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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-37717

Senseonics Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

3841
(Primary Standard Industrial
Classification Code Number)

47-1210911
(I.R.S. Employer
Identification Number)

20451 Seneca Meadows Parkway

Germantown, MD 20876-7005

(301515-7260

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

SENS

NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were 463,263,499 shares of common stock, par value $0.001, outstanding as of May 6, 2022.

Table of Contents

TABLE OF CONTENTS

PART I: Financial Information

ITEM 1: Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021

3

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for three months ended March 31, 2022 and 2021

4

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2022 and 2021

5

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

ITEM 2: Management Discussion and Analysis of Financial Condition and Results of Operations

24

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

36

ITEM 4: Controls and Procedures

36

PART II: Other Information

37

ITEM 1: Legal Proceedings

37

ITEM 1A: Risk Factors

37

ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds

37

ITEM 3: Defaults Upon Senior Securities

38

ITEM 4: Mine Safety Disclosures

38

ITEM 5: Other Information

38

ITEM 6: Exhibits

38

SIGNATURES

39

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Senseonics Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

March 31, 

December 31, 

 

2022

2021

(unaudited)

Assets

    

    

Current assets:

Cash and cash equivalents

$

39,011

$

33,461

Short term investments, net

102,755

96,445

Accounts receivable, net

232

205

Accounts receivable, net - related parties

3,797

1,768

Inventory, net

7,153

6,316

Prepaid expenses and other current assets

 

7,629

 

6,218

Total current assets

 

160,577

 

144,413

Option

269

239

Deposits and other assets

 

786

 

1,086

Long term investments, net

25,145

51,882

Property and equipment, net

 

1,320

 

1,308

Total assets

$

188,097

$

198,928

Liabilities and Stockholders’ Deficit

Current liabilities:

Accounts payable

$

2,089

$

1,204

Accrued expenses and other current liabilities

 

8,742

 

10,667

Accrued expenses and other current liabilities- related parties

3,674

3,597

Note payable, current portion, net

14,534

Derivative liability, current portion

1,713

Term Loans, net

732

2,926

Total current liabilities

 

31,484

 

18,394

Long-term debt and notes payables, net

48,035

59,798

Derivative liabilities

 

150,010

 

236,291

Option

47,700

69,401

Other liabilities

337

579

Total liabilities

 

277,566

 

384,463

Commitments and contingencies

Stockholders’ deficit:

Common stock, $0.001 par value per share; 900,000,000 shares authorized; 463,229,779 and 447,282,263 shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

463

 

447

Additional paid-in capital

 

775,172

 

765,215

Accumulated other comprehensive loss

(837)

(212)

Accumulated deficit

 

(864,267)

 

(950,985)

Total stockholders' deficit

 

(89,469)

 

(185,535)

Total liabilities and stockholders’ deficit

$

188,097

$

198,928

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share data)

Three Months Ended

March 31, 

    

2022

    

2021

Revenue, net

$

292

$

487

Revenue, net - related parties

2,189

2,359

Total revenue

2,481

2,846

Cost of sales

1,954

2,320

Gross profit

527

526

Expenses:

Sales and marketing expenses

1,509

1,613

Research and development expenses

7,804

5,255

General and administrative expenses

6,374

4,974

Operating loss

(15,160)

 

(11,316)

Other income (expense), net:

Interest income

93

9

Gain (Loss) on fair value adjustment of option

21,701

(52,675)

Gain on extinguishment of debt and option

330

Interest expense

(4,494)

(4,058)

Gain (Loss) on change in fair value of derivatives

84,569

(180,899)

Impairment cost, net

30

(782)

Other expense

(21)

(123)

Total other income (expense), net

101,878

(238,198)

Net Income (Loss)

86,718

(249,514)

Other comprehensive loss

Unrealized loss on marketable securities

(625)

Total other comprehensive loss

(625)

Total comprehensive income (loss)

$

86,093

$

(249,514)

Basic net income (loss) per common share

$

0.19

$

(0.68)

Basic weighted-average shares outstanding

455,942,886

364,274,433

Diluted net income (loss) per common share

$

(0.03)

