What changed in this filing

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Item 1. Financial Statements

2024-05-14 compared with 2023-11-13 · 243 added, 602 removed, 390 unchanged (68% of the section changed)

3 unchanged sentences

(in thousands, except share data and par value amounts)

September 30,

Current assets:

Cash and cash equivalents

Prepaid expenses and other current assets

2 unchanged sentences

Operating lease right-of-use asset

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

2 unchanged sentences

Accrued compensation

Excise tax payable

Forward purchase agreements liquidated damages

Other accrued expenses

Current portion of convertible notes at fair value, including related party amount of $ 0 and $ 38,834 at September 30, 2023 and December 31, 2022, respectively

Total current liabilities

Convertible notes at fair value, including related party amount of $ 0 and $ 23,132 , at September 30, 2023 and December 31, 2022, respectively

Operating lease liability

Convertible notes at fair value, including related party amount of $ 5,087 and $ 0 , at March 31, 2024 and December 31, 2023, respectively

Warrant liability

3 unchanged sentences

Commitments and contingencies

Convertible preferred stock issuable in series, $ 0.0001 par value;

44,666,035 shares authorized as of December 31, 2022;

21,257,708 shares issued and outstanding at December 31, 2022;

liquidation preference of $ 141,920 at December 31, 2022

Stockholders’ Deficit:

AEON Biopharma, Inc.

stockholders’ deficit:

Class A common stock, $ 0.0001 par value;

500,000,000 and 207,450,050 shares authorized, 37,159,600 and 138,848,177 shares issued and 37,159,600 and 138,825,356 shares outstanding at September 30, 2023 and December 31, 2022, respectively

500,000,000 shares authorized at March 31, 2024 and December 31, 2023, and 38,120,288 and 37,159,600 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Treasury stock, at cost, 0 and 22,821 shares at September 30, 2023 and December 31, 2022, respectively

Total AEON Biopharma, Inc.

stockholders’ deficit

Non-controlling interest

Total stockholders' deficit

Total liabilities, convertible preferred stock and stockholders' deficit

Total liabilities and stockholders' deficit

See accompanying notes to the consolidated financial statements

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

July 22 to September 30

July 1 to September 30

July 22 to September 30

January 1 to September 30

Operating expenses:

3 unchanged sentences

Total operating costs and expenses

(Loss) income from operations

Loss from operations

Other (loss) income:

1 unchanged sentence

Change in fair value of warrants

Change in fair value of embedded forward purchase agreements and derivative liabilities

Loss on embedded forward purchase agreements and derivative liabilities, net

Other income, net

Total other (loss) income, net

(Loss) income before taxes

(Loss) Income and comprehensive (loss) income

Basic and diluted net (loss) income per share

Weighted average shares of common stock outstanding used to compute basic and diluted net (loss) income per share

Total other loss, net

Loss before taxes

Net loss and comprehensive loss

Basic and diluted net loss per share

Weighted average shares of common stock outstanding used to compute basic and diluted net loss per share

See accompanying notes to the consolidated financial statements

5 unchanged sentences

Stockholders'

Balance as of June 30, 2023 (Predecessor)

Stock-based compensation expense

Balance as of July 21, 2023 (Predecessor)

Balance as of July 22, 2023 (Successor)

Stock-based compensation expense

Balance as of September 30, 2023 (Successor)

Balance as of June 30, 2022 (Predecessor)

Stock-based compensation expense

Balance as of September 30, 2022 (Predecessor)

AEON BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(in thousands, except share data) (Unaudited) (Continued)

Preferred Stock

Treasury Stock

Stockholders'

Balance as of January 1, 2023 (Predecessor)

Stock-based compensation expense

Debt extinguishment due to warrant modification

Balance as of July 21, 2023 (Predecessor)

Balance as of July 22, 2023 (Successor)

Balance as of January 1, 2024 (Successor)

Termination of Forward Purchase Agreements

Issuance of shares related to cashless warrant exercises

Stock-based compensation expense

Balance as of September 30, 2023 (Successor)

Balance as of March 31, 2024 (Successor)

Balance as of January 1, 2023 (Predecessor)

Stock-based compensation expense

Balance as of September 30, 2022 (Predecessor)

Balance as of March 31, 2023 (Predecessor)

See accompanying notes to the consolidated financial statements

2 unchanged sentences

(in thousands, except per share data) (Unaudited)

Nine Months Ended

September 30,

July 22 to September 30

January 1 to September 30

Three Months Ended

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net loss to net cash used in operating activities:

Write-off of deferred offering costs

Stock-based compensation expense

1 unchanged sentence

Change in fair value of warrants

Change in fair value of embedded forward purchase agreements and derivative liabilities

Loss on embedded forward purchase agreements and derivative liabilities

Change in fair value of contingent consideration

6 unchanged sentences

Cash flows from investing activities:

Purchases of property and equipment

Net cash used in investing activities

2 unchanged sentences

Net cash provided by financing activities

Net (decrease) increase in cash

Cash at beginning of period

Cash at end of period

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

See accompanying notes to the consolidated financial statements

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Under the Business Combination Agreement, the Company agreed to acquire all outstanding equity interests of Old AEON for approximately 16,500,000 shares of Class A common stock, par value $ 0.0001 per share (“common stock”), which Old AEON’s stockholders received in the form of shares of common stock of the Company (the consummation of the Merger and the other transactions contemplated by the Business Combination Agreement, collectively, the “Merger”).

In addition, following the Closing, certain AEON Stockholders will be issued up to 16,000,000 additional shares of common stock to the extent certain milestones are achieved.

Prior to the closing of the Merger (the “Closing”), Priveterra shares were listed on Nasdaq as “PMGM.” The post-Merger Company common stock and warrants commenced trading on the NYSE American under the symbols “AEON” and “AEON WS,” respectively, on July 24, 2023.

In addition, following the closing of the Merger (the “Closing”), certain AEON stockholders will be issued up to 16,000,000 additional shares of common stock to the extent certain milestones are achieved.

Prior to the Closing, Priveterra shares were listed on Nasdaq as “PMGM.” The post-Merger Company common stock and warrants commenced trading on the NYSE American under the symbols “AEON” and “AEON WS,” respectively, on July 24, 2023.

See Note 3 Forward Merger for additional details.

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The Company has experienced recurring losses from operations and has a net capital deficiency and negative cash flows from operations since its inception.

As of September 30, 2023, the Successor reported cash of $ 16.2 million and an accumulated deficit of $ 423.1 million.

As of December 31, 2022, the Predecessor reported cash of $ 9.7 million and an accumulated deficit of $ 474.8 million.

The Company expects to incur losses for the foreseeable future.

The Company expects to have sufficient cash to fund its operating plan through mid-December 2023.

As of March 31, 2024, the Successor reported cash and cash equivalents of $ 1.6 million and an accumulated deficit of $ 591.6 million.

The Company expects to incur losses and use cash in its operations for the foreseeable future.

On May 3, 2024, the Company announced preliminary top-line results from its planned interim analysis of the Phase 2 trial with ABP-450 in the preventative treatment of chronic migraine, which did not meet the primary or secondary endpoints.

The Company will continue to evaluate the complete dataset and determine the next steps in the development of ABP-450.

Additionally, the Company has immediately commenced cash preservation measures and will review all strategic options, including seeking additional funding in the form of equity financings or debt.

However, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will be commercially acceptable.

Furthermore, the use of equity as a source of financing would dilute existing shareholders.

Any further development of ABP-450 for any indication, including the completion of the Phase 2 open-label extension study in migraine, any Phase 3 trials for migraine, and any additional studies in cervical dystonia, will require additional funding, which may not be available to us on reasonable terms, or at all.

As a result of these conditions, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that these condensed consolidated financial statements are issued.

The Company expects to seek additional funding in the form of equity financings or debt, however, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will be favorable.

The preparation of these condensed consolidated financial statements does not include any adjustments that may result from the outcome of this uncertainty.

This basis of accounting contemplates the recovery of the Company ’ s assets and the satisfaction of the Company ’ s liabilities and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that

might be necessary should the Company be unable to continue as a going concern.

If the Company is unable to obtain adequate capital, it could be forced to cease operations.

21 unchanged sentences

prior to the Merger and (ii) the combined results of the Company, including AEON Biopharma Sub, Inc., following the Closing.

The accompanying financial statements include a Predecessor period, which includes the period through July 21, 2023 concurrent with the Merger, and a Successor period from July 22, 2023 through September 30, 2023.

The accompanying financial statements include a Predecessor period for the three months ended March 31, 2023, and a Successor period for the three months ended March 31, 2024.

A black line between the Successor and Predecessor periods has been placed in the condensed consolidated financial statements and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability between these two periods.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated balance sheets as of September 30, 2023 (Successor), the condensed consolidated statements of operations and comprehensive loss and convertible preferred stock and stockholders’ deficit for the periods from July 1, 2023 to July 21, 2023 (Predecessor), July 22, 2023 to September 30, 2023 (Successor), January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and the three and nine months ended September 30, 2022 (Predecessor), and the condensed consolidated statements of cash flows for the periods from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and the nine months ended September 30, 2022 and the related note disclosures are unaudited.

The balance sheet information as of December 31, 2022 (Predecessor) is derived from the Predecessor’s audited financial statements.

The accompanying interim condensed consolidated balance sheets as of March 31, 2024 (Successor), the condensed consolidated statements of operations and comprehensive loss and convertible preferred stock and stockholders’ deficit for the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor), and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor) and the related note disclosures are unaudited.

The balance sheet information as of December 31, 2023 (Successor) is derived from the Successor’s audited financial statements.

These unaudited interim financial statements have been prepared in accordance with U.S.

GAAP and, in management’s opinion, on a basis consistent with the audited financial statements and reflect all adjustments which only include normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of September 30, 2023 (Successor) and its results of operations and comprehensive loss and cash flows for the periods from July 1, 2023 to July 21, 2023 (Predecessor), July 22, 2023 to September 30, 2023 (Successor), January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and the three and nine months ended September 30, 2022 (Predecessor).

