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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-01 · 422 added, 421 removed, 588 unchanged (59% of the section changed)

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Consolidated Financial Statements

Report of Ernst & Young LLP , PCAOB ID:

Report of KPMG LLP , Auditor ID:

185 , Independent Registered Public Accounting Firm

Report of Ernst & Young LLP , Auditor ID:

42 , Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020

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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.

To the Stockholders and the Board of Directors

Senseonics Holdings, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Senseonics Holdings, Inc.

and subsidiary (the Company) as of December 31, 2022, the related consolidated statement of operations and comprehensive loss, changes in stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, 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 consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

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

We conducted our audit 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 consolidated financial statements are free of material misstatement, whether due to error or fraud.

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

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

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides 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 consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of a 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 certain derivative liabilities

As discussed in Notes 3, 13, and 18 of the consolidated financial statements, the Company determined there are embedded derivative instruments within the Senior Secured Convertible Notes and the 2025 Senior Subordinated Notes (collectively, the Notes) that are bifurcated and accounted for separately as derivative financial instruments.

The Company remeasures the fair value of the derivative liabilities of the Notes each reporting period, and the change in fair value of the derivative liabilities is recorded in other income and expense.

The fair value measurement of the derivative liabilities of the Notes utilizes the binomial lattice model and includes assumptions and data that are based on

unobservable inputs.

As of December 31, 2022, the fair value of the derivative liabilities related to the Notes was $52.1 million.

We identified the valuation of the derivative liabilities of the Notes as a critical audit matter.

A high degree of auditor judgment was required to evaluate the significant assumptions and data.

The valuation methodology incorporates assumptions with significant measurement uncertainty, specifically the use of a credit spread from an observable transaction for a similar instrument and adjustments to the credit spread for subordination of the Notes.

Further, the recovery rate data utilized in the subordination adjustment assumptions is a subjective input.

The nature and extent of our procedures required the involvement of individuals with specialized skill and knowledge to assess the significant assumptions and data used.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design of the internal control over the valuation of the derivative liabilities of the Notes, specifically the control of the Company’s review of the significant assumptions and data.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

● evaluating the credit spread and subordination adjustment assumptions by comparing to existing market information from recent trade activity for a similar instrument

● comparing recovery rates used in the subordination adjustment calculations to independently sourced market data

● recalculating the subordination adjustments for mathematical accuracy

We have served as the Company’s auditor since 2022.

McLean, Virginia

March 15, 2023

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Senseonics Holdings, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Senseonics Holdings, Inc.

(the Company) as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity (deficit), and cash flows for each of the two 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 the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

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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,

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.

We served as the Company’s auditor from 2015 to 2022.

Tysons, Virginia

March 1, 2022

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Cash and cash equivalents

Restricted cash

Short term investments, net

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Accrued expenses and other current liabilities, related parties

Note payable, current portion, net

Derivative liability, current portion

Term Loans, net

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Total liabilities

Commitments and contingencies

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

12,000 shares and 0 shares issued and outstanding as of December 31, 2022 and December 31, 2021

Total temporary equity

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

900,000,000 shares authorized as of December 31, 2022 and December 31, 2021;

479,637,138 shares and 447,282,263 shares issued and outstanding as of December 31, 2022 and December 31, 2021

Additional paid-in capital

Accumulated other comprehensive income, net of tax

Accumulated other comprehensive loss

Accumulated deficit

Total stockholders' deficit

Total liabilities and stockholders’ deficit

Total liabilities, temporary equity and stockholders’ deficit

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

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Gross profit (loss)

Sales and marketing expenses

Sales and marketing expenses- related parties

Total sales and marketing expenses

Research and development expenses

General and administrative expenses

Selling, general and administrative expenses

Operating loss

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Interest income

Loss on fair value adjustment of option

Gain (Loss) on fair value adjustment of option

Gain (Loss) on extinguishment of debt and option

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Total other income (expense), net

Other comprehensive loss, net of tax

Unrealized loss on marketable securities

Total other comprehensive loss, net of tax

Total comprehensive loss, net of tax

Basic net loss per common share

Net Income (loss)

Other comprehensive income (loss)

Unrealized gain (loss) on marketable securities

Total other comprehensive gain (loss)

Total comprehensive income (loss)

Basic net income (loss) per common share

Basic weighted-average shares outstanding

Diluted net loss per common share

Diluted net income (loss) per common share

Diluted weighted-average shares outstanding

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Senseonics Holdings, Inc.

