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Item 8. Financial Statements and Supplementary Data

2024-03-01 compared with 2023-03-16 · 310 added, 328 removed, 682 unchanged (48% of the section changed)

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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, 2023 and 2022

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022

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

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

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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.

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

and subsidiary (the Company) as of December 31, 2023 and 2022, the related consolidated statement of operations and comprehensive (loss) income, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with U.S.

generally accepted accounting principles

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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.

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

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

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.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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.

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

Accordingly, we express no such opinion.

Our 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.

Our audits 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

Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

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

We determined that there are no critical audit matters.

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.

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

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

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

We conducted our audits in accordance with the standards of the PCAOB.

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

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

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

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

We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

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

Tysons, Virginia

March 1, 2022

February 29, 2024

Senseonics Holdings, Inc.

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Property and equipment, net

Liabilities and Stockholders’ Deficit

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

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Derivative liability, current portion

Term Loans, net

Total current liabilities

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Total temporary equity

Stockholders’ deficit:

Stockholders’ equity (deficit):

Common stock, $ 0.001 par value per share;

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Accumulated deficit

Total stockholders' deficit

Total liabilities, temporary equity and stockholders’ deficit

Total stockholders' equity (deficit)

Total liabilities, temporary equity and stockholders’ equity (deficit)

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

Senseonics Holdings, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive (Loss) Income

(in thousands, except for share and per share data)

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Cost of sales

Gross profit (loss)

Research and development expenses

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Gain (Loss) on fair value adjustment of option

Exchange related gain, net

Gain (Loss) on extinguishment of debt and option

Loss on issuance of debt & other issuance costs

Interest expense

Debt issuance costs

Gain (Loss) on change in fair value of derivatives

Impairment cost

Other expense

Total other income (expense), net

Net Income (loss)

Other income (expense)

Total other income, net

Net (Loss) Income

Other comprehensive income (loss)

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Total other comprehensive gain (loss)

Total comprehensive income (loss)

Basic net income (loss) per common share

Total comprehensive (loss) income

Basic net (loss) income per common share

Basic weighted-average shares outstanding

Diluted net income (loss) per common share

Diluted net loss per common share

Diluted weighted-average shares outstanding

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Senseonics Holdings, Inc.

Consolidated Statements of Changes in Stockholders’ (Deficit)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands)

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Preferred Stock

Comprehensive Loss

Temporary Equity

Equtiy (Deficit)

Temporary Equity

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Exercise of stock options and warrants

Exchange and conversion of convertible notes, net

Stock-based compensation expense and vesting of RSUs

Issuance of warrants related to debt

Balance, December 31, 2020

Issuance of convertible preferred stock, net of issuance costs

Conversion of preferred stock

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 purchases

Shares withheld related to net share settlement of equity awards

Stock-based compensation expense

Shares withheld related to net share settlement of equity awards

Other comprehensive loss

Balance, December 31, 2022

Issuance of convertible preferred stock, net of issuance costs

Issuance of common stock, net of issuance costs

Issuance of warrants, net of issuance costs

Exercise of stock options and warrants

Exchange of 2025 Notes

Issuance of common stock for vested RSUs and ESPP purchases

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Shares withheld related to net share settlement of equity awards

Other comprehensive loss

Other comprehensive gain

Balance, December 31, 2023

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Cash flows from operating activities

Net income (loss)

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

Net (loss) income

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Depreciation and ROU amortization expense

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

Non-cash interest expense

Change in fair value of derivatives

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(Gain) Loss on extinguishment of option

Loss on issuance of debt & other issuance costs

Impairment of right-of-use asset

Exchange-related gain, net

Impairment of option

Stock-based compensation expense

Provision for inventory obsolescence

Loss on disposal of assets

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Proceeds from sale and maturity of marketable securities

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Cash flows from financing activities

Proceeds from issuance of common stock and warrants, net

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

Proceeds from issuance of common stock, net of issuance costs

Proceeds from exercise of stock options and ESPP issuances, net

Taxes paid related to net share settlement of equity awards

Proceeds from debt issuance, net

Note issuance costs

Proceeds from issuance of preferred stock, net

Repayment of 2023 Notes

Repayment of 2025 Notes

Repayment of term loans

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Proceeds from issuance of Loan and Security Agreement, net

Payment of debt issuance costs

Proceeds from issuance of warrants, net

Proceeds from issuance of preferred stock, net

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, at beginning of period

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Conversion of options into redeemable convertible preferred stock

Issuance of common stock converted from preferred shares

Issuance of common stock converted from notes payables

Issuance of common stock and warrants - Highbridge transactions

Issuance of warrants - Energy Capital

Exchange of 2025 Notes for Second Lien Notes

Issuance of Second Lien Notes

Issuance of warrants in exchange for PHC Notes

Issuance of warrants for Loan and Security Agreement

Issuance of common stock converted from 2025 Notes

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

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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® 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.

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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.

As of December 31, 2023, the Company had cash, cash equivalents and marketable securities of $ 109.5 million.