The results for the periods from July 1, 2023 to July 21, 2023 (Predecessor), July 22, 2023 to September 30, 2023 (Successor), January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any other interim period.

The results for the three months ended March 31, 2024 (Successor) are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or any other interim period.

Use of Estimates

1 unchanged sentence

GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes.

Company’s most significant estimates relate to the research and development accruals, valuation of common stock and related stock-based compensation, and the fair values of the contingent consideration, forward purchase agreements, in-process research and development, warrant liabilities, convertible notes, among others.

The Company’s most significant estimates relate to the research and development accruals, valuation of common stock and related stock-

based compensation, and the fair values of the contingent consideration, forward purchase agreements, in-process research and development, warrant liabilities, convertible notes, among others.

Although the Company bases estimates on historical experience, knowledge of current events and actions it may undertake in the future, and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments over the carrying values of assets and liabilities, this process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements.

2 unchanged sentences

The Company provides segment financial information and results for its segments based on the segregation of revenues and expenses that its chief operating decision makers review for purposes of allocating resources and evaluating its financial performance.

As of September 30, 2023 and December 31, 2022, the Company operates and manages its business as one operating and reportable segment.

As of March 31, 2024 and December 31, 2023, the Company operates and manages its business as one operating and reportable segment.

Risk and Uncertainties

10 unchanged sentences

Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the related lease term.

Property and equipment, net, as of December 31, 2022 and September 30, 2023 (unaudited) are as follows (in thousands):

September 30,

Property and equipment, net, as of December 31, 2023 and March 31, 2024 (unaudited) are as follows (in thousands):

Furniture and fixtures

5 unchanged sentences

Other accrued expenses were as follows (in thousands):

September 30,

Legal expenses

Excise tax liability

Operating lease liability - short term portion

2 unchanged sentences

Total other accrued expenses

Convertible Notes (Predecessor)

The Company elected to account for its Predecessor convertible promissory notes at fair value at inception and at each subsequent reporting date.

Subsequent changes in fair value were recorded as a component of non-operating loss in the condensed consolidated statements of operations and comprehensive loss or as a component of other comprehensive loss for changes related to instrument-specific credit risk.

Convertible Notes

The Company elected to account for its convertible promissory notes at fair value at inception and at each subsequent reporting date.

Subsequent changes in fair value are recorded as a component of non-operating loss in the condensed consolidated statements of operations and comprehensive loss or as a component of other comprehensive loss for changes related to instrument-specific credit risk.

As a result of electing the fair value option, direct costs and fees related to the convertible promissory notes are expensed as incurred.

The convertible promissory notes were converted into shares of the Company’s common stock at the Closing.

The Predecessor convertible promissory notes were converted into shares of the Company’s common stock at the Closing.

Contingent Consideration (Successor)

The Company accounts for its contingent consideration as either equity-classified or liability-classified instruments based on an assessment of the Contingent Consideration Shares specific terms (as further defined in Note 6) and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

Based on the appropriate guidance, the Company determined that the Contingent Consideration Shares would be classified as a liability on the condensed consolidated balance sheets and remeasured at each reporting period with changes to fair value recorded to the condensed consolidated statements of operations and comprehensive loss.

The Company accounts for its contingent consideration as either equity-classified or liability-classified instruments based on an assessment of the Contingent Consideration Shares specific terms (as further defined in Note 6 Fair Value Measurements ) and applicable authoritative guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and Derivatives and Hedging (“ASC 815”).

The Contingent Consideration Shares are classified as a liability on the Successor’s condensed consolidated balance sheets and remeasured at each reporting period with changes to fair value recorded to the Successor’s condensed consolidated statements of operations and comprehensive loss.

Forward Purchase Agreements (Successor)

Based on the applicable guidance in ASC 480, ASC 815, ASC 505, Equity (“ASC 505”) and Staff Accounting Bulletin Topic 4.E, Receivables from Sale of Stock (“SAB 4E”), the Company has determined that each of its forward purchase agreements entered in connection with the Merger is a freestanding hybrid financial instrument comprising a subscription receivable and embedded features, which have been bifurcated and accounted for separately as derivative instruments.

The Company has recorded the derivatives as liabilities and measured them at fair value with the initial value of the derivative recorded as a loss “on the line” in the Successor’s opening accumulated deficit.

On the line describes those transactions triggered by the consummation of the Merger that are not recognized in the consolidated financial statements of the Predecessor or the Successor as they are not directly attributable to either period but instead were contingent on the Merger.

Subsequent changes in the bifurcated derivatives are recorded in the condensed consolidated statements of operations and comprehensive loss.

Based on the applicable guidance in ASC 480, ASC 815, Equity (“ASC 505”) and Staff Accounting Bulletin Topic 4.E, Receivables from Sale of Stock (“SAB 4E”), the Company had determined that each of its forward purchase agreements entered in connection with the Merger was a freestanding hybrid financial instrument comprising a subscription receivable and embedded features, which have been bifurcated and accounted for separately as derivative instruments.

The Company has recorded the derivatives as liabilities and measured them at fair value each reporting period.

For more information, see Note 3 Forward Merger .

Subsequent changes in the bifurcated derivatives are recorded in the Successor’s condensed consolidated statements of operations and comprehensive loss.

The forward purchase agreements were terminated in March 2024, and the loss related to the termination was recorded to the condensed consolidated statement of operations and comprehensive loss.

Warrants (Successor)

4 unchanged sentences

For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter until settlement.

Changes in the estimated fair value of the warrants are recognized in the condensed consolidated statements of operations and comprehensive loss.

Changes in the estimated fair value of the warrants are recognized in the Successor’s condensed consolidated statements of operations and comprehensive loss.

Convertible Preferred Stock (Predecessor)

The Company recorded its Predecessor convertible preferred stock at their respective issuance price, less issuance costs on the dates of issuance.

The convertible preferred stock is classified outside of permanent equity as temporary equity in the accompanying condensed consolidated balance sheets.

Although the convertible preferred stock is not redeemable at the holder’s option, upon certain change in control events that are outside of the Company’s control, including liquidation, sale or transfer of control of the Company, holders of the convertible preferred stock may have the right to receive their liquidation preference to any distribution of the proceeds under the terms of the Company’s amended and restated certificate of incorporation.

The Company has not adjusted the carrying values of the convertible preferred stock to the liquidation preferences of such shares since it is uncertain whether or when a redemption event will occur.

The convertible preferred stock was classified outside of permanent equity as temporary equity in the accompanying Predecessor’s condensed consolidated balance sheets.

Although the convertible preferred stock was not redeemable at the holder’s option, upon certain change in control events that are outside of the Company’s control, including liquidation, sale or transfer of control of the Company, holders of the convertible preferred stock may have had the right to receive their liquidation preference to any distribution of the proceeds under the terms of the Company’s amended and restated certificate of incorporation.

The Company did not

adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares since it is uncertain whether or when a redemption event will occur.

Subsequent adjustments to increase the carrying values to the redemption values will be made only when it becomes probable that such redemption will occur.

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Research and development expenses consist primarily of costs associated with clinical studies including clinical trial design, clinical site reimbursement, data management, travel expenses and the cost of products used for clinical trials and internal and external costs associated with the Company’s regulatory compliance and quality assurance functions, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings, and overhead costs.

Additionally, research and development expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses and an allocation of facility

overhead expenses.

Costs incurred in obtaining technology licenses are charged to research and development expense as acquired in-process research and development (“IPR&D”) if the technology licensed has not reached technological feasibility and has no alternative future use.

The acquired IPR&D recorded at the Closing was recorded “on the line” in the Successor’s opening accumulated deficit.

Costs incurred in obtaining technology licenses are charged to acquired in-process research and development (“IPR&D”) if the technology licensed has not reached technological feasibility and has no alternative future use.

The acquired IPR&D at the Closing was written off to the Successor’s consolidated income statement for the period ended December 31, 2023.

The Company accrues the expenses for its clinical trial activities performed by third parties, including clinical research organizations and other service providers, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements.

The Company determines these estimates through discussion with internal personnel and outside service providers as to progress or stage of completion of trials or services pursuant to contracts with clinical research organizations and other service providers and the agreed-upon fee to be paid for such services.

organizations and other service providers and the agreed-upon fee to be paid for such services.

Payments made to outside service providers in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.

There have been no material adjustments to the Company’s estimates for clinical trial expenses through December 31, 2022 (Predecessor) and September 30, 2023 (Successor).

There have been no material adjustments to the Company’s estimates for clinical trial expenses through December 31, 2023 (Successor) and March 31, 2024 (Successor).

Stock-Based Compensation

6 unchanged sentences

All stock-based compensation costs are recorded in the condensed consolidated statements of operations and comprehensive loss based upon the underlying employee’s role within the Company.

Noncontrolling Interest (Predecessor)

ABP Sub Inc., the Company’s wholly owned subsidiary, grants stock options to certain employees and nonemployee consultants of ABP Sub Inc.

The Company accounts for stock-based compensation expense recognized by ABP Sub Inc.

as an increase in noncontrolling interest in the accompanying condensed consolidated financial statements.

At the Closing, all such shares were either canceled or converted into AEON shares.

See Note 11, “Share-based Compensation” for more information.

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and their financial statement reported amounts.

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Any accrued interest and penalties related to uncertain tax positions will be reflected as a liability in the condensed consolidated balance sheets.

Net Loss Per Share Attributable to Common Stockholders

Net Loss Per Share

Prior to the Merger, the Predecessor calculated basic and diluted net loss per share to common stockholders in conformity with the two-class method required for companies with participating securities.

The Company considered all series of convertible preferred stock to be participating securities as they participate in any dividends declared by the Company.

Under the two-class method, undistributed earnings allocated to these participating stockholders were subtracted from net income in determining net income attributable to common stockholders.

Net loss attributable to common stockholders was not allocated to convertible preferred stock as the holders of convertible preferred stock did not have a contractual obligation to share in losses.