Consolidated Statements of Changes in Stockholders’ Equit y (Deficit)

Consolidated Statements of Changes in Stockholders’ (Deficit)

(in thousands)

Stockholders'

Preferred Stock

Comprehensive Loss

Equity (Deficit)

Preferred Stock Temporary Equity

Temporary Equity

Balance, December 31, 2019

Issuance of common stock, net

Issuance of convertible preferred stock, net of issuance costs

Issuance of common stock, net of issuance costs

Exercise of stock options and warrants

Conversion of 2023 Notes

Stock-based compensation expense and vesting of RSU's

Balance, December 31, 2019

Issuance of convertible preferred stock, net

Issuance of common stock, net

Exercise of stock options and ESPP purchases

Exchange and conversion of convertible notes, net

Stock-based compensation expense and vesting of RSU's

Issuance of warrants related to debt, net

Stock-based compensation expense and vesting of RSUs

Issuance of warrants related to debt

Balance, December 31, 2020

Issuance of convertible preferred stock, net

Issuance of convertible preferred stock, net of issuance costs

Conversion of preferred stock

Issuance of common stock, net

Issuance of common stock, net of issuance costs

Exercise of stock options and warrants

Exchange and conversion of convertible notes, net

Issuance of common stock for vested RSUs and ESPP purchase

Shares withheld related to net share settlement

Issuance of common stock for vested RSUs and ESPP purchases

Shares withheld related to net share settlement of equity awards

Stock-based compensation expense

Other comprehensive income, net of tax

Other comprehensive loss

Balance, December 31, 2021

Issuance of convertible preferred stock, net of issuance costs

Issuance of common stock, net of issuance costs

Exercise of stock options and warrants

Issuance of common stock for vested RSUs and ESPP purchases

Stock-based compensation expense

Shares withheld related to net share settlement of equity awards

Other comprehensive loss

Balance, December 31, 2022

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

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Cash flows from operating activities

Net income (loss)

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

Depreciation and amortization expense

Depreciation and ROU amortization expense

Non-cash interest expense (debt discount and deferred costs)

Change in fair value of derivatives

Loss on fair value adjustment of option

(Gain) Loss on extinguishment of debt and option

Loss on issuance of debt

(Gain) Loss on fair value adjustment of option

(Gain) Loss on extinguishment of option

Loss on issuance of debt & other issuance costs

Impairment of right-of-use asset

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Accrued expenses and other liabilities

Deferred revenue

Accrued interest

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Proceeds from sale and maturity of marketable securities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities

Issuance of common stock, net

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

Proceeds from issuance of common stock and warrants, net

Proceeds from exercise of stock options, RSU, ESPP & Warrants

Taxes paid related to net share settlement of equity awards

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Note issuance costs

Proceeds from Solar term loan, net of cost

Proceeds from issuance of Masters preferred stock, net

Proceeds from issuance of warrants, net of costs

Proceeds from issuance of preferred stock, net

Repayment of term loans

Repurchase of 2023 Notes

Net cash provided by (used in) financing activities

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

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

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

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, at beginning of period

Cash and cash equivalents, at ending of period

Supplemental disclosure of cash flow information

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Property and equipment purchases included in accounts payable and accrued expenses

Conversion of options into redeemable convertible preferred stock

Issuance of common stock converted from preferred shares

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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.

Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings, Inc.

and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997.

Senseonics Holdings, Inc.

and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.

Liquidity and Capital Resources

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.

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® E3 CGM System (for use up to six months ) in both the United States and Europe, and the launch of our legacy versions, including Eversense CGM System in the United States (for use up to 90 days ) 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 profit 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.

The Company generated total gross profit of $ 2.7 million for the twelve months ended December 31, 2022 and had an accumulated deficit of $ 808.9 million at December 31, 2022.

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

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $ 156.3 million.

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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.

For the twelve months ending December 31, 2022, the Company received $ 34.2 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement.

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

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

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

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

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

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

The Underwriters agreed to purchase the shares from the Company

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

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

The price to the public in the 2021 Public Offering was $ 1.925 per share of common stock.

The Underwriters agreed to

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

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

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

Total net proceeds from the 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.

Total net proceeds from the 2021 Public 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 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.

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

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

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

Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that the Company have less than $ 8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company had the right, at its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $ 1,000 per share (not to exceed $ 4.0 million worth of shares) once per month, up to an aggregate of $ 12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $ 1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $ 0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

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

In addition, beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $ 12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price.

