Restatement of Previously Issued Financial Statements

9 Months Ended

Sep. 30, 2023

Restatement of Previously Issued Financial Statements

Restatement of Previously Issued Financial Statements

Note 3. Restatement of Previously Issued Financial Statements

The Company has restated its condensed consolidated balance sheet as of September 30, 2023 (Successor), condensed consolidated statements of operations and comprehensive loss for the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), condensed consolidated statements of operations and comprehensive loss for the period from July 22, 2023 to September 30, 2023 (Successor), condensed consolidated statements of convertible preferred stock and stockholders’ deficit for the periods from July 1, 2023 to July 21, 2023 (Predecessor), January 1, 2023 to July 21, 2023 (Predecessor), and July 22, 2023 to September 30, 2023 (Successor), condensed consolidated statement of cash flows for the periods from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), along with certain related notes to such restated condensed consolidated financial statements.

The errors that caused the Company to conclude its financial statements should be restated are the result of incorrectly calculating certain valuation estimates related to the fair value of the contingent consideration liability, convertible notes, stock-based compensation expense, and derivative liabilities. Additionally, certain errors related to items associated with the Merger resulted in the reclassification of amounts between additional paid-in capital and accumulated deficit in the Successor’s condensed consolidated balance sheet in connection with the preparation of our condensed consolidated financial statements as of and for the quarter ended September 30, 2023. The nature and impact of these adjustments are described below and detailed in the tables below.

Contingent Consideration Liability – An error was identified in the fair value measurement of the contingent consideration liability related to contingent founders shares due to the use of incorrect assumptions and inputs. This correction resulted in an increase to the contingent consideration liability of $6.7 million as of September 30, 2023, an increase in the change in fair value of contingent consideration liability of $6.2 million for the period from July 22, 2023 to September 30, 2023 (Successor), and a decrease to additional paid-in capital of $12.9 million as of September 30, 2023. Refer to reference (a) below.

Derivative liabilities – An error was identified in the fair value measurement of the derivative liability related to the Medytox Top-Off Right due to the use of an incorrect input. This correction resulted in an increase to the change in fair value of embedded forward purchase agreements and derivative liabilities of $6.8 million for the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor). Refer to reference (b) below.

Convertible notes – An error was identified in the fair value measurement of the convertible notes during the period from July 1, 2023 to July 21, 2023 (Predecessor). As the convertible notes were converted to common shares at Closing, the Company’s fair value measurement did not consider the fair value of the shares received using the Company’s market price as of July 21, 2023. This correction resulted in a decrease to the Change in fair value of convertible notes by $15.8 million for the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor). Refer to reference (c) below.

Stock-based compensation – An error was identified in the fair value measurement of stock options replaced in the Merger, a portion of which was reflected as purchase consideration in the determination of the asset acquisition purchase price. Due to the use of an incorrect volatility assumption, the asset acquisition purchase price was understated by $2.7 million, and stock-based compensation expense was overstated by $0.2 million for the period from July 22, 2023 to September 30, 2023 (Successor). Additionally, an error was identified in the stock-based compensation recorded for the Founders Shares resulting in an understatement of stock-based compensation reflected “on the line” of $34.6 million. The combination of these errors resulted in an increase to accumulated deficit and an increase to additional paid-in capital as of September 30, 2023 and a decrease in stock-based compensation expense for the period from July 22, 2023 to September 30, 2023 (Successor). Refer to reference (d) below.

Asset acquisition purchase price – An error was identified in the calculation of the asset acquisition purchase price in connection with the Merger. Specifically, certain convertible notes of the Predecessor that were settled with common shares at Closing and valued at $24.1 million were not included in the calculation of the purchase price. This combined with the error in stock options replaced in the Merger discussed above resulted in an aggregate increase to purchase price of $26.8 million at Closing. Due to the change in purchase price, the fair value measurement of the IPR&D was increased by $24.0 million resulting in a net increase in the loss on consolidation of the VIE of $2.8 million reflected “on the line” in the Successor’s opening accumulated deficit. Refer to reference (e) below.

Other errors – The Company also identified errors related to the Merger that were incorrectly calculated and included in both accumulated deficit and additional paid-in capital. Refer to reference (f) below.

In addition to the restatement of the condensed consolidated financial statements, the Company has also restated the following notes for the three- and nine-month period ended September 30, 2023, to reflect the error corrections noted above.

• Note 2 – Summary of Significant Accounting Policies – Refer to references (a), (b), (c) and (d) below.

• Note 4 – Forward Merger – Refer to references (d), (e) and (f) below.

• Note 5 – Related Party Transactions (Predecessor) – Refer to reference (c) below.