Under the two-class method, undistributed earnings allocated to these participating stockholders were subtracted from net income in determining net loss attributable to common stockholders.

Net loss was not allocated to convertible preferred stock as the holders of convertible preferred stock did not have a contractual obligation to share in losses.

Subsequent to the Merger, the Company only has one class of shares.

Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive shares of common stock in Predecessor periods.

For Predecessor periods, diluted net loss per share was computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and potentially dilutive securities outstanding for the period using the “treasury stock,” “if converted” or “two-class” method unless their inclusion would have been anti-dilutive.

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive shares of common stock in Predecessor periods.

For Predecessor periods, diluted net loss per share was computed by dividing the net loss by the weighted average number of shares of common stock and potentially dilutive securities outstanding for the period using the “treasury stock,” “if converted” or “two-class” method unless their inclusion would have been anti-dilutive.

For purposes of the diluted net loss per share calculation, convertible preferred stock, warrants, convertible notes and common stock options were considered as potentially dilutive securities.

Since the Company was in a loss position for the periods from July 1, 2023 to July 21, 2023 (Predecessor), July 22, 2023 to September 30, 2023 (Successor), January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and for the three and nine months ended September 30, 2022, basic net loss per share is the same as diluted net loss per share as the inclusion of all potentially dilutive common shares was anti-dilutive.

Basic and diluted net loss per share for the nine months ended September 30, 2022 was calculated as follows (in thousands, except share and per share amounts) (unaudited):

Nine months ended September 30, 2022 (Predecessor)

Net loss available to common stockholders

Weighted average common shares outstanding, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

Basic and diluted net loss per share for the three months ended September 30, 2022 was calculated as follows (in thousands, except share and per share amounts) (unaudited):

Three months ended September 30, 2022 (Predecessor)

Net loss available to common stockholders

Weighted average common shares outstanding, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

Basic and diluted net loss per share for the periods from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) were calculated as follows (in thousands, except share and per share amounts) (unaudited):

Period from January 1, 2023 to July 21, 2023 (Predecessor)

Net loss available to common stockholders

Weighted average common shares outstanding, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

Period from July 22, 2023 to September 30, 2023 (Successor)

Net income available to common stockholders

Weighted average common shares outstanding, basic and diluted

Net income per share attributable to common stockholders, basic and diluted

Basic and diluted net loss per share for the periods from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) were calculated as follows (in thousands, except share and per share amounts) (unaudited):

Period from July 1, 2023 to July 21, 2023 (Predecessor)

Net loss available to common stockholders

Since the Company was in a loss position for the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor), basic net loss per share is the same as diluted net loss per share as the inclusion of all potentially dilutive common shares was anti-dilutive.

Basic and diluted net loss per share for the three months ended March 31, 2023 (Predecessor) was calculated as follows (in thousands, except share and per share amounts) (unaudited):

Three months ended March 31, 2023 (Predecessor)

Weighted average common shares outstanding, basic and diluted

Net loss per share attributable to common stockholders, basic and diluted

Period from July 22, 2023 to September 30, 2023 (Successor)

Net income available to common stockholders

Net loss per share, basic and diluted

Basic and diluted net loss per share for the three months ended March 31, 2024 (Successor) were calculated as follows (in thousands, except share and per share amounts) (unaudited):

Three months ended March 31, 2024 (Successor)

Weighted average common shares outstanding, basic and diluted

Net income per share attributable to common stockholders, basic and diluted

Net loss per share, basic and diluted

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an anti-dilutive impact (unaudited):

September 30,

Contingent consideration

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Recently Adopted Accounting Standards

In June 2016, the FASB issued an accounting standards update (ASU 2016-13) that amended the guidance on the measurement of credit losses on financial instruments.

The guidance amended the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain financial instruments.

In November 2019, the FASB issued an update to the guidance to defer the effective date for all entities except SEC filers that are not smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those years.

The Predecessor adopted this standard in the first quarter of 2023.

The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements or related disclosures.

In August 2020, the FASB issued an accounting standards update that simplified the accounting for certain financial instruments with characteristics of liabilities and equity by reducing the number of accounting models for convertible debt and convertible preferred stock instruments.

It also amended the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions.

In addition, the new guidance modified how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation.

The guidance will be effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2020 but only if the adoption is as of the beginning of a fiscal

The Predecessor adopted this standard on January 1, 2023.

The adoption of this standard did not have an impact on the Company’s condensed consolidated financial statements or related disclosures.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not, or are not believed by management to, have a material impact on the Company’s financial position, results of operations or cash flows.

Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (the “SEC”) did not, or are not believed by management to, have a material impact on the Company’s financial position, results of operations or cash flows.

Forward Merger

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to AEON Biopharma, Inc.

At the effective time of the Merger (“Effective Time”), each outstanding share of Old AEON common stock (on an as-converted basis after taking into effect the conversion of the outstanding warrants of Old AEON exercisable for shares of Old AEON preferred stock, the conversion of the shares of Old AEON preferred stock into Old AEON common stock in accordance with the governing documents of Old AEON as of the Effective Time, the conversion of the outstanding convertible notes of Old AEON into Old AEON common stock in accordance with the terms of such convertible notes and after giving effect to the issuance of Old AEON common stock in connection with the merger of ABP Sub, Inc.

At the effective time of the Merger (the “Effective Time”), each outstanding share of Old AEON common stock (on an as-converted basis after taking into effect the conversion of the outstanding warrants of Old AEON exercisable for shares of Old AEON preferred stock, the conversion of the shares of Old AEON preferred stock into Old AEON common stock in accordance with the governing documents of Old AEON as of the Effective Time, the conversion of the outstanding convertible notes of Old AEON into Old AEON common stock in accordance with the terms of such convertible notes and after giving effect to the issuance of Old AEON common stock in connection with the merger of ABP Sub, Inc.

with and into Old AEON) issued and outstanding immediately prior to the Effective Time converted into the right to receive approximately 2.328 shares of the Company’s common stock and the right to receive a pro-rata portion of the contingent consideration.

In addition, each share of Priveterra Class B common stock (“Founder Shares”), par value $ 0.0001 per share, issued and outstanding immediately prior to the Effective Time converted into one share of common stock totaling 6,900,000 common shares (of which 3,450,000 Founder Shares are subject to certain vesting and forfeiture conditions).

(“Daewoong”) (collectively, the “Original Committed Financing Agreements”), pursuant to which A1 and Daewoong agreed to purchase, and Priveterra and Old AEON agreed to sell to each of them, up to $ 15 million and $ 5 million, respectively, aggregate of principal of interim convertible notes.

Further, on June 8, 2023, Old AEON and Priveterra entered into a committed financing agreement with A1 (the “Additional Committed Financing Agreement”), pursuant to which A1 agreed to purchase, and Priveterra and Old AEON agreed to sell to A1, up to an additional $ 20 million aggregate principal of interim convertible notes.

Pursuant to such agreement, the Company issued $ 14 million of interim convertible notes to A1 in the first and second quarters of 2023, and $ 25 million was received at Closing in exchange for an aggregate of 5,797,611 shares of the Company’s Class A common stock at $ 7.00 per share.

In connection with the Merger, on January 6, 2023, Priveterra and Old AEON entered into separate subscription agreements for convertible notes with each of Alphaeon 1 LLC (“A1”) and Daewoong (collectively, the “Original Committed Financing Agreements”), pursuant to which A1 and Daewoong agreed to purchase, and Priveterra and Old AEON agreed to sell to each of them, up to $ 15 million and $ 5 million, respectively, aggregate of principal of interim convertible notes or equity.

Pursuant to such agreement, Old AEON issued $ 14 million of interim convertible notes to A1 in the first and second quarters of 2023.

The notes were subsequently measured at fair value under a fair value option election, with changes in fair value reported in earnings of the Predecessor (Old AEON).

Conversion of the notes was contingent and automatically convertible on the Merger, and 2,226,182 shares of Priveterra Class A common stock were issued on the Closing Date in settlement of their conversion.

The proceeds from the interim convertible notes were used to fund Old AEON’s operations through the consummation of the Merger.

Additionally, approximately $ 25 million was received on the Closing Date in exchange for an aggregate of 3,571,429 shares of Priveterra Class A common stock at $ 7.00 per share that were issued under the Original Committed Financing Agreements and Additional Committed Financing Agreements, and reflected “on the line” in the Successor’s opening accumulated deficit.

On April 27, 2023, Priveterra and AEON amended the Business Combination Agreement.

Concurrently with the amendment to the Business Combination Agreement, Priveterra amended the Sponsor Support Agreement to include restriction and forfeiture provisions related to the Founder Shares.

See Note 6 for additional information.

See Note 6 Fair Value Measurements for additional information.

The fair value of the contingent consideration at the Closing was valued to be $ 125.7 million, and is included in the purchase price.

Additionally, the Successor assumed the Predecessor’s 2019 Incentive Award Plan, and as such, the fair value of the replacement awards of $ 13.3 million were included in purchase consideration, $ 11.5 million related to stock options and $ 1.8 million related to restricted stock units.

See Note 11 for additional information.

See Note 9 Stock-based Compensation for additional information.

Asset Acquisition Method of Accounting

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Therefore, Old AEON was considered a Variable Interest Entity (“VIE”) and the primary beneficiary of Old AEON was treated as the accounting acquirer.

Priveterra holds a variable interest in Old AEON and owns 100 % of Old AEON’s equity.

Priveterra was considered the primary beneficiary as it has the decision-making rights that gives it the power to

direct the most significant activities.

Priveterra held a variable interest in Old AEON and owned 100 % of Old AEON’s equity.

Priveterra was considered the primary beneficiary as it has the decision-making rights that gives it the power to direct the most significant activities.

Also, Priveterra retained the obligation to absorb the losses and/or receive the benefits of Old AEON that could have potentially been significant to Old AEON.

The Merger was accounted for as an asset acquisition as substantially all of the fair value was concentrated in IPR&D, an intangible asset.