On September 8, 2023 (the “Effective Date”), the Company entered into a loan agreement (the “Loan and Security Agreement”) with the several institutions or entities party thereto (collectively, the “Lenders") and Hercules Capital, Inc., a Maryland corporation (“Hercules”) in its capacity as administrative agent and collateral agent for itself and the Lenders, pursuant to which the Lenders have agreed to make available to the Company up to $ 50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $ 25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $ 10.0 million (the “Tranche 2 Loan”) and $ 15.0 million (the “Tranche 3 Loan”), respectively, which will become available to the Company upon the Company’s satisfaction of certain terms and conditions set forth in the Loan and Security Agreement.

In December 2023, the Company met the terms and conditions to draw on Tranche 2 Loan and the loan was funded on January 2, 2024 in an amount of $ 10.0 million.

The loans under the Loan and Security Agreement mature on September 1, 2027 (the “Maturity Date”).

On August 10, 2023, the Company entered into separate, privately negotiated exchange agreements (the “Exchange Agreements”) with a limited number of holders (the “Noteholders”) of the Company’s currently outstanding 5.25 % Convertible Senior Notes due 2025 (the “2025 Notes”).

Under the terms of the Exchange Agreements, the Noteholders agreed to exchange with the Company (the “Exchanges”) up to $ 30.8 million in aggregate principal amount of the 2025 Notes (the “Exchanged Notes”) for a combination of $ 7.5 million of cash and newly issued shares of common stock (the “Exchange Shares”).

The number of Exchange Shares was determined based upon the volume-weighted average price per share of the common stock during a 15-day averaging period commencing on August 11, 2023 and ending August 31, 2023.

Based on the volume-weighted average price per share of the common stock

during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges.

The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.

In August 2023, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Goldman Sachs & Co.

LLC (“GS”), 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 $ 106.6 million through GS as its sales agent in an “at the market” offering.

GS will receive a commission up to 3.0 % of the gross proceeds of any common stock sold through GS under the Equity Distribution Agreement.

The shares will be offered and sold pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on August 10, 2023.

As of December 31, 2023, no sales have been made under the Equity Distribution Agreement.

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

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

For the twelve months ending December 31, 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.

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 SEC”) (the “2021 Public Offering”).

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 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 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.

Jefferies received commissions 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, 2023 and 2022, the Company received $ 7.4 million and $ 34.2 million in net proceeds from the sale of 9,944,663 shares and 15,160,899 shares of its common stock under the 2021 Sales Agreement, respectively.

Effective August 7, 2023, the Company and Jefferies mutually agreed to terminate the 2021 Sales Agreement.

At the time of termination, approximately $ 106.6 million remained available for issuance pursuant to the 2021 Sales Agreement.

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.

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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.

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 as convertible preferred stock.

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.

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

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 successfully obtained FDA approval in

February 2022 and the option was not exercised.

As described in Note 13, on March 13, 2023, the Company entered into an Exchange Agreement (the “PHC Exchange Agreement”) with PHC, pursuant to which PHC agreed to exchange (the “PHC Exchange”) its $ 35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “PHC Exchange Warrant”) to purchase up to 68,525,311 shares of the Company’s common stock, $ 0.001 par value per share (the “PHC Exchange Warrant Shares”).

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

On March 31, 2023, the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.

On March 13, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with PHC, pursuant to which the Company issued and sold to PHC in a private placement (the “Private Placement”) a warrant (the “Purchase Warrant”) to purchase 15,425,750 shares of the Company’s common stock, $ 0.001 par value per share (the “Purchase Warrant Shares”).

The purchase price of the Purchase Warrant was approximately $ 0.97 per Purchase Warrant Share, representing the undiscounted, trailing 10-day volume weighted average price of the Company’s common stock through March 10, 2023.

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

The issuance of the Purchase Warrants enabled PHC to maintain, as of the closing of the transaction, a 15 % beneficial ownership for purposes of the Investor Rights Agreement, dated August 9, 2020, between the Company and PHC.

The Private Placement closed on March 13, 2023 (the “Private Placement Closing Date”) and the Company received aggregate gross proceeds of $ 15.0 million, before deducting private placement expenses payable by the Company.‌

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.

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.

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.

Summary of Significant Accounting Policies

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The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

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

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

All intercompany balances and transactions have been eliminated in consolidation.

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

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

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

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

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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, 2022 and December 31, 2021.

The Company does not have a history of collectability concerns, and the allowance for uncollectible accounts was $ 0.1 million as of December 31, 2023.

There was no allowance recorded as of December 31, 2022.

Property and Equipment, net

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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.

The Company recognizes a ROU 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.

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

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

There were no impairment indicators in 2022.

There were no impairment indicators identified in 2023 or 2022.

Derivative Financial Instruments

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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

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Revenue Recognition

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.

We generate the majority of our 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.

We are paid for our 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 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.

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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.

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.

In addition, we sell small quantities of our products directly to healthcare provider locations within the United States.

In these direct sales, inventory is purchased on consignment to ensure availability when a patient is identified.

No revenue is recognized upon delivery of our products to the healthcare provider locations, as we retain the ability to control the inventory.

Rather, revenue is recognized when the product is consumed.

Our contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Commercialization 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.

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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.

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 Commercialization Agreement.

Cost of Sales

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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.

Expected volatility is based on the daily closing prices of the Company as well as 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.

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The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense.

The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 2002 and all subsequent periods due to the availability of NOL carryforwards.