On November 7, 2022, Energy Capital exercised in full its right to purchase $ 12.0 million of shares of Series B Preferred Stock.

The excess of the Purchase Price and the fair value of the Energy Capital option in the total amount of $ 37.6 million was recorded in additional-paid-in-capital.

On August 9, 2020, the Company entered into a financing agreement with the parent company of Ascensia Diabetes Care Holdings AG (“Ascensia”), PHC Holdings Corporation (“PHC”), pursuant to which the Company issued $ 35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC.

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

The Company also had the option to sell and issue PHC up to $ 15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining U.S.

Food and Drug Administration (“FDA”) approval for the 180-day Eversense product for marketing in the United States before such date.

The Company successfully obtained FDA approval in February 2022 and the option was not exercised.

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

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

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

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.

The excess of the purchase price and the fair value of the Masters option in the total amount of $ 42.8 million was recorded in additional-paid-in-capital.

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

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

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

launch of the new Eversense E3 product.

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

The Company believes that these agreements provide the financial resources and mutual commitment to support the growth of the new Eversense E3 product and subsequent product versions.

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 2024.

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All intercompany balances and transactions have been eliminated in consolidation.

The Company views its operations and manages its business in one segment, glucose monitoring products.

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

Use of Estimates

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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

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(1) Includes overnight repurchase agreements.

Cash and cash equivalents

Restricted cash

Cash, cash equivalents and restricted cash

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)

Revenue, net:

Outside of the United States

United States

There was no restricted cash held as of December 31, 2022 and December 31, 2021.

Marketable Securities

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

The Company does not have a history of collectability concerns, 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

The Company does not have a history of collectability concerns, and no allowance for uncollectible accounts was recorded as of December 31, 2022 and December 31, 2021.

Property and Equipment, net

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.

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Repairs and maintenance costs are included as expense in the accompanying statement of operations.

Long-lived Assets

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.

Impairment of 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.

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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.

There were no impairment indicators in 2022.

Derivative Financial Instruments

In connection with the Company’s issuance of the convertible senior subordinated notes due 2023 (the “2023 Notes”), in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole

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

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.

Warranty Obligation

The Company accounts for conversion options embedded in convertible notes in accordance with ASC Topic 815, Derivatives and Hedging.

ASC Topic 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments.

We review the terms of convertible debt issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments.

In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as separate derivative instruments.

The fair value of the embedded features are accounted for as a derivative liability in the Company’s consolidated balance sheets and adjusted to fair value each reporting period.

The change in fair value of derivatives is recorded as a component of other income (expense) in the Company’s consolidated statements of operations and comprehensive loss.

When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments.

The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.

The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the term of the instrument as interest expense.

Product Warranty Obligations

The Company provides a warranty of one year on its smart transmitters.

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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.

We generate 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 (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.

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

Contracts with our 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.

Our 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.

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

Depending on the variable consideration, we develop estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates and market conditions.

Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia Commercialization Agreement.

Cost of Sales

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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

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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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries, commissions, and other related costs, including stock-based compensation, for personnel in the Company’s sales and marketing, executive, finance, accounting, business development, information technology, and human resources functions.

Other significant costs include information technology, website design and advertising, educational and promotional materials, tradeshow expenses, marketing programs, facility costs, legal fees relating to patent and corporate matters, and fees for accounting and consulting services.

Stock-Based Compensation

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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.

These assumptions and judgments include estimating the fair value of the Company’s common stock, the risk-free interest rate, future volatility of the Company’s stock price, dividend yields, and the expected life of the stock-option awards.

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.

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

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

date and the end of the contractual term.

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

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

Expected volatility is based on the daily closing prices of a peer group of comparable publicly traded companies in similar stages of development.

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 Company uses the asset and liability method of accounting for income taxes.

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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 carrying amounts of cash, cash equivalents, 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.

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.

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:

Stock-based awards

Masters preferred shares

Total anti-dilutive shares outstanding

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.

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

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

The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments.

Entities may adopt ASU 2020-06 using either partial retrospective or fully retrospective method of transition.

ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

The Company adopted this guidance as of January 1, 2022 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.

Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses:

Measurement of Credit Losses on Financial Instruments, 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.

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial

instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred.

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

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

The Company 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

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.

Accordingly, the Company does not expect this to have a significant impact on its consolidated

financial statements and related disclosures at this time.

The Company plans to adopt the guidance effective January 1, 2023.