The Merger was accounted for as an asset acquisition as

substantially all of the fair value was concentrated in IPR&D, an intangible asset.

Old AEON’s assets (except for cash) and liabilities were measured at fair value as of the transaction date.

Consistent with authoritative guidance on the consolidation of a VIE that is not considered a business, differences in the total purchase price and fair value of assets and liabilities are recorded as a gain or loss to the condensed consolidated statement of operations.

The loss reflected below on the consolidation of the VIE is reflected “on the line” in the Successor’s opening accumulated deficit.

The loss on the consolidation of the VIE is reflected “on the line” in the Successor’s opening accumulated deficit.

Costs incurred in obtaining technology licenses are charged to research and development expense as IPR&D if the technology licensed has not reached technological feasibility and has no alternative future use.

The IPR&D recorded at the Closing of $ 324 million is included within operating expense in the condensed consolidated statements of operations.

The acquired IPR&D of $ 348.0 million at the Closing was written off to the Successor’s consolidated statement of operations for the year ended December 31, 2023.

To estimate the value of the acquired IPR&D, the Company used a Multi-Period Excess Earnings Method under the Income Approach.

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The significant assumptions used in determining IPR&D was the discount rate of 25 %, implied internal rate of return of 24.8 % and long-term growth rate of 4 %.

The following is a summary of the purchase price calculation (unaudited, in thousands except share and per share data) .

Number of shares of common stock of the combined company

The following is a summary of the purchase price calculation (in thousands except share and per share data) :

Number of shares issued as consideration in the Merger

Shares issued for interim convertible notes related to Committed Financing

Total number of shares of common stock of the combined company

Multiplied by the Priveterra share price, as of the Closing

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Total purchase price

The allocation of the purchase price was as follows (unaudited, in thousands).

Net working capital (excluding cash)

The allocation of the purchase price was as follows (in thousands):

Cash and cash equivalents

Net working capital (excluding cash and cash equivalents)

Other assets and liabilities

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“On the line” describes those transactions triggered by the consummation of the Merger that are not recognized in the consolidated financial statements of the Predecessor nor the Successor as they are not directly attributable to either period but instead were contingent on the Merger.

The opening cash balance in the condensed consolidated statement of cash flow of $31.2 million consists of cash from Priveterra $29.2 million and Old AEON $2.0 million.

The opening cash balance in the Successor’s condensed consolidated statement of cash flow of $ 31.2 million consists of cash and cash equivalents from Priveterra of $ 29.2 million and Old AEON $ 2.0 million.

The number of shares of common stock issued and amounts recorded on the line within stockholders’ deficit are reflected below to arrive at the opening consolidated balance sheet of the Successor.

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Shares issued as Consideration in the Merger

Merger Consideration - Shares issued for Interim Convertible Notes related to Committed Financing

Stock-Compensation for Class B Founder Shares

Issuance of Forward Purchase Agreements

Forward Purchase Agreements

Issuance of Make-Whole derivative

Shares issued for Committed Financing

Shares issued in New Money PIPE Subscription Agreements

Founder contingent shares

Acquired IPR&D and loss on consolidation of VIE

Settlement of Medytox top-off right derivative

Shares issued for Committed Financing

Contingent Founder Shares

Loss on Consolidation of VIE

Other Miscellaneous

The Sponsor, in connection with Priveterra’s IPO, purchased 6,900,000 shares of Class B Common Stock (the “Founder Shares”) for $ 25,000 (approximately $ 0.004 per share).

The Sponsor, in connection with Priveterra’s initial public offering, purchased 6,900,000 shares of Class B common stock (the “Founder Shares”) for $ 25,000 (approximately $ 0.004 per share).

These shares had no value until Priveterra effected the Merger.

Upon the Merger, the Founder Shares automatically converted Class A Common Stock.

Upon the Merger, the Founder Shares automatically converted to shares of common stock.

This conversion was solely contingent upon the completion of the Merger, a performance condition, and did not include any future service requirements.

Pursuant to the terms of the Sponsor Support Agreement, as amended, effective at the Closing, 50 % of the Founder Shares (i.e., 3,450,000 Founder Shares) (the “Contingent Founder Shares”) were unvested and subject to the restrictions and forfeiture provisions set forth in this Sponsor Support Agreement.

As such, the grant date fair value of the remaining 3,450,000 shares without vesting conditions was expensed in the amount of $ 34.4 million and is presented “on the line.”

As such, the grant date fair value of the 6,900,000 shares was expensed in the amount of $ 69.0 million and is presented “on the line.” Pursuant to the terms of the Sponsor Support Agreement, as amended, effective at the Closing, 50 % of the Founder Shares (i.e., 3,450,000 Founder Shares) (the “Contingent Founder Shares”) were unvested and subject to the restrictions and forfeiture provisions set forth in the Sponsor Support Agreement.

As such, the fair value at Closing of the remaining 3,450,000 shares with vesting conditions in the amount of $ 31.4 million was reclassified from additional paid-in capital to contingent consideration liability on the accompanying Successor’s consolidated balance sheet.

Related Party Transactions (Predecessor)

2019 Debt Financings

In June 2019, the Predecessor entered into a senior unsecured note purchase agreement (the “Original 2019 Note Purchase Agreement”), with Dental Innovations, pursuant to which the Predecessor issued Dental Innovations a promissory note (the “Original 2019 Note”) with a principal amount of $ 5.0 million.

Pursuant to the terms of the Original 2019 Note, the Predecessor was required to repay a total of $ 8.75 million, representing all principal and interest owed, upon the earliest to occur of (i) June 19, 2022, (ii) Dental Innovations’ demand for repayment following the Predecessor’s completion of an initial public offering and (iii) the Predecessor’s election to repay the Original 2019 Note in full.

Under the Original 2019 Note Purchase Agreement, Dental Innovations committed to purchase from the Predecessor an additional promissory note with a principal amount of $ 5.0 million, subject to the Predecessor issuing and selling an additional promissory note with a principal amount of $ 5.0 million to a lender not affiliated with Dental Innovations.

Any such additional promissory notes were to have the same payment terms as the Original 2019 Notes.

In December 2019, the Predecessor entered into an amendment to the Original 2019 Note Purchase Agreement that provided for the exchange of the Original 2019 Note for a convertible promissory note with a principal amount of $ 5.0 million.

In addition, Dental Innovations was no longer committed to purchase from the Predecessor an additional promissory note with a principal amount of $ 5.0 million subject to the Predecessor issuing and selling an additional promissory note with a principal amount of $ 5.0 million to a lender not affiliated with Dental Innovations.

In December 2019, the Predecessor issued and sold five additional convertible promissory notes, each with a principal amount of $ 1.0 million , including one to SCH and one to a member of the Predecessor’s board of directors (all such convertible promissory notes, the “2019 Convertible Notes”).

The Predecessor’s payment and performance under the 2019 Convertible Notes were guaranteed by ABP Sub Inc., the Predecessor’s wholly owned subsidiary prior to the Merger.

Pursuant to the terms of the 2019 Convertible Notes, the Predecessor was required to repay 175 % of the principal amount to the holders on the third anniversary of the issuance of the 2019 Convertible Notes.

In the event of an underwritten public offering of the Predecessor’s common stock, the 2019 Convertible Notes would have automatically converted into a number of shares of the Predecessor’s common stock equal to 175 % of the principal amount of the 2019 Convertible Notes, divided by the per share price at which shares were offered to the public in such offering.

Due to certain embedded features within the 2019 Convertible Notes, the Predecessor elected to account for the 2019 Convertible Notes and all their embedded features at fair value at inception.

Subsequent changes in fair value were recorded as a component of other (loss) income in the condensed consolidated statements of operations and comprehensive loss or as a component of other comprehensive income (loss) for changes to instrument-specific credit risk.

As a result of electing the fair value option, direct costs and fees related to the 2019 Convertible Notes were expensed as incurred.

In January 2020, in connection with the distribution of the units of A1 to the Predecessor’s stockholders, each of the holders of the Predecessor’s 2019 Convertible Notes were granted contingent warrants by A1 to purchase shares of Evolus, Inc.

(“Evolus”) from A1.

The contingent warrants were exercisable at the option of the holders only prior to the Predecessor’s first underwritten public offering of common stock under the Securities Act of 1933, as amended (the “Securities Act”), or upon an event of default under the 2019 Convertible Notes.

The 2019 Convertible Notes were concurrently amended to provide the noteholders the option, prior to the notes’ conversion, to cancel a portion of the indebtedness represented by such noteholder’s 2019 Convertible Note and receive a number of shares of Evolus from A1 having a market value equal to the value of such cancelled indebtedness, in lieu of automatic conversion of all of the noteholder’s 2019 Convertible Note into shares of the Predecessor’s common stock.

The amount of cancelled indebtedness that could be so applied in exercise of the contingent warrant was capped as the ratio that the value of Evolus shares held by A1 bore to the combined value of (i) the Evolus shares held by A1 and (ii) the Predecessor immediately prior to consummation of the Predecessor’s first underwritten public offering of common stock under the Securities Act.

In September 2020, in connection with the distribution of the units of Alphaeon Credit Holdco LLC (“AC HoldCo”) and Zelegent HoldCo LLC (“Z HoldCo”) to the Predecessor’s stockholders, each of the holders of the Predecessor’s 2019 Convertible Notes were granted contingent warrants by AC HoldCo and Z HoldCo to purchase shares of Alphaeon Credit, Inc.

(“Alphaeon Credit”) and Zelegent from AC HoldCo and Z HoldCo.

The contingent warrants were exercisable at the option of the holders only prior to the Predecessor’s first underwritten public offering of common stock under the Securities Act, or upon an event of default under the 2019 Convertible Notes.

The 2019 Convertible Notes were concurrently amended to provide the noteholders the option, prior to the notes’ conversion, to cancel a portion of the indebtedness represented by such noteholder’s 2019 Convertible Note and receive a number of shares of Alphaeon Credit and/or Zelegent from AC HoldCo and Z HoldCo having a market value equal to the value of such cancelled indebtedness, in lieu of automatic conversion of all of the applicable noteholder’s 2019 Convertible Note into shares of the Predecessor’s common stock.

