JULY 2023 FINANCING

9 Months Ended

Sep. 30, 2023

JULY 2023 FINANCING

5)	JULY 2023 FINANCING

On July 14, 2023, the Company completed the July 2023 Financing, which provided for the issuance of approximately $8.7 million in aggregate principal amount of Convertible Notes and the issuance of the Note Warrants to purchase an aggregate of approximately 6.1 million shares of common stock. The Company recognized approximately $0.2 million in fees associated with the transaction.

The Convertible Notes bear interest at 6% per annum, payable quarterly in arrears. At the Company’s election, it may pay interest either in cash or in-kind by increasing the outstanding principal amount of the Convertible Notes. The Convertible Notes mature on July 14, 2028, unless earlier converted or repurchased. The Company may not redeem the Convertible Notes at its option prior to maturity.

At the option of the investors, the Convertible Notes may be converted from time-to-time in whole or in part into shares of common stock at an initial conversion rate of $2.86 per share, subject to customary adjustments for stock splits, stock dividends, recapitalization and the like. As of September 30, 2023, there were no Convertible Notes that were converted into shares of common stock.

The Convertible Notes do not contain any ratchet or other financial antidilution provisions. The Convertible Notes purchased by the investors contain conversion limitations, providing that no conversion may be made if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99%, 9.99% or 19.99% immediately after conversion thereof, subject to certain increases not in excess of either 9.99% or 19.99% at the option of such holder.

The Convertible Notes provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, the following: nonpayment of principal or interest, breach of covenants or other agreements in the Convertible Notes; the occurrence of a material adverse effect event (as defined in the related securities purchase agreement) and certain events of bankruptcy. Generally, if an event of default occurs and is continuing under the Convertible Notes, the holder thereof may require the Company to repurchase some or all of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes being repurchased, plus accrued and unpaid interest thereon.

The Note Warrants are immediately exercisable, have an exercise price of $2.61 per share, expire five years following the date of issuance and are subject to customary adjustments. The Note Warrants purchased by the investors contain a provision pursuant to which such Note Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99%, 9.99% or 19.99% immediately after exercise thereof, subject to certain increases not in excess of either 9.99% or 19.99% at the option of such holder.

The Company determined that there were no embedded derivatives within the Convertible Notes that required bifurcation from the host agreement. The Company allocated the gross proceeds received and the fees incurred over the Convertible Notes and the Note Warrants based on their relative fair values. For purposes of the allocation, the Company used an estimated fair value of $8.7 million for the Convertible Notes based off of a valuation performed by a third-party specialist. The fair value of the Note Warrants, which qualified for equity classification, was approximately $13.1 million using the Black-Scholes pricing model as of the transaction date of July 14, 2023. As a result, the Company allocated approximately $5.2 million in proceeds and approximately $0.1 million in fees to the Note Warrants and a corresponding reduction in the carrying value of the Convertible Notes for the debt discount and debt issuance costs, both of which are amortized as a component of interest expense, based on the effective interest rate method, over the contractual terms of the Convertible Notes.

As of September 30, 2023, the outstanding principal of the Convertible Notes was $8.7 million, and the unamortized balance of the debt discount and debt issuance costs was $5.2 million. The Company accrued approximately $0.1 million in interest expense related to the Convertible Notes, which is recorded in accrued expenses in the accompanying condensed consolidated balance sheet. For both the three and nine months ended September 30, 2023, the Company recognized approximately $0.2 million in interest expense, which is included in other expense, net in the accompanying condensed consolidated statement of operations. The interest expense related to the Convertible Notes includes approximately $0.1 million for the amortization of the debt discount and debt issuance costs.