Revenue Recognition

Revenues by geographic region

December 31, 2022

December 31, 2021

December 31, 2020

(Dollars in thousands)

Revenue, net:

Outside of the United States

United States

Contract Assets

Accounts receivable – related parties, net as of December 31, 2022, and December 31, 2021 included unbilled accounts receivable of $ 1.7 million and $ 1.8 million, respectively.

The Company expects to invoice and collect all unbilled accounts receivable within 12 months.

Concentration of Revenues and Customers

Net revenue from the Company’s distribution arrangement with Ascensia, a related party, accounted for 96 % of total net revenues for the year ended December 31, 2022.

Ascensia 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.

Net Income (Loss) per Share

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income

attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents.

Potentially dilutive common shares consist of shares issuable from restricted stock units, stock options, warrants and the Company’s convertible notes.

Potentially dilutive common shares issuable upon vesting of restricted stock units

and exercise of stock options and warrants are determined using the average share price for each period under the treasury stock method.

Potentially dilutive common shares issuable upon conversion of the Company’s convertible notes are determined using the if converted method.

The if-converted method assumes conversion of convertible securities at the beginning of the reporting period.

Interest expense, dividends, and the changes in fair value measurement recognized during the period are added back to the numerator.

The denominator includes the common shares issuable upon conversion of convertible securities.

In periods of net loss, all potentially dilutive common shares are excluded from the computation of the diluted net loss per share for those periods, as the effect would be anti-dilutive.

Net income (loss)

Impact of conversion of dilutive securities

Dilutive Net income (loss)

Net income (loss) per share

Basic weighted average shares outstanding

Dilutive potential common stock outstanding

Stock-based awards

Energy Capital Option

Diluted weighted average shares outstanding

Outstanding anti-dilutive securities not included in the diluted net income per share calculations were as follows:

Stock-based awards

Masters preferred shares

Total anti-dilutive shares outstanding

Marketable Securities

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Government and agency securities

There were no marketable securities at December 31, 2020.

December 31, 2021

Commercial Paper

Corporate debt securities

Asset backed securities

Government and agency securities

The following are the scheduled maturities as of December 31, 2022 (in thousands):

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

Carrying Amount

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

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

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Contract manufacturing⁽¹⁾

Clinical and Preclinical

Interest receivable

Accounting and Audit

IT and software

Clinical and Preclinical

Sales and Marketing

Rent and utilities

Research and development

Corporate and Finance Consulting

Total prepaid expenses and other current assets

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Depreciation expense for the years ended December 31, 2022, 2021, and 2020 was $ 0.5 million, $ 0.5 million, and $ 0.4 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

impaired or obsoleted.

There was no property and equipment disposed during 2022.

The Company disposed of $ 0.1 million and $ 0.3 million of property and equipment in 2021 and 2020 respectively.

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Research and development

Contract manufacturing

Interest on notes payable

Sales and marketing services

Product warranty and replacement obligations

Professional and administration services

Contract manufacturing

Product warranty and replacement obligations

Operating lease

Patient access programs

Sales and marketing services

Total accrued expenses and other current liabilities

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.

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.

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 2028.

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.

In June 2022, the Company extended our lease for an additional five-year term through 2028.

The lease does not include additional extension options.

We recorded a modification to our right-of-use asset and lease liability for the additional lease term, resulting in a remeasurement of the existing right-of-use asset and lease liability.

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 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.

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

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

Operating lease expense for the year ended December 31, 2022, 2021 and 2020 was $ 0.7 million, 0.9 million, and $ 0.9 million, respectively.

The following table summarizes the lease assets and liabilities as of December 31, 2021 (in thousands):

The following table summarizes the lease assets and liabilities as of December 31, 2022 and 2021 (in thousands):

Operating Lease Assets and Liabilities

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The Company has provided a discretionary match of up to 3 % 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.

Employer match expenses during the years ended December 31, 2022, 2021, and 2020 were $ 0.4 million, $ 0.3 million, and $ 0.1 million, respectively.

Administrative expenses for the plan, which are paid by the Company, were not material in 2022, 2021 or 2020.

Notes Payable and Stock Purchase Warrants

Notes Payable, Preferred Stock and Stock Purchase Warrants

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.

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.

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.

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

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

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

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

The derivative 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.

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

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

The term of the PPP Note was two years .

In April 2022, the Company repaid the outstanding principal and accrued interest in full.

Convertible Preferred Stock and Warrants

On November 9, 2020, the Company entered into 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.