The amount of cancelled indebtedness that can be so applied in exercise of the contingent warrant was capped as the ratio of aggregate indebtedness held by the convertible note holder as a proportion of the value of Alphaeon Credit or Zelegent to the value of the Predecessor.

Additionally, on July 22, 2022, the 2019 debt was amended.

The Dental Innovations note’s maturity date was extended from June 19, 2022 to December 29, 2023.

The original note had a principal of $ 5.0 million.

Upon the original maturity date, the total due was 175 % of principal, which equals $ 8.7 million (which such amount included an additional amount of $ 3.7 million).

Interest was increased from 0.0 % to 15.79 % on the total payable of $ 8.7 million from the original maturity date of June 19, 2022 to the new maturity date of December 29, 2023.

On July 22, 2022, the maturity dates for four of the $ 1.0 million convertible promissory notes were extended from November 1, 2022, December 12, 2022, December 12, 2022 and December 18, 2022, respectively, to December 29, 2023.

Each of the four notes had a principal of $ 1.0 million .

Upon the original maturity date, the total due on each of the four notes was 175 % of principal , which equals $ 1.7 million (which such amount included an additional amount of $ 0.7 million ).

At the original maturity dates, the principal sum of $ 1.0 million was paid back to each of the note holders.

The remaining $ 0.7 million was to be due at the extended maturity date of December 29, 2023.

The interest rate was increased from 0.0 % to 10.0 % interest on the remaining $ 0.7 million from the original maturity date to the new maturity date.

The 2019 SCH Note’s maturity date was extended from December 18, 2022 to December 29, 2023.

The original Note had a principal of $ 1.0 million.

Upon the original maturity date, the total due was 175 % of principal, which equals $ 1.7 million.

The interest rate was increased from 0.0 % to 15.79 % on the total of $ 1.7 million from the original maturity date to the new maturity date.

In April 2023, the contingent warrants were amended to include the merger between AEON and Old AEON as a qualifying listing under the warrant agreement, which stated that the holders of the contingent warrants would exercise the warrants, and that the holders would receive 85 % of the shares the holders would have been entitled to receive via the previous warrant agreement.

The contingent warrants were exercised into Evolus shares held by A1 and Alphaeon Credit at the same time the convertible notes were converted to shares of the Company’s stock.

The Company determined that the contingent warrants amendment modified the settlement provision in the 2019 Convertible Notes.

The Company determined that the amendment should be accounted for as a debt extinguishment.

Since the noteholders were both shareholders of Old AEON, Evolus and Alphaeon Credit, the debt extinguishment was accounted for as a capital transaction on the April 2023 modification date.

As such, due to the warrant modification, the Predecessor recognized a $ 5.2 million reduction to the underlying fair value of the convertible notes and recorded a corresponding increase of $ 5.2 million to additional paid in capital during the periods from January 1, 2023 to July 21, 2023 (Predecessor).

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), and the three and nine months ended September 30, 2022, the Predecessor recognized $( 0.3 ) million, $ 0.4 million, $( 0.5 ) million and $( 0.6 ) million, respectively, of (expense) income related to the (increase) decrease in the fair value of the 2019 Convertible Notes.

During the three months ended March 31, 2023 (Predecessor), the Predecessor recognized $ 0.6 million of expense related to the increase in the fair value of the 2019 Convertible Notes.

As of December 31, 2022 (Predecessor), the principal amount outstanding under the 2019 Convertible Notes was $ 6.0 million, with an estimated fair value of $ 16.2 million.

The 2019 Convertible Notes were converted into shares of the Successor’s common stock at the Closing and were recorded “on the line” as part of the shares issued as consideration in the Merger (see Note 3).

SCH Convertible Note

The Predecessor issued a convertible promissory note to SCH (the “SCH Convertible Note”).

Prior to the Merger, the Predecessor’s payment and performance under the SCH Convertible Note were guaranteed by ABP Sub Inc.

Pursuant to the terms of the SCH Convertible Note, the Predecessor was required to repay 175 % of the principal amount to SCH on the third anniversary of its issuance.

In the event of an underwritten public offering of the Predecessor’s common stock, the SCH Convertible Note would have automatically converted into a number of shares of the Predecessor’s common stock equal to 175 % of the principal amount of the SCH Convertible Note, divided by the per share price at which shares were offered to the public in such offering.

Due to certain embedded features within the SCH Convertible Note, the Predecessor elected to account for the SCH Convertible Note and the embedded features at fair value at inception.

As a result of electing the fair value option, any direct costs and fees related to the SCH Convertible Note were expensed as incurred.

Additionally, the 2020 Strathspey Crown note’s maturity date was extended from January 2, 2023 to December 29, 2023.

The original note had a principal of $ 17.5 million.

Upon the original maturity date, the total due was $ 30.6 million.

The interest rate was increased from 0.0 % to 15.79 % on the total of $ 30.6 million from the original maturity date to the new maturity date.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), and the three and nine months ended September 30, 2022, the Predecessor recognized $( 0.4 ) million, $ 1.7 million, $( 1.3 ) million and $ 0.4 million, respectively, of (expense) income related to the (increase) decrease in the fair value of the SCH Convertible Note.

During the three months ended March 31, 2023 (Predecessor), the Predecessor recognized $ 1.5 million of expense related to the increase in the fair value of the SCH Convertible Note.

As of December 31, 2022, the principal amount outstanding under the SCH Convertible Note was $ 17.5 million, with an estimated fair value of $ 25.1 million.

The Company determined that the contingent warrants amendment modified the settlement provision in the 2019 Convertible Notes.

The Company determined that the amendment should be accounted for as a debt extinguishment.

Since Evolus and Alphaeon Credit are related parties of AEON, the debt extinguishment was accounted for as a capital transaction on the April 2023 modification date.

As such, due to the warrant modification, the Predecessor recognized a $ 11.8 million reduction to the underlying fair value of the convertible notes and recorded a corresponding increase of $ 11.8 million to additional paid in capital during the periods from January 1, 2023 to July 21, 2023 (Predecessor).

The SCH Convertible Note was converted into shares of the Successor’s common stock at the Closing and was recorded “on the line” as part of the shares issued as consideration in the Merger (see Note 3).

A1 Convertible Notes

In December 2021, the Predecessor entered into an agreement with A1 (the “A1 Purchase Agreement”), pursuant to which the Predecessor could issue subordinated convertible promissory notes to A1 with an aggregate principal amount of up to $ 25.0 million.

On December 8 and 15, 2021, the Predecessor issued two convertible notes (collectively, the “2021 A1 Convertible Notes”), each with a principal amount of $ 5.0 million, and totaling $ 10.0 million, that matured on the third anniversary of their issuance.

The A1 Convertible Notes were unsecured and subordinated to the Predecessor’s other convertible notes.

The 2021 A1 Convertible Notes bore interest, compounded daily, at the lesser of 10 % per annum or the maximum rate permissible by law.

Interest was paid in-kind by adding the accrued amount thereof to the principal amount on a monthly basis on the last day of each calendar month for so long as any principal amount was outstanding (such paid in-kind interest, in the aggregate at any time, the “PIK Principal”).

Immediately prior to an initial public offering, all of the then outstanding principal amount and accrued and unpaid interest under the 2021 A1 Convertible Notes was to automatically convert into shares of the Predecessor’s common stock.

The number of shares of common stock issuable upon conversion of the 2021 A1 Convertible Notes would have been equal to (i) the outstanding loan amount (including the PIK Interest) divided by (ii) the product of (a) the price per share of such common stock issued to the public in the initial public offering multiplied by (b) the applicable discount rate.

The discount rate was to be determined for each note based on the number of days elapsed between the date the applicable note was executed and the date on which a conversion event was formally announced and was to be equal to (x) 10 % if between zero and 90 days, (y) 15 % if between 91 and 180 days, or (z) 20 % if greater than 180 days.

Due to certain embedded features within the 2021 A1 Convertible Notes, the Predecessor elected to account for the 2021 A1 Convertible Notes and the embedded features at fair value at inception.

Subsequent changes in fair value were recorded as a component of other (loss) income in the accompanying condensed consolidated statements of operations and comprehensive loss or as a component of other comprehensive income (loss) for changes to instrument-specific credit risk.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), and the three and nine months ended September 30, 2022, the Predecessor recognized $ 0.2 million, $ 1.4 million, $ 0 million and $ 1.6 million, respectively, of (expense) income related to the (increase) decrease in the fair value of the 2021 A1 Convertible Notes.

As of December 31, 2022, the principal amount outstanding under the 2021 A1 Convertible Notes was $ 10 million, with an estimated fair value of $ 8.7 million.

The 2021 A1 Convertible Notes were converted into shares of the Successor’s common stock at the Closing.

During the year ended December 31, 2022, the Predecessor issued five additional tranches of subordinated convertible promissory notes to A1 on February 18, 2022, March 9, 2022, April 14, 2022, June 3, 2022 and July 1, 2022 (collectively, the “2022 A1 Convertible Notes”), the first four with a principal amount of $ 3.0 million each and the fifth issued July 1, 2022, for a principal amount of $ 2.5 million and totaling $ 14.5 million.

The terms of the 2022 A1 Convertible Notes were similar to those of the 2021 A1 Convertible Notes.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), and the three and nine months ended September 30, 2022, the Predecessor recognized $ 0.3 million, $ 2.0 million, $ 0.5 million and $ 2.3 million, respectively, of (expense) income related to the (increase) decrease in the fair value of the 2022 A1 Convertible Notes.

As of December 31, 2022, the principal balance was $ 14.5 million, with an estimated fair value of $ 12.2 million.

The 2022 A1 Convertible Notes were converted into shares of the Successor’s common stock at the Closing.

