding as of December 31, 2021 and 3,000 shares issued and outstanding as of December 31, 2020

Total temporary equity

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Common stock, $ 0.001 par value per share;

900,000,000 shares and 450,000,000 shares authorized as of December 31, 2020 and 2019;

265,582,688 shares and 203,452,812 shares issued and outstanding as of December 31, 2020 and 2019

900,000,000 shares authorized;

447,282,263 and 265,582,688 shares issued and outstanding as of December 31, 2021 and December 31, 2020

Additional paid-in capital

Accumulated other comprehensive income, net of tax

Accumulated deficit

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Sales and marketing expenses

Sales and marketing expenses- related parties

Total sales and marketing expenses

Research and development expenses

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Operating loss

Other (expense) income, net:

Other income (expense), net:

Interest income

Loss on fair value adjustment

Loss on extinguishment of debt

Loss on fair value adjustment of option

Gain (Loss) on extinguishment of debt and option

Loss on issuance of debt & other issuance costs

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Debt issuance costs

Gain (Loss) on fair value and change in fair value of derivatives

Impairment costs

Gain (Loss) on change in fair value of derivatives

Impairment cost

Other expense

Total other (expense) income, net

Total comprehensive loss

Basic and diluted net loss per common share

Basic and diluted weighted-average shares outstanding

Total other income (expense), net

Other comprehensive loss, net of tax

Unrealized loss on marketable securities

Total other comprehensive loss, net of tax

Total comprehensive loss, net of tax

Basic net loss per common share

Basic weighted-average shares outstanding

Diluted net loss per common share

Diluted weighted-average shares outstanding

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

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Stockholders'

Comprehensive Loss

Equity (Deficit)

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Conversion of 2023 Notes

Stock-based compensation expense and vesting of RSUs

Stock-based compensation expense and vesting of RSU's

Balance, December 31, 2019

Issuance of convertible preferred stock, net

Issuance of common stock, net

Exercise of stock options and warrants

Stock-based compensation expense and vesting of RSUs

Exercise of stock options and ESPP purchases

Exchange and conversion of convertible notes, net

Stock-based compensation expense and vesting of RSU's

Issuance of warrants related to debt, net

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Issuance of convertible preferred stock, net

Conversion of preferred stock

Issuance of common stock, net

Exercise of stock options and ESPP purchases

Exercise of stock options and warrants

Exchange and conversion of convertible notes, net

Stock-based compensation expense and vesting of RSUs

Issuance of warrants related to debt, net

Issuance of common stock for vested RSUs and ESPP purchase

Shares withheld related to net share settlement

Stock-based compensation expense

Other comprehensive income, net of tax

Balance, December 31, 2021

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

Senseonics Holdings, Inc.

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(in thousands)

Cash flows used in operating activities

Cash flows from operating activities

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

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Change in fair value of derivatives

Loss on fair value adjustment

Loss on extinguishment of debt

Loss on fair value adjustment of option

(Gain) Loss on extinguishment of debt and option

Loss on issuance of debt

Impairment of asset

Impairment of right-of-use asset

Impairment of option

Stock-based compensation expense

Provision for inventory obsolescence and net realizable value

Net realized gain on marketable securities

Loss on disposal of assets

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Net cash used in operating activities

Cash flows used in investing activities

Cash flows from investing activities

Capital expenditures

Payments on right of use liability, building

Sales and maturities of marketable securities

Net cash (used in) provided by investing activities

Cash flows used in financing activities

Purchase of marketable securities

Proceeds from sale and maturity of marketable securities

Net cash used in investing activities

Cash flows from financing activities

Issuance of common stock, net

Proceeds from exercise of stock options and ESPP purchases

Proceeds from issuance of warrants

Proceeds from exercise of stock options, stock warrants and ESPP purchases

Taxes paid related to net share settlement of equity awards

Proceeds from debt issuance, net

Notes issuance costs

Note issuance costs

Proceeds from Solar term loan, net of cost

Payments of notes payable

Proceeds from issuance of Masters preferred stock, net

Proceeds from issuance of warrants, net of costs

Repayment of term loans

Repurchase of 2023 Notes

Principal payments under capital lease obligations

Net cash (used in) provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

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

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Property and equipment purchases included in accounts payable and accrued expenses

Issuance of common stock converted from preferred shares

Issuance of common stock converted from notes payables

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Notes to Consolidated Financial Statements

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

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

Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997.

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The Company’s operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, lack of operating history and uncertainty of future profitability.

Since inception, the Company has suffered substantial operating losses, principally from expenses associated with the Company’s research and development programs and commercial launch of the Eversense® CGM System (for use up to 90 days ) in the United States and the Eversense CGM and Eversense XL CGM Systems (for use up to 180 days ) in Europe, the Middle East, and Africa.

The Company has not generated significant revenue from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability to successfully expand the commercialization of Eversense, continue the development of its products and product upgrades, and to obtain necessary regulatory approvals for the sale of those products, including approval by the FDA for the new 180-day Eversense product in the United States.

These activities will require significant uses of working capital through 2022 and beyond.

The Company generated a net loss of $ 302.5 million for the twelve months ended December 31, 2021 and had an accumulated deficit of $ 951.0 million at December 31, 2021.

During the twelve months ended December 31, 2020, the Company repaid in full its term loan with Solar Capital Ltd.

(“Solar”) in the amount of $ 48.4 million, and as a result, and in consideration of the evolving impact of the coronavirus (“COVID-19”) pandemic, the Company made significant reductions in its cost structure to improve operating cash flow and generate future capital expenditure savings to ensure the long-term success of Eversense.

Specifically, the Company temporarily suspended commercial sales of the Eversense CGM system in the United States to new patients and streamlined its operational strategy to focus on the development and regulatory submission efforts for its new 180-day Eversense product in the United States.

On April 24, 2020, the Company received $ 15.0 million through the issuance and sale of First Lien Secured Notes due October 2021 (the “First Lien Notes”) pursuant to a Loan and Security Agreement (the “Highbridge Loan Agreement”) with certain funds managed by Highbridge Capital Management, LLC (“Highbridge”), as the lenders, together with the other lenders from time to time party thereto (the “Lenders”).

Upon the closing of the PHC Notes, the Company prepaid the First Lien Notes in full in the amount of approximately $ 17.6 million, which includes the discounted prepayment premium pursuant to the Highbridge Loan Agreement.

In connection with the entry into the Highbridge Loan Agreement on April 24, 2020, the Company entered into a Note and Purchase Exchange Agreement with the Lenders, pursuant to which the Company’s senior convertible notes maturing on January 15, 2025 (the “2025 Notes”) were exchanged for (i) $ 15.7 million aggregate principal amount of newly issued Second Lien Secured Notes (the “Second Lien Notes”), (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $ 0.66 per share, and (iv) $ 0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged.

On April 22, 2020, the Company received $ 5.8 million in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”), and administered by the U.S.

Small Business Administration (the “SBA”), to support payroll, rent, and utilities incurred during a defined period.

To date, we have funded its operations principally through the issuance of preferred stock, common stock, convertible note issuance and debt.

As of December 31, 2021, we had cash, cash equivalents and marketable securities of $ 181.8 million

In November 2021, the Company entered into an Open Market Sale Agreement (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $ 150.0 million through Jefferies as the sales agent in an “at the market” offering.

Jefferies will receive a commission up to 3.0 % of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement.

For the twelve months ending December 31, 2021, the Company did not execute any sales of common stock under the 2021 Sales Agreement.

However, as of the date of this Annual Report on Form 10-K, the Company received $ 8.1 million in net proceeds from the sale of 3,077,493 shares of its common stock under the 2021 Sales Agreement.

In November 2019, the Company entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which the Company could offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $ 50.0 million through Jefferies as the sales agent in an “at the market” offering.

In June 2021, the Company received $ 48.4 million in net proceeds from the sale of 12,830,333 shares of its common stock utilizing the full capacity under the 2019 Sales Agreement.

For the twelve months ended December 31, 2020, the Company received $ 0.1 million in net proceeds from the sale of 175,289 shares of its common stock under the 2019 Sales Agreement.

On January 21, 2021, the Company entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C.

Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public offering pursuant to effective registration statements on Form S-3, including and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “Offering”).

The price to the public in the Offering was $ 1.925 per share of common stock.

The Underwriters agreed to purchase the shares from the Company

pursuant to the Underwriting Agreement at a price of $ 1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses.

The initial closing of the Offering occurred on January 26, 2021.

Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of Common Stock.

Total net proceeds from the Offering were $ 106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.

On January 17, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”), pursuant to which the Company sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $ 0.001 par value per share.

The Shares were sold at a purchase price of $ 1.25 per share for aggregate gross proceeds to the Company of $ 50 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company.

The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on November 27, 2019.

The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by the Company, are approximately $ 46.1 million.

