Senseonics Holdings, Inc. 10-K

Item 8. Financial Statements and Supplementary Data ​ SENSEONICS HOLDINGS, INC. AND SUBSIDIARIES Consolidated Financial Statements ​ Table of Contents ​ ​ Report of Ernst & Young LLP , PCAOB ID: 42 , Independent Registered Public Accounting Firm 82 Consolidated Balance Sheets as of December 31, 2021 and 2020 84 ​ Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021, 2020 and 2019 85 ​ Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2021, 2020 and 2019 86 ​ Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 87 ​ Notes to Consolidated Financial Statements 89 ​ ​ ​ ​ 81 Report of Independent Registered Public Accounting Firm ​ To the Shareholders and the Board of Directors of Senseonics Holdings, Inc. ​ ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheets of Senseonics Holdings, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes, (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. 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 ​ These financial statements are the responsibility of the Company's management. 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 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. ​ We conducted our audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter ​ 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) relates 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 it relates. ​ ​ ​ ​ Valuation of Derivatives Instruments and Options Description of the Matter 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, 82 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 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 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. We also performed a sensitivity analysis of the significant assumptions, including the implied volatility and probability of conversion, to evaluate the change in the fair value that would result from changes in the assumptions. ​ ​ /s/ Ernst & Young LLP ​ We have served as the Company’s auditor since 2015. ​ Tysons, VA March 1, 2022 ​ 83 Senseonics Holdings, Inc. ​ Consolidated Balance Sheets (in thousands, except for share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 Assets ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 33,461 ​ $ 18,005 ​ Restricted cash ​ ​ — ​ ​ 200 ​ Short term investments, net ​ ​ 96,445 ​ ​ — ​ Accounts receivable, net ​ ​ 205 ​ ​ 565 ​ Accounts receivable, net - related parties ​ ​ 1,768 ​ ​ 2,421 ​ Inventory, net ​ ​ 6,316 ​ ​ 5,281 ​ Prepaid expenses and other current assets ​ 6,218 ​ 3,774 ​ Total current assets ​ 144,413 ​ 30,246 ​ ​ ​ ​ ​ ​ ​ ​ ​ Option ​ ​ 239 ​ ​ 1,886 ​ Deposits and other assets ​ 1,086 ​ 2,229 ​ Long term investments, net ​ ​ 51,882 ​ ​ — ​ Property and equipment, net ​ 1,308 ​ 1,557 ​ Total assets ​ $ 198,928 ​ $ 35,918 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Deficit ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 1,204 ​ $ 1,762 ​ Accrued expenses and other current liabilities ​ 10,667 ​ 11,674 ​ Accrued expenses and other current liabilities- related parties ​ ​ 3,597 ​ ​ — ​ Term Loans, net ​ ​ 2,926 ​ ​ 3,202 ​ Total current liabilities ​ 18,394 ​ 16,638 ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt and notes payables, net ​ ​ 59,798 ​ ​ 57,216 ​ Derivative liabilities ​ 236,291 ​ 62,119 ​ Option ​ ​ 69,401 ​ ​ 39,734 ​ Other liabilities ​ ​ 579 ​ ​ 1,483 ​ Total liabilities ​ 384,463 ​ 177,190 ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred stock and additional paid-in-capital, subject to possible redemption: $ 0.001 par value per share; 0 shares issued and outstanding as of December 31, 2021 and 3,000 shares issued and outstanding as of December 31, 2020 ​ ​ — ​ ​ 2,811 ​ Total temporary equity ​ ​ — ​ ​ 2,811 ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ deficit: ​ ​ ​ ​ ​ ​ ​ Common stock, $ 0.001 par value per share; 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 ​ 447 ​ 266 ​ Additional paid-in capital ​ 765,215 ​ 504,162 ​ Accumulated other comprehensive income, net of tax ​ ​ ( 212 ) ​ ​ — ​ Accumulated deficit ​ ( 950,985 ) ​ ( 648,511 ) ​ Total stockholders' deficit ​ ( 185,535 ) ​ ( 144,083 ) ​ Total liabilities and stockholders’ deficit ​ $ 198,928 ​ $ 35,918 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 84 Senseonics Holdings, Inc. ​ Consolidated Statements of Operations and Comprehensive Loss ​ (in thousands, except for share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended ​ ​ December 31, ​ ​ 2021 ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue, net $ 1,394 $ 1,368 $ 4,924 ​ Revenue, net - related parties ​ ​ 12,281 ​ ​ 3,581 ​ ​ 16,377 ​ Total revenue ​ ​ 13,675 ​ ​ 4,949 ​ ​ 21,301 ​ Cost of sales ​ ​ 14,486 ​ ​ 22,315 ​ ​ 40,749 ​ Gross profit (loss) ​ ​ ( 811 ) ​ ​ ( 17,366 ) ​ ​ ( 19,448 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales and marketing expenses ​ 5,483 ​ 20,550 ​ 49,555 ​ Sales and marketing expenses- related parties ​ ​ 2,133 ​ ​ — ​ ​ — ​ Total sales and marketing expenses ​ ​ 7,616 ​ ​ 20,550 ​ ​ 49,555 ​ Research and development expenses ​ 27,217 ​ 20,413 ​ 38,430 ​ General and administrative expenses ​ 21,538 ​ 20,801 ​ 23,229 ​ Operating loss ​ ( 57,182 ) ​ ( 79,130 ) ​ ( 130,662 ) ​ Other income (expense), net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ ​ 243 ​ ​ 175 ​ ​ 1,933 ​ Loss on fair value adjustment of option ​ ​ ( 53,152 ) ​ ​ ( 30,721 ) ​ ​ — ​ Gain (Loss) on extinguishment of debt and option ​ 330 ​ ( 21,112 ) ​ ( 398 ) ​ Loss on issuance of debt & other issuance costs ​ ​ — ​ ​ ( 12,706 ) ​ ​ — ​ Interest expense ​ ​ ( 16,720 ) ​ ​ ( 16,167 ) ​ ​ ( 11,799 ) ​ Debt issuance costs ​ ​ — ​ ​ ( 1,216 ) ​ ​ ( 3,344 ) ​ Gain (Loss) on change in fair value of derivatives ​ ​ ( 174,173 ) ​ ​ ( 11,641 ) ​ ​ 29,232 ​ Impairment cost ​ ​ ( 1,647 ) ​ ​ ( 2,339 ) ​ ​ — ​ Other expense ​ ( 173 ) ​ ( 311 ) ​ ( 511 ) ​ Total other income (expense), net ​ ​ ( 245,292 ) ​ ​ ( 96,038 ) ​ ​ 15,113 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Loss ​ ​ ( 302,474 ) ​ ​ ( 175,168 ) ​ ​ ( 115,549 ) ​ Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized loss on marketable securities ​ ​ ( 212 ) ​ ​ — ​ ​ — ​ Total other comprehensive loss, net of tax ​ ​ ( 212 ) ​ ​ — ​ ​ — ​ Total comprehensive loss, net of tax ​ $ ( 302,686 ) ​ $ ( 175,168 ) ​ $ ( 115,549 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic net loss per common share ​ $ ( 0.72 ) ​ $ ( 0.77 ) ​ $ ( 0.61 ) ​ Basic weighted-average shares outstanding ​ ​ 422,321,023 ​ ​ 227,912,358 ​ ​ 188,754,160 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted net loss per common share ​ $ ( 0.72 ) ​ $ ( 0.77 ) ​ $ ( 0.61 ) ​ Diluted weighted-average shares outstanding ​ 422,321,023 ​ 227,912,358 ​ 188,754,160 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 85 Senseonics Holdings, Inc. ​ Consolidated Statements of Changes in Stockholders’ Equit y (Deficit) ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated ​ ​ ​ ​ Total Series A ​ ​ ​ Common Stock ​ Paid-In ​ Other ​ Accumulated ​ Stockholders' Convertible ​ ​ Shares Amount Capital Comprehensive Loss ​ Deficit ​ Equity (Deficit) Preferred Stock Temporary Equity Balance, December 31, 2018 ​ 176,918 ​ ​ 177 ​ ​ 428,878 ​ ​ — ​ ​ ( 357,794 ) ​ ​ 71,261 ​ $ — ​ Issuance of common stock, net ​ 26,136 ​ ​ 26 ​ ​ 26,731 ​ ​ — ​ ​ — ​ ​ 26,757 ​ — ​ Exercise of stock options and warrants ​ 256 ​ ​ — ​ ​ 108 ​ ​ — ​ ​ — ​ ​ 108 ​ ​ — ​ Conversion of 2023 Notes ​ 143 ​ ​ — ​ ​ 8,052 ​ ​ — ​ ​ — ​ ​ 8,052 ​ ​ — ​ Stock-based compensation expense and vesting of RSU's ​ — ​ ​ — ​ ​ 722 ​ ​ — ​ ​ — ​ ​ 722 ​ ​ — ​ Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 115,549 ) ​ ​ ( 115,549 ) ​ ​ — ​ Balance, December 31, 2019 ​ 203,453 ​ $ 203 ​ $ 464,491 ​ $ — ​ $ ( 473,343 ) ​ $ ( 8,649 ) ​ $ — ​ Issuance of convertible preferred stock, net ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,811 ​ Issuance of common stock, net ​ 329 ​ ​ — ​ ​ ( 26 ) ​ ​ — ​ ​ — ​ ​ ( 26 ) ​ — ​ Exercise of stock options and ESPP purchases 3,329 ​ ​ 3 ​ ​ 573 ​ ​ — ​ ​ — ​ ​ 576 ​ — ​ Exchange and conversion of convertible notes, net ​ 58,470 ​ ​ 60 ​ ​ 27,199 ​ ​ — ​ ​ — ​ ​ 27,259 ​ — ​ Stock-based compensation expense and vesting of RSU's ​ — ​ ​ — ​ ​ 7,314 ​ ​ — ​ ​ — ​ ​ 7,314 ​ ​ — ​ Issuance of warrants related to debt, net ​ — ​ ​ — ​ ​ 4,611 ​ ​ — ​ ​ — ​ ​ 4,611 ​ ​ — ​ Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 175,168 ) ​ ​ ( 175,168 ) ​ — ​ Balance, December 31, 2020 265,581 ​ $ 266 ​ $ 504,162 $ — ​ $ ( 648,511 ) ​ $ ( 144,083 ) ​ $ 2,811 ​ Issuance of convertible preferred stock, net ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 42,756 ​ Conversion of preferred stock ​ 54,166 ​ ​ 54 ​ ​ 45,511 ​ ​ — ​ ​ — ​ ​ 45,565 ​ ​ ( 45,567 ) ​ Issuance of common stock, net 112,571 ​ ​ 113 ​ ​ 200,252 ​ ​ — ​ ​ — ​ ​ 200,365 ​ ​ — ​ Exercise of stock options and warrants 5,732 ​ ​ 5 ​ ​ 4,988 ​ ​ — ​ ​ — ​ ​ 4,993 ​ ​ — ​ Exchange and conversion of convertible notes, net ​ 4,925 ​ ​ 5 ​ ​ 6,496 ​ ​ — ​ ​ — ​ ​ 6,501 ​ ​ — ​ Issuance of common stock for vested RSUs and ESPP purchase ​ 5,816 ​ ​ 6 ​ ​ 68 ​ ​ — ​ ​ — ​ ​ 74 ​ ​ — ​ Shares withheld related to net share settlement ​ ( 1,509 ) ​ ​ ( 2 ) ​ ​ ( 5,291 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 5,293 ) ​ ​ ​ ​ Stock-based compensation expense — ​ ​ — ​ ​ 9,029 ​ ​ — ​ ​ — ​ ​ 9,029 ​ ​ — ​ Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 302,474 ) ​ ​ ( 302,474 ) ​ ​ — ​ Other comprehensive income, net of tax — ​ ​ — ​ ​ — ​ ​ ( 212 ) ​ ​ — ​ ​ ( 212 ) ​ ​ — ​ Balance, December 31, 2021 447,282 ​ $ 447 ​ $ 765,215 $ ( 212 ) ​ $ ( 950,985 ) ​ $ ( 185,535 ) ​ $ — ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 86 Senseonics Holdings, Inc. ​ Consolidated Statements of Cash Flows ​ (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended ​ December 31, ​ ​ 2021 ​ 2020 ​ 2019 Cash flows from operating activities ​ ​ ​ ​ ​ Net loss $ ( 302,474 ) ​ ​ ( 175,168 ) ​ $ ( 115,549 ) ​ Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization expense 1,239 ​ ​ 1,141 ​ 1,001 ​ Non-cash interest expense (debt discount and deferred costs) 8,462 ​ ​ 10,977 ​ 8,457 ​ Change in fair value of derivatives ​ 174,173 ​ ​ 11,641 ​ ​ ( 29,232 ) ​ Loss on fair value adjustment of option ​ 53,152 ​ ​ 30,721 ​ ​ — ​ (Gain) Loss on extinguishment of debt and option ​ ( 330 ) ​ ​ 21,112 ​ ​ 398 ​ Loss on issuance of debt ​ — ​ ​ 12,706 ​ ​ — ​ Impairment of right-of-use asset ​ 518 ​ ​ — ​ ​ — ​ Impairment of option ​ 1,647 ​ ​ 2,339 ​ ​ — ​ Stock-based compensation expense 9,029 ​ ​ 7,314 ​ 8,052 ​ Loss on disposal of assets ​ 10 ​ ​ 181 ​ ​ 310 ​ Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ 1,013 ​ ​ 7,393 ​ ​ ( 3,282 ) ​ Prepaid expenses and other current assets ( 2,444 ) ​ ​ 737 ​ ( 527 ) ​ Inventory ​ ( 1,036 ) ​ ​ 11,648 ​ ​ ( 6,698 ) ​ Deposits and other assets ​ ( 164 ) ​ ​ 117 ​ ​ ( 3,442 ) ​ Accounts payable ( 559 ) ​ ​ ( 2,522 ) ​ ( 122 ) ​ Accrued expenses and other liabilities ​ 1,314 ​ ​ ( 6,585 ) ​ ​ 4,827 ​ Deferred revenue ​ — ​ ​ — ​ ​ ( 628 ) ​ Accrued interest ​ 372 ​ ​ ( 379 ) ​ ​ 388 ​ Operating lease liabilities ​ — ​ ​ ( 795 ) ​ ​ — ​ Net cash used in operating activities ( 56,078 ) ​ ​ ( 67,422 ) ​ ( 136,047 ) ​ Cash flows from investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital expenditures ( 210 ) ​ ​ ( 181 ) ​ ( 1,045 ) ​ Purchase of marketable securities ​ ( 154,514 ) ​ ​ — ​ ​ — ​ Proceeds from sale and maturity of marketable securities ​ 5,975 ​ ​ — ​ ​ — ​ Net cash used in investing activities ( 148,749 ) ​ ( 181 ) ​ ( 1,045 ) ​ Cash flows from financing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Issuance of common stock, net ​ 200,365 ​ ​ ( 26 ) ​ ​ 26,757 ​ Proceeds from exercise of stock options, stock warrants and ESPP purchases ​ 5,066 ​ ​ 576 ​ ​ 108 ​ Taxes paid related to net share settlement of equity awards ​ ( 5,293 ) ​ ​ — ​ ​ — ​ Proceeds from debt issuance, net — ​ ​ 55,971 ​ ​ 127,000 ​ Note issuance costs ​ — ​ ​ ( 601 ) ​ ​ ( 4,301 ) ​ Proceeds from Solar term loan, net of cost ​ — ​ ​ — ​ ​ ( 2,049 ) ​ Proceeds from issuance of Masters preferred stock, net 22,783 ​ — ​ — ​ Proceeds from issuance of warrants, net of costs ​ — ​ ​ — ​ ​ 722 ​ Repayment of term loans ​ ( 2,838 ) ​ ​ ( 66,050 ) ​ ​ ( 15,000 ) ​ Repurchase of 2023 Notes ​ — ​ ​ — ​ ​ ( 37,000 ) ​ Net cash provided by (used in) financing activities 220,083 ​ ( 10,130 ) ​ 96,237 ​ Net increase (decrease) in cash, cash equivalents and restricted cash 15,256 ​ ( 77,733 ) ​ ( 40,855 ) ​ Cash, cash equivalents and restricted cash, at beginning of period 18,205 ​ 95,938 ​ 136,793 ​ Cash, cash equivalents and restricted cash, at ending of period $ 33,461 ​ $ 18,205 ​ $ 95,938 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid during the period for interest $ 7,822 ​ $ 4,726 ​ $ 5,233 ​ Lease liabilities arising from obtaining right-of-use assets ​ — ​ ​ — ​ ​ 2,974 ​ Supplemental disclosure of non-cash investing and financing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment purchases included in accounts payable and accrued expenses ​ 30 ​ ​ — ​ ​ 32 ​ Issuance of common stock converted from preferred shares ​ 54,166 ​ ​ — ​ ​ — ​ Issuance of common stock converted from notes payables ​ 4,925 ​ ​ 227 ​ ​ — ​ 87 Issuance of common stock and warrants - Highbridge transactions ​ — ​ ​ 55,303 ​ ​ — ​ Issuance of warrants - Energy Capital ​ — ​ ​ 3,399 ​ ​ — ​ Exchange of 2025 Notes for Second Lien Notes ​ — ​ ​ ( 24,000 ) ​ ​ — ​ Issuance of Second Lien Notes ​ — ​ ​ 15,675 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 88 Senseonics Holdings, Inc. ​ Notes to Consolidated Financial Statements ​ 1. Organization ​ 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. Senseonics Holdings and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires. ​ 2. Liquidity ​ 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 six months ) 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 or certifications for the sale of those products. 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. 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 89 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. 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 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. ​ 90 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. ​ 3. Summary of Significant Accounting Policies ​ Basis of Presentation ​ The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 ​ The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. In the accompanying 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; however, management does not believe that such differences would be material. ​ Segment Information ​ The Company views its operations and manages its business in one segment, glucose monitoring products. ​ Comprehensive 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. ​ ​ Cash and Cash Equivalents and Concentration of Credit Risk ​ The Company considers highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash, cash equivalents and restricted cash consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Cash ⁽ ¹ ⁾ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 4,264 ​ $ 18,002 ​ 91 Money market funds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 29,197 ​ ​ 3 ​ Cash and cash equivalents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 33,461 ​ $ 18,005 ​ (1) Includes overnight repurchase agreements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ ​ ​ ​ ​ ​ 2021 2020 Cash and cash equivalents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 33,461 ​ $ 18,005 Restricted cash ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ 200 Cash, cash equivalents and restricted cash ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 33,461 ​ $ 18,205 ​ Concentration of Revenues and Customers ​ 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 ​ The following table sets forth net revenues derived from the Company’s two primary geographical markets, the United States and outside of the United States, based on the geographic location to which the Company delivers the product, for the years ended December 31, 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ ​ ​ % ​ ​ ​ ​ % ​ ​ ​ % ​ (Dollars in thousands) ​ Amount ​ of Total ​ ​ Amount ​ of Total ​ Amount ​ of Total ​ Revenue, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outside of the United States ​ $ 11,117 ​ 81.3 % ​ $ 3,821 ​ 77.2 % $ 18,054 ​ 84.8 % United States ​ ​ 2,558 ​ 18.7 ​ ​ ​ 1,128 ​ 22.8 ​ ​ 3,247 ​ 15.2 ​ Total ​ $ 13,675 ​ 100.0 % ​ $ 4,949 ​ 100.0 % $ 21,301 ​ 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Marketable Securities ​ 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. Realized gains and losses and declines in value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of any available for sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is established. Dividend and interest income is recognized when earned. The cost of securities sold is calculated using the specific identification method. 