On November 9, 2020, the Company entered into an equity line agreement with Energy Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $ 12.0 million of shares of the Company’s newly designated 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 $ 8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, at sole discretion, to present Energy Capital with a Regular Purchase Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $ 1,000 per share (not to exceed $ 4.0 million worth of shares) once per month, up to an aggregate of $ 12.0 million of our Series B Preferred Stock at the Purchase Price equal to $ 1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $ 0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

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

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

The Company 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.

On November 7, 2022, Energy Capital exercised in full its right to purchase $ 12.0 million of Series B Preferred Stock.

The Company accounted for the Equity Line Agreement as a put/call option (the “Energy Capital Option”).

This put/call option was 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 in fiscal year 2020.

The put/call option 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).

The fair value of the Energy Capital Option as of December 31, 2021 was $ 69.4 million.

The Company adjusted the Energy Capital Option to its fair value of $ 25.7 million on the exercise date, recognizing a fair value adjustment gain of $ 43.7 million.

Concurrently with entry into the Equity Line Agreement, the Company issued a warrant to Energy Capital,

exercisable beginning on May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $ 0.3951 per share (the “Warrant”).

The Warrant was exercised on a net basis in February 2022 and Energy Capital received 8,917,535 shares of common stock upon the net exercise of the Warrants.

Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $ 1,000 per share in 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.

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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.

Masters’ option to purchase the remaining unissued shares of Series A Preferred Stock expired on January 11, 2021, resulting in a gain on extinguishment of $ 3.5 million.

Convertible Notes

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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 Financing Fee Shares were recorded 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.

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

The interest rate decreased to 8.0 % in April 2022 as a result of the Company having obtained FDA approval for the 180-day E3 Eversense system for marketing in the United States.

The maturity date for the PHC Notes is October 31, 2024 (the “Maturity Date”).

The obligations under the PHC Notes are secured by substantially all of the Company’s and its subsidiary’s assets.

The Note Purchasers are entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $ 1,000 principal amount of the PHC Notes (including any interest added thereto as payment in kind), equivalent to a conversion price of approximately $ 0.54 per share, subject to specified anti-dilution adjustments, including adjustments for the Company’s issuance of equity securities on or prior to April 30, 2022 below the conversion price.

Each $ 1,000 of principal of the PHC Notes (including any interest added thereto as payment in kind) is convertible into 1,901.7956 of shares of the Company’s stock, equivalent to a conversion price of approximately $ 0.53 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.

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

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

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 Company also has the option to sell and issue PHC up to $ 15.0 million of convertible preferred stock on or before December 31, 2022 (the “PHC Option”), which was initially contingent upon obtaining FDA approval for the 180-day Eversense E3 product for marketing in the United States before such date, and which the Company successfully obtained in February 2022.

investment and its carrying amount.

The PHC option was not exercised and expired on December 31, 2022 and the Company recognized a loss on extinguishment of $ 0.1 million.

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

The fair value of the Company’s PHC Notes, excluding the embedded features, was $ 32.2 million as of December 31, 2022 and $ 15.3 million as of December 31, 2021.

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

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

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

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

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.

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

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

The 2025 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, risky (bond) rate, credit spread and recovery rates.

The fair value of the Company’s 2025 Notes, excluding the embedded features, was $ 41.3 million as of December 31, 2022 and $ 30.3 million at December 31, 2021.

On April 21, 2020, $ 24.0 million in principal on the 2025 Notes were settled pursuant to an exchange agreement.

Between September 3, 2020 and January 27, 2021, $ 6.8 million in aggregate principal on the 2025 Notes were converted into 5,152,259 shares of common stock.

For the twelve months ended December 31, 2022, there were no conversions of outstanding principal for shares of common stock.

In January 2018, the Company issued $ 50.0 million in aggregate principal amount of the 2023 Notes.

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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.

As the 2023 Notes have a maturity date of February 1, 2023, they are classified as a short-term liability on the Company’s consolidated balance sheet at December 31, 2022.

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

Notes in connection with such an event in certain circumstances.

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.

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

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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 $ 15.5 million as of December 31, 2022 and $ 14.2 million at December 31, 2021.

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

December 31, 2021

Effective Interest Rate

Year Ended December 31, 2022

Interest Rate

Debt Discount and Fees ($)

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Total Interest Expense ($)

December 31, 2020

Effective Interest Rate

Year Ended December 31, 2021

Interest Rate

Debt Discount and Fees ($)

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Total Interest Expense ($)

Solar Term Loan

First Lien Notes

Second Lien Notes

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

Stockholders’ Equity (Deficit)

In connection with 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.