$

(0.68)

Diluted weighted-average shares outstanding

605,198,839

364,274,433

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(in thousands)

Additional

Accumulated

Total

 

Series A

Common Stock

Paid-In

Other

Accumulated

Stockholders'

 

Convertible

  

Shares

  

Amount

  

Capital

  

Comprehensive Loss

Deficit

Deficit

 

Preferred Stock Temporary Equity

  

Three months ended March 31, 2021:

Balance, December 31, 2020

 

265,582

266

504,162

(648,511)

(144,083)

$

2,811

Issuance of convertible preferred stock, net

42,756

Conversion of preferred stock

54,166

54

45,513

45,567

(45,567)

Issuance of common stock, net

99,740

100

151,987

152,087

 

Exercise of stock options and ESPP purchases

 

3,439

3

1,696

1,699

 

Exchange and conversion of convertible notes, net

4,925

5

6,496

6,501

 

Stock-based compensation expense and vesting of RSU's

63

1,844

1,844

Net loss

 

(249,514)

(249,514)

 

Balance, March 31, 2021

 

427,915

$

428

$

711,698

 

$

$

(898,025)

$

(185,899)

$

Three months ended March 31, 2022:

Balance, December 31, 2021

447,282

447

765,215

(212)

(950,985)

(185,535)

Issuance of common stock

 

3,077

3

8,001

8,004

Exercise of stock options and warrants

 

9,084

9

162

171

Issuance of common stock for vested RSUs and ESPP purchase

3,786

4

58

62

Stock-based compensation expense

 

1,736

1,736

Net income

86,718

86,718

Other comprehensive loss

 

(625)

(625)

Balance, March 31, 2022

 

463,229

$

463

$

775,172

 

$

(837)

$

(864,267)

$

(89,469)

$

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

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Senseonics Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended

March 31, 

2022

2021

Cash flows from operating activities

    

    

Net income (loss)

$

86,718

(249,514)

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

Depreciation and amortization expense

 

263

316

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

 

2,772

972

Change in fair value of derivatives

(84,569)

180,899

(Gain) Loss on fair value adjustment of option

(21,701)

52,675

Gain on extinguishment of debt and option

(330)

Impairment of option, net

(30)

782

Stock-based compensation expense

 

1,736

1,740

Changes in assets and liabilities:

Accounts receivable

(2,056)

1,301

Prepaid expenses and other current assets

 

(1,411)

(677)

Inventory

(837)

(1,303)

Deposits and other assets

163

(30)

Accounts payable

 

886

(833)

Accrued expenses and other liabilities

(2,031)

(3,411)

Accrued interest

(62)

1,155

Net cash used in operating activities

 

(20,159)

(16,258)

Cash flows from investing activities

Capital expenditures

 

(137)

(11)

Proceeds from sale and maturity of marketable securities

19,803

Net cash provided by (used in) investing activities

 

19,666

 

(11)

Cash flows from financing activities

Issuance of common stock, net

8,004

152,087

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

233

1,804

Proceeds from issuance of Masters preferred stock, net

 

22,783

Repayment of term loans

(2,194)

Net cash provided by financing activities

 

6,043

 

176,674

Net increase in cash and cash equivalents

 

5,550

 

160,405

Cash and cash equivalents, at beginning of period

 

33,461

18,205

Cash and cash equivalents, at ending of period

$

39,011

$

178,610

Supplemental disclosure of cash flow information

Cash paid during the period for interest

$

1,762

$

1,927

Supplemental disclosure of non-cash investing and financing activities

Issuance of common stock converted from preferred shares

54,166

Issuance of common stock converted from notes payables

4,925

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

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Senseonics Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.

Organization and Nature of Operations

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

Senseonics, Incorporated is a wholly owned subsidiary of Senseonics Holdings, Inc. and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings, Inc. and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.

2.