Additionally, on March 30, 2022, the Predecessor amended the 2021 A1 Convertible Notes and the convertible notes issued on February 18, 2022 and March 9, 2022 to remove the discount rate associated with the automatic conversion of any outstanding convertible notes into shares of common stock in connection with an initial public offering.

On March 6, 2023, the Predecessor entered into an agreement with A1, pursuant to which the Predecessor issued subordinated convertible promissory notes to A1 with an aggregate principal amount of $ 6.0 million (“March 2023 A1 Convertible Notes”) that matured on the earlier of (x) the date of the consummation of the Merger and (y) December 29, 2023.

The March 2023 A1 Convertible Notes bore interest at 15.79 %, based on simple interest daily, unless issued at least five days prior to maturity date.

The March 2023 A1 Convertible Notes had similar terms to the 2021 A1 Convertible Notes and 2022 A1 Convertible Notes and were unsecured and subordinated to the Predecessor’s other convertible notes.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), the Predecessor recognized $ 8.4 million and $ 8.4 million, respectively, of income related to the decrease in the fair value of the March 2023 A1 Convertible Notes.

The March 2023 A1 Convertible Notes were

converted into shares of the Successor’s common stock at the Closing and was recorded “on the line” as part of the shares issued as consideration in the Merger (see Note 3).

Daewoong Convertible Notes (Predecessor)

In August 2020, the Predecessor entered into a Convertible Promissory Note Purchase Agreement with Daewoong (the “Daewoong Purchase Agreement”), pursuant to which the Predecessor issued Daewoong two subordinated convertible promissory notes (collectively, the “2020 Daewoong Convertible Notes”) with an aggregate principal amount of $ 25.0 million.

The 2020 Daewoong Convertible Notes had similar terms, of which one was issued on August 27, 2020 with a principal amount of $ 10.0 million and the other was issued on September 18, 2020 with a principal amount of $ 15.0 million.

The 2020 Daewoong Convertible Notes were unsecured and subordinated to the Predecessor’s 2019 Convertible Notes.

The Predecessor’s payment and performance under the 2020 Daewoong Convertible Notes was guaranteed by ABP Sub Inc., the Predecessor’s wholly owned subsidiary prior to the Merger.

The 2020 Daewoong Convertible Notes bore interest daily at 3 % per annum with semiannual compounding.

Interest is paid in-kind by adding the accrued amount thereof to the principal amount on a semi-annual basis on June 30th and December 31st of each calendar year for so long as any principal amount remained outstanding (such paid in-kind interest, in the aggregate at any time, the “PIK Principal”).

The 2020 Daewoong Convertible Notes had a maturity date of September 18, 2025.

Pursuant to the 2020 Daewoong Convertible Notes’ terms, Daewoong could have elected to convert all of the then outstanding principal amount and all accrued and unpaid interest into the Predecessor’s common stock at any time following the date that was 12 months after September 18, 2020, provided, that such election must have been made at the same time with respect to all notes issued to Daewoong.

The number of shares issuable upon any conversion would have been equal to (i) the outstanding principal amount (excluding PIK Principal) divided by $ 25.0 million and (ii) multiplied by 9.99 % of the aggregate of all of the shares of the Predecessor’s common stock then outstanding, the Predecessor’s common stock issuable upon conversion or exercise of all of the outstanding convertible or exercisable securities, all outstanding vested or unvested options or warrants to purchase the Predecessor’s capital stock, but excluding all out-of-the-money options, and all shares of common stock issuable upon conversion of any convertible debt (whether or not such debt would have been convertible at such time).

Immediately prior to an initial public offering (“IPO”), all of the then outstanding principal amount and accrued and unpaid interest under the 2020 Daewoong Convertible Notes would have automatically converted into shares of the Predecessor’s common stock.

The number of shares of common stock issuable upon conversion of the 2020 Daewoong Convertible Notes was equal to (i) the outstanding principal amount (excluding PIK Principal) divided by $ 25.0 million and (ii) multiplied by the greater of (A) 9.99 % of the pre-IPO shares of the Predecessor, and (B) that number of shares having an aggregate value of $ 20.0 million immediately prior to the IPO based upon a price per share of such common stock issued to the public in the IPO;

provided, however, that in no event was Daewoong’s ownership to exceed 15 % of the pre-IPO shares of the Predecessor after taking into account conversion of the 2020 Daewoong Convertible Notes.

In the event, and only in the event, that shares of the Predecessor were sold in the IPO whereby the pre-money valuation of the Predecessor was $ 200.0 million or greater, within five business days of the conversion of the 2020 Daewoong Convertible Notes, the Predecessor would have been required pay to Daewoong the PIK Principal plus all accrued and unpaid interest either in cash or by the issuance of additional shares of common stock at the price per share in the IPO, which payment method would have been be at the Predecessor’s sole election.

In May 2021, the Daewoong Purchase Agreement was amended to provide for the issuance of an additional subordinated convertible promissory note by the Predecessor to Daewoong at an initial principal amount of $ 5.0 million.

The subordinated convertible promissory note was issued with terms similar to the two subordinated convertible promissory notes issued in 2020 and had a maturity date of May 12, 2026 (all such convertible promissory notes, the “Daewoong Convertible Notes”).

Pursuant to the terms of the amended Daewoong Purchase Agreement, Daewoong could have elected to convert all of the then outstanding principal amount and all accrued and unpaid interest into the Predecessor’s common stock at any time following the date that was 12 months after September 18, 2020, provided, that such election must have been made at the same time with respect to all notes issued to Daewoong.

The number of shares of common stock issuable upon conversion would have been equal to (i) the outstanding principal amount (excluding PIK Principal) divided by $ 30.0 million and (ii) multiplied by 11.99 % of the aggregate of all of the shares of the Predecessor’s common stock then outstanding, the Predecessor’s common stock issuable upon conversion or exercise of all of the outstanding convertible or exercisable securities, all outstanding vested or unvested options or warrants to purchase the Predecessor’s capital stock, but excluding all out-of-the-money options, and all shares of common stock issuable upon conversion of any convertible debt (whether or not such debt would have been convertible at such time).

In addition, immediately prior to an initial public offering, all of the then outstanding principal amount and accrued and unpaid interest under the convertible notes would have automatically converted into shares of the Predecessor’s common stock.

The number of shares of common stock issuable upon conversion of the convertible notes was equal to (i) the outstanding principal amount (excluding PIK Principal) divided by $ 30.0 million and (ii) multiplied by the greater of (A) 11.99 % of the pre-IPO shares of the Predecessor, and (B) that number of shares having an aggregate value of $ 24.0 million immediately prior to the IPO based upon a price per share of such common stock issued to the public in the IPO;

provided, however, that in no event was Daewoong’s ownership to exceed 18 % of the pre-IPO shares of the Predecessor after taking into account conversion of the Daewoong Convertible Notes.

Due to certain embedded features within the Daewoong Convertible Notes, the Predecessor elected to account for the Daewoong Convertible Notes, including the paid-in-kind principal and interest, and the embedded features at fair value at inception.

As a result of electing the fair value option, any direct costs and fees related to the Daewoong Convertible Notes were expensed as incurred.

On July 29, 2022, the Predecessor entered into a Convertible Promissory Note Purchase Agreement (the “Agreement”) between the Predecessor and Daewoong Co., LTD.

and received $ 30 million.

The related note had a stated interest rate of 15.79 % per annum.

Such note was scheduled to mature on December 29, 2023 and had similar conversion terms to the Daewoong Convertible Notes.

Such note could have been prepaid, in whole, without premium or penalty at any time prior to the maturity date.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), and the three and nine months ended September 30, 2022, the Predecessor recognized $( 10.8 ) million, $( 10.4 ) million, $ 0.7 million and $ 11.5 million, respectively, of (expense) income related to the (increase) decrease in the fair value of the Daewoong Convertible Notes.

During the three months ended March 31, 2023 (Predecessor), the Predecessor recognized $ 0.5 million, $ 0.7 million and $ 1.9 million of expense related to the increase in the fair value of the 2021 A1 Convertible Notes, 2022 A1 Convertible Notes and March 2023 A1 Convertible Notes, respectively.

As of December 31, 2022, the principal amount outstanding under the 2021 A1 Convertible Notes and 2022 A1 Convertible Notes were $ 10 million and $ 14.5 million, respectively, with an estimated fair value of $ 8.7 million and $ 12.2 million, respectively.

The 2021 A1 Convertible Notes and 2022 A1 Convertible Notes were converted into shares of the Successor’s common stock at the Closing.

The March 2023 A1 Convertible Notes were converted into shares of the Successor’s common stock at the Closing and was recorded “on the line” as part of the shares issued as consideration in the Merger (see Note 3 Forward Merger ).

Daewoong Convertible Notes

During the three months ended March 31, 2023 (Predecessor), the Predecessor recognized $ 0.5 million of income related to the decrease in the fair value of the Daewoong Convertible Notes.

As of December 31, 2022, the principal amount outstanding (excluding the PIK Principal) under the Daewoong Convertible Notes was $ 60 million, with an estimated fair value of $ 53.5 million.

The Daewoong Convertible Notes were converted into shares of the Successor’s common stock at the Closing.

Convertible Note Subscription and License Agreement Amendment

On March 19, 2024, the Company entered into a subscription agreement with Daewoong (the “Subscription Agreement”) relating to the sale and issuance by the Company of senior secured convertible notes (each, a “2024 Convertible Note” and together, the “2024 Convertible Notes”) in the principal amount of up to $ 15.0 million, which are convertible into shares of the Company’s common stock, subject to certain conditions and limitations set forth in each Convertible Note.

Each Convertible Note contains customary events of default, accrues interest at an annual rate of 15.79 % and has a maturity date that is three years from the funding date, unless earlier repurchased, converted or redeemed in accordance with its terms prior to such date.

The Company will use the net proceeds from each Convertible Note to support the late-stage clinical development of its lead product candidate ABP-450 and for general working capital purposes.

Pursuant to the terms of the Subscription Agreement, on March 24, 2024, the Company issued and sold to Daewoong one Convertible Note in the principal amount of $ 5.0 million, and on April 12, 2024, the Company issued and sold to Daewoong one Convertible Note in the principal amount of $ 10.0 million.