The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 2003 and all subsequent periods due to the availability of NOL and tax credit carryforwards.

In addition, all of the net operating losses and research and development credit carryforwards that may be used in future years are still subject to adjustment.

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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 Company’s term loan under the 2025 Notes, Loan and Security Agreement 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.

Recent Accounting Pronouncements

Recently Adopted

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 (“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.

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.

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

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 adopted this guidance as of January 1, 2023 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.

Revenue Recognition

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December 31, 2022

December 31, 2020

(Dollars in thousands)

Revenue, net:

Outside of the United States

United States

Outside of the 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.

Accounts receivable – related parties, net as of December 31, 2023 and 2022 included unbilled accounts receivable of $ 1.5 million and $ 1.7 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.

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.

Net revenue from the Company’s distribution arrangement with Ascensia, a related party, accounted for 93 %, and 96 % of total net revenues for the years ended December 31, 2023 and 2022, respectively.

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.

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period.

An aggregate of 83,951,061 shares of common stock issuable upon the exercise of the PHC Exchange Warrant Shares and the Purchase Warrant Shares held by PHC are included in the number of outstanding shares used for the computation of basic net income (loss) per share for the year ended December 31, 2023.

Since the shares are issuable for little or no consideration, sometimes referred to as “penny warrants”, they are considered outstanding in the context of earnings per share, as discussed in ASC 260-10-45-13.

Dilutive 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 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.

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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)

Net (loss) income

Impact of conversion of dilutive securities

Dilutive Net income (loss)

Net income (loss) per share

Dilutive Net loss

Net (loss) income per share

Basic weighted average shares outstanding

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Stock-based awards

Energy Capital Option

Series B Preferred Stock

Diluted weighted average shares outstanding

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Stock-based awards

Masters preferred shares

Series B Preferred Stock

Total anti-dilutive shares outstanding

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Corporate debt securities

Asset backed securities

Government and agency securities

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Raw materials

The Company recorded $ 1.4 million, $ 2.4 million and $ 15.1 million in cost of sales for the years ended December 31, 2022, 2021 and 2020, respectively, to reduce the value of inventory for items that are potentially obsolete, to adjust costs to their net realizable value, and for inventory in excess of product demand.

The Company recorded $ 0.2 million and $ 1.4 million in cost of sales for the years ended December 31, 2023 and 2022, respectively, to reduce the value of inventory for items that are potentially obsolete, to adjust costs to their net realizable value, and for inventory in excess of product demand.

Prepaid expenses and other current assets

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Contract manufacturing⁽¹⁾

Tax credits receivable (2)

Clinical and Preclinical

Interest receivable

Accounting and Audit

IT and software

Sales and Marketing

Rent and utilities

Research and development

Accounting and Audit

Sales and Marketing

Total prepaid expenses and other current assets

Includes deposits to contract manufacturers for manufacturing process

Refundable employee retention credits, enacted under the CARES Act.

Property and Equipment, net

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Property and equipment, net

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

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.

Depreciation expense for the years ended December 31, 2023 and 2022 was $ 0.4 million and $ 0.5 million, respectively.

There were no material disposals during 2023 or 2022.

Accrued Expenses and Other Current Liabilities

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Total accrued expenses and other current liabilities

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.

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.

The Company leases approximately 33,000 square feet of research and office space for its corporate headquarters under a non-cancelable operating lease.

In May 2023, the Company amended our lease, extending the lease term through 2033, and obtained a tenant improvement allowance of $ 1.3 million.

The Company accounted for the amendment as a lease modification and remeasured the ROU asset and lease liability as of the amendment date, which resulted in an increase of $ 2.5 million to the ROU asset, and an increase of $ 3.8 million to the lease liability.

The Company has one option to extend the term for an additional period of five years beginning on June 1, 2033.

The rent expense is recognized on a straight-line basis through the end of the lease term, excluding option renewals.

The difference between the straight-line rent amounts and amounts payable under the lease is recorded as deferred rent.

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 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.

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

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

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.

This facility was decommissioned in 2021 and an impairment charge of $ 0.5 million was recorded.

The Company continued to make lease payments through the lease expiration date.

Operating lease expense for the years ended December 31, 2023 and 2022 was $ 0.8 million and 0.7 million, respectively.

The following table summarizes the lease assets and liabilities as of December 31, 2023 and 2022 (in thousands):

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Operating leases

During the year ended December 31, 2022, the Company made cash payments of $ 1.0 million included in the measurement of its operating lease liabilities.

During the years ended December 31, 2023 and 2022, the Company made cash payments of $ 1.1 million and $ 1.0 million included in the measurement of its operating lease liabilities, respectively.

The Company has a defined contribution 401(k) plan available to all full-time employees.

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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, 2022, 2021, and 2020 were $ 0.4 million, $ 0.3 million, and $ 0.1 million, respectively.

Employer match expenses during the years ended December 31, 2023 and 2022 were $ 0.5 million and $ 0.4 million, respectively.

Administrative expenses for the plan, which are paid by the Company, were not material in 2023 or 2022.

