STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2023

Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 17. STOCKHOLDERS' EQUITY

August 2022 Exchange Transaction

As discussed in Note 9, Convertible Notes and Note 10, Long-Term Debt Related-Party, on August 15, 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 (a) the Secured Note in an aggregate principal amount of $34.9 million and (b) the Warrant to acquire the Company’s common stock. The gain from the extinguishment of the 2.50% Notes was treated as a capital transaction. The net gain on extinguishment recorded to contributed capital during the three months ended September 30, 2022, was $29.8 million.

The Warrant met the criteria for classification in stockholders’ equity and was recorded in contributed capital at fair value of $3.8 million on August 15, 2022.

August 2022 Public Offering

On August 23, 2022, the Company completed a public offering of 1.8 million shares of its common stock at a public offering price of $20.00 per share. The Company received net proceeds of approximately $32.9 million from the offering after deducting underwriting discounts and commissions and offering expenses paid by the Company.

March 2022 Exchange Transaction

During the nine months ended September 30, 2022, a holder of the 2.50% Notes exchanged approximately $14.0 million in aggregate principal amount of 2.50% Notes held by the holder for approximately 1.1 million shares of the Company’s common stock pursuant to the March 2022 Exchange Agreement. The Company’s common stock was determined to have a value of $10.2 million, which was recorded to contributed capital during the nine months ended September 30, 2022. See Note 9, Convertible Notes for additional information.

Conversion of Series A Preferred Stock to Common Stock

On September 22, 2021, the Company entered into a securities purchase agreement (the “September 2021 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”). Pursuant to the September 2021 Securities Purchase Agreement, the Schuler Purchasers agreed to purchase 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 9, Convertible Notes, on June 9, 2023, the Schuler Purchasers exercised their right to convert a total of approximately 4.0 million shares of Series A Preferred Shares to approximately 4.0 million shares of the Company’s common stock, which were subsequently restated to approximately 0.4 million shares in conjunction with the Reverse Stock Split. All of the Company’s Series A Preferred Shares was converted into common stock and no Series A Preferred Shares was outstanding as of September 30, 2023. During the nine months ended September 30, 2023 the amounts associated with the Company’s Series A Preferred Shares was reclassified to common stock as presented on the statements of stockholders’ deficit.

March 2022 Securities Purchase Agreement

On March 24, 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. On March 24, 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 9, Convertible Notes, on June 9, 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.

Schuler Purchase Obligation

As discussed in Note 9, Convertible Notes, on June 9, 2023, the Company and the Schuler Trust entered into the Schuler Purchase Obligation. Pursuant to the Schuler Purchase Obligation, the Schuler Trust is required, at the Company’s option, to either purchase approximately 1.4 million shares of common stock from the Company 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 at the public offering stock price. If the Company elects to conduct a public offering of common stock and other investors purchase less than $10.0 million shares of common stock by December 15, 2023, the Schuler Trust will have the obligation to purchase $10.0 million shares of common stock at the public offering stock price, less the amount of common stock purchased by other investors, and will have the right to purchase additional shares of common stock such that the total amount of common stock is equal to $10.0 million of shares of common stock. If the Company elects to conduct a public offering of common stock and other investors purchase $10.0 million of shares of common stock by December 15, 2023, the Schuler Trust will have the right, but not the obligation, to purchase up to $10.0 million of shares of common stock at the public offering stock price for the backstopped offering up to a maximum aggregate purchase by the Schuler Trust of $10.0 million of common stock.

Management determined the Schuler Purchase Obligation met the criteria of a freestanding financial instrument at inception on June 9, 2023 through December 15, 2023, which is the date the Schuler Purchase Obligation expires. The Schuler Purchase Obligation is recorded as an asset at fair value and will be marked to market at each reporting period. At inception, on June 9, 2023 the value of the Schuler Purchase Obligation was $1.3 million, which was recorded to loss on extinguishment of debt with related party on the condensed consolidated statements of operations.

Changes in the fair value of the Schuler Purchase Obligation are recognized in gain (loss) on financial instruments, within the condensed consolidated statements of operations and comprehensive loss. The Schuler Purchase Obligation activity for the three and nine months ended September 30, 2023 and 2022 is comprised of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Beginning balance	$	933	$	—	$	—	$	—
Initial measurement	—		—		1,336		—
Change in value - gain	1,248		—		845		—
Ending balance	$	2,181	$	—	$	2,181	$	—

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 September 30, 2023 and June 9, 2023:

	September 30,			June 9,
	2023			2023
Stock price	$	5.75		$	7.40
Exercise price	$	7.20		$	7.20
Term (years)	0.21			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

The volatility used to fair value the Schuler Purchase Obligation is an unobservable input, because volatility is an estimate, there are a range of values that could be considered appropriate, which could impact the fair value reported.

See Note 4, Fair Value of Financial Instruments for additional information.

Increase in the Total Number of Authorized Shares

In May 2023, we sought and obtained authorization from stockholders to increase the total number of authorized shares of common stock under our certificate of incorporation by 250.0 million for a total of 450.0 million shares. The Company’s authorized shared of common stock was unaffected by the Reverse Stock Split.

August 2023 Conversions

As discussed in Note 9, Convertible Notes, during August 2023, certain note holders of 5.00% Notes at their option, converted portions of their 5.00% Notes, at a conversion rate of 138.88889 shares of common stock per $1,000 principal amount. During the three months ended September 30, 2023, such holders of 5.00% Notes converted approximately $0.7 million of aggregate principal for approximately 0.1 million shares of the Company’s common stock.

The August 2023 Conversions qualified as an extinguishment. The conversion of 5.00% Notes included a bifurcated conversion option classified as a derivative liability. Both the 5.00% Notes and the derivative liability were derecognized at their carrying amounts, and the common stock was measured at its then-current fair value, with the difference recorded as a gain on the extinguishment of the two separate liabilities. The 0.1 million shares of common stock issued in connection with the August 2023 Conversions was determined to have a value of $0.7 million which was recorded to contributed capital.