On November 9, 2020, the Company entered into an equity line agreement, (“Equity Line Agreement”), with Energy Capital, LLC (“Energy Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $ 12.0 million of shares of the Company’s newly designated series B convertible preferred stock, or the Series B Preferred Stock, at the Company’s request from time to time during the 24-month term of the Equity Line Agreement.

Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that the Company has less than $ 8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, in its sole discretion, to present Energy Capital with a purchase notice, or a Regular Purchase Notice, directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $ 1,000 per share (not to exceed $ 4.0 million worth of shares) once per month, up to an aggregate of $ 12.0 million of its Series B Preferred Stock at a per share price, or the Purchase Price, equal to $ 1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning nine months after the date of its issuance, at a conversion price of $ 0.3951 per share.

The Equity Line Agreement provides that the Company shall not affect any Regular Purchase under the Equity Line Agreement on any date where the closing price of the common stock on the NYSE American is less than $ 0.25 without the approval of Energy Capital.

On August 9, 2020, the Company entered into a Collaboration and Commercialization Agreement with Ascensia Diabetes Care Holdings AG (“Ascensia”) and entered into a financing agreement pursuant to which the Company issued $ 35.0 million in aggregate principal amount of Senior Secured Convertible Notes due in October 2024 (the “PHC Notes”) to Ascensia’s parent company, PHC Holdings Corporation (“PHC”) on August 14, 2020 (the “Closing Date”).

The Company also issued PHC 2,941,176 shares of common stock to PHC as a financing fee.

The Company also has the option to sell and issue PHC up to $ 15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining approval for the 180-day Eversense product for marketing in the United States before such date.

The Company also has the option to sell and issue PHC up to $ 15.0 million of convertible preferred stock on or before December 31, 2022.

Upon the closing of the PHC Notes, we prepaid the Highbridge First Lien Notes in full, in the amount of approximately $ 17.6 million, which includes the discounted prepayment premium.

Additionally, on August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters Special Situations, LLC and certain affiliates thereof (“Masters”) pursuant to which the Company issued and sold to Masters 3,000 shares of convertible preferred stock, designated as “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”), at a price of $ 1,000.00 per share on the Closing Date.

Masters also has the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $ 1,000.00 per share in a subsequent closing, subject to the terms and conditions of the Stock Purchase Agreement, as amended as set forth in Note 18 – Subsequent Events.

On November 9, 2020, we entered into an equity line agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $ 12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement.

Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that the Company has less than $ 8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, in its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $ 1,000 per share (not to exceed $ 4.0 million worth of shares) once per month, up to an aggregate of $ 12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $ 1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock (the “Common Stock”), beginning six months after the date of its issuance, at a conversion price of $ 0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

The Equity Line Agreement provides that the Company shall not affect any Regular Purchase under the Equity Line Agreement on any date where the closing price of the Company’s Common Stock on the NYSE American is less than $ 0.25 without the approval of Energy Capital.

In addition, beginning on January 1, 2022, subject to the satisfaction of certain conditions, if the full $ 12.0 million of Series B Preferred Stock has not been sold pursuant to Regular Purchases, Energy Capital may, at its sole discretion, by its delivery to the Company of a Purchase Notice, from time to time, purchase up to the amount then remaining available under the Equity Line Agreement at the Purchase Price.

The Company believes that these agreements and the financing described in Note 18 – Subsequent Events, provide the financial resources and mutual commitment to support the growth of Eversense and specifically for the Company, the manufacturing of Eversense and continued product development, including the U.S.

launch of the new 180-day Eversense product, if approved.

Additionally, on August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (“Masters”), pursuant to which the Company issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $ 1,000.00 per share in an initial closing.

Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $ 1,000.00 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021.

In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $ 22.8 million.

Each share of Series A Preferred Stock is initially convertible into a number of shares of common stock equal to $ 1,000 divided by the conversion price of $ 0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

All shares of Series A Preferred Stock have been converted to common stock as of December 31, 2021.

The Company believes that these agreements provide the financial resources and mutual commitment to support the growth of Eversense and specifically for the Company, the manufacturing of Eversense and continued product development, including the U.S.

launch of the new Eversense E3 product.

The timing and success of these collaborations and financings are dependent on certain events occurring in accordance with the Company’s plans, and may be influenced by uncontrollable external factors, including restrictions or impacts of COVID-19.

Management has concluded that based on the Company’s current operating plans, its existing cash and cash equivalents will be sufficient to meet the Company’s anticipated operating needs through 2023.

Accordingly, management has concluded that the substantial doubt about the Company’s ability to continue as a going concern through March 31, 2022 that existed at March 5, 2020 has been alleviated.

Summary of Significant Accounting Policies

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The consolidated financial statements reflect the accounts of Senseonics Holdings and its wholly owned subsidiary Senseonics.

All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period.

In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract.

In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract.

The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable, including assumptions as to future events.

These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses.

Actual results could differ from those estimates;

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Comprehensive Loss

Comprehensive loss comprises net loss and other changes in equity that are excluded from net loss.

Comprehensive income (loss) comprises net income (loss) and other changes in equity that are excluded from net income (loss).

For the twelve months ended December 31, 2021, the Company’s comprehensive income (loss) included $ 0.2 million of other comprehensive loss related to the unrealized loss on marketable securities.

For the years ended December 31, 2020 and 2019, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

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Money market funds

Commercial paper

Corporate bonds

Cash and cash equivalents

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Concentration of Revenues and Customers

Net revenue from our distribution arrangement with Roche Diabetes Care GmbH, a related party, accounted for 72 % of our total net revenues for the year ended December 31, 2020.

Net revenue from our distribution arrangement

with Edwards Healthcare Centers, Advanced Diabetes Supply, and Solara Medical Supply, strategic fulfillment partners and supplier of CGM systems to diabetic patients in the United States, accounted for 19 %, 15 %, and 10 %, respectively, of our total net revenues for the year ended December 31, 2020.

During the years ended December 2019, the Company derived 77 % of its total net revenue from Roche, and 12 % from Advanced Diabetes Supply.

During the year ended December 2018, the Company derived 86 %, from one customer, Roche .

Net revenue from the Company’s distribution arrangement with Ascensia, a related party, accounted for 90 % of total net revenues for the year ended December 31, 2021.

Net revenue from distribution arrangement with Roche Diabetes Care GmbH, a related party, accounted for 72 % of total net revenues for the year ended December 31, 2020.

Revenue from distribution arrangement with Edwards Healthcare Centers, Advanced Diabetes Supply, and Solara Medical Supply, strategic fulfillment partners and supplier of CGM systems to diabetic patients in the United States, accounted for 19 %, 15 %, and 10 %, respectively, of total net revenues for the year ended December 31, 2020.

During the year ended December 2019, the Company derived 77 % of its total net revenue from Roche, and 12 % from Advanced Diabetes Supply.

Revenues by geographic region

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Marketable Securities

Marketable securities consist of government and agency securities and corporate debt securities and are typically classified as available for sale.

Marketable securities consist of commercial paper, corporate debt securities, asset backed securities and government and agency securities.

The Company’s investments are classified as available for sale.

Such securities are carried at fair value, with any unrealized holding gains or losses reported, net of any tax effects reported, as accumulated other comprehensive income.

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The cost of securities sold is calculated using the specific identification method.

The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets.

As of December 31, 2020 and 2019, the Company did not have any marketable securities.

We classify all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets.

We do not generally intend to sell these investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

Inventory and Obsolescence

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Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.

The Company does not have a history of collectability concerns, however, an immaterial allowance for uncollectible accounts was recorded as of December 31, 2020.

The Company did not have any allowances for doubtful accounts as of December 31, 2019.

The Company does not have a history of collectability concerns, and no allowance for uncollectible accounts was recorded as of December 31, 2021.

The Company had an immaterial allowance for doubtful accounts as of December 31, 2020.

Property and Equipment

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If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.

Management did not identify any indicators of impairment in 2020, 2019, and 2018.

Management identified indicators of impairment on right-of-use assets in 2021.

Management did no t identify any indicators of impairment in 2020 and 2019.

Derivative Financial Instruments

In connection with the Company’s issuance of the convertible senior subordinated notes due 2023 (the “2023 Notes”), in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging .

provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging .

In July 2019, the Company issued $ 82.0 million in aggregate principal amount of convertible senior subordinated notes due 2025 (the “2025 Notes).

In connection with the 2025 Notes, the Company bifurcated the embedded conversion option along with the fundamental change 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 ASC Topic 815, Derivatives and Hedging .

On April 21, 2020, the Company entered into the Highbridge Loan Agreement, in which an aggregate principal amount of $ 15.0 million was borrowed through the issuance and sale of the First Lien Notes and issued 1,500,000 shares of our common stock to the Lenders as a commitment fee.

On April 21, 2020, the Company entered into the Highbridge Loan Agreement, in which an aggregate principal amount of $ 15.0 million was borrowed through the issuance and sale of the First Lien Notes and issued 1,500,000 shares of its common stock to the Lenders as a commitment fee.