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. 92 ​ ​ Inventory and Obsolescence ​ Inventory is valued at the lower of cost or net realizable value. Cost is determined using the standard cost method that approximates first in, first out. The Company records an adjustment to reduce the value of inventory for items that are potentially obsolete, where standard costs require adjustment to the net realizable value, and are in excess of future demand taking into consideration the product shelf life. The sensor manufacturing process can span several months, involves various contract manufacturers and includes raw components with long lead times, often resulting in significant work-in-progress inventory. However, expiry does not commence until the chemistry is applied to the sensor. The Company is able to isolate pre-chemistry sensor inventory in progress from post-chemistry sensor inventory in progress and finished goods to assess against demand forecasts and customer dating requirements for potential excess or obsolete inventory. The Company’s estimates are based on information known as of the balance sheet date and include factors such as anticipated future usage and sales, potential for external unfavorable conditions such as import holds or quality issues, and planned product upgrades. However, if actual product quality or conditions differ from the Company’s assumptions, additional inventory adjustments that would increase cost of sales could be required. ​ ​ Accounts Receivable ​ The Company grants credit to various customers in the normal course of business. Accounts receivable consist of amounts due from distributors and are reduced by an allowance for doubtful accounts at the time potential collection risk is identified. 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, 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 ​ Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which is generally between three to seven years , and is recorded within operating expenses and cost of goods sold in the consolidated statements of operations and comprehensive loss. Upon disposition of the assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Repairs and maintenance costs are included as expense in the accompanying statement of operations. ​ ​ Long-lived Assets ​ Management reviews long-lived assets, including property and equipment and right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. 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 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 93 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 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. 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, 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. 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. 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 its election of PIK interest. ​ 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. 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. ​ ​ 94 Warranty Obligation ​ The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual return management authorizations to revenue. ​ At December 31, 2021 and December 31, 2020, the warranty reserve was $ 0.7 million and $ 0.6 million, respectively. The following table provides a reconciliation of the change in estimated warranty liabilities for the years ended December 31, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Balance at beginning of the period ​ $ 646 ​ $ 2,197 Provision for warranties during the period ​ ​ 781 ​ ​ ( 266 ) Settlements made during the period ​ ​ ( 704 ) ​ ​ ( 1,285 ) Balance at end of the period ​ $ 723 ​ $ 646 ​ ​ Revenue Recognition 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 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. ​ ​ 95 Cost of Sales ​ The Company uses third-party contract manufacturers to manufacture Eversense and related components and supplies. Cost of sales includes raw materials, contract manufacturing service fees, expected warranty costs, recall costs, product obsolescence, scrap, third-party warehousing, shipping and handling expenses associated with product delivery, and employee-related costs of the internal supply chain and manufacturing team. ​ ​ Sales and Marketing Expenses ​ 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 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 ​ Research and development expenses consist of expenses incurred in performing research and development activities in developing Eversense, including clinical trials and feasibility studies, and partnerships for strategic initiatives including insulin delivery and new indications. Research and development expenses include compensation and benefits for research and development employees including stock-based compensation, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to contract research organizations and other consultants, and other outside expenses. Research and development expenses are expensed as incurred. ​ ​ General and Administrative Expenses ​ General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in the Company’s executive, finance, accounting, business development, information technology, and human resources functions. Other significant costs include information technology, facility costs, legal fees relating to patent and corporate matters and fees for accounting and consulting services. ​ ​ Stock-Based Compensation ​ The Company accounts for stock-based compensation related to stock option grants and restricted stock units under stock incentive plans, purchases under the employee stock purchase plan, as well as inducement stock grants, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period of the individual award, which typically equals the vesting period. Forfeitures are accounted for in the period in which they occur. ​ The Company uses the Black-Scholes-Merton option pricing model (“Black-Scholes Model”) to determine the fair value of stock-option awards. Valuation of stock awards requires management to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the fair value of the Company’s common stock, future volatility of the Company’s stock price, dividend yields, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can affect the fair value estimate. ​ The Company has assumed no dividend yield because it does not expect to pay dividends in the future, which is consistent with its history of not paying dividends. The risk-free interest rate assumption is based on observed interest rates for constant maturity U.S. 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 method. Under the simplified method, the expected life of an option is presumed to be the mid-point between the vesting 96 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. Expected volatility is based on the daily closing prices of a peer group of comparable publicly traded companies in similar stages of development. ​ ​ Income Taxes ​ The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. ​ Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. Management does not expect the outcome related to accrued uncertain tax provisions to have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. ​ The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 1998 and all subsequent periods due to the availability of NOL carryforwards. In addition, all of the net operating losses and research and development credit carryforwards that may be used in future years are still subject to adjustment. ​ ​ Fair Value of Financial Instruments ​ 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, 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 ​ Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. ​ 97 For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all potential common shares is anti-dilutive. The total number of anti-dilutive shares at December 31, 2021, 2020 and 2019, consisting of common stock options and stock purchase warrants, which have been excluded from the computation of diluted loss per share, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 ​ Stock-based awards ​ 26,140,291 ​ 30,013,407 ​ 24,218,612 ​ Masters preferred shares ​ — ​ 6,302,521 ​ — ​ 2023 Notes ​ 4,617,646 ​ 6,672,500 ​ 6,672,500 ​ PHC Notes ​ 65,757,177 ​ 68,222,412 ​ — ​ 2025 Notes ​ 39,689,142 ​ 44,728,676 ​ 63,565,883 ​ Warrants ​ 13,177,822 ​ 17,282,792 ​ 5,196,581 ​ Total anti-dilutive shares outstanding ​ 149,382,078 ​ 173,222,308 ​ 99,653,576 ​ ​ For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options stock purchase warrants and employee stock purchases using the treasury stock method. ​ ​ Recent Accounting Pronouncements ​ Recently Adopted ​ 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. 