In March 2022, the Company entered into a securities purchase agreement (the “March 2022 Securities Purchase Agreement”) with the Schuler Trust for the issuance and sale by the Company of an aggregate of approximately 0.2 million shares of the Company’s common stock to the Schuler Trust in an offering (the “Private Placement”) exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. Pursuant to the March 2022 Securities Purchase Agreement, the Schuler Trust agreed to purchase the shares at a purchase price (determined in accordance with Nasdaq rules relating to the “market value” of the Company’s common stock) of $16.40 per share, for an aggregate purchase price of $4.0 million. In March 2022, the Company classified the March 2022 Securities Purchase Agreement as an equity forward agreement that met the definition of a freestanding derivative financial instrument initially classified in stockholders’ deficit. The value of this equity forward agreement was considered immaterial at inception.

The Company and the Schuler Trust agreed to extend the closing date of the March 2022 Securities Purchase Agreement several times under the original terms of the Private Placement. As discussed in Note 10, Convertible Notes, in June 2023, the Company and the Schuler Trust amended the March 2022 Securities Purchase Agreement, which changed the terms of settlement. The amendment changed the closing date to June 9, 2023, amended the price per share from $16.40 to $8.20, upon which the Company issued approximately 0.5 million shares of common stock to the Schuler Trust for the same proceeds of $4.0 million.

The Company determined the amendment was a modification of a freestanding equity classified instrument financial instrument. The share price change from $16.40 to $8.20, with no changes to the total proceeds of $4.0 million, resulted in the Schuler Trust receiving approximately 0.2 million more shares than the Schuler Trust would have received prior to the modification. The closing price of the Company’s common stock on June 9, 2023, the date of the modification was $7.40 and was used to estimate the fair value of the additional common stock issued. The fair value of the additional shares issued was $1.8 million, which was recorded to loss on extinguishment of debt with related party on the condensed consolidated statements of operations.

In August 2022, the Company entered into the August 2022 Exchange Agreement with the Schuler Trust. Under the terms of the August 2022 Exchange Agreement, the Schuler Trust agreed to exchange with the Company $49.9 million in aggregate principal amount of 2.50% Notes held by it for the Secured Note and the Warrant. See Note 10, Convertible Notes for additional information regarding the 2.50% Notes.

The Secured Note had a scheduled maturity date of August 15, 2027 and was repayable upon written demand any time on or after such date. The Company could, at its option, repay the Secured Note in (i) cash or (ii) in the form of common stock of the Company, in a number of shares that is obtained by dividing the total amount of such payment by $21.20.

The Warrant may be exercised through the earlier of (i) August 15, 2029 and (ii) the consummation of certain acquisition transactions involving the Company, as set forth in the Warrant. The Warrant is exercisable for up to 247,171 shares of the Company’s common stock and may be exercised in whole or in part at any time during the exercise period. Such number of shares and the Exercise Price are subject to certain customary proportional adjustments for fundamental events, including stock splits and recapitalizations, as set forth in the Warrant. The Company determined that the Warrant meets the criteria for classification in stockholders’ equity and was recorded in equity and initially measured at fair value on the issuance date. The fair value of the Warrant at issuance was $3.8 million and was estimated using the Black-Scholes option pricing model. The fair value of the Warrant is a non-recurring measurement that is categorized as Level 3 within the fair value hierarchy as it is based on Level 2 and Level 3 inputs. No portion of the Warrant has been exercised as of December 31, 2023.

The Secured Note included various features that were advantageous to the Company, including a lower interest rate compared to market rates and a share conversion feature. There were no other negotiating parties that had similar terms or economic outcomes. As such, the exchange was not considered to be an arm’s length transaction, and therefore, the resulting gain was accounted for as a capital transaction. The carrying value of the 2.50% Notes was $49.6 million at the time of the exchange. The estimated fair value of the Secured Note and the Warrant at the time of the exchange was $16.0 million and $3.8 million, respectively, which resulted in a net gain of $29.8 million that was recorded to contributed capital during the year ended December 31, 2022.

Interest expense related to the Secured Note consisted of $0.7 million of contractual interest and $0.8 million of amortization of the debt discount for the year ended December 31, 2022. The Secured Note’s carrying amount of $16.9 million and accrued interest expense of $0.7 million were recorded in non-current liabilities on the Company’s consolidated balance sheet as of December 31, 2022. As noted under “Secured Note Amendment and Exchange” below, the Secured Note was extinguished in June 2023, resulting in a carrying value of the Secured Note of $0 as of December 31, 2023.

In September 2021, the Company entered into a securities purchase agreement with the Tanya Eva Schuler Trust, the Therese Heidi Schuler Trust and Schuler Grandchildren LLC (collectively, the “”Schuler Purchasers”) for the issuance and sale by the Company of an aggregate of approximately 4.0 million shares of the Company’s Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred Shares”) at a purchase price of $7.70 per share for an aggregate purchase price of approximately $30.5 million, which was recorded to contributed capital when it was received in 2022. Each share of Series A Preferred Shares was convertible, at the option of the holder, into one share of the Company’s common stock.

As discussed in Note 10, Convertible Notes, the Schuler Purchasers exercised their right to convert a total of approximately 4.0 million shares of Series A Preferred Shares to approximately 0.4 million shares of the Company’s common stock. All of the Company’s Series A Preferred Shares were converted into common stock as part of the Restructuring Transactions, and no Series A Preferred Shares remained outstanding as of December 31, 2023. During the year ended December 31, 2023, the amounts associated with the Series A Preferred Shares were reclassified to common stock and contributed capital as presented in the statements of stockholders’ deficit.