The First Lien Notes also contained redemption features that were evaluated for bifurcation as separate derivative instruments including the permitted prepayment put option, the mandatory accelerated redemption and the mandatory redemption and reinvestment upon an asset sale.

We recorded the fair value of the embedded features in the amount of $ 1.0 million as a debt premium and derivative asset in our consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

The derivative was adjusted to fair value at each reporting period, with the change recorded in change in fair value of derivatives that is a component of other income (expense) in our consolidated statements of operations and comprehensive loss.

On August 14, 2020, the

Company prepaid the First Lien Notes in full, including the discounted prepayment premium, in the amount of approximately $ 17.6 million and recognized a loss on extinguishment in the amount of $ 0.7 million.

The Company recorded the fair value of the embedded features in the amount of $ 1.0 million as a debt premium and derivative asset in its consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

The derivative was adjusted to fair value at each reporting period, with the change recorded in change in fair value of derivatives that is a component of other income (expense) in its consolidated statements of operations and comprehensive loss.

On August 14, 2020, the Company prepaid the First Lien Notes in full, including the discounted prepayment premium, in the amount of approximately $ 17.6 million and recognized a loss on extinguishment in the amount of $ 0.7 million.

On April 21, 2020, the Company entered into a Note Purchase and Exchange Agreement with certain funds managed by Highbridge providing for the exchange (the “Exchange”) of $ 24.0 million aggregate principal amount of the outstanding 2025 Notes for (i) $ 15.7 million aggregate principal amount of newly issued Second Lien Notes, (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $ 0.66 per share, and (iv) $ 0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged.

On August 9, 2020, we entered into a First Amendment to Note Purchase and Exchange Agreement with Highbridge (as amended by the Amendment, the “Exchange Agreement”).

The Second Lien Notes also contain redemption features that were evaluated for bifurcation as separate derivative instruments including the permitted prepayment put option, the mandatory accelerated redemption and the mandatory redemption and reinvestment upon an asset sale.

On August 9, 2020, the Company entered into a First Amendment to Note Purchase and Exchange Agreement with Highbridge (as amended by the Amendment, the “Exchange Agreement”).

The Second Lien Notes also contained redemption features that were evaluated for bifurcation as separate derivative instruments including the permitted prepayment put option, the mandatory accelerated redemption and the mandatory redemption and reinvestment upon an asset sale.

Unlike the First Lien Notes, the Second Lien Notes also permit voluntary conversion at the option of the holder as described above.

We recorded the fair value of these embedded features in the amount of $ 1.9 million as a derivative asset in our consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in our consolidated statement of operations and comprehensive loss.

During the fiscal year ended December 31, 2020, Highbridge elected to convert the full $ 15.7 million of outstanding principal on the Second Lien Notes for issuance of 42,776,936 shares of common stock, which included prepayment premiums and were based off of our election of PIK interest.

The Company recorded the fair value of these embedded features in the amount of $ 1.9 million as a derivative asset in its consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

The derivative was adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in its consolidated statement of operations and comprehensive loss.

In August 2020, the Company issued $ 35.0 million in aggregate principal amount of convertible senior secured notes due PHC, or the PHC Notes.

The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default.

The Company recorded the fair value of the embedded features in the amount of $ 25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

On the date of issuance, the Company recorded the fair value of the embedded features in the amount of $ 25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

The financial instruments above are remeasured at the end of each reporting period with changes in fair value recorded in the consolidated statements of operations and comprehensive loss in other income (expense) as a change in fair value of the derivative liability.

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The following table provides a reconciliation of the change in estimated warranty liabilities for the years ended December 31, 2021 and 2020 (in thousands):

Balance at beginning of the year

Balance at beginning of the period

Provision for warranties during the period

Settlements made during the period

Balance at end of the year

Balance at end of the period

Revenue Recognition

The Company recognizes revenue in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services.

To determine revenue recognition, the entity performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company generates revenue from sales of the Eversense CGM system and related components at a fixed price to third-party distributors in the European Union and to a network of strategic fulfillment partners in the United States (collectively, “Customers”) who then resell the products to health care providers and patients.

The Company generates product revenue from sales of the Eversense system and related components and supplies to Ascensia, through the Commercialization Agreement, third-party distributors in the European Union and to strategic fulfillment partners in the United States, or collectively, Customers, who then resell the products to health care providers and patients.

The Company is paid for its sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.

Revenue is recognized, at a point in time, when the Customers obtain control of the product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which is expected to be received in exchange for the product.

Contracts with the Customers include performance obligations for supply of goods and the performance obligation is typically satisfied upon transfer of control of the product.

Distribution contracts may also contain requirements for training and customer service support, however these are not assessed as performance obligations given the activities are considered immaterial in the context of the contract.

The payment terms and conditions of the Customers vary, but the Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

Revenue is recognized only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur in a future period.

The Company’s contracts may contain variable consideration such as prompt-pay discounts or tier-volume price discounts.

Variable consideration, including the reimbursements paid by the Company to its Customers in accordance with the Eversense Bridge Program initiated in March 2019 and to a lesser extent, other discounts and prompt-pay incentives, is treated as a reduction in revenue when the product sale is recognized.

Depending on the variable consideration, the Company estimates the expected value based on the terms of the agreements, historical data, third-party payor mix, reimbursement rates, and market conditions.

In connection with the Eversense Bridge Program, the Company reimburses participating Customers an amount up to a fixed maximum for the difference in the cost of the Eversense System and what they collect from insurance payors and the patient’s fee of $ 99 .

The Customers are responsible for confirming patient insurance coverage, obtaining pre-authorizations, determining eligibility, and continuously provide the Company with data regarding which patient orders are under the program and which are not.

Customer supplied data, along with actual reimbursements that have been validated to patient claims, are used to support expected reimbursement estimates.

Estimated reimbursement payments for product shipped to Customers but not provided to a patient within the same reporting period are recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

The Eversense Bridge Program concluded on December 31, 2020 and the remaining estimated liability is likely not material.

Contract assets consist of trade receivables from Customers and contract liabilities consist of amounts due to the Customers in connection with the Eversense Bridge Program, incentive programs, or prompt-pay discounts, classified as patient access and incentive programs within accrued expenses and other current liabilities on the accompanying consolidated balance sheets.

The Company’s contracts provide for a one-year warranty on transmitters to Customers.

Customer contracts do not include the right to return.

Revenue from product sales is recognized at a point in time when the Customers obtain control of the Company’s product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which the Company expect to receive in exchange for the product.

Contracts with the Company’s distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product.

Customer contracts do not include the right to return unless there is a product issue, in which case we may provide replacement product.

Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.

The Company’s contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Ascensia commercial agreement, revenue share.

Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable considerations, such as revenue share, is treated as an addition in revenue when the product sale is recognized.

The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved.

Estimating variable consideration and the related constraint requires the use of significant management judgment.

Depending on the variable consideration, the Company develops estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, Ascensia’s ability to sell through the inventory and market conditions.

Contract assets consist of trade receivables and unbilled receivables from customers and are recorded at net realizable value.

Unbilled receivables relate to the revenue share variable consideration from the Ascensia commercial agreement.

Cost of Sales

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Sales and marketing expenses consist primarily of salaries, commissions, and other related costs, including stock-based compensation, for personnel who perform sales, marketing, and customer support functions.

Other significant costs include marketing programs, website design and advertising, educational and promotional materials, consultants, and tradeshow expenses.

Other significant costs include website design and advertising, educational and promotional materials, consultants, tradeshow expenses, marketing programs and support for Ascensia’s marketing programs including direct to consumer campaigns.

Research and Development Expenses

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Treasury securities consistent with the expected life of employee stock options.

The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified

Under the simplified method, the expected life of an option is presumed to be the mid-point between the vesting date and the end of the contractual term.

The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method.

Under the simplified method, the expected life of an option is presumed to be the mid-point between the vesting

date and the end of the contractual term.

The Company uses the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options.

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The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities.

The Company’s term loan under the 2025 Notes, PHC Notes, 2023 Notes, Warrants and Options are recorded at historical cost, net of discounts, and approximate fair value based on their borrowing rates.

The associated embedded conversion features in the Notes are derivative instruments and remeasured at fair value each reporting period.

The Company’s term loan under the 2025 Notes, PHC Notes, 2023 Notes, and Warrants are recorded at historical cost, net of discounts, and approximate fair value based on their borrowing rates.

The associated embedded conversion features in the Notes are derivative instruments and along with Options are remeasured at fair value each reporting period.

Net Loss per Share

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Recently Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which eliminates, adds and modifies certain disclosure requirements on fair value measurements.

The new standard includes additional disclosure requirements regarding the range and weighted average to develop significant unobservable inputs within Level 3 fair value measurements and became effective for the Company on January 1, 2020.

The Company has evaluated the standard and does not expect this to have a significant impact on the consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15) .