The following are the scheduled maturities of the outstanding debt, including the 2025 Notes, PHC Notes, and 2023 Notes as of December 31, 2022:

Stockholders’ Deficit

In connection with the Company’s acquisition of Senseonics, Incorporated in December 2015 (the “Acquisition”), (1) 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 ), (2) 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 (3) all outstanding options and warrants to purchase shares of common stock of Senseonics were exchanged for or replaced with options and warrants to acquire shares of the Company’s common stock using the same exchange ratio.

As of December 31, 2022 and December 31, 2021, the Company’s authorized capital stock included 900,000,000 shares of common stock, par value $ 0.001 per share.

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As of December 31, 2022 and 2021, 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.

The Company had 12,000 shares of Series B Preferred Stock outstanding as of December 31, 2022 and 0 shares of preferred stock outstanding as of December 31, 2021.

Voting Rights

The holders of Series B 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 and shall be entitled to a number of votes per share equal to $ 1,000 divided by $ 1.24 , subject to a cap of 29.0 % of total voting power.

The Series B Preferred Stock is not entitled to dividends.

Conversion Rights

Each share of Series B Preferred Stock is initially convertible into the number of shares of the common stock of the Company, $ 0.001 par value per share, equal to $ 1,000 divided by the conversion price of $ 0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split.

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.

On June 30, 2016, the Company issued the Oxford/SVB 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 warrants were recorded within equity based on their fair value of $ 0.5 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.

On July 16, 2019, the Company issued the Solar Warrants to purchase an aggregate of 1,125,000 shares of the Company’s common stock with an exercise price of $ 1.20 per share.

The Solar Warrants are exercisable until July 25, 2029.

The warrants were recorded within equity based on their fair value of $ 0.7 million.

In February 2021, the Solar Warrants were exercised in full, on a net basis and the lenders received 868,833 shares of common stock upon the net exercise of the warrants.

On April 24, 2020, 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 warrants were recorded within equity based on their fair value of $ 1.3 million.

During the year ended December 31, 2021, the warrant holders exercised 1,750,000 warrants and the Company received $ 1.16 million in cash proceeds for the exercise.

There were no warrants exercised for the year ended December 31, 2022.

On November 9, 2020, the Company 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 $ 0.3951 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.

In February 2022, the Energy Capital Warrants were exercised in full, on a net basis and Energy Capital received 8,917,535 shares of common stock upon the net exercise of the warrants.

Stock-Based Compensation

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At December 31, 2022 there were 13,050,523 shares of common stock available for issuance under the 2016 ESPP.

Effective January 1, 2023, by virtue of the automatic increase described above, the total number of shares remaining available for issuance under the 2016 ESPP was increased to 17,846,894 shares.

The 2016 ESPP permits participants to purchase shares of the Company’s common stock through payroll deductions of up to 15 % of their earnings.

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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.

All awards issued under the 1997 plan are fully vested.

Approximately 1,223,273 shares of the Company’s common stock underlying remain outstanding under the 1997 Plan.

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

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Options outstanding as of December 31, 2022

Options vested and expected to vest as of December 31, 2021

Options exercisable as of December 31, 2021

Options vested and exercisable as of December 31, 2022

The weighted average grant-date fair value of stock option awards granted in 2022, 2021 and 2020 was $ 1.04 , $ 1.97 , and $ 0.33 per share, respectively.

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The weighted average grant date fair value of the unvested stock option awards outstanding at December 31, 2022 and 2021 was $ 1.29 and $ 1.58 per share, respectively.

The weighted average grant date fair value of the stock

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

The weighted average grant date fair value of the stock option awards vested, exercised, and forfeited/cancelled for the year ended December 31, 2022 were $ 1.63 , $ 0.59 and $ 1.06 per share, respectively.

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

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The Company also issued 7,707,027 and 4,603,440 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 2022 and 2021, respectively, as incentive compensation.

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

E3 product in February 2022.

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

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

Restricted stock units granted annually to members of the Board of Directors vest one year after the grant date.

New members of the Board of Directors are granted initial restricted stock units which vest monthly over a three-year period.

There were no new members of the Board of Directors during 2022.

Restricted stock units granted to employees in 2022 and 2021 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 .

Restricted stock units activity under the Plans during the years ended December 31, 2022, 2021 and 2020 is as follows:

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RSU's outstanding as of December 31, 2022

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

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

For the year ended December 31, 2022, the weighted average grant date fair value of the restricted stock units granted, vested, and forfeited were $ 1.17 , $ 0.77 and $ 1.08 per share, respectively.