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 ​ In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company currently holds investments in available-for-sale securities. The Company has not historically experienced collection issues or bad debts with trade receivables. Accordingly, the Company does not expect this to have a significant impact on its consolidated financial statements and related disclosures at this time. 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. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either partial retrospective or fully retrospective method of transition. 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 98 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. ​ ​ ​ ​ ​ ​ ​ 4. Marketable Securities ​ Marketable securities available for sale, were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ Gross ​ Gross ​ Estimated ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Market ​ Cost Gains Losses Value Commercial Paper ​ $ 57,369 ​ ​ — ​ ​ — ​ $ 57,369 Corporate debt securities ​ $ 39,825 ​ ​ — ​ ​ ( 77 ) ​ $ 39,748 Asset backed securities ​ $ 26,736 ​ ​ — ​ ​ ( 29 ) ​ $ 26,707 Government and agency securities ​ $ 24,609 ​ ​ — ​ ​ ( 106 ) ​ $ 24,503 Total ​ $ 148,539 ​ $ — ​ $ ( 212 ) ​ $ 148,327 ​ There were no marketable securities at December 31, 2020. ​ The following are the scheduled maturities as of December 31, 2021 (in thousands): ​ ​ ​ ​ ​ ​ 2022 $ 96,479 2023 ​ 45,478 2024 ​ ​ 3,552 Thereafter ​ ​ 3,030 Total $ 148,539 ​ 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. ​ 99 5. Inventory, net ​ Inventory, net consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Finished goods $ 1,012 $ 203 Work-in-process ​ 3,770 ​ 2,626 Raw materials ​ 1,534 ​ 2,452 Total ​ $ 6,316 ​ $ 5,281 ​ 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. ​ ​ 6. Prepaid expenses and other current assets ​ Prepaid expenses and other current assets consisted of the following as of December 31, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 Contract manufacturing⁽¹⁾ ​ $ 5,036 ​ $ 3,324 Interest receivable ​ 443 ​ — IT and software ​ 225 ​ 150 Clinical and Preclinical ​ ​ 142 ​ ​ 11 Rent ​ ​ 105 ​ ​ 102 Sales and Marketing ​ ​ 98 ​ ​ 53 Insurance ​ ​ 74 ​ ​ 50 Research and development ​ ​ 39 ​ ​ — Other ​ ​ 29 ​ ​ — Corporate and Finance Consulting ​ ​ 27 ​ ​ 84 Total prepaid expenses and other current assets ​ $ 6,218 ​ $ 3,774 ​ ​ ​ (1) Includes deposits to contract manufacturers for manufacturing process. ​ 7. Property and Equipment, net ​ Property and equipment, net consisted of the following as of December 31, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 ​ Machinery and laboratory equipment $ 2,357 $ 2,176 ​ Office furniture and equipment ​ 354 ​ 371 ​ Leasehold improvements ​ 127 ​ 112 ​ ​ ​ 2,838 ​ ​ 2,659 ​ Less: Accumulated depreciation ​ ( 1,530 ) ​ ( 1,102 ) ​ Property and equipment, net ​ $ 1,308 ​ $ 1,557 ​ ​ 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 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 100 impaired or obsoleted. The Company disposed of $ 0.3 million and $ 1.4 million of property and equipment in 2020 and 2019, respectively. ​ 8. Accrued Expenses and Other Current Liabilities ​ Accrued expenses and other current liabilities consisted of the following as of December 31, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 Compensation and benefits ​ $ 3,484 ​ $ 4,344 Research and development ​ ​ 2,145 ​ ​ 842 Interest on notes payable ​ ​ 2,144 ​ ​ 1,773 Sales and marketing services ​ ​ 1,962 ​ ​ 615 Product warranty and replacement obligations ​ 1,697 ​ 646 Professional and administration services ​ 1,011 ​ 880 Contract manufacturing ​ 914 ​ 1,421 Operating lease ​ ​ 904 ​ ​ 794 Other ​ ​ 3 ​ ​ 151 Patient access programs ​ ​ — ​ ​ 208 Total accrued expenses and other current liabilities ​ $ 14,264 ​ $ 11,674 ​ 9. Leases ​ The Company evaluates whether contractual arrangements contain leases at the inception of such arrangements. Specific considerations include whether the Company can control the underlying asset and has the right to obtain substantially all of the economic benefits or outputs from the asset. Substantially all of the Company’s leases are long-term operating leases with fixed payment terms. The Company currently does not have financing leases. Right-of-use (“ROU”) operating lease assets represent the Company’s right-to-use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expenses on the Company’s consolidated statement of operations and comprehensive loss. Options to extend the leases or terminate the leases early are only included in the lease term when it is reasonably certain that the option will be exercised. ​ The Company recognizes a ROU operating lease asset and liability as of the lease commencement date at the present value of the lease payments over the lease term. If the discount rate in the lease agreement is not implicit, the Company estimates the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. Lease and non-lease components are accounted for as a single component for facility leases. Leases with an initial term of 12 months or less are expensed to rent expense over the related term. ​ The Company leases approximately 33,000 square feet of research and office space for its corporate headquarters under a non-cancelable operating lease expiring in 2023. The Company has an option to renew the lease for one additional five-year term. 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 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. 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. ​ 101 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. ​ Operating lease expense for the year ended December 31, 2021, 2020 and 2019 was $ 0.9 million, $ 0.9 million and $ 0.7 million, respectively. ​ The following table summarizes the lease assets and liabilities as of December 31, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Lease Assets and Liabilities ​ Balance Sheet Classification ​ Amount Assets ​ ​ ​ ​ ​ Operating lease ROU assets ​ ​ Deposits and other assets ​ $ 821 Liabilities ​ ​ ​ ​ ​ ​ Current operating lease liabilities ​ ​ Accrued expenses and other current liabilities ​ $ 904 Non-current operating lease liabilities ​ ​ Other non-current liabilities ​ ​ 579 Total operating lease liabilities ​ ​ ​ ​ $ 1,483 ​ 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): ​ ​ ​ ​ ​ 2022 ​ ​ 1,002 2023 ​ ​ 600 2024 ​ ​ - 2025 ​ ​ - 2026 ​ ​ - Total ​ ​ 1,602 Present value adjustment ​ ​ ( 119 ) Present value of lease liabilities ​ $ 1,483 ​ ​ The following table summarizes the weighted-average lease term and weighted-average discount rate as of December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ Remaining lease term (years) ​ 2021 ​ 2020 ​ Operating leases ​ 1.6 ​ 2.6 ​ Discount rate ​ ​ ​ ​ ​ Operating leases ​ 9.1 % 9.1 % ​ ​ ​ ​ ​ ​ ​ During the year ended December 31, 2021, the Company made cash payments of $ 0.9 million included in the measurement of its operating lease liabilities. ​ 10. 401(k) Plan ​ The Company has a defined contribution 401(k) plan available to all full-time employees. Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal income tax regulations. Participants are fully vested in their contributions. The Company has provided a discretionary match of 1 % up to 4 % of the participant’s contributions. Employer match expenses during the years ended December 31, 2021, 2020, 2019 were $ 0.3 million, $ 0.1 million and $ 0.2 million, respectively. Administrative expenses for the plan, which are paid by the Company, were not material in 2021, 2020 or 2019. ​ 102 11. Notes Payable and Stock Purchase Warrants ​ Term Loans ​ PPP Loan ​ On April 22, 2020, the Company received $ 5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured 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. 