Notes Payable, Preferred Stock and Stock Purchase Warrants

Loan and Security Agreement

On September 8, 2023 (the “Effective Date”), the Company entered into a loan agreement (the “Loan and Security Agreement”) with Hercules Capital, Inc.

and its managed fund (collectively, the “Lenders"), pursuant to which the Lenders have agreed to make available to Senseonics up to $ 50.0 million in senior secured term loans (the “Term Loan Facility”), consisting of (i) an initial term loan of $ 25.0 million (the “Tranche 1 Loan”), which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $ 10.0 million (the “Tranche 2 Loan”) and $ 15.0 million (the “Tranche 3 Loan”), respectively, which will become available to Senseonics upon Senseonics’ satisfaction of certain terms and conditions set forth in the Loan and Security Agreement.

In December 2023, the Company met the terms and conditions to draw on Tranche 2 Loan and the loan was funded on January 2, 2024 in an amount of $ 10.0 million.

The loans under the Loan and Security Agreement mature on September 1, 2027 (the “Maturity Date”).

The loans under the Loan and Security Agreement bear interest at an annual rate equal to the greater of (i) the prime rate as reported in The Wall Street Journal plus 1.40 % and (ii) 9.90 %.

Borrowings under the Loan and Security Agreement are repayable in monthly interest-only payments through (a) initially, September 1, 2026 and (b) if the Company satisfies the Interest Only Extension Conditions (as defined in the Loan and Security Agreement), the Maturity Date.

After the interest-only payment period, borrowings under the Loan and Security Agreement are repayable in equal monthly payments of principal and accrued interest until the Maturity Date.

At the Company’s option, the Company may prepay all or any portion of the outstanding borrowings under the Loan and Security Agreement, subject to a prepayment fee equal to (a) 3.0 % of the principal amount being prepaid if the prepayment occurs within one year of the Effective Date, 2.0 % of the principal amount being prepaid if the prepayment occurs during the second year following the Effective Date, and 1.00 % of the principal amount being prepaid if the prepayment occurs more than two years after the Effective Date and prior to the Maturity Date.

In addition, the Company paid a $ 375,000 facility fee upon closing and will pay additional facility charges in connection with any borrowing of the Tranche 2 Loan or Tranche 3 Loan, in each case in the amount of 0.50 % of the amount of such tranche of loans.

The Loan and Security Agreement also provides for an end of term fee in an amount equal to 6.95 % of the aggregate principal amount of loan advances actually made under the Loan and Security Agreement, which fee is due and payable on the earliest to occur of (i) the Maturity Date, (ii) the date the Company prepays the outstanding loans in full, and (iii) the date that the secured obligations become due and payable.

The end of term fee is accreted to interest expense over the term of the loans.

The Company’s obligations under the Loan and Security Agreement are secured, by a first-priority security interest in substantially all of its assets.

The Loan and Security Agreement contains a minimum cash covenant that requires the Company to hold unrestricted cash equal to 30 % of the outstanding loan amount under the Loan and Security Agreement.

The Loan and Security Agreement also contains a performance covenant, commencing on July 1, 2024, that requires the Company to generate net product revenue on a trailing six-month basis in excess of specified percentage for applicable measuring periods, subject to certain exceptions.

In addition, the Loan and Security Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, corporate changes, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions.

The Loan and Security Agreement also contains events of default including, among other things, payment defaults, breach of covenants, material adverse effect, breach of representations and warranties, cross-default to material indebtedness, bankruptcy-related defaults, judgment defaults, revocation of certain government approvals, and the occurrence of certain adverse events.

Following an event of default and any applicable cure period, a default interest rate equal to the then-applicable interest rate plus 4.0 % may be applied to the outstanding amount, and the Lenders will have the right to accelerate all amounts outstanding under the Loan and Security Agreement, in addition to other remedies available to them as secured creditors of the Company.

In addition, in connection with the issuance of the Tranche 1 Loan the Company issued warrants to the Lenders (collectively, the “Tranche 1 Warrants”) to acquire an aggregate of 832,362 shares of the Company’s common stock at an exercise price of $ 0.6007 per share (the “Tranche 1 Warrant Shares”).

The Warrants may be exercised through the earlier of (i) the seventh anniversary of the Effective Date and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the Tranche 1 Warrants.

The number of Tranche 1 Warrant Shares for which the Tranche 1 Warrants are exercisable and the associated exercise price are subject to certain customary proportional adjustments for fundamental events, including stock splits and reverse stock splits, as set forth in the Tranche 1 Warrants.

The proceeds from the Loan and Security Agreement were allocated between the Tranche 1 Loan and the Tranche 1 Warrants based on their respective fair value of $ 25.0 million and $ 0.4 million, and the amount allocated to the Tranche 1 Warrants was recorded in equity resulting in a debt discount to the Tranche 1 Loan that is being amortized as additional interest expense over the term of the loan agreement using the effective interest method.

On January 2, 2024, in connection with the issuance of the Tranche 2 Loan the Company issued additional warrants to the Lenders (collectively, the Tranche 2 Warrants”) to acquire an aggregate of 347,887 shares at an exercise price of $ 0.5749 per share (the “Tranche 2 Warrant Shares”).

In connection with Loan and Security Agreement, the Company incurred $ 1.1 million in debt issuance costs and debt discounts which are netted against the principal balance of the initial term loan and amortized as interest expense over the term of the initial term loan using an effective interest rate of 13.17 %.