The weighted average grant date fair value of total restricted stock units outstanding at December 31, 2022 was $ 1.10 per share.

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

The weighted average grant date fair value of restricted stock units outstanding at December 31, 2021 was $ 0.80 per share.

For the years ended December 31, 2022 and 2021, 9,414 , and 5,816 , restricted stock units were vested, respectively, with an aggregate intrinsic value at the time of vest of $ 20.3 million and $ 15.9 million, respectively.

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The aggregate intrinsic value of the restricted stock units currently outstanding at December 31, 2022 was $ 10.1 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 $ 6.5 million, $ 5.8 million and $ 2.1 million, for the years ended December 31, 2022 and 2021 and 2020, respectively, classified as follows (in thousands):

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Capitalized start-up costs

R&E credit carryforwards

Research and development credit carryforwards

Research and development expenditures

Stock-based compensation

Change in fair value of derivative liability

Total deferred tax asset

Fair value of derivative liability

Gross total deferred tax asset

Valuation allowance

Net deferred tax assets

Total net deferred tax assets

Deferred tax liabilities:

ROU amortization

Right of use amortization

Amortization of debt discount

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The net change in valuation allowance for the years ended December 31, 2022 and 2021 was a net increase of $ 16.8 million and a net increase of $ 10.4 million, respectively.

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

The increase in valuation allowance is primarily due to deferred tax assets generated from net operating losses incurred in 2022.

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.

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.

At December 31, 2022, the Company had NOL carryforwards of $ 621.5 million and research and experimental credit carryforwards of $ 13.1 million.

Research and experimental credit carryforwards will expire in varying amounts between 2023 and 2042.

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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.

A reconciliation of the Company’s estimated U.S.

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State tax rates changes

Debt Transactions

Stock Comp DTA

Convertible debt transactions

Equity based compensation

Officers compensation

Other non-deductible items

Decrease in valuation allowance

Increase (decrease) in valuation allowance

Effective income tax rate

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The federal tax rate remained unchanged at 21 % for the 2022 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.

The change in state tax rate from 2020 to 2021 and from 2021 to 2022 is primarily due to changes in applicable state apportionment factors and change in jurisdictions.

A breakdown of the Company’s uncertain tax position during 2022, 2021 and 2020 is as follows (in thousands):

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Gross unrecognized tax benefit at end of year

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

In 2022 and 2021, the Company incurred minor penalties for filed tax returns.

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

If recognized, the entire amount of gross unrecognized tax benefit would favorably affect the effective income tax rate, although, due to the Company’s valuation allowance there would be no net impact.

The Company does not expect a significant change in its unrecognized tax positions to occur in the next twelve months.

The Company’s U.S.

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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.

PHC has a noncontrolling ownership interest in the Company.

In addition, PHC has representation on the Company’s board of directors.

The Company entered into a financing agreement with PHC on August 9, 2020 (see Note 13 for further discussion of the PHC Notes).

Ascensia, through the ownership interests of its parent company, PHC is a related party.

For the year ended December 31, 2022, revenue from Ascensia was $ 15.7 million and the amount due from Ascensia was $ 2.3 million.

At December 31, 2022, the Company had estimated replacement obligations under warranties in the amount of $ 0.8 million and other amounts due to Ascensia of less than $ 0.1 million.

For the year ended December 31, 2021, revenue from Ascensia was $ 12.3 million and the amount due from Ascensia 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 to and from them were immaterial.

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

There were no revenues or amounts due from Roche for the year ended December 31, 2022.

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.

For the year ended December 31, 2020, revenues from Roche were $ 3.6 million and amounts due from them were $ 2.4 million.

Fair Value Measurements

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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.

Cash and Cash Equivalents

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.

Derivative Financial Instruments

The valuation technique used to measure the fair value of the Company’s embedded derivative instruments is valued using the binomial lattice model to estimate the fair value of the notes.

Using this lattice model, the Company values the embedded derivative using the “with” and “without” approach to determine the fair value of the embedded derivatives associated with the convertible note.

Under this approach, the instrument is valued “with” and “without” the bifurcated feature and the fair value of the derivative is the difference in value between the two scenarios.