Liquidity and Capital Resources

From its founding in 1996 until 2010, the Company has devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the Company narrowed its focus to developing and refining a commercially viable glucose monitoring system. However, to date, the Company has not generated any significant revenue from product sales. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996. The Company has never been profitable from operations, and its net losses were $302.5 million, $175.2 million, and $115.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of March 31, 2022, the Company had an accumulated deficit of $864.3 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, convertible notes and debt. As of March 31, 2022, the Company had cash, cash equivalents and marketable securities of $166.9 million.

In November 2021, the Company entered into an Open Market Sale Agreement, (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as its 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. During the three months ended March 31, 2022, the Company received $8.0 million in net proceeds from the sale of 3,077,493 shares of its common stock under the 2021 Sales Agreement.

In November 2019, the Company entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which the Company could offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Jeffries as its 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 a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “Offering”). The price to the public in the Offering was $1.925 per share of common stock. The Underwriters agreed to purchase the shares from the Company pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of common stock.

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

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Table of Contents

On January 17, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”), pursuant to which the Company sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50.0 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by the Company, were approximately $46.1 million.

On November 9, 2020, the Company entered into an equity line agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including the Company has less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, at its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provides that the Company 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 Regular Purchases, Energy Capital has the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. There have been no issuances of Series B Preferred Stock as of March 31, 2022.

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

Additionally, on August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (“Masters”), pursuant to which the Company issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $1,000.00 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds to the Company of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000.00 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All shares of Series A Preferred Stock have been converted to common stock.

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3.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Although the Company considers the disclosures in these unaudited consolidated financial statements to be adequate to make the information presented not misleading, certain information or footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position at March 31, 2022, and December 31, 2021, results of operations, comprehensive income (loss), and changes in stockholder’s deficit for the three months ended March 31, 2022, and 2021 and cash flows for the three months ended March 31, 2022, and 2021 have been included. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022. The interim results for March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any future interim periods.

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

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. The Company considered COVID-19 related impacts to its estimates, as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.

Segment Information

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

Comprehensive Loss

Comprehensive income (loss) comprises of net income (loss) and other changes in equity that are excluded from net income (loss). For the three months ended March 31, 2022, the Company’s comprehensive income included $0.6 million of other comprehensive loss related to the unrealized loss on marketable securities. For the three months ended March 31, 2021, the Company’s net loss equaled its comprehensive loss.

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Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value. Cash and cash equivalents consisted of the following as of the dates set forth below (in thousands):

March 31, 

December 31,

    

    

2022

    

2021

 

Cash ¹

$

1,338

$

4,264

Money market funds

37,673

29,197

Cash and cash equivalents

$

39,011

$

33,461

(1)Includes overnight repurchase agreements

Long-lived Assets

Management reviews long-lived assets, including property and equipment and right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. There was no impairment recorded for the three months ended March 31, 2022. Management identified an indicator of impairment for a right of use asset and recorded an immaterial expense for the three months ended March 31, 2021.

Warranty Obligation

The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual replacements to revenue.

At March 31, 2022, and December 31, 2021, the warranty reserve was $0.8 million and $0.7 million, respectively. The following table provides a reconciliation of the change in estimated warranty liabilities for the three months ended March 31, 2022 and for the twelve months ended December 31, 2021 (in thousands):

March 31, 

December 31,

    

2022

    

2021

Balance at beginning of the period

$

723

$

646

Provision for warranties during the period

58

781

Settlements made during the period

(3)

(704)

Balance at end of the period

$

778

$

723

Revenue Recognition

The Company generates product revenue from sales of the Eversense system and related components and supplies to Ascensia, through a collaboration and commercialization agreement (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.

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Revenue from product sales is recognized at a point in time when the Customers obtain control of the Company’s product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which the Company expects to receive in exchange for the product. Contracts with the Company’s distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product. Customer contracts do not include the right to return unless there is a product issue, in which case the Company may provide replacement product. Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.

The Company’s contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Ascensia commercial agreement, revenue share. Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable consideration, such as revenue share, is treated as an addition in revenue when the product sale is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of management judgment. Depending on the variable consideration, the Company develops estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, Ascensia’s ability to sell through the inventory and market conditions.