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 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 ​ Highbridge Loan Agreement ​ On April 21, 2020, the Company entered into the Highbridge Loan Agreement with certain funds managed by Highbridge, the Lenders and Wilmington Savings Fund Society, SCB, as collateral agent. ​ Pursuant to the Highbridge Loan Agreement, the Company borrowed an aggregate principal amount of $ 15.0 million in aggregate principal through the issuance and sale of First Lien Notes (the “First Lien Notes”) on April 24, 2020. In connection with the Highbridge Loan Agreement and receipt of the first tranche of borrowing, the Company issued 1,500,000 shares of its common stock to the Lenders as a commitment fee. ​ 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 First Lien Notes were secured, senior obligations that bear interest at the annual rate of 12 % or, at the Company’s election, payment in kind (“PIK”) at an annual rate of 13 %, payable monthly in arrears. The First Lien Notes would have matured on October 24, 2021 (the “First Lien Maturity Date”). The obligations under the First Lien Notes were secured by substantially all the Company’s assets. ​ 103 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. 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 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 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 ​ 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 Company’s 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. The Exchange closed on April 24, 2020. The warrants may be exercised in cash or on a cashless basis at any time through the three-year anniversary of the issuance date. ​ 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. Loan modifications require third-party debt related costs to be expensed immediately. 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 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. 104 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. ​ 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. 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 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. 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. Loan modifications require third-party debt related costs to be expensed immediately, whereas fees paid to lenders of the modified loans are deferred. In connection with the issuance of the Second Lien Notes, the Company recorded a total of $ 14.1 million in debt issuance costs and debt discounts, including $ 13.2 million allocated from the 2025 Notes for the $ 24.0 million outstanding principal exchanged and the discount from the bifurcated derivative. These costs were recorded as debt discounts to the Second Lien Notes and are amortized as interest expense over the term of the Second Lien Notes. Allocated third-party debt related costs of $ 0.8 million were expensed during the twelve months ended December 31, 2020. ​ 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 consolidated statements of operations and comprehensive loss during the twelve months ended December 31, 2020. ​ Convertible Preferred Stock and Warrants ​ 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. 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. 105 ​ 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. ​ 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. Upon a liquidation, dissolution or winding up of the Company, each share of Series A Preferred Stock is entitled to receive an amount per share equal to the greater of the purchase price paid and the amount that the holder would have been entitled to receive at such time if the Series A Preferred Stock were converted into common stock. The holders are also entitled to participate in dividends declared or paid on the common stock on an as-converted basis. If we undergo a change of control, each holder has the right to cause us to redeem any or all of the Series A Preferred Stock for cash consideration equal to the liquidation amount. The holders of Series A Preferred Stock generally are entitled to vote with the holders of the shares of common stock on all matters submitted for a vote of holders of shares of common stock (voting together with the holders of shares of common stock as one class) on an as-converted basis. Additionally, certain matters 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 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. ​ 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 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. ​ ​ ​ 106 Convertible Notes ​ PHC Notes On August 9, 2020, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PHC, as the purchaser (together with the other purchasers from time to time party thereto, the “Note Purchasers”) and Alter Domus (US) LLC, as collateral agent. Pursuant to the Note Purchase Agreement, the Company borrowed $ 35.0 million in aggregate principal through the issuance and sale of PHC Notes on August 14, 2020 (the “Closing Date”). The Company also issued 2,941,176 shares of its common stock, $ 0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date. The Financing Fee Shares are accounted for as debt discount in the amount of $ 1.5 million. ​ The PHC Notes are senior secured obligations of the Company and will be guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated. Interest at the annual rate of 9.5 % will be payable semi-annually in cash or, at the Company’s option, payment in kind. 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. The maturity date for the PHC Notes is October 31, 2024 (the “Maturity Date”), provided that the Maturity Date will accelerate if the Company has not repaid the Company’s outstanding Second Lien Notes (other than an aggregate principal amount of up to $ 1.0 million) by 91 days prior to the maturity of the Second Lien Notes. The obligations under the PHC Notes are secured by substantially all of the Company’s and its subsidiary’s assets. ​ The Note Purchasers are entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $ 1,000 principal amount of the PHC Notes (including any interest added thereto as payment in kind), equivalent to a conversion price of approximately $ 0.54 per share, subject to specified anti-dilution adjustments, including adjustments for the Company’s issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its PHC Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue such shares. ​ Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by the Company if the closing sale price of the common stock exceeds 275 % of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes are redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130 % if redeemed at least six months prior to the Maturity Date or a call premium of 125 % if redeemed within six months of the Maturity Date. ​ The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Note Purchase Agreement also contains customary events of default, after which the PHC Notes 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. ​ 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. 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 107 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. The Company developed an estimated fair value at December 31, 2021 to be $ 0.2 million, and an impairment loss of $ 1.6 million was recognized in net income as the difference between the fair value of the investment and its carrying amount. ​ The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default. The Company recorded the fair value of the embedded features in the amount of $ 25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative as of December 31, 2021 was $ 149.1 million. ​ In connection with the issuance of the Note Purchase Agreement, the Company incurred $ 2.9 million in debt issuance costs and debt discounts. The associated debt issuance costs 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. ​ 2025 Notes ​ In July 2019, the Company issued $ 82.0 million in aggregate principal amount of 2025 Notes. The 2025 Notes are general, unsecured, senior subordinated obligations of the Company and bear interest at a rate of 5.25 % per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The 2025 Notes will mature on January 15, 2025, unless earlier repurchased or converted. ​ The Company used $ 37.9 million of the net proceeds from the issuance of the 2025 Notes to repurchase $ 37.0 million aggregate principal amount of the Company’s outstanding 2023 Notes, at a purchase price equal to the principal amount thereof, plus accrued and unpaid interest thereon. ​ The 2025 Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at an initial conversion rate of 757.5758 shares per $ 1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $ 1.32 per share). ​ The Company may redeem for cash all or part of the 2025 Notes, at its option, if (1) the last reported sale price of the Company’s common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption and (2) a registration statement covering the resale of the shares of the Company’s common stock issuable upon conversion of the 2025 Notes is effective and available for use and is expected to remain effective and available for use during the redemption period as of the date of the redemption notice date. 