This new guidance requires a customer in a cloud computing arrangement to determine which implementation costs to capitalize as assets or expense as incurred.

Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted.

Application of this guidance can be applied either prospectively or retrospectively.

We adopted the new standard on January 1, 2020 on a prospective basis.

The Company’s adoption of ASU 2018-15 at the beginning of the first quarter of 2020 did not have a significant impact on its consolidated financial statements.

The Company has adopted this guidance as of January 1, 2021 and did not have a material impact on the consolidated financial statements and related disclosures.

Not Yet Adopted

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For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment.

The Company does not currently hold or plan to invest in available-for-sale securities, and has not historically experienced collection issues or bad debts with trade receivables.

The Company currently holds investments in available-for-sale securities.

The Company has not historically experienced collection issues or bad debts with trade receivables.

Accordingly, the Company does not expect this to have a significant impact on its consolidated financial statements and related disclosures at this time.

The Company will adopt this guidance on its effective date for smaller reporting companies, January 1, 2023.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law.

ASU 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted.

The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity’s Own Equity (Subtopic 815-40).

Since the Company qualified as a smaller reporting company as of June 28, 2019, it maintains its status as a smaller reporting company for the adoption of this standard.

As such, the Company will adopt this guidance on the effective date for smaller reporting companies, January 1, 2023.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity’s Own Equity (Subtopic 815-40).

This new guidance is intended to reduce the complexity of accounting for convertible instruments.

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This ASU is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted for fiscal years beginning December 15, 2020, including interim periods within that fiscal year.

The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements, but are likely to early adopt for fiscal year 2021.

Early adoption is permitted for fiscal years beginning

December 15, 2020, including interim periods within that fiscal year.

The Company adopted this guidance on its effective date of January 1, 2022 and does not expect this to have a significant impact on its consolidated financial statements and related disclosures at this time.

The Company evaluated all other issued unadopted ASUs and believes the adoption of these standards will not have a material impact on its consolidated statements of operations and comprehensive loss, balance sheets, or cash flows.

Marketable Securities

Marketable securities available for sale, were as follows (in thousands):

December 31, 2021

Commercial Paper

Corporate debt securities

Asset backed securities

Government and agency securities

There were no marketable securities at December 31, 2020.

The following are the scheduled maturities as of December 31, 2021 (in thousands):

The Company periodically review its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns.

For debt securities where the fair value of the investment is less than the amortized cost basis, the Company assesses at the individual security level, for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment.

Unrealized losses on available-for-sale securities at December 31, 2021 were not significant and were primarily due to changes in interest rates and not due to increased credit risk associated with specific securities.

The Company does not intend to sell these impaired investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

Inventory, net

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Raw materials

The Company recorded $ 15.1 million and $ 5.3 million in cost of sales for the years ended December 31, 2020 and 2019, respectively, to reduce the value of inventory for items that are potentially obsolete, to adjust costs to their net realizable value, and for inventory in excess of product demand.

The Company recorded $ 2.4 million, $ 15.1 million and $ 5.3 million in cost of sales for the years ended December 31, 2021, 2020 and 2019, respectively, to reduce the value of inventory for items that are potentially obsolete, to adjust costs to their net realizable value, and for inventory in excess of product demand.

Prepaid expenses and other current assets

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Contract manufacturing⁽¹⁾

Interest receivable

IT and software

Marketing and sales

Clinical and Preclinical

Interest receivable

Sales and Marketing

Research and development

Corporate and Finance Consulting

Total prepaid expenses and other current assets

Includes deposits to contract manufacturers for manufacturing process.

Property and Equipment, net

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Depreciation expense for the years ended December 31, 2021, 2020, and 2019 was $ 0.5 million, $ 0.4 million, and $ 0.5 million, respectively.

The Company disposed of $ 0.3 million of property and equipment in 2020 related to machinery and laboratory equipment, including machinery at contract manufacturers determined to be impaired or obsoleted.

The Company disposed of $ 1.4 million of property and equipment in 2019.

The Company did not dispose of any property or equipment in 2018.

The Company disposed of less than $ 0.1 million of property and equipment in 2021 related to machinery and laboratory equipment, including machinery at contract manufacturers determined to be

impaired or obsoleted.

The Company disposed of $ 0.3 million and $ 1.4 million of property and equipment in 2020 and 2019, respectively.

Accrued Expenses and Other Current Liabilities

1 unchanged sentence

Compensation and benefits

Research and development

Interest on notes payable

Contract manufacturing

Sales and marketing services

Product warranty and replacement obligations

Professional and administration services

Research and development

Contract manufacturing

Operating lease

Product warranty and replacement obligations

Sales and marketing services

Patient access programs

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With the adoption of ASC 842, the Company has recorded a ROU asset and corresponding lease liability and does not include the additional five-year term under the option.

On July 31, 2019, the Company entered into a new non-cancellable operating lease agreement for approximately 30,500 square feet of office space commencing on September 2, 2019 and expiring in 2023.

On July 31, 2019, the Company entered into a non-cancellable operating lease agreement for approximately 30,500 square feet of office space commencing on September 2, 2019 and expiring in 2023.

The Company does not have the option to renew the lease for an additional term.

The Company did not have any lease related payments made to the lessor before the commitment date, lease incentives received from the lessor or initial direct cost adjustments to be added to the initial measurement of the liability.

As a result of COVID-19, this facility was vacated in the fourth quarter of 2020 and the ROU asset was tested for impairment.

No impairment charges were recorded as of December 31, 2020.

This facility was decommissioned in 2021 and the Company will continue making lease payments until the lease expires.

An impairment charge of $ 0.5 million was recorded during the twelve months ended December 31, 2021.

The Company recorded $ 0.8 million of associated ROU assets and $ 1.5 million in lease liabilities in its consolidated balance sheet at December 31, 2021.

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The following table summarizes the maturity of undiscounted payments due under operating lease liabilities and the present value of those liabilities as of December 31, 2021 (in thousands):

Total operating lease payments

imputed interest

Total operating lease liability

Present value adjustment

Present value of lease liabilities

The following table summarizes the weighted-average lease term and weighted-average discount rate as of December 31, 2021 and 2020:

11 unchanged sentences

Notes Payable and Stock Purchase Warrants

Solar Loan Agreement

On July 16, 2019, the Company entered into a Loan and Security Agreement (the “Solar Loan Agreement”), with Solar.

Pursuant to the Solar Loan Agreement, on July 25, 2019 (“the effective date”), the Company borrowed term loans in an aggregate principal amount of $ 45.0 million (the “Solar Term Loan”), of which the Company used $ 11.6 million to repay in full the Oxford/SVB Term Loans and terminate the Amended and Restated Loan and Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”).

In connection with the Solar Term Loan, the Company incurred issuance costs in the amount of $ 0.4 million, and paid fees to Lenders (as defined below) in the amount of $ 0.9 million in connection with the repayment of the Oxford/SVB Term Loans, which are netted against the principal balance of the Solar Term Loan and amortized as additional interest expense over the term of the Solar Term Loan using the effective interest method.

Unamortized debt issuance costs and additional prepayment fees in the amount of $ 0.4 million associated with the repayment of the Oxford/SVB Term Loans were recorded as a loss on the extinguishment of debt in other income (expense) in the Company’s consolidated statements of operations and comprehensive loss as of December 31, 2019.

Additionally, on July 16, 2019, the Company issued Solar warrants to purchase an aggregate of 1,125,000 shares of the Company’s common stock with an exercise price of $ 1.20 per share (the “Solar Warrants”).

The Solar Warrants are exercisable until July 25, 2029.

The proceeds from the Solar Term Loan were allocated between the debt and the Solar Warrants based on their respective fair value of $ 0.7 million, and were recorded within equity resulting in a debt discount that is being amortized as additional interest expense over the term of the Solar Term Loan using the effective interest method.

On March 22, 2020, the Company and Solar terminated the Solar Loan Agreement.

In connection with the termination, the Company paid $ 48.5 million representing all amounts outstanding under the Solar Loan Agreement, including the principal amount and interest of the loans, a payoff fee of 6.45 % of the loans outstanding, a prepayment premium of 3.0 % of the loans outstanding and other obligations owed to Solar thereunder.

A loss on the extinguishment of debt in the amount of $ 4.5 million reflecting the difference between the repayment amount and the carrying value of the principal balance, accrued interest, unamortized debt issuance costs and unaccreted prepayment fee at March 22, 2020 was recorded to other income (expense) in the Company’s condensed consolidated statement of operations and comprehensive loss during the twelve months ended December 31, 2020.

Oxford and Silicon Valley Bank Term Loans

On June 30, 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Oxford and SVB (together, the “Lenders”).

Pursuant to the Amended and Restated Loan and Security Agreement, the Company borrowed an aggregate principal amount of $ 25.0 million.

Proceeds from the Solar Term Loan were used to repay the remaining balance of the Oxford/SVB Term Loans, which were subject to a prepayment fee equal to $ 0.1 million.

