STOCKHOLDERS' DEFICIT

9 Months Ended

Sep. 30, 2024

Equity [Abstract]

STOCKHOLDERS' DEFICIT

NOTE 18. STOCKHOLDERS' DEFICIT

The Company has entered into a number of securities purchase and exchange agreements with affiliated and external parties throughout its history, and has provided equity-based compensation to its employees, officers, directors and affiliated parties. See Note 10, Convertible Notes, Note 11, Related-Party Transactions and Note 13, Employee Equity-Based Compensation for further discussion of transactions impacting the Company’s stockholders’ deficit.

January 2024 Units Offering

In January 2024, the Company completed the January 2024 Public Units Offering consisting of 6.8 million units (the “Units”), each consisting of one share of common stock and one warrant to purchase one share of common stock (each, a “Common Warrant”), and for certain investors in lieu thereof, pre-funded Units (the “Pre-Funded Units”), each consisting of one pre-funded warrant to purchase one share of common stock (each, a “Pre-funded Warrant”), and one Common Warrant to purchase one share of common stock. The public offering price for each Unit was $1.50 and the public offering price for each Pre-Funded Unit was $1.49.

The Company granted the underwriters for the January 2024 Public Units Offering a 30-day option to purchase up to an additional 1.0 million shares of common stock and/or additional Common Warrants to purchase up to 1.0 million shares of common stock, in any combination thereof, at the public offering price, less underwriting discounts and commissions. The underwriters elected to purchase an additional 36,003 Common Warrants from the Company under this option.

Common Warrants issued to investors in the January 2024 Public Units Offering have an exercise price of $1.65 per share, were immediately exercisable upon issuance and will remain exercisable until the date that is five years after their original issuance. The Pre-Funded Warrants have an exercise price of $0.01 per share, are immediately exercisable and will remain exercisable until exercised in full. The gross proceeds from the January 2024 Public Units Offering, before deducting underwriting discounts and commissions and other public offering expenses payable by the Company were approximately $10.2 million (excluding any proceeds that may be received upon the exercise of the Common Warrants or the Pre-Funded Warrants).

Concurrently with the completion of the January 2024 Public Units Offering, the Company sold 1.2 million Units at a purchase price of $1.73 per Unit to the Schuler Trust, which satisfied the Schuler Purchase Obligation and an aggregate of 33,332 Units at a purchase price of $1.50 per Unit to the Company’s Chief Executive Officer and Chief Financial Officer, in each case, in a private placement offering. The gross proceeds from the private placement offering, before deducting underwriting discounts and commissions and other expenses payable by the Company, were approximately $2.0 million (excluding any proceeds that may be received upon the exercise of the Common Warrants).

Pursuant to the subscription agreement entered into between the Schuler Trust and the Company in connection with the private placement offering of Units, the Schuler Trust also agreed to purchase an additional 1.6 million Units at a purchase price of $1.73 per Unit on or before May 20, 2024 (the “Forward Contract”). On May 20, 2024, the Company completed the sale of such additional Units to the Schuler Trust for gross proceeds of approximately $2.7 million (before deducting underwriting discounts and commissions and other expenses payable by the Company and excluding any proceeds that may be received upon the exercise of the Common Warrants).

Aggregate net proceeds from the January 2024 Public Units Offering and private placement offering of Units (including the additional Units purchased by the Schuler Trust in May 2024) for the nine months ended September 30, 2024 were approximately $13.7 million.

The Company evaluated the Pre-Funded Warrants to determine whether they are equity-classified or liability-classified instruments. The Company concluded that the Pre-Funded Warrants are indexed to the Company’s own stock and meet all other criteria for equity classification. Therefore, the Pre-Funded Warrants were recorded in contributed capital on the condensed consolidated statements of stockholders’ deficit.

The Company also evaluated the Common Warrants and Forward Contract to determine whether they are equity-classified or liability-classified instruments. The Company concluded that the Common Warrants and Forward Contract are not indexed to the Company’s own stock and are therefore liability-classified. The Company further determined the Common Warrants and Forward Contract meet the definition of a derivative instrument and do not qualify for any scope exceptions to derivative accounting. Therefore, the Common Warrants and Forward Contract were initially recorded at fair value and are subsequently remeasured at fair value as of each reporting date.

Proceeds from the January 2024 Public Units Offering were first allocated to the liability-classified instruments based on their fair value with the residual proceeds allocated to the equity-classified instruments based on their relative fair values. Transaction expenses were allocated among the equity-classified and liability-classified instruments. Those transaction expenses allocated to the equity-classified instruments were recorded as an offset to the proceeds in contributed capital on the condensed consolidated statements of stockholders’ deficit. Those transaction expenses allocated to the liability-classified instruments were recorded to other expense on the condensed consolidated statement of operations and comprehensive loss.

Fair Value of the Common Warrants

The Common Warrants had a fair value of $5.0 million (liability) upon issuance in January 2024, and were subsequently measured at fair value using Level 3 inputs. The estimated fair value of the Common Warrant liability as of September 30, 2024 was $8.0 million. An adjustment of $3.2 million and $3.0 million to the fair value of the Common Warrants was recorded in loss on fair value adjustments on the unaudited condensed consolidated statements of operation and comprehensive loss for the three and nine months ended September 30, 2024, respectively.

The table below summarizes the significant inputs used to estimate the fair value of the Common Warrant liability as of September 30, 2024 and January 23, 2024:

	September 30, 2024			January 23, 2024
Exercise price	$	1.65		$	1.65
Term (years)	4.3			5.0
Volatility	58.00		%	55.00		%
Risk-free rate	3.61		%	4.06		%
Dividend yield	0.00		%	0.00		%

The volatility used to estimate the fair value of the Common Warrant liability is an unobservable input. As volatility is an estimate, there is a range of values that could be considered appropriate. Changes to this input could impact the fair value reported.