On March 19, 2024, the Company entered into a Fourth Amendment to the License Agreement (the “License Agreement Amendment”) with Daewoong, which amends that certain License and Supply Agreement, by and between the Company and Daewoong, dated December 20, 2019, as previously amended on July 29, 2022, January 8, 2023 and April 24, 2023 (the “License Agreement”).

Pursuant to the terms of the License Agreement Amendment, the License Agreement will terminate if, over any six month period, (a) the Company ceases to commercialize ABP-450 in certain territories specified in the License Agreement and (b) the Company ceases to advance any clinical studies of ABP-450 in such territories.

The License Agreement Amendment also provides that, in the event that the License Agreement is terminated for the foregoing reasons, Daewoong will have the right to purchase all Know-How (as defined in the License Agreement) related to ABP-450 for a price of $ 1.00 (the “Termination Purchase Right”).

The Termination Purchase Right will terminate and expire upon Daewoong’s sale of 50 % of its common stock, including common stock held by its affiliates and common stock that would be issued upon an Automatic Conversion or Optional Conversion (as defined in the Convertible Notes).

During the three months ended March 31, 2024 (Successor), the Company recognized $ 0.1 million of expense related to the increase in the fair value of the 2024 Daewoong Convertible Note.

As of March 31, 2024, the principal amount outstanding under the 2023 Daewoong Convertible Note was $ 5 million, with an estimated fair value of $ 5.1 million.

Fair Value Measurements

The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The carrying value of cash, accounts payable, accrued liabilities, convertible notes approximate fair value because of the short-term nature of those instruments.

There were no convertible notes outstanding at September 30, 2023.

The carrying value of cash and cash equivalents, accounts payable, accrued liabilities and convertible notes approximate fair value because of the short-term nature of those instruments.

There were no convertible notes outstanding at March 31, 2024.

The following are other financial assets and liabilities that are measured at fair value on a recurring basis.

Convertible Notes at Fair Value (Predecessor)

Due to certain embedded features within the convertible notes, the Predecessor elected the fair value option to account for its convertible notes, including any paid-in-kind principal and interest, and the embedded features.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), and the three and nine months ended September 30, 2022, the Predecessor recognized $ 2.6 million, $( 3.5 ) million, $( 0.7 ) million and $ 29.3 million, respectively, of (expense) income related to the (increase) decrease in the fair value of the convertible notes.

As of December 31, 2022, the principal amount outstanding under the convertible notes was $ 111 million, with an estimated fair value of $ 131.3 million.

The convertible notes were converted into shares of the Successor’s common stock at the Closing.

See Note 4, “Related Party Transactions (Predecessor),” and Note 5, “Daewoong Convertible Notes (Predecessor)” for more information on the convertible notes.

The fair value of the convertible notes was determined based on Level 3 inputs using a scenario-based analysis that estimated the fair value of the convertible notes based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders, including various initial public offering, settlement, equity financing, corporate transaction and dissolution scenarios.

The significant unobservable input assumptions that can significantly change the fair value included (i) the weighted average cost of capital, (ii) the timing of payments, (iii) the discount for lack of marketability, (iv) the probability of certain corporate scenarios, and (v) the long-term pretax operating margin.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), the Predecessor utilized discount rates ranging from 15 % to 40 % and 15 % to 45 %, respectively, reflecting changes in the Predecessor’s risk profile, time-to-maturity probability, and key terms when modified to the convertible notes.

Preferred Stock Warrant Liability (Predecessor)

In 2016, in connection with an earlier debt issuance that has been subsequently settled, the Predecessor issued to one of its investors, Longitude Venture Partners II, L.P.

(“Longitude”), warrants to purchase 342,011 shares of the Predecessor’s Series B convertible preferred stock at an exercise price of $ 7.3097 per share.

The Predecessor accounted for the warrants as a liability, which were initially recorded at their fair value of $ 0.8 million on the date of issuance and are subject to remeasurement at each subsequent balance sheet date.

Any change in fair value of the warrants as a result of the remeasurement was recognized as a component of other (loss) income, net in the accompanying condensed consolidated statements of operations and comprehensive loss.

The fair value of the warrant liability is determined based on Level 3 inputs using the Black-Scholes option-pricing model, which includes expected volatility, risk-free interest rate, expected life and expected dividend yield.

The warrant liability was not material as of December 31, 2022 (Predecessor) and there were no material changes in fair value for the periods from July 1, 2023 to July 21, 2023 (Predecessor) and January 1, 2023 to July 21, 2023 (Predecessor), and the three and nine months ended September 30, 2022 (Predecessor).

The preferred stock warrants expired prior to the Closing.

Convertible Notes at Fair Value

Due to certain embedded features within the convertible notes, the Company elected the fair value option to account for its convertible notes, including any paid-in-kind principal and interest, and the embedded features.

During the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor), the Company recognized $ 0.1 million and $ 4.7 million, respectively, of expense related to the increase in the fair value of the convertible notes.

As of March 31, 2024 (Successor) and December 31, 2023 (Successor), the principal amount outstanding under the convertible notes was $ 5.0 million and $ 0 , respectively, with an estimated fair value of $ 5.1 million and $ 0 , respectively.

The convertible notes outstanding prior to the Closing were converted into shares of the Successor’s common stock at the Closing.

For more information on convertible notes, see Note 4 Related Party Transactions (Predecessor) and Note 5 Daewoong Convertible Notes .

The fair value of the convertible notes was determined based on Level 3 inputs using a scenario-based analysis that estimated the fair value of the convertible notes based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders, including various qualified financings, corporate transaction and dissolution scenarios.

corporate scenarios, and (v) the long-term pretax operating margin.

During the three months ended March 31, 2024 (Successor) March 31, 2023 (Predecessor), the Company utilized discount rates ranging from 20 % to 60 %, respectively, reflecting changes in the Successor’s and Predecessor’s risk profile, time-to-maturity probability, and key terms when modified to the convertible notes.

As of the Closing, the fair value of the convertible notes immediately prior to their conversion was based on the fair value of the Company’s shares to be received by the holders using the market price of the shares at Closing.

Forward Purchase Agreements (Successor)

On June 29, 2023, Priveterra and Old AEON entered into the Forward Purchase Agreements with each of (i) ACM and (ii) Polar (each of ACM ARRT J LLC and Polar, individually, a “Seller”, and together, the “Sellers”) for OTC Equity Prepaid Forward Transactions.

On June 29, 2023, Priveterra and Old AEON entered into the Forward Purchase Agreements with each of (i) ACM ARRT J LLC (“ACM”) and (ii) Polar Multi-Strategy Fund (“Polar”) (each of ACM and Polar, individually, a “Seller”, and together, the “Sellers”) for OTC Equity Prepaid Forward Transactions.

For purposes of each Forward Purchase Agreement, Priveterra is referred to as the “Company” prior to the consummation of the Merger, while AEON is referred to as the “Company” after the consummation of the Merger.

Pursuant to the terms of the Forward Purchase Agreements, the Sellers intended, but were not obligated, to purchase up to 7,500,000 shares of Priveterra Class A Common Stock in the aggregate concurrently with the Closing pursuant to each Seller’s respective FPA Funding Amount PIPE Subscription Agreement, less the 236,236 shares of Priveterra Class A Common Stock purchased by ACM ARRT J LLC from third-parties through a broker in the open market prior to the Closing, for which all redemptions rights were irrevocably waived (such shares, the “Recycled Shares”).

No Seller shall be required to purchase an amount of shares of Priveterra Class A Common Stock that would result in that Seller owning more than 9.9 % of the total shares of Priveterra Class A Common Stock outstanding immediately after giving effect to such purchase, unless such Seller, at its sole discretion, waives such 9.9 % ownership limitation.

The Number of Shares subject to a Forward Purchase Agreement is subject to reduction following a termination of the Forward Purchase Agreements with respect to such shares as described under “Optional Early Termination” (“OET”) in the respective Forward Purchase Agreements.

Each Forward Purchase Agreement provides that a Seller will be paid directly the Prepayment Amount which was equal to an aggregate of $ 66.7 million based on the product of (i) 6,275,000 shares of Priveterra Class A Common Stock (the “Additional Shares”) and (ii) the redemption price per share of $ 10.63 .

As described below, the Forward Purchase Agreements were terminated on March 18, 2024.

No Seller would be required to purchase an amount of shares of Priveterra Class A Common Stock that would result in that Seller owning more than 9.9 % of the total shares of Priveterra Class A Common Stock outstanding immediately after giving effect to such purchase, unless such Seller, at its sole discretion, waived such 9.9 % ownership limitation.

The Number of Shares subject to a Forward Purchase Agreement was subject to reduction following a termination of the Forward Purchase Agreements with respect to such shares as described under “Optional Early Termination” (“OET”) in the respective Forward Purchase Agreements.

Each Forward Purchase Agreement provided that a Seller would be paid directly the Prepayment Amount which was equal to an aggregate of $ 66.7 million based on the product of (i) 6,275,000 shares of Priveterra Class A Common Stock (the “Additional Shares”) and (ii) the redemption price per share of $ 10.63 .

On July 21, 2023, the Company was obligated to pay each Seller separately the Prepayment Amount required under its respective Forward Purchase Agreement, except that since the Prepayment Amount payable to a Seller was to be paid from the purchase of the Additional Shares by such Seller pursuant to the terms of its respective FPA Funding Amount PIPE Subscription Agreement, such amount was netted against such proceeds, with such Seller being able to reduce the purchase price for the Additional Shares by the Prepayment Amount.

For the avoidance of doubt, any Additional Shares purchased by a Seller will be included in the Number of Shares for its respective Forward Purchase Agreement for all purposes, including for determining the Prepayment Amount.

For the avoidance of doubt, any Additional Shares purchased by a Seller were to be included in the Number of Shares for its respective Forward Purchase Agreement for all purposes, including for determining the Prepayment Amount.