On April 22, 2020, the Company received $ 5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the SBA.

The unsecured loan (the “PPP Loan”) is evidenced

by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $ 5.8 million with Silicon Valley Bank (the “Bank”).

On April 22, 2020, the Company received $ 5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”).

The unsecured loan (the “PPP Loan”) is evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $ 5.8 million with SVB.

Under the terms of the PPP Note and the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0 % per annum.

The term of the PPP Note is two years , though it may be payable sooner in connection with an event of default under the PPP Note.

To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest, beginning after determination of forgiveness by the Bank.

The Company may apply for forgiveness any time on or before the maturity date of the loan.

If the Company does not apply for loan forgiveness within ten months after the last day of the covered period, the PPP loan is no longer deferred, and the Company must begin paying principal and interest.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed.

Under the PPP, the Company may apply for forgiveness for all or a part of the Company’s PPP Loan.

The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the specified period after the loan origination for certain purposes including payroll costs, interest on debt obligations incurred prior to February 15, 2020, rent payments on certain leases, and certain qualified utility payments, provided that at least 60 % of the loan amount is used for eligible payroll costs;

the employer maintaining or rehiring employees and maintaining salaries at certain levels;

and other factors.

Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered specified period will qualify for forgiveness.

As a result of the Company’s workforce reduction, the amount of forgiveness will correspondingly decrease.

The Company has elected not to apply for forgiveness and began to make equal monthly payments of principal and interest, beginning in the third quarter of 2021.

The PPP Note may be prepaid in part or in full, at any time, without penalty.

The PPP Note provides for certain customary events of default, including (i) failing to make a payment when due under the PPP Note, (ii) failure to do anything required by the PPP Note or any other loan document, (iii) defaults of any other loan with the Bank, (iv) failure to disclose any material fact or make a materially false or misleading representation to the Bank or SBA, (v) default on any loan or agreement with another creditor, if the Bank believes the default may materially affect the Company’s ability to pay the PPP Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of the Company’s business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in financial condition or business operation that the Bank believes may materially affect the Company’s ability to pay the PPP Note, (ix) if the Company reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the Bank’s prior written consent, or (x) becoming the subject of a civil or criminal action that the Bank believes may materially affect the Company’s ability to pay the PPP Note.

Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.

The PPP Note provides for certain customary events of default, including (i) failing to make a payment when due under the PPP Note, (ii) failure to do anything required by the PPP Note or any other loan document, (iii) defaults of any other loan with SVB, (iv) failure to disclose any material fact or make a materially false or misleading representation to SVB or SBA, (v) default on any loan or agreement with another creditor, if SVB believes the default may materially affect the Company’s ability to pay the PPP Note, (vi) failure to pay any taxes when due, (vii) becoming the subject of a proceeding under any bankruptcy or insolvency law, having a receiver or liquidator appointed for any part of the Company’s business or property, or making an assignment for the benefit of creditors, (viii) having any adverse change in financial condition or business operation that the SVB believes may materially affect the Company’s ability to pay the PPP Note, (ix) if the Company reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the SVB’s prior written consent, or (x) becoming the subject of a civil or criminal action that SVB believes may materially affect the Company’s ability to pay the PPP Note.

Upon the occurrence of an event of default, SVB has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.

Highbridge Credit Facility

9 unchanged sentences

The Company recorded the fair value of the embedded features in the amount of $ 1.0 million as a debt premium and derivative asset in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

The derivative is adjusted to fair value at each reporting period, with the change recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statements of operations and comprehensive loss.

The derivative was adjusted to fair value at each reporting period, with the change recorded in change in fair value of derivatives that was a component of other income (expense) in the Company’s consolidated statements of operations and comprehensive loss.

The debt issuance costs incurred in connection with the Highbridge financings were allocated between the First Lien Notes, Second Lien Notes, common stock, and warrants.

The Company incurred and deferred $ 1.5 million in debt issuance costs and debt discounts associated with the First Lien Notes, which will be amortized as interest expense over the term of the First Lien Notes, along with $ 1.0 million of debt premium from the derivative bifurcation.

The Company incurred and deferred $ 1.5 million in debt issuance costs and debt discounts associated with the First Lien Notes, which were to be amortized as interest expense over the term of the First Lien Notes, along with $ 1.0 million of debt premium from the derivative bifurcation.

Exchange Agreement with Highbridge

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On August 9, 2020, the Company entered into a First Amendment to Note Purchase and Exchange Agreement with Highbridge (as amended by the Amendment, the “Exchange Agreement”).

The debt issuance costs incurred in connection with the Amendment were allocated to the Second Lien Notes.

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In connection with the Amendment, the Company recorded a total of $ 0.5 million in debt issuance costs which were expensed immediately.

The Second Lien Notes are secured, senior obligations of the Company, junior only to the First Lien Notes.

Interest in cash at the annual rate of 7.5 % or, at the Company’s option, payment in kind at an annual rate of 8.25 %, on the Second Lien Notes will be payable monthly in arrears.

The maturity date for the Second Lien Notes is August 9, 2023 (the “Second Lien Maturity Date”), unless earlier repurchased, redeemed or converted in accordance with their terms.

The obligations under the Second Lien Notes are secured by substantially all of the Company’s assets.

The Company will have the right to prepay the Second Lien Notes at any time, subject to a prepayment premium, which in certain circumstances the Company may elect to pay in common stock, equal to the aggregate amount of interest payments through maturity.

The holders of the Second Lien Notes have the right to convert the aggregate principal of the Second Lien Notes (together with any applicable prepayment premium) to common stock at a price per share equal to 90 % of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $ 0.33 per share.

This conversion option has a daily limit of $ 1.0 million in aggregate converted principal (inclusive of principal amount of First Lien Notes that are voluntarily converted by the Lenders).

convert First Lien Notes in aggregate combined principal amount equal to 45 % of such net proceeds retained or reinvested (together with any applicable prepayment premium).

The Exchange Agreement contains customary terms and covenants, including without limitation:

The Second Lien Notes were secured, senior obligations of the Company, junior only to the First Lien Notes.

Interest in cash at the annual rate of 7.5 % or, at the Company’s option, payment in kind at an annual rate of 8.25 %, on the Second Lien Notes was payable monthly in arrears.

The maturity date for the Second Lien Notes was August 9, 2023 (the “Second Lien Maturity Date”), unless earlier repurchased, redeemed or converted in accordance with their terms.

The obligations under the Second Lien Notes were secured by substantially all of the Company’s assets.

The Company had the right to prepay the Second Lien Notes at any time, subject to a prepayment premium, which in certain circumstances the Company may elect to pay in common stock, equal to the aggregate amount of interest payments through maturity.

The holders of the Second Lien Notes had the right to convert the aggregate principal of the Second Lien Notes (together with any applicable prepayment premium) to common stock at a price per share equal to 90 % of the greater of (i) the daily volume weighted average of the price per share of the common stock, on the conversion date, or if the conversion date is not a trading date, the trading day immediately prior to the conversion date and (ii) $ 0.33 per share.

This conversion option had a daily limit of $ 1.0 million in aggregate converted principal (inclusive of principal amount of First Lien Notes that are voluntarily converted by the Lenders).

Subject to certain conditions, if the Company retains or reinvests proceeds of an asset sale pursuant to the Asset Sale Prepayment Provisions in the Exchange Agreement, the Holders shall be entitled to convert additional Second Lien Notes and the Lenders shall be entitled to convert First Lien Notes in aggregate combined principal amount equal to 45 % of such net proceeds retained or reinvested (together with any applicable prepayment premium).

The Exchange Agreement contained customary terms and covenants, including without limitation:

financial covenants, such as maintaining a minimum cash balance;

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 Exchange Agreement also contains customary events of default, after which the Second Lien Notes may be due and payable immediately, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, and change of control, termination of any guaranty, governmental approvals, and lien priority.

Most of these restrictions were subject to certain minimum thresholds and exceptions.

The Exchange Agreement also contained customary events of default, after which the Second Lien Notes may be due and payable immediately, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, and change of control, termination of any guaranty, governmental approvals, and lien priority.

Unlike the First Lien Notes, the Second Lien Notes also permit voluntary conversion at the option of the holder as described above.

The Company recorded the fair value of these embedded features in the amount of $ 1.9 million as a derivative asset in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging.

The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

The derivative was adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

Since Highbridge was a noteholder of the 2025 Notes and exchanged $ 24.0 million of outstanding principal of the 2025 Notes for Second Lien Notes, the Exchange qualifies as a loan modification.

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For the twelve months ended December 31, 2020, Highbridge voluntarily converted all $ 15.7 million of outstanding principal amount of the Second Lien Notes for 42,776,936 shares of common stock, which included prepayment premiums and were based off the Company’s election of PIK interest.

Accordingly, $ 15.7 million of allocated deferred issuance costs, debt discounts and prepayment premiums were recognized as a loss on extinguishment of debt in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss during the twelve months ended December 31, 2020.