The fair value of the Company’s Loan and Security Agreement was $ 26.2 million as of December 31, 2023.

Pursuant to the Loan and Security Agreement, the Company also agreed to issue additional seven year term warrants upon the funding of the Tranche 2 Loan and Tranche 3 Loan, which warrants would be exercisable for an aggregate number of shares equal to 2.0 % of the funded loan amount divided by the exercise price equal to the three-day volume-weighted average price at the time of the advance.

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”).

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Convertible Preferred Stock and Warrants

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.

Equity Line Agreement

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 was 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, the Company had 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 provided 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, since there have 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 Purchase Notice, to purchase up to $ 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 Series B Preferred Stock.

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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.

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 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 a subsequent closing, 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 to the Company of $ 22.8 million.

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

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

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

Securities Purchase Agreement

On March 13, 2023, pursuant to the Securities Purchase Agreement with PHC, the Company issued and sold to PHC in a private placement a warrant (the “Purchase Warrant”) to purchase 15,425,750 shares of common stock (the “Purchase Warrant Shares”).

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

On the private placement closing date, the Company received aggregate gross proceeds of $ 15.0 million, before deducting private placement expenses payable by the Company.

All or any part of the Purchase Warrant shall is exercisable by the holder at any time and from time to time.

The Company determined that the Purchase Warrant shall be classified as equity in accordance with ASC Topic 480, Distinguishing Liabilities from Equity and ASC Topic 815.

At issuance, the Company recorded the estimated fair value of the Purchase Warrant in the amount of $ 14.3 million as additional paid-in-capital in the Company’s consolidated balance sheets.

Because PHC was an existing stockholder of the Company at the time of the transaction, the $ 0.7 million excess of the purchase price over the fair value of the Purchase Warrant was recognized as an equity transaction and recorded as a capital contribution made by PHC to the Company as additional paid-in-capital in the Company’s consolidated balance sheets.

Additionally, on March 13, 2023, the Company entered into the Exchange Agreement with PHC, pursuant to which PHC agreed to exchange (the “PHC Exchange”) its $ 35.0 million aggregate principal amount of the PHC Notes, including all accrued and unpaid interest thereon, for a warrant (the “PHC Exchange Warrant”) to purchase up to 68,525,311 shares of common stock (the “PHC Exchange Warrant Shares”).

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

All or any part of the PHC Exchange Warrant is exercisable by the holder at any time and from time to time.

The number of PHC Exchange Warrant Shares represents the number of shares of common stock previously issuable upon conversion of the PHC Notes, in accordance with the original terms of the notes, including a number of shares in respect of accrued and unpaid interest through the closing date, plus additional shares with a value of $ 675,000 reflecting a portion of the future interest payments forgone by PHC.

On March 31, 2023 (6:00 am Japan Standard Time on April 1, 2023), the PHC Exchange was consummated, and the Company issued the PHC Exchange Warrant in consideration for the cancellation of the PHC Notes.‌

The Company determined that the PHC Exchange Warrant shall be classified as equity in accordance with ASC 480 and ASC 815.

At March 31, 2023, the Company recorded the estimated fair value of the PHC Exchange Warrant in the amount of $ 48.6 million as additional paid-in-capital in the Company’s consolidated balance sheets.

As of December 31, 2023, the Purchase Warrant and the PHC Exchange Warrant remained unexercised and outstanding.

As they are prefunded warrants, the Company included the entirety of the warrant shares as weighted average outstanding shares in the calculation of its basic earnings per share.

Convertible Notes

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Pursuant to the Note Purchase Agreement, the Company borrowed $ 35.0 million in aggregate principal through the issuance and sale of PHC Notes on August 14, 2020 (the “Closing Date”).

The Company also issued 2,941,176 shares of its common stock, $ 0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date.

The 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 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 % is payable semi-annually in cash or, at the Company’s option, payment in kind.

The PHC Notes were senior secured obligations of the Company and were guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated.

Interest at the annual rate of 9.5 % was 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.

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.

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

Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by the Company if the closing sale price of the common stock exceeds 275 % of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest.

On or after October 31, 2023, the PHC Notes are redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130 % if redeemed at least six months prior to the Maturity Date or a call premium of 125 % if redeemed within six months of the Maturity Date.

The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements.

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

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

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

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

Each $ 1,000 of principal of the PHC Notes (including any interest added thereto as payment in kind) was 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 would have been required, in certain circumstances, to increase the conversion rate for a holder who elects to convert its PHC Notes in connection with such notice of redemption or corporate event.

In certain circumstances, the Company would have been required to pay cash in lieu of delivering make whole shares unless the Company obtained stockholder approval to issue such shares.

Subject to specified conditions, on or after October 31, 2022, the PHC Notes would have become redeemable by the Company if the closing sale price of the common stock exceed 275 % of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest.

On or after October 31, 2023, the PHC Notes would have been redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130 % if redeemed at least six months prior to the Maturity Date or a call premium of 125 % if redeemed within six months of the Maturity Date.

The Note Purchase Agreement contained customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements.

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

The Note Purchase Agreement also contained 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 had 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.

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

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

The fair value of the derivative as of December 31, 2022 was $ 44.2 million.

The derivative is adjusted to fair value at each reporting

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

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

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.

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 at an effective interest rate of 29.19 %.