• Note 6 – Daewoong Convertible Notes (Predecessor) – Refer to reference (c).

• Note 7 – Fair Value Measurements – Refer to references (a), (b), (c) and (f) below.

• Note 12 – Share-based Compensation Stock Incentive Plans – Refer to reference (d) below.

The Company’s updated accounting does not have any effect on the Company’s previously reported or future cash flows or cash.

The following tables summarize the effect of the restatement on each financial statement line item as of the dates, and for the periods, indicated (in thousands):

Condensed Consolidated Balance Sheet as of September 30, 2023 (Successor) (Unaudited)	As Reported		Adjustment		Reference	As Restated
Contingent consideration liability	$	74,505	$	6,656	(a)	$	81,161
Total liabilities		139,359		6,656			146,015
Additional paid-in capital		362,114		17,555	(a) (d) (e) (f)		379,669
Accumulated deficit		(423,148)		(24,211)	(a) (b) (c) (d) (e) (f)		(447,359)
Total AEON Biopharma, Inc. stockholders’ deficit		(121,740)		(6,656)			(128,396)
Total stockholders' deficit		(121,740)		(6,656)			(128,396)

Condensed Consolidated Statement of Operations and Comprehensive loss for the period from July 22, 2023 to September 30, 2023 (Successor) (Unaudited)	As Reported		Adjustment		Reference	As Restated
Selling, general and administrative	$	5,460	$	(195)	(d)	$	5,265
Research and development		6,383		5	(d)		6,388
Change in fair value of contingent consideration		(69,715)		(6,224)	(a)		(75,939)
Total operating costs and expenses		(57,872)		(6,414)			(64,286)
(Loss) income from operations		57,872		6,414			64,286
(Loss) income before taxes		43,875		6,414			50,289
(Loss) income and comprehensive (loss) income		43,875		6,414			50,289
Basic and diluted net (loss) income per share	$	1.19	$	0.16		$	1.35
Condensed Consolidated Statement of Operations and Comprehensive loss for the period from July 1, 2023 to July 21, 2023 (Predecessor) (Unaudited)	As Reported		Adjustment		Reference	As Restated
Change in fair value of convertible notes	$	2,582	$	(15,831)	(c)	$	(13,249)
Change in fair value of embedded forward purchase agreements and derivative liabilities		(4,959)		(6,830)	(b)		(11,789)
Total other (loss) income, net		(2,372)		(22,661)			(25,033)
(Loss) income before taxes		(5,000)		(22,661)			(27,661)
(Loss) income and comprehensive (loss) income		(5,000)		(22,661)			(27,661)
Basic and diluted net (loss) income per share	$	(0.04)	$	(0.16)		$	(0.20)
Condensed Consolidated Statement of Operations and Comprehensive loss for the period from January 1, 2023 to July 21, 2023 (Predecessor) (Unaudited)	As Reported		Adjustment		Reference	As Restated
Change in fair value of convertible notes	$	(3,528)	$	(15,831)	(c)	$	(19,359)
Change in fair value of embedded forward purchase agreements and derivative liabilities		(4,959)		(6,830)	(b)		(11,789)
Total other (loss) income, net		(8,373)		(22,661)			(31,034)
(Loss) income before taxes		(38,017)		(22,661)			(60,678)
(Loss) income and comprehensive (loss) income		(38,017)		(22,661)			(60,678)
Basic and diluted net (loss) income per share	$	(0.28)	$	(0.16)		$	(0.44)
Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders' Deficit for the period from July 1, 2023 to July 21, 2023 (Predecessor) (Unaudited)	As Reported		Adjustment		Reference	As Restated
Net loss	$	(5,000)	$	(22,661)	(b) (c)	$	(27,661)
Balance as of July 21, 2023 (Predecessor)		(288,159)		(22,661)			(310,820)
Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders' Deficit for the period from January 1, 2023 to July 21, 2023 (Predecessor) (Unaudited)	As Reported		Adjustment		Reference	As Restated
Net loss	$	(38,017)	$	(22,661)	(b) (c)	$	(60,678)
Balance as of July 21, 2023 (Predecessor)		(288,159)		(22,661)			(310,820)
Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders' Deficit for the period from July 22, 2023 to September 30, 2023 (Successor) (Unaudited)	As Reported		Adjustment		Reference	As Restated
Balance as of July 22, 2023 (Successor)	$	(167,976)	$	(12,880)		$	(180,856)
Net income		43,875		6,414	(a) (d)		50,289
Stock-based compensation expense		2,361		(190)	(d)		2,171
Balance as of September 30, 2023 (Successor)		(121,740)		(6,656)			(128,396)