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

Concentration of Revenue and Customers

For the three months ended March 31, 2022 and 2021, the Company derived 88% and 81%, respectively, of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent purchases for sensors, transmitters and miscellaneous Eversense system components.

Revenue by Geographic Region

The following table sets forth net revenue derived from the Company’s two primary geographical markets, the United States and outside of the United States, based on the geographic location to which the Company delivers the product, for the three months ended March 31, 2022 and 2021:

March 31, 2022

March 31, 2021

%

%

(Dollars in thousands)

Amount

of Total

Amount

of Total

Revenue, net:

Outside of the United States

$

1,714

69.1

%

$

2,533

89.0

%

United States

767

30.9

313

11.0

Total

$

2,481

100.0

%

$

2,846

100.0

%

Marketable Securities

 

Marketable securities consist of commercial paper, corporate debt securities, asset backed securities and government and agency securities. The Company’s investments are classified as available for sale. Such securities are carried at fair value, with any unrealized holding gains or losses reported, net of any tax effects reported, as accumulated other comprehensive income or loss. Realized gains and losses and declines in value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of any available for sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is established. Dividend and interest income is recognized when earned. The cost of securities sold is calculated using the specific identification method. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets. The Company does not generally intend to sell these investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

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Accounts Receivable

Accounts receivable consist of amounts due from the Company’s Customers and are recorded at net realizable value, which may include reductions for allowances for doubtful accounts at the time potential collection risk is identified or for promotional or prompt-pay discounts offered. The Company does not have a history of collectability concerns and no allowance for uncollectible accounts was recorded as of March 31, 2022 and December 31, 2021. Accounts receivable as of March 31, 2022 and December 31, 2021 included unbilled accounts receivable of $0.7 million and $1.8 million, respectively. The Company expects to invoice and collect all unbilled accounts receivable within 12 months.

Net Income (Loss) per Share

Basic net income 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 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 loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Potentially dilutive common shares consist of shares issuable from restricted stock units, warrants and the Company’s convertible notes. Potentially dilutive common shares issuable upon vesting of restricted stock units and exercise of stock options and warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Company’s convertible notes are determined using the if converted method. 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.

The following table sets forth the computation of basic and diluted net income per share for the periods shown:

Three Months Ended March 31,

2022

    

2021

Net income (loss)

86,718

(249,514)

Impact of conversion of dilutive securities

(104,575)

-

Dilutive Net income (loss)

(17,857)

(249,514)

Net income (loss) per share

Basic

0.19

(0.68)

Diluted

(0.03)

(0.68)

Basic weighted average shares outstanding

455,942,886

364,274,433

Dilutive potential common stock outstanding

Stock-based awards

8,982,055

-

2023 Notes

4,617,646

-

2025 Notes

39,689,142

-

PHC Notes

65,151,893

-

Energy Capital Option

25,129,298

-

Warrants

5,685,919

-

Diluted weighted average shares outstanding

605,198,839

364,274,433

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For the three months ended March 31, 2021, the Company operated at a loss. Accordingly, all potentially dilutive shares were considered antidilutive, and basic and diluted EPS are the same.

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

Three Months Ended March 31,

    

2022

2021

Stock-based awards

9,877,143

29,827,858

2023 Notes

5,224,594

2025 Notes

39,689,142

PHC Notes

65,757,177

PHC Option

24,959,156

Warrants

179,606

13,532,533

Total anti-dilutive shares outstanding

35,015,905

154,031,304

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

Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company currently holds investments in available-for-sale securities. The Company has not historically experienced collection issues or bad debts with trade receivables. Accordingly, the Company does not expect this to have a significant impact on its consolidated financial statements and related disclosures at this time. Since the Company qualified as a smaller reporting company as of June 28, 2019, it maintains its status as a smaller reporting company for the adoption of this standard. As such, the Company will adopt this guidance on the effective date for smaller reporting companies, January 1, 2023.

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4.