There were no conversions of the PHC Notes prior to the exchange of the PHC Notes for the PHC Exchage Warrant described above.

As described above, the PHC Exchange Agreement with PHC was consummated on March 31, 2023, whereby PHC exchanged the PHC Notes in $ 35.0 million principal amount and all accrued and unpaid interest for the PHC Exchange Warrant.

On March 31, 2023, the Company was released from its obligation under the PHC Notes.

Upon execution of the PHC Exchange Agreement, the exercise of the original conversion feature of the PHC Notes became remote.

Accordingly, the Company remeasured the embedded derivative to its fair value of $ 0 .

The Company recognized a change in fair value of the embedded derivative of $ 44.2 million in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

The Company accounted for the PHC Exchange as an extinguishment of the PHC Notes, and thus, it derecognized the PHC Notes in its consolidated balance sheets and recognized a loss of $ 25.4 million as the difference between the carrying value plus accrued interest of the PHC Notes of $ 23.2 million and the $ 48.6 million fair value of the PHC Exchange Warrant as an extinguishment loss in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

As a result of the PHC Exchange, the Company recognized a total net gain on exchange of the PHC notes of $ 18.8 million representing the gain on change in the fair value of the PHC Notes conversion feature recognized as an embedded derivative and the loss on extinguishment of the PHC Notes in exchange for the PHC Exchange Warrant.

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

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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.

such notice of redemption or corporate event.

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

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

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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.

Based on the volume-weighted average price per share of the common stock during the averaging period, a total of 35.1 million shares of common stock were issued in the Exchanges.

The Exchanges were settled on the initial share issuance date of August 14, 2023 and the final settlement date of September 5, 2023.

The Company accounted for the Exchanges as an extinguishment of the Exchanged Notes and the associated embedded derivative and recognized a loss of $ 4.6 million in the caption “Exchange related gain (loss), net” that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss.

The extinguishment loss represents the difference between (i) the carrying value of the Exchanged Notes (inclusive of

the fair value of the embedded derivative) and (ii) the sum of $ 7.5 million cash payment, the fair value of the Exchanged Shares, and transaction costs incurred in the Exchange.

Following the Exchanges, approximately $ 20.4 million aggregate principal amount of the 2025 Notes remain outstanding.

The remaining unamortized debt discount and debt issuance costs are amortized as interest expense over the term of the loan at an effective interest rate of 15.54 %.

The fair value of the Company’s 2025 Notes, excluding the embedded features, was $ 19.1 million as of December 31, 2023 and $ 41.3 million at December 31, 2022.

The fair value of the derivative at December 31, 2023 and December 31, 2022 was $ 0.1 million and $ 7.9 million, respectively.

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

In February 2018, the Company issued an additional $ 3.0 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the overallotment option by the underwriter.

The 2023 Notes are general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25 % per year, payable semiannually in arrears on February 1 and August 1 of each year.

The 2023 Notes were general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25 % per year, payable semiannually in arrears on February 1 and August 1 of each year.

The net proceeds from the issuance of the 2023 Notes, after deducting transaction costs, were $ 50.7 million.

The 2023 Notes are general, unsecured, senior subordinated obligations of the Company.

The Company pays interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018.

The Company paid interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018.

In July 2019, the Company used the net proceeds from the issuance of the 2025 Notes to repurchase $ 37.0 million aggregate principal amount of the outstanding 2023 Notes.

As the 2023 Notes have a maturity date of February 1, 2023, they are classified as a 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.

Each $ 1,000 of principal of the 2023 Notes were 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.

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.

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Additionally, the Company incurred transaction costs of $ 2.2 million.

The debt discount and transaction costs are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30 %.

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

The 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.

There were no conversions of 2023 Notes in the years ended December 31, 2022 or 2021.

The debt discount and transaction costs were amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30 %.

The derivative was 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.

On January 31, 2023, the Company repaid the outstanding principal and accrued interest in full.

The derivative was unexercised upon maturity and the fair value in the amount of $ 0.02 million was recognized as an extinguishment gain in the caption “Other income (expense)” in Company’s consolidated statement of operations and comprehensive loss.

The following carrying amounts are outstanding under the Company’s notes payable as of December 31, 2023 and December 31, 2022 (in thousands):

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Principal ($)

Debt Discount ($)

Debt (Discount) Premium ($) 1

Issuance Costs ($)

Carrying Amount ($)

Loan and Security Agreement

December 31, 2022

Principal ($)

Debt Discount ($)

Debt (Discount) Premium ($) 1

Issuance Costs ($)

Carrying Amount ($)

PHC Convertible Notes

Includes accretion of end of term fees payable at maturity

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

Year Ended December 31, 2022

Twelve Months Ended December 31, 2023

Interest Rate

Debt Discount and Fees ($)

Debt Discount & Fees ($) 1

Issuance Costs ($)

Loss on Extinguishment ($)

Total Interest Expense ($)

Year Ended December 31, 2021

PHC Convertible Notes

Loan and Security Agreement

Twelve Months Ended December 31, 2022

Interest Rate

Debt Discount and Fees ($)

Debt Discount & Fees ($) 1

Issuance Costs ($)

Loss on Extinguishment ($)

Total Interest Expense ($)

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

PHC Convertible Notes

Includes accretion of end of term fees payable at maturity

The following are the scheduled maturities of the Company’s notes payable (including end of term fees) as of December 31, 2023:

Stockholders’ Deficit

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As of December 31, 2023 and 2022, the Company’s authorized capital stock included 5,000,000 shares of undesignated preferred stock, par value $ 0.001 per share.

