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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

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

2

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.

3

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.

4

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.

5

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.

6

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.

7

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.

8

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.

9

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.

10

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.

11

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

12

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.

13

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

14

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