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 108 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. 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. ​ The 2025 Notes are guaranteed on a senior unsecured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated, and may be guaranteed by certain future subsidiaries. The subsidiary guarantor is 100 % owned, the guarantee is full and unconditional and joint and several and the parent company has no independent assets or operations and any subsidiaries of the parent company other than the subsidiary guarantor are minor. ​ In connection with the issuance of the 2025 Notes, the Company incurred $ 4.3 million in debt issuance costs and debt discounts. Several note holders of the 2025 Notes were also note holders of the 2023 Notes, and as a result, these transactions qualified as loan modifications. The associated debt issuance costs were allocated between the portion of 2025 Notes purchased by new note holders, and of 2025 Notes purchased by existing 2023 Note holders. Loan modifications require third-party debt related costs to be expensed immediately, whereas fees paid to lenders of the modified loans are deferred. The third-party costs associated with the new note holders are also deferred as discounts that are amortized as additional interest expense over the term of the notes. Of the $ 4.3 million, $ 3.3 million were expensed for loan modifications were recorded within other income (expense) on the consolidated statement of operations and comprehensive loss and $ 1.0 million were deferred as discounts to the debt in 2019. ​ The 2025 Notes also contained an embedded conversion option requiring bifurcation as a separate derivative liability, along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision. The Company recorded the fair value of the embedded features in the amount of $ 38.3 million as a debt discount and derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging . The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded 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 $ 30.3 million as of December 31, 2021 and $ 29.0 million at 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. ​ 2023 Notes ​ In January 2018, the Company issued $ 50.0 million in aggregate principal amount of the 2023 Notes. In February 2018, the Company issued an additional $ 3.0 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the overallotment option by the underwriter. The 2023 Notes are general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25 % per year, payable semiannually in arrears on February 1 and August 1 of each year. The net proceeds from the issuance of the 2023 Notes, after deducting transaction costs, were $ 50.7 million. The 2023 Notes are general, unsecured, senior subordinated obligations of the Company. The Company pays interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. In July 2019, the Company used the net proceeds from the issuance of the 2025 Notes to repurchase $ 37.0 million aggregate principal amount of the outstanding 2023 Notes. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as a long-term liability on the Company’s consolidated balance sheet at December 31, 2021. ​ Each $ 1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $ 3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. 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 will increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 109 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. ​ The Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded features as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $ 17.3 million. Additionally, the Company incurred transaction costs of $ 2.2 million. The debt discount and transaction costs are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30 %. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. ​ The 2023 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 2023 Notes, excluding the embedded features, was $ 14.2 million as of December 31, 2021 and $ 12.9 million at December 31, 2020. There were no conversions of 2023 Notes in the years ended December 31, 2021 or 2020. ​ The following carrying amounts are outstanding under the Company’s notes payable as of December 31, 2021 and December 31, 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ Principal ($) ​ Debt Discount ($) ​ Issuance Costs ($) ​ Carrying Amount ($) ​ ​ ​ 2023 Notes 15,700 ​ ( 1,499 ) ​ - ​ 14,201 ​ ​ ​ 2025 Notes 51,199 ​ ( 20,535 ) ​ ( 344 ) ​ 30,320 ​ ​ ​ PHC Notes 35,000 ​ ( 18,587 ) ​ ( 1,136 ) ​ 15,277 ​ ​ ​ PPP Loan 2,926 ​ - ​ - ​ 2,926 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ Principal ($) ​ Debt Discount ($) ​ Issuance Costs ($) ​ Carrying Amount ($) ​ ​ ​ 2023 Notes 15,700 ​ ( 2,755 ) ​ - ​ 12,945 ​ ​ ​ 2025 Notes 57,700 ​ ( 28,276 ) ​ ( 431 ) ​ 28,993 ​ ​ ​ PHC Notes 36,312 ​ ( 22,237 ) ​ ( 1,359 ) ​ 12,716 ​ ​ ​ PPP Loan 5,763 ​ - ​ - ​ 5,763 ​ ​ ​ ​ Interest expense related to the notes payable for the periods presented below is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Effective Interest Rate ​ Interest ($) ​ Debt Discount and Fees ($) ​ Issuance Costs ($) ​ Loss on Extinguishment ($) ​ Total Interest Expense ($) 2023 Notes 5.25 % ​ 824 ​ 1,256 ​ - ​ - ​ 2,080 2025 Notes 5.25 % ​ 2,717 ​ 4,569 ​ 76 ​ 3,183 ​ 10,545 PHC Notes 9.50 % ​ 3,287 ​ 3,650 ​ 223 ​ - ​ 7,160 PPP Loan 1.00 % ​ 54 ​ - ​ - ​ - ​ 54 Total ​ ​ 6,882 ​ 9,475 ​ 299 ​ 3,183 ​ 19,839 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Effective Interest Rate ​ Interest ($) ​ Debt Discount and Fees ($) ​ Issuance Costs ($) ​ Loss on Extinguishment ($) ​ Total Interest Expense ($) Solar Term Loan 8.98 % ​ 1,001 ​ 301 ​ ​ ​ 4,546 ​ 5,848 2023 Notes 5.25 % ​ 824 ​ 1,145 ​ - ​ - ​ 1,969 2025 Notes 5.25 % ​ 3,481 ​ 5,026 ​ 77 ​ 158 ​ 8,742 First Lien Notes 13.00 % ​ 627 ​ 29 ​ 49 ​ 689 ​ 1,394 Second Lien Notes 8.25 % ​ 288 ​ 786 ​ 11 ​ 15,719 ​ 16,804 PHC Notes 9.50 % ​ 1,312 ​ 1,141 ​ 70 ​ - ​ 2,523 PPP Loan 1.00 % ​ 31 ​ 5 ​ 5 ​ - ​ 41 Total ​ ​ 7,564 ​ 8,433 ​ 212 ​ 21,112 ​ 37,321 ​ 110 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: ​ ​ ​ ​ ​ ​ 2022 $ 2,926 ​ 2023 ​ 15,700 ​ 2024 ​ ​ 35,000 ​ 2025 ​ ​ 51,199 ​ Thereafter ​ ​ — ​ Total $ 104,825 ​ ​ ​ 12. Stockholders’ Equity (Deficit) ​ 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. ​ Common Stock ​ 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, 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 ​ The Company also issued the Energy Capital Warrants to purchase an aggregate of 10,000,000 shares of the Company’s common stock with an exercise price of $ 0.40 per share. The Energy Capital Warrants are exercisable until November 9, 2030. The warrants were recorded within equity based on their fair value of $ 3.4 million. ​ The Company issued the Highbridge Warrants to purchase an aggregate of 4,500,000 shares of the Company’s common stock with an exercise price of $ 0.66 per share. The Highbridge Warrants are exercisable until April 24, 2023. The proceeds from the Highbridge Notes were allocated between the debt and the Highbridge Warrants based on their fair value, and $ 1.3 million was recorded for the warrants within equity. ​ In connection with the issuance of the Oxford/SVB Notes, the Company issued to the