Accordingly, $ 15.7 million of allocated deferred issuance costs, debt discounts and prepayment premiums were recognized as a loss on extinguishment of debt in the Company’s consolidated statements of operations and comprehensive loss during the twelve months ended December 31, 2020.

Convertible Preferred Stock and Warrants

Under the Equity Line Agreement, beginning January 21, 2021, 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 (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $ 1,000 per share (not to exceed $ 4.0 million worth of shares) once per month, up to an aggregate of $ 12.0 million of our Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $ 1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its

issuance, at a conversion price of $ 0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

The Equity Line Agreement provides that we shall not affect any Regular Purchase under the Equity Line Agreement on any date where the closing price of our common stock on the NYSE American is less than $ 0.25 without the approval of Energy Capital.

In addition, beginning on January 1, 2022, subject to the satisfaction of certain conditions, if the full $ 12.0 million of Series B Preferred Stock has not been sold pursuant to Regular Purchases, Energy Capital may, at its sole discretion, by its delivery to us of a Purchase Notice, from time to time, purchase up to the amount then remaining available under the Equity Line Agreement at the Purchase Price.

On November 9, 2020, the Company entered into an equity line agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $ 12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement.

Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including the Company have less than $ 8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, in its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $ 1,000 per share (not to exceed $ 4.0 million worth of shares) once per month, up to an aggregate of $ 12.0 million of our Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $ 1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $ 0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

The Equity Line Agreement provides that we shall not affect any Regular Purchase under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $ 0.25 without the approval of Energy Capital.

The Company accounted for the Equity Line Agreement as a put/call option.

This put/call option is classified as a liability in accordance with ASC 480 on the Company’s balance sheet and was recorded at the estimated fair value of $ 4.2 million upon issuance.

In connection with the issuance of the Equity Line Agreement, the Company incurred and expensed $ 7.6 million in debt issuance costs.

The put/call option is required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense).

The fair value as of December 31, 2021 was $ 69.4 million.

In connection with the issuance of the Equity Line Agreement, the Company incurred $ 7.6 million in debt issuance costs.

On August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters, pursuant to which the Company issued and sold to Masters 3,000 shares of Series A Preferred Stock, at a price of $ 1,000.00 per share, on the Closing Date.

Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $ 1,000.00 per share in a subsequent closing, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021.

Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $ 1,000 divided by the conversion price of $ 0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

The Series A Preferred Stock ranks senior to the common stock.

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Additionally, certain matters will require the approval of the majority of the outstanding Series A Preferred Stock, voting as a separate class, including (i) altering or changing adversely the powers, privileges, preferences or rights of the Series A Preferred Stock, or (ii) amendments, modifications, repeal or waiver of any provision of the Company’s certificate of incorporation, bylaws or of the certificate of designations that would adversely affect the rights, preferences, privileges or powers of the Series A Preferred Stock.

The Series A Preferred Stock is contingently redeemable upon occurrence of a change of control event which is considered outside the control of the Company, and therefore the Series A Preferred Stock has been classified in temporary equity on the consolidated balance sheet.

At each reporting period, the Company evaluates the probability of the Series A Preferred Stock being redeemed.

The Series A Preferred Stock was contingently redeemable upon occurrence of a change of control event which is considered outside the control of the Company, and therefore the Series A Preferred Stock was classified in temporary equity on the consolidated balance sheet.

At each reporting period, the Company evaluated the probability of the Series A Preferred Stock being redeemed.

The Company’s policy is to recognize the difference in carrying value to redemption value once the redemption becomes probable.

As of December 31, 2020, the features that would require redemption (e.g., occurrence of a change of control) was not deemed probable.

The Company accounted for the option to purchase up to an additional 27,000 shares of preferred stock as a freestanding warrant instrument, as it is legally detachable and separately exercisable.

This warrant is classified as a liability in accordance with ASC 480 on the Company’s balance sheet and was recorded at the estimated fair value of $ 4.8 million upon issuance.

The warrant is required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense).

The fair value as of December 31, 2020 was $ 23.5 million.

The warrant was required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense).

In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds to the Company of $ 22.8 million.

Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $ 1,000.00 divided by the conversion price of $ 0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

All shares of Series A Preferred Stock have been converted to common stock as of December 31, 2021.

Masters’ option to purchase the remaining unissued shares of Series A Preferred Stock expired on January 11, 2021.

Convertible Notes

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Interest at the annual rate of 9.5 % will be payable semi-annually in cash or, at the Company’s option, payment in kind.

In the fourth quarter of 2020, the Company elected payment in kind of interest.

The interest rate will decrease to 8.0 % if the Company obtains approval for 180-day Eversense for marketing in the United States, subject to certain conditions.

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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.

This purchased put option represents a freestanding financial instrument and is recognized as an asset in the Company’s consolidated balance sheets at the fair value and subject to impairment testing

in each reporting period prior to the options exercise or expiration.

The Company acknowledges that while the purchased put option is subject to impairment testing, there is no explicit guidance regarding how impairment should be assessed and measured for the PHC purchased put option.

The Company also has the option to sell and issue PHC up to $ 15.0 million of convertible preferred stock on or before December 31, 2022.

The Company acknowledges that while the purchased put option is subject to impairment testing, there is no explicit guidance regarding how impairment should be assessed and

measured for the PHC purchased put option.

As such, the measurement alternative in ASC 321 for equity securities without readily determinable fair values can be applied by analogy to assess and measure impairment of the Purchased Put Option.

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The associated debt issuance costs are recorded as a contra liability in the amount of $ 1.4 million and are deferred and amortized as additional interest expense over the term of the notes.

The PHC Notes do not have current observable inputs such as recent trading prices (Level 3) and are measured at fair value using the binomial option pricing model and incorporate management’s assumptions for probabilities of conversion occurrence through maturity, stock price, volatility and risky (bond) rate.

The fair value of the Company’s PHC Notes, excluding the embedded features, was $ 15.3 million as of December 31, 2021 and $ 12.7 million as of December 31, 2020.

In July 2019, the Company issued $ 82.0 million in aggregate principal amount of 2025 Notes.

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The redemption price will be equal to 100 % of the principal amount of the 2025 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

If the Company undergoes a fundamental change, such as a merger, sale, greater than 50% ownership change, liquidation, dissolution or delisting, holders may require the Company to repurchase for cash all or any portion of their 2025 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with

such notice of redemption or corporate event.

repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue shares.

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The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

Based upon recent trading prices (Level 2-market approach) and other observable inputs, including the Company’s common stock, implied volatility and risky (bond) rate, the fair value of the Company’s 2025 Notes, excluding the embedded features, was $ 29.0 million as of December 31, 2020.

For the twelve months ended December 31, 2021, there were conversions of $ 6.5 million of outstanding principal amount of the 2025 Notes for 4,924,998 shares of common stock.

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Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock.

If specific corporate events occur prior to the maturity date, the Company would increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances.

If specific corporate events occur prior to the maturity date, the Company will increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023

Notes in connection with such an event in certain circumstances.

Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100 % of the principal amount plus any accrued and unpaid interest.

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Carrying Amount ($)

Solar Term Loan

Interest expense related to the notes payable for the periods presented below is as follows (in thousands):

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Issuance Costs ($)

Loss on Extinguishment of Debt ($)

Loss on Extinguishment ($)

Total Interest Expense ($)

Solar Term Loan

First Lien Notes

Second Lien Notes

December 31, 2020

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Issuance Costs ($)

Loss on Extinguishment of Debt ($)

Loss on Extinguishment ($)

Total Interest Expense ($)

Solar Term Loan

The following are the scheduled maturities of our outstanding debt, including the 2025 Notes, PHC Notes, 2023 Notes and PPP Loan as of December 31, 2020:

First Lien Notes

Second Lien Notes

The following are the scheduled maturities of the outstanding debt, including the 2025 Notes, PHC Notes, 2023 Notes and PPP Loan as of December 31, 2021:

Stockholders’ Equity (Deficit)

In connection with our acquisition of Senseonics, Incorporated in December 2015 (the “Acquisition”), (i) all outstanding shares of common stock of Senseonics, $ 0.01 par value per share, were exchanged for 1,955,929 shares of the Company's common stock, $ 0.001 par value per share (reflecting an exchange ratio of 2.0975 ), (ii) all outstanding shares of preferred stock were converted into shares of common stock of Senseonics, and exchanged into 55,301,674 shares of the Company’s common stock, $ 0.001 par value per share, and (iii) all outstanding options and warrants to purchase shares of common stock of Senseonics were exchanged for or replaced with options and warrants to acquire shares of the Company’s common stock using the same exchange ratio.

As of December 31, 2020 and December 31, 2019, the Company’s authorized capital stock included 900,000,000 and 450,000,000 shares of common stock, par value $ 0.001 per share, respectively.