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.

The Company had 12,000 shares of Series B Preferred Stock outstanding as of December 31, 2023 and 2022.

Voting Rights

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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.

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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.

On March 13, 2023, the Company issued to PHC, the Purchase Warrant to purchase 15,425,750 shares of common stock.

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

The Company received aggregate gross proceeds of $ 15.0 million, before deducting private placement expenses payable by the Company.

The warrant was recorded in equity based on its fair value of $ 14.3 million.

All or any part of the Purchase Warrant is exercisable by the holder at any time and from time to time.

In addition, on March 13, 2023, the Company entered into an Exchange Agreement with PHC, and, on March 31, 2023, issued the PHC Exchange Warrant to purchase up to 68,525,311 shares of common stock in exchange for the cancellation in full of the PHC Notes, including accrued interest thereon.

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

The warrant was recorded in equity based on its fair value of $ 48.6 million.

All or any part of the Purchase Warrant is exercisable by the holder at any time and from time to time.

On September 8, 2023, Company entered into the Loan and Security Agreement and issued the Tranche 1 Warrants to acquire an aggregate of 832,362 shares of the Company’s common stock at an exercise price of $ 0.6007 per share.

The Tranche 1 Warrants may be exercised through the earlier of (i) the seventh anniversary of the Effective Date and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the warrant agreement.

The Tranche 1 Warrants were recorded in equity based on their fair value of $ 0.4 million .

The number of shares for which the Tranche 1 Warrants are exercisable and the associated exercise price are subject to certain customary proportional adjustments for fundamental events, including stock splits and reverse stock splits, as set forth in the warrant agreement.

Stock-Based Compensation

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As of December 31, 2023, 233,825 shares remained available for grant under the Inducement Plan.

Commercial Equity Plan

On January 30, 2023, the Company adopted the Senseonics Holdings, Inc.

2023 Commercial Equity Plan (the “Commercial Equity Plan”), pursuant to which the Company reserved 10,000,000 shares of common stock for issuance.

Eligible recipients under the plan are non-employees of Senseonics, including employees of our global commercial partner, Ascensia, who assist with the commercialization of our products.

An “Award” is any right to receive the Company’s common stock pursuant to the Commercial Equity Plan, consisting of non-statutory options and restricted stock unit awards.

As of December 31, 2023, 7,537,500 shares remained available for grant under the Commercial Equity Plan.

2016 Employee Stock Purchase Plan

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Stock Options

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

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

The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only.

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Options outstanding as of December 31, 2021

Cancelled/forfeited

Options granted

Options exercised

Options canceled/forfeited

Options outstanding as of December 31, 2022

Cancelled/forfeited

Options granted

Options exercised

Options canceled/forfeited

Options outstanding as of December 31, 2023

Options vested and exercisable as of December 31, 2022

Options vested and expected to vest as of December 31, 2023

Options exercisable as of December 31, 2023

The weighted average grant-date fair value of stock option awards granted in 2023 and 2022 was $ 0.47 and $ 1.04 per share, respectively.

For the years ended December 31, 2022, 2021 and 2020, 974,285 , 2,354,566 , and 201,447 , options were exercised, respectively, with an aggregate intrinsic value at the time of exercise of $ 1.0 million, $ 4.4 million, and $ 0.1 million, respectively.

For the years ended December 31, 2023 and 2022, 5,925 , and 974,285 , options were exercised, respectively, with an aggregate intrinsic value at the time of exercise of approximately $ 0.1 million and $ 1.0 million, respectively.

The total fair value of options that vested during 2023 and 2022 were approximately $ 0.5 million and $ 2.1 million, respectively.

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The risk-free interest rate assumption is based upon observed U.S.

treasury yields for a period consistent with the expected term of the Company’s employee stock options.

treasury yields for a period consistent with the expected term of the Company’s employee and non-employee stock options.

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

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Stock-based compensation expense is recorded monthly and is adjusted periodically for actual forfeitures as they occur.

Employee stock-based compensation expense for employee granted stock options was $ 2.1 million, $ 3.2 million and $ 5.2 million, for the years ended December 31, 2022 and 2021 and 2020, respectively, classified as follows (in thousands):

Stock-based compensation expense for employee and non-employee stock options was $ 0.7 million and $ 2.1 million, for the years ended December 31, 2023 and 2022, respectively, classified as follows (in thousands):

Cost of sales

Sales and marketing

Research and development

General and administrative

Selling, general and administrative

Total stock-based compensation

As of December 31, 2022, there was $ 0.7 million of total unrecognized compensation cost related to non-vested employee stock option awards, which is expected to be recognized over a weighted average period of 2.28 years.

As of December 31, 2023, there was $ 0.7 million of total unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a weighted average period of 2.13 years.

Restricted Stock Units

The Company issued 156,272 and 117,290 restricted stock units in lieu of cash payment for board and director fees to members of the Board of Directors during 2022 and 2021, respectively.