Lenders 10 -year stock purchase warrants to purchase an aggregate of 116,581 , 63,025 and 80,645 shares of common stock at an exercise price of $ 3.86 , $ 2.38 and $ 1.86 per share, respectively. The cumulative fair value of the warrants, which the Company estimated to be $ 0.5 million, resulted in a discount to the Oxford/SVB Notes. These warrants expire on June 30 , 2026, November 22, 2026, and March 29, 2027, respectively, and are classified in equity. ​ 111 13. Stock-Based Compensation ​ 2015 Plan ​ In December 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”), under which incentive stock options and non-qualified stock options may be granted to the Company’s employees and certain other persons in accordance with the 2015 Plan provisions. In February 2016, the Company’s board of directors adopted and the Company’s stockholders approved an Amended and Restated 2015 Equity Incentive Plan (the “amended and restated 2015 Plan”), which became effective on February 20, 2016. The Company’s board of directors may terminate the amended and restated 2015 Plan at any time. Options granted under the amended and restated 2015 Plan expire ten years after the date of grant. ​ Pursuant to the amended and restated 2015 Plan, the number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each year, beginning on January 1, 2017 and ending on January 1, 2026, by 3.5 % of the total number of shares of its common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by its board of directors. As of December 31, 2021, 10,006,224 shares remained available for grant under the amended and restated 2015 Plan. Effective January 1, 2022, by virtue of the automatic increase described above, the total number of shares remaining available for grant under the amended and restated 2015 Plan was increased to 25,661,103 shares. ​ Inducement Plan ​ On May 30, 2019, the Company adopted the Senseonics Holdings, Inc. Inducement Plan(the “Inducement Plan”), pursuant to which the Company reserved 1,800,000 shares of the Company’s common stock for issuance. The only persons eligible to receive grants of awards under the Inducement Plan are individuals who satisfy the standards for inducement grants in accordance with NYSE American Company Guide Section 711(a), including individuals who were not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company. An “Award” is any right to receive the Company’s common stock pursuant to the Inducement Plan, consisting of non-statutory options, restricted stock unit awards and other equity incentive awards. As of December 31, 2021, 989,795 shares remained available for grant under the Inducement Plan. ​ 2016 Employee Stock Purchase Plan ​ In February 2016, the Company adopted the 2016 Employee Stock Purchase Plan, (the “2016 ESPP”). The 2016 ESPP became effective on March 17, 2016. The maximum number of shares of common stock that may be issued under the 2016 ESPP was initially 800,000 shares and will automatically increase on January 1 of each year, beginning on January 1, 2017 and ending on and including January 1, 2026, by 1.0 % of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; provided, however, the Board of Directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock. At December 31, 2021 there were 8,670,753 shares of common stock available for issuance under the 2016 ESPP. ​ The 2016 ESPP permits participants to purchase shares of the Company’s common stock through payroll deductions of up to 15 % of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85 % of the lower of the fair market value of common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time. The Company initiated its first 2016 ESPP offering period on August 1, 2019. 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. ​ 112 1997 Plan ​ 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. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period. ​ Stock option activity under the Plans during the years ended December 31, 2021, 2020 and 2019 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Weighted- ​ Average ​ ​ Number of ​ Average ​ Remaining ​ ​ Shares in ​ Exercise ​ Contractual ​ ​ (in thousands) ​ Price ​ Life (in years) Options outstanding as of December 31, 2019 24,218 ​ $ 2.16 ​ ​ ​ Granted 469 ​ ​ 0.54 ​ ​ ​ Exercised ( 201 ) ​ ​ 0.53 ​ ​ ​ Cancelled/forfeited ( 8,711 ) ​ ​ 1.95 ​ ​ ​ Options outstanding as of December 31, 2020 15,775 ​ ​ 2.16 ​ 6.51 ​ Granted 224 ​ ​ 2.98 ​ ​ ​ Exercised ( 2,355 ) ​ ​ 1.61 ​ ​ ​ Cancelled/forfeited ( 260 ) ​ ​ 3.06 ​ ​ ​ Options outstanding as of December 31, 2021 13,384 ​ ​ ​ ​ 5.71 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Options vested and expected to vest as of December 31, 2021 ​ 13,384 ​ $ 2.38 ​ ​ ​ Options exercisable as of December 31, 2021 ​ 11,700 ​ $ 2.36 ​ 5.46 ​ ​ 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, 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. ​ The aggregate intrinsic value of the options currently exercisable at December 31, 2021 was $ 5.1 million. The aggregate intrinsic value of stock options outstanding at December 31, 2021 was $ 5.7 million, which approximated the aggregate intrinsic value of options vested and expected to vest as of December 31, 2021. ​ 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 113 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, ​ ​ 2021 ​ 2020 2019 Expected term of options (in years) ​ ​ 6.5 ​ ​ ​ 6.5 ​ ​ ​ 6.5 ​ Expected volatility rate 69.93 - 73.32 % 66.50 - 67.41 % 64.49 - 67.16 % Risk-free interest rate 0.59 - 1.25 % 0.41 - 1.80 % 1.60 - 2.64 % Expected dividend yield ​ ​ 0 % ​ ​ 0 % ​ ​ 0 % ​ The risk-free interest rate assumption is based upon observed U.S. treasury yields for a period consistent with the expected term of the Company’s employee stock options. The expected term is the period of time for which the stock-based options are expected to be outstanding. 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. ​ The Company utilizes comparable public companies’ volatility rates as a proxy of its expected volatility for purposes of the Black-Scholes Model. Stock-based compensation expense is recorded monthly and is adjusted periodically for actual forfeitures as they occur. ​ Employee stock-based compensation expense for employee granted stock options was $ 3.2 million, $ 5.2 million and $ 7.8 million, for the years ended December 31, 2021 and 2020 and 2019, respectively, classified as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 ​ 2019 ​ Cost of sales ​ $ 30 ​ ​ 59 ​ ​ 153 ​ Sales and marketing ​ 545 ​ ​ 1,570 ​ ​ 3,001 Research and development ​ 1,112 ​ ​ 1,189 ​ ​ 1,600 General and administrative ​ 1,517 ​ ​ 2,349 ​ ​ 2,996 ​ Total stock-based compensation ​ $ 3,204 ​ $ 5,167 ​ $ 7,750 ​ ​ As of December 31, 2021, there was $ 2.5 million of total unrecognized compensation cost related to non-vested employee stock option awards, which is expected to be recognized over a weighted average period of 1.41 years. ​ Restricted Stock Units ​ The Company issued 117,290 and 462,308 restricted stock units in lieu of cash payment for board and director fees to members of the Board of Directors during 2021 and 2020, respectively. These restricted stock units were immediately vested upon issuance. 