NOTE 13 — STOCKHOLDERS’ EQUITY (DEFICIT)

K2HV CVR Agreement and Related Warrants

On June 16, 2023, in satisfaction of its obligations to issue the warrant to K2HV’s affiliated holder pursuant to the CVR Agreement, as further described in Note 8 “Borrowing Arrangements and Debt Extinguishment,” the Company issued a warrant to purchase up to 340,222 shares of the Company’s common stock at an exercise price of $5.8785 per share. The warrant is exercisable upon issuance and have a term of ten years. The Company determines whether the warrant should be classified as a liability or equity according to ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging.” Upon issuance of the outstanding warrants, the Company determined that equity classification was appropriate. For warrants classified as equity, the Company records the value of the warrants in additional paid-in capital on the condensed consolidated balance sheet. As of September 30, 2023, there were 340,222 warrants issued related to the CVR Agreement. On June 16, 2023, the warrant was valued at $2.3 million using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model inputs used were: expected dividend yield of 0%, expected volatility of 80%, risk free interest rate of 3.77%, and expect term of 10.0 years.

July 2023 Private Placement

On July 12, 2023, the Company entered into a securities purchase agreement (the “July 2023 Purchase Agreement”) with certain institutional and accredited investors (the “July 2023 Purchasers”) which provides for the private placement (the “July 2023 Private Placement”) of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock in two tranches, as described below.

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The closing of the initial tranche occurred on July 17, 2023 and consisted of the issuance of (i) 1,617,365 shares of the Company’s common stock and at a price of $7.05 per share and (ii) pre-funded warrants (the “July 2023 Pre-Funded Warrants”) exercisable for up to 1,222,100 shares of the Company’s common stock. The price of the July 2023 Pre-Funded Warrants was $7.035 per underlying share of the Company’s common stock, and the exercise price for the Pre-Funded Warrants was $0.015 per share. The Company received approximately $20.0 million in gross proceeds in connection with the closing of the initial tranche and net proceeds, following the payment of related offering expenses, of approximately $18.4 million.

The Company has assessed the July 2023 Pre-Funded Warrants for appropriate equity or liability classification. The July 2023 Pre-Funded Warrants are equity classified because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company's common stock and (vi) meet the equity classification criteria.

In addition, July 2023 Pre-Funded Warrants do not provide any guarantee of value or return and do not provide the warrant holders with the option to settle any unexercised warrants for cash outside of the Company's control. The July 2023 Pre-Funded Warrants also include a separate provision whereby the exercisability of the warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than 19.99% of the Company’s common stock. The Company valued the pre-funded common stock warrants at issuance, concluding that

their sale price approximated their fair value. Accordingly, July 2023 Pre-Funded Warrants are accounted for as a component of additional paid-in capital at the time of issuance.

The second tranche would consist of the sale of an additional 2.8 million shares of the Company’s common stock (or additional pre-funded warrants in lieu thereof) on the same pricing terms as the initial tranche, which would represent further gross proceeds of approximately $20.0 million, and would close if the following conditions were met: within a 12 month measurement period (or such longer period as approved by July 2023 Purchasers who purchased a majority of the securities purchased in the initial tranche), shares of the Company’s common stock trade at a 10-day volume weighted average price of at least $21.15 per share with aggregate trading volume during the same 10-day period of at least 666,666 shares, and certain other customary closing conditions, including the absence of a material adverse event as described in the July 2023 Purchase Agreement, are satisfied. This second tranche is a mandatory funding commitment of the July 2023 Purchasers subject to the foregoing conditions. The 12 month measurement period commences on the later of the filing of an amendment to the Company’s certificate of incorporation to implement a reverse stock split of shares of its common stock currently outstanding, without making a reduction in the number of shares of common stock authorized, following stockholder approval, and the effectiveness of a resale registration statement filed in connection with the first tranche closing.

In addition, upon the second tranche closing, the Company would be required to issue to the July 2023 Purchasers common stock warrants representing the right to purchase an additional 5.7 million shares of the Company’s common stock at an exercise price of $7.05 per share (the “Second Closing Warrants”), in exchange for the payment of $1.875 per share of common stock underlying the Second Closing Warrants. In the aggregate, these Second Closing Warrants would represent 100% warrant coverage of the number of shares of common stock (or pre-funded warrants) sold in the initial tranche and to be sold in the second tranche closing. These Second Closing Warrants would have a term of five years.

Pursuant to the July 2023 Purchase Agreement, the Company granted to the July 2023 Purchasers certain registration rights, pursuant to which, among other things, the Company agreed to (i) file with the SEC a registration statement on Form S-3 after each of the initial tranche and the second tranche to register for resale the shares of common stock issued (and the shares issuable upon exercise of any pre-funded warrants or Second Closing Warrants issued) in the applicable closing, within 30 calendar days following each closing, and (ii) use its commercially reasonable efforts to have each registration statement declared effective as soon as practicable, and in any event no later than 90 days following the applicable closing date (or 120 days following the applicable closing date if the applicable registration statement is reviewed by the SEC). The registration rights covenants are subject to customary terms and conditions for a transaction of this type, including certain customary cash penalties on the Company for its failure to satisfy specified filing and effectiveness time periods. On August 10, 2023, the Company filed with the SEC a registration statement on Form S-3 (File No. 333-273864) registering for resale up to 2,839,465 shares of the Company’s common stock, which consist of 1,617,365 shares of the Company’s common stock and 1,222,100 shares of the Company’s common stock issuable upon the exercise of the July 2023 Pre-Funded Warrants. Additionally, the July 2023 Purchase Agreement contains customary representations and warranties and agreements of the Company and the July 2023 Purchasers and customary indemnification rights and obligations of the parties. There can be no assurance as to the timing of the closing of the second tranche, or whether the second tranche will close at all. Additionally, there can be no assurance as to whether the proceeds received from the initial tranche, any potential proceeds received in connection with the second tranche, and/or the proceeds from the exercise, if any, of the warrants issued in connection with the July 2023 Private Placement will be sufficient for the Company to maintain compliance with the applicable listing criteria of the Nasdaq Capital Market or will be sufficient for the Company to continue as a going concern.