The Company issued 327,171 and 156,272 restricted stock units in lieu of cash payment for board and director fees to members of the Board of Directors during 2023 and 2022, respectively, under the non-employee director compensation policy.

These restricted stock units were immediately vested upon issuance.

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.

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.

In addition, the Company issued a total of 9,451,628 and 7,707,027 restricted stock units to employees of the Company during 2023 and 2022, respectively, as incentive compensation.

Restricted stock units granted annually to members of the Board of Directors vest on the earlier of the first anniversary of the grant date or the next year’s annual meeting of stockholders.

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

Restricted stock units granted to employees in 2023 and 2022 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 .

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The aggregate intrinsic value of the restricted stock units currently outstanding at December 31, 2023 was $ 7.9 million.

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):

Employee stock-based compensation expense for employee granted restricted stock units was $ 8.0 million and $ 6.5 million, for the years ended December 31, 2023 and 2022, respectively, classified as follows (in thousands):

Cost of sales

Sales and marketing

Research and development

General and administrative

Selling, general and administrative

Total stock-based compensation

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Fair value of derivative liability

Gross total deferred tax asset

Gross total deferred tax assets

Valuation allowance

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Deferred tax liabilities:

Right of use amortization

Right of use asset amortization

Amortization of debt discount

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The net change in valuation allowance for the years ended December 31, 2023 and 2022 was a net increase of $ 16.3 million and a net increase of $ 16.8 million, respectively.

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

The increase in valuation allowance is primarily due to deferred tax assets generated from net operating losses, research and experimental costs capitalized, and tax credits generated in 2023 and is partially offset by a decrease in the deferred tax assets related to the fair value of derivative liability.

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

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

federal statutory rate to the Company’s effective income tax rate for the years ended December 31, 2022, 2021 and 2020 is as follows:

federal statutory rate to the Company’s effective income tax rate for years ended December 31, 2023 and 2022 is as follows:

Federal Statutory rate

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Officers compensation

Other non-deductible items

Increase (decrease) in valuation allowance

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The federal tax rate remained unchanged at 21 % for the 2023 tax year.

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.

The change in state tax rate from 2022 to 2023 is primarily due to changes in applicable state apportionment factors and change in jurisdictions.

A breakdown of the Company’s uncertain tax position during 2023 and 2022 is as follows (in thousands):

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Gross unrecognized tax benefit at end of year

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.

During 2022 and 2023, the Company incurred minor penalties and interest for filed tax returns due to taxing authorities.

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.

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For the year ended December 31, 2023, revenue from Ascensia was $ 20.7 million and the amount due from Ascensia was $ 3.7 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.

At December 31, 2023, the Company had estimated replacement obligations under warranties in the amount of $ 0.5 million and other amounts due to Ascensia of $ 0.5 million.

We also purchase certain medical supplies from Ascensia for our clinical trials.

We paid Ascensia $ 0.6 million for the year ended December 31, 2023 under this arrangement.

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

We also purchase certain medical supplies from Ascensia for our clinical trials.

We paid Ascensia $ 0.3 million for the year ended December 31, 2022 under this arrangement.

Fair Value Measurements

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Corporate debt securities

Asset backed securities

Government and agency securities

Embedded features of the 2025 Notes

Embedded features of the PHC Notes

Embedded features of the 2025 Notes

December 31, 2022

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Government and agency securities

Energy Capital Option

Embedded features of the 2023 Notes

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Conversion of financial instruments

(Gain) Loss on fair value adjustment of option

(Gain) Loss on change in fair value of derivatives

(Gain) Loss on extinguishment of option

Gain on fair value adjustment of option

Gain on change in fair value of derivatives

Loss on extinguishment of option

Financial asset impairment cost, net

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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:

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

Unobservable Inputs

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Credit spread

Recovery rate

Dividend yield

Significant changes to these assumptions would result in increases/decreases to the fair value of the liability.

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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.

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.

During the year ended December 31, 2023, there were no transfers between Level 1, Level 2, or Level 3.

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.

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

The Company accrues for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

The Company has evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable, and for the period ended December 31, 2022 and 2021 has no such contingencies.

Reclassification of Prior Year Presentation

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

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

The Company has evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable, and for the periods ended December 31, 2023 and 2022 has no such contingencies.

Subsequent Events

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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.

As previously disclosed in Note 13, on Septembr 8, 2023 (“the Effective Date”), the Company entered into a Loan and Security Agreement with Hercules Capital, Inc.

and the Lenders, pursuant to which the Lenders agreed to make available to the Company up to $ 50.0 million in senior secured term loans consisting of (i) an initial term loan of $ 25.0 million, which was funded on the Effective Date and (ii) two additional tranches of term loans in the amounts of up to $ 10.0 million (the “Tranche 2 Loan”) and $ 15.0 million (the “Tranche 3 Loan”), respectively.

On January 2, 2024, the Tranche 2 Loan was funded in an amount of $ 10.0 million following the Company’s satisfaction of certain terms and conditions set forth in the Loan and Security Agreement in the fourth quarter of 2023.

In connection with the Loan and Security Agreement, the Company issued additional warrants to the Lenders to acquire an aggregate of 347,887 shares at an exercise price of $ 0.5749 per share.

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