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. ​ 114 Restricted stock units activity under the Plans during the years ended December 31, 2021, 2020 and 2019 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Weighted- ​ Average ​ ​ Number of ​ Average ​ Remaining ​ ​ Shares in ​ Exercise ​ Contractual ​ ​ (in thousands) ​ Price ​ Life (in years) RSU's outstanding as of December 31, 2019 — ​ $ — ​ ​ Granted 17,918 ​ ​ 0.45 ​ ​ Vested ( 3,322 ) ​ ​ 0.47 ​ ​ Forfeited ( 358 ) ​ ​ 0.48 ​ ​ RSU's outstanding as of December 31, 2020 14,238 ​ ​ 0.45 ​ 2.23 Granted 4,604 ​ ​ 1.80 ​ ​ Vested ( 5,816 ) ​ ​ 0.71 ​ ​ Forfeited ( 270 ) ​ ​ 0.56 ​ ​ RSU's outstanding as of December 31, 2021 12,756 ​ ​ ​ ​ 2.44 ​ ​ ​ ​ ​ ​ ​ ​ RSU's vested and expected to vest as of December 31, 2021 ​ 12,756 ​ $ 0.80 ​ ​ ​ 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 ​ 2020 ​ 2019 Cost of sales ​ $ 14 ​ ​ 8 ​ ​ — Sales and marketing ​ 548 ​ ​ 338 ​ ​ — Research and development ​ 1,483 ​ ​ 290 ​ ​ — General and administrative ​ 3,780 ​ ​ 1,452 ​ ​ 302 Total stock-based compensation ​ $ 5,825 ​ $ 2,088 ​ $ 302 ​ 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. ​ 115 14. Income Taxes ​ No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception and provides a full valuation allowance against its net deferred income tax assets. The tax effect of temporary differences that give rise to the net deferred income tax asset at December 31, 2021 and 2020 is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, Deferred income tax assets (liabilities ) ​ 2021 2020 ​ ​ ​ ​ ​ ​ ​ ​ Deferred Tax Assets: ​ ​ ​ ​ ​ ​ ​ Net operating loss carryforwards $ 125,242 ​ ​ 115,531 ​ Capitalized start-up costs ​ 7,315 ​ ​ 8,477 ​ R&E credit carryforwards ​ 11,251 ​ ​ 10,208 ​ Stock-based compensation ​ 2,061 ​ ​ 4,056 ​ Change in fair value of derivative liability ​ ​ 8,853 ​ ​ 9,222 ​ Other ​ 912 ​ ​ 1,096 ​ Total deferred tax asset ​ ​ 155,634 ​ ​ 148,590 ​ Valuation allowance ​ ​ ( 146,463 ) ​ ​ ( 136,031 ) ​ Net deferred tax assets ​ $ 9,171 ​ $ 12,559 ​ Deferred tax liabilities: ​ ​ ​ ​ ​ ​ ​ ROU amortization ​ ​ ( 318 ) ​ ​ ( 477 ) ​ Amortization of debt discount ​ ​ ( 8,853 ) ​ ​ ( 12,082 ) ​ Total deferred tax liability ​ ​ ( 9,171 ) ​ ​ ( 12,559 ) ​ Net deferred tax assets ​ $ — ​ $ — ​ ​ 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 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. Capitalized start-up costs represent expenses incurred in the organization and start-up of the Company. For U.S. federal and state tax purposes, start-up and organizational costs incurred before October 22, 2004 will be amortized over sixty months and those incurred on and after October 22, 2004 will be amortized over one hundred and eighty months beginning in the current year. At December 31, 2021, the Company had NOL carryforwards of $ 585.1 million and had research and experimental credit carryforwards of $ 14.1 million. Research and experimental credit carryforwards will expire in varying amounts between 2022 and 2041. NOL carryforwards in the amount of $ 198.5 million will expire in varying amounts between 2022 and 2037. NOL carryforwards incurred in tax years 2018 and forward have an indefinite carryforward period. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of NOL carryforwards and research and development credit carryforwards which can be available in future years. No income tax benefit was recognized in the Company’s Statement of Operations for stock-based compensation arrangements due to the Company’s net loss position. ​ ​ 116 A reconciliation of the Company’s estimated U.S. federal statutory rate to the Company’s effective income tax rate for the years ended December 31, 2021, 2020 and 2019 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2021 2020 2019 Tax at U.S. Federal Statutory rate 21.00 % 21.00 % 21.00 % State taxes, net 1.60 ​ 2.32 ​ 1.57 ​ Research and development credit ​ 0.34 ​ 0.46 ​ 1.32 ​ State tax rates changes ​ ( 2.18 ) ​ ( 0.85 ) ​ ( 2.17 ) ​ Debt Transactions ​ ( 17.09 ) ​ ( 11.15 ) ​ — ​ Stock Comp DTA ​ ( 0.78 ) ​ — ​ — ​ Other non-deductible items 0.33 ​ ( 0.44 ) ​ ( 0.91 ) ​ Decrease in valuation allowance ( 3.22 ) ​ ( 11.34 ) ​ ( 20.81 ) ​ Effective income tax rate 0.00 % 0.00 % 0.00 % ​ Deferred income taxes reflect temporary differences in the recognition of revenue and expense for tax reporting and financial statement purposes. Deferred tax liabilities and assets are adjusted for changes in tax laws or tax rates of the various tax jurisdictions as of the enacted date. The federal tax rate remained unchanged at 21 % for the 2021 tax year. 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Gross unrecognized tax benefit at beginning of year ​ $ 2,552 ​ ​ 2,351 ​ ​ 1,969 ​ Increase from tax positions taken in prior years ​ — ​ ​ — ​ ​ — ​ Increase from tax positions in current year ​ 267 ​ ​ 201 ​ ​ 396 ​ Lapse of statute of limitations / expiration ​ ( 6 ) ​ ​ — ​ ​ ( 14 ) ​ Gross unrecognized tax benefit at end of year ​ $ 2,813 ​ $ 2,552 ​ $ 2,351 ​ ​ 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. Federal and state income tax returns from 2001 to 2020 remain subject to examination by the tax authorities. The Company’s prior tax years remain open for examination, even though the statute of limitations has expired, due to the net operating losses and credits carried forward for use in prospective years. ​ 15. Related Party Transactions ​ 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 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. 117 ​ 16. 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. 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. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: ​ ● Level 1 - Quoted prices in active markets for identical assets or liabilities. ● Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. ● Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. ​ 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 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Total Level 1 Level 2 Level 3 Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds⁽¹⁾ ​ $ 29,197 ​ $ 29,197 ​ ​ — ​ ​ — ​ Commercial paper ​ ​ 57,369 ​ ​ — ​ ​ 57,369 ​ ​ — ​ Corporate debt securities ​ ​ 39,748 ​ ​ — ​ ​ 39,748 ​ ​ — ​ Asset backed securities ​ ​ 26,707 ​ ​ — ​ ​ 26,707 ​ ​ — ​ Government and agency securities ​ ​ 24,503 ​ ​ 19,957 ​ ​ 4,546 ​ ​ — ​ PHC Option ​ ​ 239 ​ ​ — ​ ​ — ​ ​ 239 ​ Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Energy Capital Option ​ $ 69,401 ​ $ — ​ ​ — ​ ​ 69,401 ​ Embedded features of the 2023 Notes ​ ​ 5,817 ​ ​ — ​ ​ — ​ ​ 5,817 ​ Embedded features of the PHC Notes ​ ​ 149,058 ​ ​ — ​ ​ — ​ ​ 149,058 ​ Embedded features of the 2025 Notes ​ ​ 81,417 ​ ​ — ​ ​ 81,417 ​ ​ — ​ ​ 118 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Total Level 1 Level 2 Level 3 Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds⁽¹⁾ ​ $ 3 ​ $ 3 ​ $ — ​ $ — ​ PHC Option ​ ​ 1,886 ​ ​ — ​ ​ — ​ ​ 1,886 ​ Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Energy Capital Option ​ $ 16,255 ​ $ — ​ $ — ​ $ 16,255 ​ Masters Option ​ ​ 23,479 ​ ​ — ​ ​ — ​ ​ 23,479 ​ Embedded features of the 2023 Notes ​ ​ 622 ​ ​ — ​ ​ — ​ ​ 622 ​ Embedded features of the PHC Notes ​ ​ 45,647 ​ ​ — ​ ​ — ​ ​ 45,647 ​ Embedded features of the 2025 Notes ​ ​ 15,850 ​ ​ — ​ ​ 15,850 ​ ​ — ​ ​ The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 3 ​ Instruments December 31, 2020 ​ $ 84,117 Conversion of financial instruments ​ ​ ( 19,973 ) Loss on fair value adjustment of option ​ ​ 53,152 Loss on change in fair value of derivatives ​ ​ 108,606 Gain on extinguishment of option ​ ​ ( 3,513 ) Financial asset impairment cost ​ ​ 1,648 December 31, 2021 ​ $ 224,037 ​ The recurring Level 3 fair value measurements of the embedded features of the Notes and Options include the following significant unobservable inputs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 Notes ​ PHC Notes ​ PHC Option ​ Energy Capital Option ​ Unobservable Inputs ​ Assumptions ​ Assumptions ​ Assumptions ​ Assumptions ​ Risky (bond) rate 30.0 % 15.0 % 40.0 % 40.0 % Stock price volatility 95.0 % 95.0 % 95.0 % 95.0 % Probabilities of conversion provisions ​ 5.0 - 90.0 % 5.0 - 85.0 % 5.0 - 25.0 % 0.0 - 100.0 % Time period until maturity (yrs) 0.50 - 1.09 ​ 0.50 - 2.83 ​ 0.50 - 11.00 ​ 0.08 - 0.61 ​ Dividend yield — % — % — % — % ​ Significant changes to these assumptions would result in increases/decreases to the fair value of the liability. ​ The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain financial instruments within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the year ended December 31, 2021 and 2020. 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 . ​ 119 17. Litigation ​ From time to time, the Company is subject to litigation and claims arising in the ordinary course of business. The Company accrues for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. 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. ​ 18. 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. ​ ​ 19. Subsequent Events ​ FDA Approval ​ 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. The U.S. and European commercialization plans are being designed with a goal of minimizing the impact to patients, providers, and ongoing sales of Eversense CGM systems. 120 ​ 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. 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. ​ ​ ​ 121 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ​ None. ​