In connection with the Company’s acquisition of Senseonics, Incorporated in December 2015 (the “Acquisition”), (i) all outstanding shares of common stock of Senseonics, $ 0.01 par value per share, were exchanged for 1,955,929 shares of the Company's common stock, $ 0.001 par value per share (reflecting an exchange ratio of 2.0975 ), (ii) all outstanding shares of preferred stock were converted into shares of common stock of Senseonics, and exchanged into 55,301,674 shares of the Company’s common stock, $ 0.001 par value per share, and (iii) all outstanding options and warrants to purchase shares of common stock of Senseonics were exchanged for or replaced with options and warrants to acquire shares of the Company’s common stock using the same exchange ratio.

As of December 31, 2021 and December 31, 2020, the Company’s authorized capital stock included 900,000,000 shares of common stock, par value $ 0.001 per share.

The Company had 447,282,263 and 265,582,688 shares of common stock issued and outstanding at December 31, 2021 and December 31, 2020, respectively.

Preferred Stock

As of December 31, 2020 and 2019, the Company’s authorized capital stock included 5,000,000 shares of undesignated preferred stock, par value $ 0.001 per share, respectively.

The Company had 3,000 shares of preferred stock outstanding as of December 31, 2020.

No shares of preferred stock were outstanding as of December 31, 2019.

As of December 31, 2021 and 2020, the Company’s authorized capital stock included 5,000,000 shares of undesignated preferred stock, par value $ 0.001 per share.

The Company had 0 shares of preferred stock outstanding as of December 31, 2021 and 3,000 shares of preferred stock outstanding as of December 31, 2020.

Stock Purchase Warrants

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On February 1, 2021, there were 118,588 shares purchased in connection with the offering period.

On August 1, 2021, there were 38,067 shares purchased in connection with the offering period.

The 2016 ESPP is considered compensatory for financial reporting purposes.

On May 8, 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”), under which incentive stock options, non-qualified stock options, and restricted stock awards may be granted to the Company’s employees and

certain other persons in accordance with the 1997 Plan provisions.

Approximately 2,109,815 shares of the Company’s common stock underlying options have vested under the 1997 Plan.

Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan.

Stock Options

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant.

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The weighted average grant-date fair value of stock option awards granted in 2021, 2020 and 2019 was $ 1.97 , $ 0.33 and $ 1.60 per share, respectively.

For the years ended December 31, 2020 and 2019 and 2018, 201,447 , 87,591 , and 1,438,671 options were exercised, respectively, with an aggregate intrinsic value at the time of exercise of $ 0.1 million, $ 0.2 million, and $ 3.7 million, respectively.

For the years ended December 31, 2021, 2020 and 2019, 2,354,566 , 201,447 , and 87,591 , options were exercised, respectively, with an aggregate intrinsic value at the time of exercise of $ 4.4 million, $ 0.1 million, and $ 0.2 million, respectively.

The total fair value of options that vested during 2021 and 2020 were approximately $ 3.1 million and $ 5.8 million, respectively.

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The weighted average grant date fair value of the unvested stock option awards outstanding at December 31, 2021 and 2020 was $ 1.58 and $ 1.59 per share, respectively.

The weighted average grant date fair value of the stock option awards vested, exercised and forfeited/cancelled for the year ended December 31, 2020 were $ 1.58 , $ 0.33 and $ 1.61 per share, respectively

The weighted average grant date fair value of the stock

option awards vested, exercised and forfeited/cancelled for the year ended December 31, 2021 were $ 1.61 , $ 1.05 and $ 1.89 per share, respectively.

Fair value is estimated at each grant date under the plans using the Black-Scholes Model with assumptions summarized in the following table:

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The expected term is the period of time for which the stock-based options are expected to be outstanding.

The expected life is determined using the “simplified method” which is defined as the mid-point between the vesting date and the end of the contractual term.

The expected term is determined using the “simplified method” which is defined as the mid-point between the vesting date and the end of the contractual term.

The Company does not pay a dividend, and is not expected to pay a dividend in the foreseeable future.

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These restricted stock units were immediately vested upon issuance.

The Company also issued 17,455,264 restricted stock units to members of the Board of Directors as equity compensation under the Company’s non-employee director compensation policy and to employees of the Company during 2020 as incentive compensation.

Of the restricted stock units granted in 2020, 3,893,278 were granted in December and are subject to performance-based vesting, and are expected to vest in two equal installments upon approval of the U.S.

180-day product and, assuming the prior approval of the 180-day product, November 2021.

Additionally, in October 2020, the Company granted 273,077 restricted stock units to a new board member, which award will fully vest in October 2021.

The remaining 13,288,909 restricted stock units were granted between May and July and vest in eight equal installments beginning with an initial accelerated vesting tranche in the month following the grant, followed by seven vesting dates every six months .

There were no restricted stock units granted in 2018 or 2019 other than the issuance in lieu of cash to members of the Board of Directors in respect of director fees.

The weighted average share price on the date of grant of restricted stock unit awards was $ 0.43 and $ 1.72 for the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense for restricted stock unit awards was $ 2.2 million, $ 0.3 million, and $ 0.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company also issued 4,603,440 and 17,455,264 restricted stock units to members of the Board of Directors as equity compensation under the Company’s non-employee director compensation policy and to employees of the Company during 2021 and 2020, respectively, as incentive compensation.

Of the restricted stock units granted in 2020, 3,893,278 were granted in December 2020 and are subject to performance-based vesting, and vested upon FDA approval of the U.S.

E3 product in February 2022.

All restricted stock units granted in 2021, and the remaining 13,288,909 restricted stock units granted in 2020 vest in eight equal installments beginning with an initial accelerated vesting tranche in the month following the grant, followed by seven vesting dates every six months .

There were no restricted stock units granted in 2019 other than the issuance in lieu of cash to members of the Board of Directors in respect of director fees.

Restricted stock units activity under the Plans during the years ended December 31, 2021, 2020 and 2019 is as follows:

(in thousands)

Life (in years)

RSU's outstanding as of December 31, 2019

RSU's outstanding as of December 31, 2020

RSU's outstanding as of December 31, 2021

RSU's vested and expected to vest as of December 31, 2021

The weighted average grant-date fair value of restricted stock units granted in 2021 and 2020 was $ 1.80 and $ 0.45 per share, respectively.

For the years ended December 31, 2021 and 2020, 5,816 , and 3,322 , restricted stock units were vested, respectively, with an aggregate intrinsic value at the time of vest of $ 15.9 million and $ 1.4 million, respectively.

The total fair value of the restricted stock units that vested during 2021 and 2020 were approximately $ 4.1 million and $ 1.5 million, respectively.

The aggregate intrinsic value of the restricted stock units currently outstanding at December 31, 2021 was $ 34.1 million.

The weighted average grant date fair value of the unvested restricted stock units outstanding at December 31, 2021 and 2020 was $ 0.80 and $ 0.45 per share, respectively.

The weighted average grant date fair value of the restricted stock units granted, vested, and forfeited for the year ended December 31, 2021 were $ 1.80 , $ 0.71 and $ 0.56 per share, respectively.

Employee stock-based compensation expense for employee granted restricted stock units was $ 5.8 million, $ 2.1 million and $ 0.3 million, for the years ended December 31, 2021 and 2020 and 2019, respectively, classified as follows (in thousands):

Cost of sales

Sales and marketing

Research and development

General and administrative

Total stock-based compensation

As of December 31, 2021, there was $ 8.2 million of total unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized over a weighted average period of 2.44 years.

No provision for U.S.

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The net change in valuation allowance for the years ended December 31, 2021 and 2020 was a net increase of $ 10.4 million and a net increase of $ 22.8 million, respectively.

The increase in valuation allowance is primarily due to net losses incurred and changes in the fair value of derivatives in 2020.

The increase in valuation allowance is primarily due to net losses incurred in 2021.

This increase in valuation allowance is based on management's assessment that it is more likely than not that the Company will not realize these deferred tax assets.

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Debt Transactions

Stock Comp DTA

Other non-deductible items

Increase (decrease) in valuation allowance

Decrease in valuation allowance

Effective income tax rate

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The federal tax rate remained unchanged at 21 % for the 2021 tax year.

The change in state tax rate from 2018 to 2019, and 2019 to 2020, respectively, is primarily due to changes in applicable state apportionment factors and additional jurisdictions.

The change in state tax rate from 2019 to 2020 and from 2020 to 2021, respectively, is primarily due to changes in applicable state apportionment factors and change in jurisdictions.

A breakdown of the Company’s uncertain tax position during 2021, 2020 and 2019 is as follows (in thousands):

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Gross unrecognized tax benefit at end of year

The Company did not incur any penalties or interest payable to taxing authorities in 2020, 2019 and 2018.

The Company did not incur any penalties or interest payable to taxing authorities in 2020 or 2019.

In 2021, The Company incurred a minor penalty due to the State of California Franchise Tax Board for an adjustment to the 2020 filed California state tax return.

The Company’s U.S.