Marketable Securities

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

March 31, 2022

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Market

    

Cost

    

Gains

    

Losses

    

Value

Commercial Paper

$

43,796

$

43,796

Corporate debt securities

$

31,318

(307)

$

31,011

Asset backed securities

$

18,996

(88)

$

18,908

Government and agency securities

$

34,627

(442)

$

34,185

Total

$

128,737

$

$

(837)

$

127,900

December 31, 2021

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Market

    

Cost

    

Gains

    

Losses

    

Value

Commercial Paper

$

57,369

$

57,369

Corporate debt securities

$

39,825

(77)

$

39,748

Asset backed securities

$

26,736

(29)

$

26,707

Government and agency securities

$

24,609

(106)

$

24,503

Total

$

148,539

$

$

(212)

$

148,327

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

2022 (remaining nine months)

    

$

77,905

2023

 

45,372

2024

2,445

Thereafter

3,015

Total

    

$

128,737

The Company periodically reviews its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For debt securities where the fair value of the investment is less than the amortized cost basis, the Company assesses at the individual security level, for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment. Unrealized losses on available-for-sale securities at March 31, 2022 were not significant and were primarily due to changes in interest rates and not due to increased credit risk associated with specific securities. The Company does not intend to sell these impaired investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.

5. Inventory, net

Inventory, net of reserves, consisted of the following (in thousands):

    

March 31, 

    

December 31, 

2022

    

2021

Finished goods

    

$

1,203

    

$

1,012

Work-in-process

 

4,381

 

3,770

Raw materials

 

1,569

 

1,534

Total

$

7,153

$

6,316

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The Company charged less than $0.1 million to cost of sales for the three months ended March 31, 2022 to reduce the value of inventory for items that are potentially obsolete due to expiry, in excess of product demand, or to adjust costs to their net realizable value. There was no corresponding charge for the three months ended March 31, 2021.

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

March 31, 

December 31, 

2022

    

2021

Contract manufacturing⁽¹⁾

$

5,016

$

5,036

Insurance

1,404

74

Clinical and Preclinical

467

142

Interest receivable

 

338

 

443

IT and software

    

180

 

225

Other

119

193

Rent

105

105

Total prepaid expenses and other current assets

$

7,629

$

6,218

(1)Includes deposits to contract manufacturers for manufacturing process.

7.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

March 31, 

December 31, 

2022

    

2021

Compensation and benefits

$

1,811

$

3,484

Research and development

1,781

2,145

Interest on notes payable

2,083

2,144

Sales and marketing services

2,078

1,962

Product warranty and replacement obligations

 

1,753

 

1,697

Professional and administration services

 

1,039

 

1,011

Operating lease

    

981

    

904

Contract manufacturing

727

914

Other

163

3

Total accrued expenses and other current liabilities

$

12,416

$

14,264

8.

Notes Payable, Preferred Stock and Stock Purchase Warrants

Term Loans

PPP Loan

On April 22, 2020, the Company received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).

Under the terms of the PPP Note and the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. The Company began to make equal monthly payments of principal and interest, beginning in the third quarter of 2021. As of March 31, 2022, the outstanding balance, including accrued interest, of the PPP Note was $0.7 million.

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

Convertible Preferred Stock and Warrants

On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital, LLC, 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 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 having less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, 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 $1,000.00 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at the Purchase Price equal to $1,000.00 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 the Company 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 Regular Purchases, Energy Capital has the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. There have been no issuances of Series B Preferred Stock as of March 31, 2022.

The Company accounted for the Equity Line Agreement as a put/call option (the “Energy Capital Option”). This put/call option is classified as a liability in accordance with ASC 480, Distinguishing liabilities from equity, on the Company’s balance sheet and was recorded at the estimated fair value of $4.2 million upon issuance. The put/call option is required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense). In connection with the issuance of the Equity Line Agreement, the Company incurred $7.6 million in debt issuance costs in fiscal year 2020. The fair value as of March 31, 2022 and December 31, 2021 was $47.7 million and $69.4 million, respectively.

Concurrently with entry into the Equity Line Agreement, the Company issued a warrant to Energy Capital, exercisable beginning May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share (the “Warrant”). The Warrant was exercised in full in February 2022.