The lattice model incorporates assumptions such as management’s assumptions for probabilities of conversion occurrence through maturity, stock price, volatility, risk-free rate, estimated credit spread, bond recovery rates 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, 2022 and 2021 (in thousands):

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Government and agency securities

Energy Capital Option

Embedded features of the 2023 Notes

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Money market funds⁽¹⁾

Commercial paper

Corporate debt securities

Asset backed securities

Government and agency securities

Energy Capital Option

Masters Option

Embedded features of the 2023 Notes

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Embedded features of the 2025 Notes

(1) Classified as cash and cash equivalents due to their short-term maturity

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):

December 31, 2020

Year ended December 31

Beginning Balance

Conversion of financial instruments

Loss on fair value adjustment of option

Loss on change in fair value of derivatives

Gain on extinguishment of option

Financial asset impairment cost

December 31, 2021

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

Energy Capital Option

(Gain) Loss on fair value adjustment of option

(Gain) Loss on change in fair value of derivatives

(Gain) Loss on extinguishment of option

Financial asset impairment cost, net

Transfers into Level 3

Transfers out of Level 3

Ending balance

The recurring Level 3 fair value measurements of the embedded features of the PHC Notes and 2025 Notes include the following significant unobservable inputs:

Unobservable Inputs

Risky (bond) rate

Stock price volatility

Probabilities of conversion provisions

Time period until maturity (yrs)

Credit spread

Recovery rate

Dividend yield

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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.

During the year ended December 31, 2022, transfers into Level 2 of liabilities previously classified in Level 3 were due to increased trade activity associated with these instruments providing better price transparency, permitting classification to Level 2.

In addition, transfers into Level 3 of liabilities previously classified in Level 2 were an increase in unobservable inputs, permitting classification to Level 3.

There were no transfers between Level 1 , Level 2 , or Level 3 during the year ended December 31, 202 1.

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.

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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.

These reclassifications had no effect on the reported results of operations or previously reported cash flows from operating activities.

An adjustment has been made to the Consolidated Statements of Operations and Comprehensive Income (Loss) for the twelve months ended December 31, 2021 and December 31, 2020 to consolidate the separate line items Sales and marketing expenses and General and administrative expenses to the single line item Selling, general and administrative expenses.

In addition, an adjustment has been made to the Consolidated Statements of Cash Flows for the twelve months ended December 31, 2020 to reclass the provision for inventory obsolescence and net realizable value of ($ 4.2 ) million to change in Inventory.

Subsequent Events

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

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

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

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

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

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

in the second quarter of 2022.

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

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

Key areas of strategic focus in the U.S.

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

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

sales and marketing capabilities relative to CGM.

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

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

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

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

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.

The Company has evaluated all subsequent events through the filing date of this Form 10-K with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of December 31, 2022, and events which occurred subsequently but were not recognized in the financial statements.

Except as described below there were no other subsequent events which required recognition, adjustment to or disclosure in the financial statements.

On January 30, 2023, the Company authorized 10,000,000 shares of common stock pursuant to the Senseonics Holdings, Inc.

2023 Commercial Equity Plan to provide the ability to grant equity incentive awards to employees of our global commercial partner, Ascensia.

On January 31, 2023, the Company fully repaid the 2023 Notes, in the principal amount of $ 15.7 million and $ 0.4 million of accrued interest.

On March 13, 2023, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with PHC, pursuant to which PHC has agreed to exchange (the “Exchange”) the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “Exchange Warrant”) to purchase up to 68,525,311 shares of common stock (the “Exchange Warrant Shares”).

The Exchange Warrant is a “pre-funded” warrant with a nominal exercise price of $ 0.001 per Exchange Warrant Share.

The Exchange is expected to close on or about April 1, 2023, subject to customary closing conditions for a transaction of this type.

On March 13, 2023, the Company issued and sold to PHC in a private placement (the “Private Placement”) a warrant (the “Purchase Warrant”) to purchase an aggregate of 15,425,750 shares of common stock (the “Purchase Warrant Shares”) and the Company received aggregate gross proceeds of $ 15.0 million.

The Purchase Warrant is a “pre-funded” warrant with a nominal exercise price of $ 0.001 per Purchase Warrant Share.

The Company has a banking relationship with Silicon Valley Bridge Bank (formerly Silicon Valley Bank, or SVB).

On March 10, 2023, less than one percent of the Company’s total cash and cash equivalents were held by SVB.

On March 13, 2023, all operating accounts and funds held by SVB were made available to the Company.

The Company has diversified its banking relationships and will continue to review its treasury operations.

Based on the foregoing and the Company’s analysis of the components of its relationship with SVB, the Company does not expect recent events concerning SVB to have a material impact on the Company’s consolidated financial statements.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data