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Related Party Transactions

Roche Holding A.G, through its ownership interests in Roche Finance Ltd, has a noncontrolling ownership interest in the Company.

For the years ended December 31, 2020, 2019 and 2018, revenues from Roche were $ 3.6 million, $ 16.4 million and $ 16.2 million, respectively, and amounts due from them were $ 2.4 million, $ 7.1 million and $ 6.3 million, respectively.

At December 31, 2020, the Company had estimated replacement obligations under warranties in the amounts of $ 0.4 million.

Ascensia Diabetes Care Holdings AG, through the ownership interests of its parent company, PHC, has a noncontrolling ownership interest in the Company.

Ascensia, through the ownership interests of its parent company, PHC, has a noncontrolling ownership interest in the Company.

Ascensia also has representation on the Company’s board of directors.

For the years ended December 31, 2020 revenues from Ascensia and amounts due from them were immaterial.

For the year ended December 31, 2021, revenue from Ascensia was $ 12.3 million and the amount due from Ascensia as of December 31, 2021 was $ 1.8 million.

At December 31, 2021, the Company had estimated replacement obligations under warranties in the amount of $ 0.7 million and marketing campaign support obligations in the amount of $ 1.8 million.‌ For the year ended December 31, 2020, revenues from Ascensia and amounts due from them were immaterial.

There were not revenues or amounts due from Ascensia in 2019.

Roche Holding A.G, through its ownership interests in Roche Finance Ltd, has a noncontrolling ownership interest in the Company.

For the year ended December 31, 2021 revenues from Roche were less than $ 0.1 million, and there were no amounts due from them.

For the years ended December 31, 2020 and 2019, revenues from Roche were $ 3.6 million, and $ 16.4 million, respectively, and amounts due from them were $ 2.4 million and $ 7.1 million.

At December 31, 2021, the Company did not have any replacement obligations under warranties due to Roche.

Fair Value Measurements

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date.

The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use to price the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk.

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The fair value of money market funds and other investments classified as cash and cash equivalents are based on period-end statements supplied by the various banks and brokers that hold the majority of the funds.

The valuation technique used to measure the fair value of the Company’s debt instruments is based on the binomial option pricing model and incorporate management’s assumptions for probabilities of conversion occurrence through maturity, stock price, volatility, risky bond rate, and trade data when available.

The valuation technique used to measure the fair value of the Company’s PHC option and debt instruments is based on the binomial option pricing model and the Energy Capital option using the Monte Carlo simulation method and incorporate management’s assumptions for probabilities of conversion occurrence through maturity, stock price, volatility, risky bond rate, and trade data when available.

The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and 2020 (in thousands):

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Money market funds⁽¹⁾

Commercial paper

Corporate debt securities

Asset backed securities

Government and agency securities

Energy Capital Option

Masters Option

Embedded features of the 2023 Notes

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Money market funds⁽¹⁾

Commercial paper⁽¹⁾

Corporate bonds

Energy Capital Option

Masters Option

Embedded features of the 2023 Notes

Embedded features of the PHC Notes

Embedded features of the 2025 Notes

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December 31, 2020

Initial fair value of Instruments

Loss on fair value adjustment

Loss on fair value and change in derivative

Loss on extinguishment of debt

Conversion of financial instruments

Loss on fair value adjustment of option

Loss on change in fair value of derivatives

Gain on extinguishment of option

Financial asset impairment cost

December 31, 2021

The recurring Level 3 fair value measurements of the embedded features of the Notes include the following significant unobservable inputs:

The recurring Level 3 fair value measurements of the embedded features of the Notes and Options include the following significant unobservable inputs:

Energy Capital Option

Unobservable Inputs

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When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement .

Selected Quarterly Financial Data (Unaudited)

Quarterly financial information for fiscal years 2020 and 2019 is presented in the following table (in thousands, except per share data):

For the Quarter Ended

Revenue, net, primarily from a related party

Operating expenses

Operating loss

Basic and diluted net loss per share (1)

Revenue, net, primarily from a related party

Operating expenses

Operating loss

Basic and diluted net loss per share (1)

(1) Net loss per share is computed independently for each of the quarters presented.

Therefore, the sum of the quarterly per-share calculations will not necessarily equal the annual per share calculation .

From time to time, the Company is subject to litigation and claims arising in the ordinary course of business.

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The Company has evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable, and for the period ended December 31, 2021 and 2020 has no such contingencies.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported results of operations.

An adjustment has been made to the Consolidated Statements of Cash Flows for the twelve months ended December 31, 2020 and 2019 , to reclass the provision for inventory obsolescence and net realizable value of ($ 4,171,000 ) and $ 3,970,000 , respectively, to change in Inventory.

This change in classification does not affect previously reported cash flows from operating activities in the Consolidated Statements of Cash Flows.

Subsequent Events

Series A Preferred Stock

In January 2021, the Company completed a series of closings of its previously announced private placement of Series A Preferred Stock, pursuant to the Purchase Agreement (the “Stock Purchase Agreement”) dated August 9, 2020 by and among the Company and Masters Special Situations, LLC, Marlin Fund, Limited Partnership and Marlin Fund II, Limited Partnership (collectively, the “Masters Purchasers”).

In total, including the initial closing, the Company sold an aggregate of $ 25.8 million of Series A Preferred Stock to the Masters Purchasers and certain of their assignees.

By virtue of the subsequent closings, pursuant to the previously announced Investor Rights Agreement dated July 9, 2020, Masters Special Situations, LLC has retained its right to designate one director for election to the Company’s board of directors at the Company’s 2021 Annual Meeting of Stockholders.

Registered Direct Offering

The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on

November 27, 2019.

The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by the Company, are approximately $ 46 million.

Public Offering

On January 21, 2021 the Company entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C.

Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock in an underwritten public offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the“Offering”).

The price to the public in the Offering was $ 1.925 per share of common stock.

The Underwriters agreed to purchase the shares from the Company pursuant to the Underwriting Agreement at a price of $ 1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses.

The initial closing of the Offering occurred on January 26, 2021.

Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of Common Stock.

The total net proceeds from the Offering were approximately $ 106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.

On February 11, 2022, the Company issued a press release announcing the approval by the U.S.

Food and Drug Administration (“FDA”) of the Eversense E3 CGM system for marketing and sale in the U.S.

As previously described, in August 2020, the Company entered into a collaboration and commercialization agreement (the “Commercialization Agreement”) with Ascensia pursuant to which it granted Ascensia the exclusive right to distribute the 90-day Eversense CGM system and the six-month Eversense CGM system worldwide (subject to regulatory approval in certain jurisdictions) for people with diabetes, with certain initial exceptions.

As previously announced on January 4, 2022, the Company and Ascensia have been designing the go-to-market strategy for the U.S.

six-month product, subject to the receipt of regulatory approval for the Eversense E3 six-month product.

Now that the six-month product has received regulatory approval for marketing and sale in the United States, the Company expects that Ascensia will begin commercializing Eversense E3 in the U.S.

in the second quarter of 2022.

As with any new product, the success of the commercial launch of the Eversense E3 product in the U.S.

will be subject to significant uncertainty and risks, and will require time to ramp up.

Key areas of strategic focus in the U.S.

commercial launch of the six-month product where performance will impact the success of the launch will be:

(1) growing the installed base of users, (2) increasing patient awareness of Eversense above current levels in order to expand the population of Eversense users, through driving sales and marketing efforts on the Eversense E3 system, (3) increasing awareness and adoption of Eversense by healthcare providers, including high volume CGM prescribers, through expanded targeted marketing efforts, (4) educating patients and prescribers regarding the six month product and its benefits relative to the 90-day product, (5) continuing to grow the base of the authorized inserters through geographically targeted efforts so that potential users locating a qualified inserter of Eversense is not an impediment to adoption, (6) timely establishing and maintaining favorable payor coverage for the product, including transitioning commercial payors from 90-day coverage to six month coverage, and (7) Ascensia’s continued organizational development of its U.S.

sales and marketing capabilities relative to CGM.

The Company and Ascensia are also developing plans for the roll-out of the Eversense E3 next generation six-month product in Europe, which, subject to receipt of regulatory approval or certification, including CE Certificates of Conformity and affixing the CE mark for the EEA, is expected to offer reduced calibration requirements from the Eversense XL six-month product currently marketed in Europe.

The roll-out of this next generation product in Europe is similarly subject to uncertainties and potential delays, including regulatory approval and certification and launch timing, and European revenues are dependent, among other things, on success of the following:

(1) Ascensia’s continued organizational development of its European sales and marketing capabilities relative to CGM, and (2) more effective tender participation, particularly in Italian markets which favor an integrated offering.

and European commercialization plans are being designed with a goal of minimizing the impact to patients, providers, and ongoing sales of Eversense CGM systems.

Jefferies will receive a commission up to 3.0 % of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement.

In February 2022, the Company received $ 8.1 million in net proceeds from the sale of 3,077,493 shares of its common stock under the 2021 Sales Agreement.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data