As discussed in Note 10, Convertible Notes, as part of the Restructuring Transactions, the Company and the Schuler Trust amended the Secured Note (the “Secured Note Amendment”), which changed the settlement provisions of the Secured Note. Pursuant to the Secured Note Amendment, the share conversion price was changed from $21.20 to $10.60, and the Secured note was contemporaneously settled through the Company’s issuance of approximately 3.4 million shares of its common stock.

The transaction qualified as an extinguishment of debt, and the reacquisition price of the extinguished debt was determined to be the fair value of the common stock issued in the transaction. The closing price of the Company’s common stock on June 9, 2023, the date of the extinguishment, was $7.40 and was used to estimate the fair value of the common stock issued as $25.4 million. The carrying amount of the Secured Note and associated accrued interest being extinguished was determined to be $19.3 million. This resulted in a net loss on extinguishment of $6.1 million, which was recorded to loss on extinguishment of debt with related party in the consolidated statements of operations for the year ended December 31, 2023.

In June 2023, the Company entered into the Schuler Purchase Obligation with the Schuler Trust pursuant to which the Schuler Trust was required, at the Company’s option, to either purchase approximately 1.4 million shares of common stock from the Company valued at $7.20 per share for an aggregate purchase price of $10.0 million or to backstop a public offering by the Company of common stock for aggregate proceeds of $10.0 million. If the Company elected to conduct a public offering of common stock and other investors purchased less than $10.0 million of common stock by December 15, 2023, the Schuler Trust would have the obligation to purchase $10.0 million of shares of common stock, less the amount of common stock purchased by other investors, and would have the right to purchase additional shares of common stock such that the total amount of common stock purchased by the Schuler Trust’s equaled $10.0 million of shares of common stock. If the Company elected to conduct a public offering of common stock and other investors purchased $10.0 million of shares of common stock by December 15, 2023, the Schuler Trust would have the right, but not the obligation, to purchase up to $10.0 million of shares of common stock at the public offering price for the backstopped offering up to a maximum aggregate purchase by the Schuler Trust of $10.0 million of common stock.

In December 2023, the Company and the Schuler Trust entered into an amendment to the Schuler Purchase Obligation extending the deadline for the investment or public offering backstop through February 15, 2024 and the Schuler Trust agreed to purchase $2 million at the public offering price if the aggregate gross proceeds to the Company resulting from the public offering is more than $10.0 million. Additional information regarding the public offering is included in Note 18, Subsequent Events.

Management determined the Schuler Purchase Obligation met the criteria of a freestanding financial instrument at inception. The Schuler Purchase Obligation was recorded as an asset at fair value to be marked to market at each reporting period. At inception, the value of the Schuler Purchase Obligation was $1.3 million, which was recorded as an offset to loss on extinguishment of debt with related party on the consolidated statements of operations.

At December 31, 2023, it was determined that the fair value of the Schuler Purchase Obligation financial instrument was $3.4 million. Changes in the fair value of the Schuler Purchase Obligation are recognized in Gain on fair value adjustment, within the consolidated statements of operations and comprehensive loss. The recognized gain on fair value adjustment on financial instruments related to the Schuler Purchase Obligation for the year ended December 31, 2023 was $2.1 million.

To determine the fair value of the Schuler Purchase Obligation, the Company used a Cox-Ross-Rubinstein binomial tree model to value the American put option. The table below summarizes the significant inputs used to estimate the fair value of the Schuler Purchase Obligation as of December 31, 2023 and June 9, 2023:


	December 31,			June 9,
	2023			2023
Stock price	$	3.92		$	7.40
Exercise price	$	7.20		$	7.20
Term (years)	0.13			0.52
Volatility	55.00		%	55.00		%
Risk-free rate	5.55		%	5.38		%
Fixed commitment purchase price (in thousands)	$	10,000		$	10,000
Number of Shares	1,387,949			1,387,949
Obligation probability	75%			100%

The volatility and obligation probability used to quantify the fair value of the Schuler Purchase Obligation are unobservable inputs, and because these are estimates, there are a range of values that could be considered appropriate, which could impact the fair value reported. In determining the obligation probability, the Company assessed the likelihood that the Schuler Purchase Obligation would be utilized to either sell common shares or backstop a public offering. Given the equity market environment as of December 31, 2023 and the significant number of unknowns that would lead to either a successful or unsuccessful conclusion of a public offering, the Company estimated the likelihood of such obligation probability at 75%. There are significant judgments, assumptions and estimates inherent in the determination of the fair value of the Schuler Purchase Obligation. These include determination of valuation method, selection of inputs, and assessment of possible outcomes. The valuation approach used and inputs described above may have a greater or lesser impact on the Company’s estimate of fair value. See Note 4, Fair Value of Financial Instruments for additional information.

As discussed further in Note 18, Subsequent Events, the Company completed a public offering for $10.3 million of gross proceeds in January 2024. As a result, the Schuler Trust was not required to backstop the offering in accordance with the Schuler Purchase Obligation, but did purchase $2.0 million of common stock at a price above the public offering price in accordance with the amendment to the Schuler Purchase Obligation and also entered into a subscription agreement in conjunction with the offering to purchase $2.7 million of shares in May 2024. Upon completion of the public offering the fair value of the Schuler Purchase Obligation financial instrument was eliminated.