On August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters, pursuant to which the Company issued and sold to Masters 3,000 shares of Series A Preferred Stock, at a price of $1,000.00 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase

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Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000.00 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All 25,783 shares of Series A Preferred Stock have been converted to common stock. Masters’ option to purchase the remaining unissued shares of Series A Preferred Stock expired on January 11, 2021, resulting in a gain on extinguishment of $3.5 million.

Convertible Notes

Exchange Agreement with Highbridge

On April 21, 2020, the Company entered into a Note Purchase and Exchange Agreement with certain funds managed by Highbridge providing for the exchange of $24.0 million aggregate principal amount of the Company’s outstanding 2025 Notes for (i) $15.7 million aggregate principal amount of newly issued Second Lien Notes (the “Second Lien Notes”), (ii) 11,026,086 shares of common stock, (iii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iv) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”). The Exchange closed on April 24, 2020. During 2020, Highbridge voluntarily converted all $15.7 million of outstanding principal amount of the Second Lien Notes for 42,776,936 shares of the Company’s common stock.

PHC Notes

On August 9, 2020, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PHC, as the purchaser (together with the other purchasers from time to time party thereto, the “Note Purchasers”) and Alter Domus (US) LLC, as collateral agent. Pursuant to the Note Purchase Agreement, the Company borrowed $35.0 million in aggregate principal through the issuance and sale of the PHC Notes on August 14, 2020 (the “Closing Date”). The Company also issued 2,941,176 shares of its common stock, $0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date. The Financing Fee Shares are accounted for as debt discount in the amount of $1.5 million.

The PHC Notes are senior secured obligations of the Company and will be guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at the Company’s option, payment in kind. The interest rate decreased to 8.0% in April 2022 as a result of the Company having obtained FDA approval for the 180-day Eversense E3 system for marketing in the United States. The maturity date for the PHC Notes is October 31, 2024 (the “Maturity Date”). The obligations under the PHC Notes are secured by substantially all of the Company’s and its subsidiary’s assets.

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

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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 become 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”), contingent upon obtaining approval for the 180-day Eversense product for marketing in the United States before such date. The PHC Option represents a freestanding financial instrument and is recognized as an asset in the Company’s consolidated balance sheets at fair value on the date of issuance and subject to impairment testing in each reporting period prior to the options exercise or expiration. The Company acknowledges that while the PHC Option is subject to impairment testing, there is no explicit guidance regarding how impairment should be assessed and measured for the PHC Option. As such, the measurement alternative in ASC Topic 321, Investments—Equity Securities, for equity securities without readily determinable fair values can be applied by analogy to assess and measure impairment of the PHC Option. The Company developed an estimated fair value at March 31, 2022 and December 31, 2021 to be $0.3 million and $0.2 million, respectively, and a gain of less than $0.1 million was recognized in net income as the difference between the fair value of the investment and its carrying amount for the three months ended March 31, 2022

The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default. The Company recorded the fair value of the embedded features in the amount of $25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at March 31, 2022 and December 31, 2021 was $104.0 million and $149.1 million, respectively.

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.

2025 Notes

In July 2019, the Company issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. The 2025 Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at an initial conversion rate of 757.5758 shares per $1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $1.32 per share).

The 2025 Notes also contained an embedded conversion option requiring bifurcation as a separate derivative liability, along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision. The 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 derivative at March 31, 2022 and December 31, 2021 was $46.0 million and $81.4 million, respectively.

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Table of Contents

In connection with the Exchange on April 24, 2020, $24.0 million aggregate principal of the Company’s outstanding 2025 Notes held by Highbridge Capital Management, LLC (“Highbridge”) were exchanged for $15.7 million of Second Lien Notes (the “Second Lien Notes”), (i) 11,026,086 shares of common stock, (ii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iii) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”). This transaction modified the original 2025 Notes outstanding with Highbridge and resulted in $13.2 million of deferred issuance fees and debt discounts associated with the exchanged 2025 Notes being transferred as a discount to the Second Lien Notes.

As of December 31, 2021, there were conversions of $6.5 million of outstanding principal amount of the 2025 notes for 4,924,998 shares of common stock. Accordingly, $3.2 million of allocated deferred issuance costs and debt discounts were recognized as a loss on extinguishment of debt as of December 31, 2021. There was no activity for the three months ended March 31, 2022.

2023 Notes

In the first quarter of 2018, the Company issued $53.0 million in aggregate principal amount of senior convertible notes due February 1, 2023 (the “2023 Notes”). 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. Each $1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company will increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.

The Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded features as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $17.3 million. Additionally, the Company incurred transaction costs of $2.2 million. The debt discount and transaction costs are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at March 31, 2022 and December 31, 2021 was $1.7 million and $5.8 million, respectively.

The 2023 Notes do not have current observable inputs such as recent trading prices (Level 3) and are measured at fair value using the binomial option pricing model and incorporate management’s assumptions for probabilities of conversion occurrence through maturity, stock price, volatility and risky (bond) rate. There were no conversions of 2023 Notes for the three months ended March 31, 2022. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as other current liability on the Company’s consolidated balance sheet at March 31, 2022.

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The following carrying amounts were outstanding under the Company’s notes payable as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022

Principal ($)

Debt Discount ($)

Issuance Costs ($)

Carrying Amount ($)

2023 Notes

15,700

(1,166)

-

14,534

2025 Notes

51,199

(19,261)

(322)

31,616

PHC Notes

35,000

(17,511)

(1,070)

16,419

PPP Loan

732

-

-

732

December 31, 2021

Principal ($)

Debt Discount ($)

Issuance Costs ($)

Carrying Amount ($)

2023 Notes

15,700

(1,499)

-

14,201

2025 Notes

51,199

(20,535)

(344)

30,320

PHC Notes

35,000

(18,587)

(1,136)

15,277

PPP Loan

2,926

-

-

2,926

Interest expense related to the notes payable for the three months ended March 31, 2022 and 2021 was as follows (dollars in thousands):

Three Months Ended March 31, 2022

Interest Rate

Interest ($)

Debt Discount and Fees ($)

Issuance Costs ($)

Loss on Extinguishment ($)

Total Interest Expense ($)

2023 Notes

5.25%

206

333

-

-

539

2025 Notes

5.25%

658

1,274

21

-

1,953

PHC Notes

9.50%

831

1,076

66

-

1,973

PPP Loan

1.00%

5

-

-

-

5

Total

1,700

2,683

87

-

4,470

Three Months Ended March 31, 2021

Interest Rate

Interest ($)

Debt Discount and Fees ($)

Issuance Costs ($)

Loss on Extinguishment ($)

Total Interest Expense ($)

2023 Notes

5.25%

206

303

-

-

509

2025 Notes

5.25%

757

1,110

18

3,183

5,068

PHC Notes

9.50%

794

804

49

-

1,647

PPP Loan

1.00%

14

-

-

-

14

Total

1,771

2,217

67

3,183

7,238

The following are the scheduled maturities of the Company’s notes payable as of March 31, 2022 (in thousands):

2022 (remaining nine months)

    

$

732

2023

 

15,700

2024

35,000

2025

51,199

Thereafter

Total

    

$

102,631

9.

Stockholders’ Deficit

In November 2021, the Company entered into the 2021 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 $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. During the three months ended March 31, 2022, the Company received $8.0 million in net proceeds from the sale of 3,077,493 shares of its common stock under the 2021 Sales Agreement.

During the three months ended March 31, 2021, the Company sold 99,740,259 shares of common stock, of which 59,740,259 shares of common stock were sold in the Offering and 40,000,000 shares of common stock were sold

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in the Registered Direct Offering. For additional information on the Offering and the Registered Direct Offering, see Note 2—Liquidity and Capital Resources.

10. Stock-Based Compensation

2015 Plan

In December 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”), under which incentive stock options, non-qualified stock options and restricted stock units may be granted to the Company’s employees and certain other persons, such as officers and directors, in accordance with the 2015 Plan provisions. In February 2016, the Company’s Board of Directors adopted, and the Company’s stockholders approved, an Amended and Restated 2015 Equity Incentive Plan (the “amended and restated 2015 Plan”), which became effective on February 20, 2016. The Company’s board of directors may terminate the amended and restated 2015 Plan at any time. Options granted under the amended and restated 2015 Plan expire ten years after the date of grant.

Pursuant to the amended and restated 2015 Plan, the number of shares of the Company’s common stock reserved for issuance automatically increases on January 1 of each year, ending on January 1, 2026, by 3.5% of the total number of shares of its common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by its board of directors. As of March 31, 2022, 25,668,399 shares remained available for grant under the amended and restated 2015 Plan.

Inducement Plan

On May 30, 2019, the Company adopted the Senseonics Holdings, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 1,800,000 shares of the Company’s common stock for issuance. The only persons eligible to receive grants of awards under the Inducement Plan are individuals who satisfy the standards for inducement grants in accordance with NYSE American Company Guide Section 711(a), including individuals who were not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company. An “Award” is any right to receive the Company’s common stock pursuant to the Inducement Plan, consisting of non-statutory options, restricted stock unit awards and other equity incentive awards. As of March 31, 2022, 962,795 shares remained available for grant under the Inducement Plan.

2016 Employee Stock Purchase Plan

In February 2016, the Company adopted the 2016 Employee Stock Purchase Plan, (the “2016 ESPP”). The 2016 ESPP became effective on March 17, 2016. The maximum number of shares of common stock that may be issued under the 2016 ESPP was initially 800,000 shares and automatically increases on January 1 of each year, ending on and including January 1, 2026, by 1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; provided, however, the Board of Directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock. At March 31, 2022 there were 13,114,632 shares of common stock available for issuance under the 2016 ESPP. For the three months ended March 31, 2022, there were purchases of 28,944 shares of common stock pursuant to this plan.

The 2016 ESPP permits participants to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time and deductions not yet used in a purchase are refundable upon employment termination. The Company initiated its first 2016 ESPP offering period on August 1, 2019 and new offering periods occur every six months thereafter, each consisting of two purchase periods of six months in duration ending on or about January 31st and July 31st of each year. A participant may only be in one offering at a time. On February 1, 2020, there were 566,573 shares purchased in connection with the initial offering period. The 2016 ESPP contains an offering reset provision whereby if the fair market value of a share on offering date of an ongoing offering is

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less than or equal to the fair market value of a share on a new offering date, the ongoing offering will terminate immediately after the purchase date and rolls over to the new offering.

The 2016 ESPP is considered compensatory for financial reporting purposes.

1997 Plan

On May 8, 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”), under which incentive stock options, non-qualified stock options, and restricted stock awards may be granted to the Company’s employees and certain other persons in accordance with the 1997 Plan provisions. Approximately 2,025,915 shares of the Company’s common stock underlying options have vested under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan.

11.

Fair Value Measurements

The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

Assets

Money market funds⁽¹⁾

$

37,673

$

37,673

Commercial paper

31,011

31,011

Corporate debt securities

43,796

43,796

Asset backed securities

18,908

18,908

Government and agency securities

34,185

29,715

4,470

PHC Option

269

269

Liabilities

Energy Capital Option

$

47,700

$

47,700

Embedded features of the 2023 Notes

1,713

1,713

Embedded features of the PHC Notes

104,003

104,003

Embedded features of the 2025 Notes

46,007

46,007

December 31, 2021

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

Assets

Money market funds⁽¹⁾

$

29,197

$

29,197

Corporate debt securities

39,748

39,748

Commercial paper

57,369

57,369

Asset backed securities

26,707

26,707

Government and agency securities

24,503

19,957

4,546

PHC Option

239

239

Liabilities

Energy Capital Option

$

69,401

$

69,401

Embedded features of the 2023 Notes

5,817

5,817

Embedded features of the PHC Notes

149,058

149,058

Embedded features of the 2025 Notes

81,417

81,417

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

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The following table provides a reconciliation of the beginning and ending net balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):

Level 3

   

Instruments

December 31, 2021

$