Therefore, the aggregate Prepayment Amount of $ 66.7 million was netted against the proceeds paid from the purchase of the Additional Shares in the aggregate by the Sellers pursuant to the FPA Funding Amount PIPE Subscription Agreements.

The Prepayment Amount of $ 66.7 million was recorded at its present value of $ 60.7 million as Subscription Receivables, which reduces stockholders’ deficit on the condensed consolidated balance sheets.

The $ 6 million difference between the subscription receivables and the present value of the subscription receivables at Closing was recorded as a loss “on the line” in the Successor’s opening accumulated deficit (see Note 3).

The redemption price per share in the Forward Purchase Agreements is subject to a reset price (the "Reset Price").

The Reset Price was initially the redemption price per share of $ 10.63 per share.

Beginning 90 days after the Closing, the Reset Price became subject to monthly resets, to be the lowest of (a) the then-current Reset Price, (b) $ 10.63 and (c) the 30 -day volume-weighted average price of the Company’s Common Stock immediately preceding such monthly reset.

The monthly resets of the Reset Price are subject to a floor of $ 7.00 per share (the “Reset Price Floor”);

however, if during the term of the Forward Purchase Agreements, the Company

sells or issues any shares of Common Stock or securities convertible or exercisable for shares of Common Stock at an effective price of less than the Reset Price (a “Dilutive Offering”), then the Reset Price would immediately reset to the effective price of such offering and the Reset Price Floor would be eliminated.

Additionally, in the event of a Dilutive Offering, the maximum number of shares available under the Forward Purchase Agreements could be increased if the Dilutive Offering occurs at a price below $ 10.00 per shares.

The maximum number of shares would be reset to equal 7,500,000 divided by a number equal to the offering price in the Dilutive Offering divided by $ 10.00 .

As of November 10, 2023, the Reset Price is equal to $ 7.00 per share and the closing price for the Company’s Common Stock was $ 4.18 .

Elimination of the Reset Price Floor may result in the Sellers selling the shares covered by the Forward Purchase Agreements at lower prices and in the Company receiving less of the Prepayment Amount.

The Company did not have access to the Prepayment Amount immediately following the Closing and, depending on the manner of settlement for the transactions covered by the Forward Purchase Agreements, may have limited or no access to the Prepayment Amount, particularly if the Company’s Common Stock continues to trade below the prevailing Reset Price.

Further, the Company may be required to make cash payments to the counterparties in respect of settlement amounts under the Forward Purchase Agreements, such as in the case of a failure to maintain the listing of the Company’s Common Stock on a national securities exchange.

Any of the above scenarios may adversely affect the Company’s liquidity and capital needs.

From time to time and on any date following the Merger (any such date, an “OET Date”), any Seller may, in its absolute discretion, terminate its Forward Purchase Agreement in whole or in part by providing written notice to the Company (the “OET Notice”), no later than the next Payment Date following the OET Date (which shall specify the quantity by which the Number of Shares shall be reduced (such quantity, the “Terminated Shares”)).

The effect of an OET Notice shall be to reduce the Number of Shares by the number of Terminated Shares specified in such OET Notice with effect as of the related OET Date.

As of each OET Date, the Company shall be entitled to an amount from the Seller, and the Seller shall pay to the Company an amount, equal to the product of (x) the number of Terminated Shares and (y) the Reset Price in respect of such OET Date.

The payment date may be changed within a quarter at the mutual agreement of the parties.

The “Valuation Date” will be the earlier to occur of (a) the date that is two years after the Closing Date pursuant to the Business Combination Agreement;

(b) the date specified by Seller in a written notice to be delivered to AEON at such Seller’s discretion (which Valuation Date shall not be earlier than the day such notice is effective) after the occurrence of any of (w) a VWAP Trigger Event, (x) a Delisting Event, or (y) a Registration Failure (defined terms in each of clauses (b)(w) through (b)(y), as described in further detail below) and (c) 90 days after delivery by AEON of a written notice in the event that for any 20 trading days during a 30 consecutive trading day-period that occurs at least 6 months after the Closing Date, the VWAP Price is less than the current Reset Price Floor of $ 7.00 per share;

provided, however, that the Reset Price may be reduced immediately to any lower price at which the Company sells, issues or grants any shares or securities convertible or exchangeable into shares (other than, among other things, grants or issuances under the Company’s equity compensation plans, any securities issued in connection with the Merger or any securities issued in connection with the FPA Funding Amount PIPE Subscription Agreements), subject to certain exceptions, in which case the Reset Price Floor would be eliminated.

On the Cash Settlement Payment Date, which is the tenth local business day following the last day of the valuation period commencing on the Valuation Date, a Seller shall pay the Company a cash amount equal to (1) (A) a maximum of up to 7,500,000 shares of common stock (the “Number of Shares”) as of the Valuation Date less the number of Unregistered Shares, multiplied by (B) the volume-weighted daily VWAP Price over the Valuation Period less (2) if the Settlement Amount Adjustment is less than the cash amount to be paid, the Settlement Amount Adjustment.

The Settlement Amount Adjustment is equal to (1) the Number of Shares as of the Valuation Date multiplied by (2) $ 2.00 per share, and the Settlement Amount Adjustment will be automatically netted from the Settlement Amount.

For example, if the VWAP Price over the Valuation Period were equal to the sales price of the Company’s Common Stock on November 10, 2023, or $4.18, the Company would receive a cash amount equal to (A) (i) the number of shares to be sold by the Sellers multiplied by (ii) $4.18, less (B) the product of (i) such number of shares sold by the Sellers multiplied by (ii) $2.00;

in other words, the Sellers would be obligated to pay the Company $2.18 per share sold by the Sellers.

If the Sellers were to sell all 6,275,000 shares of Common Stock purchased at the Closing, the Company would receive an aggregate of $13.7 million in proceeds, based on such sales price of $4.18.

However, if the shares are neither registered for resale under an effective resale registration statement (the deadline for which is 120 days, subject to certain conditions, after a written request for registration by a Seller) nor transferable without any restrictions pursuant to an exemption from the registration requirements of Section 5 of the Securities Act, including pursuant to Rule 144 (the “Unregistered Shares”), such Unregistered Shares would not be included in the calculation of the Settlement Amount and the Seller would not be obligated to pay us any amount, but the Company would still be obligated to pay such Seller the Settlement Amount Adjustment of $2.00 per share.

In such a scenario, if all 6,275,000 shares of

Common Stock purchased by the Sellers at the Closing were Unregistered Shares at settlement, the Company would potentially owe the Sellers an aggregate of approximately $12.6 million.

If the Settlement Amount Adjustment exceeds the Settlement Amount, the Company will pay the Seller in shares of common stock or, at the Company’s election, in cash (other than a Delisting Event as defined in the agreement, in which case the Settlement Amount Adjustment would be settled in cash).

Under such circumstances, the Company may not have sufficient shares authorized and may not have sufficient funds or be able to obtain financing from third parties to pay such amount.

Breach by the Company of any of these obligations could constitute an event of default under a Forward Purchase Agreement, which could subject the Company to financial exposure thereunder (including arising from potential indemnification claims by a Seller).

These uncertainties with respect to the number of shares the Company may be required to issue or amount of cash the Company may owe under the Forward Purchase Agreements could materially and adversely affect the Company’s ability to raise capital, the Company’s liquidity position, the Company’s ability to operate the Company’s business and execute the Company’s business strategy, and the trading volatility and price of the Company’s securities.

In addition, future debt or other contractual agreements may contain cross-default or cross-acceleration provisions that could be triggered if the Company defaulted on its obligations to a Seller.

The Forward Purchase Agreements would be canceled and all obligations due thereunder would be accelerated in the event of the bankruptcy of the Company or a sale of the Company for consideration other than stock of another entity.

In the event of a tender offer or a sale of the Company for stock of another company, the terms of the Forward Purchase Agreement would be adjusted to give effect to the tender offer or sale transaction.

Any or all of these consequences could have material adverse consequences for the Company.

Based on the applicable guidance in ASC 480, ASC 815, ASC 505 and SAB 4E, the Company has determined that each of its forward purchase agreements entered in connection with the Merger is a freestanding hybrid financial instrument comprising a subscription receivable and embedded features, which have been bifurcated and accounted for separately as derivative instruments.

The Company has recorded the derivatives as liabilities and measured them at fair value with the initial value of the derivative of $32.3 million and the loss on issuance of $6.0 million recorded as a loss “on the line” in the Successor’s opening accumulated deficit (see Note 3).

Subsequent changes in the bifurcated derivatives are recorded in the condensed consolidated statements of operations and comprehensive loss.

For the period from July 22, 2023 to September 30, 2023 (Successor), the Company recorded a loss related to the change in fair value of derivatives of $ 15.5 million.

The Company utilized the Monte-Carlo valuation model to value the forward purchase agreements at Closing date and as of September 30, 2023.

The following table summarizes the significant inputs as of the valuation dates:

September 30,

Expected volatility

Risk-free interest rate

Expected life (in years)

Expected dividend yield

We did not have access to the Prepayment Amount immediately following the Closing and, pursuant to the termination of the Forward Purchase Agreements as described below related to the FPA termination, the Sellers will retain the Prepayment Amount in full, which may adversely affect our liquidity and capital needs.

The Prepayment Amount of $ 66.7 million was recorded at its present value of $ 60.7 million as Subscription Receivables, which reduced stockholders’ deficit on the Successor’s condensed consolidated balance sheet at December 31, 2023.

Termination of Forward Purchase Agreements

On March 18, 2024, the Company and ACM ARRT J LLC (“ACM”) entered into a termination agreement (the “ACM Termination Agreement”) terminating that certain Forward Purchase Agreement, dated June 29, 2023, by and among the Company and ACM (the “ACM FPA”).

The ACM Termination Agreement provides that (i) ACM will retain 3,100,000 previously issued shares of common stock held by ACM pursuant to the ACM FPA and its respective subscription agreement (the “ACM Retained Shares”) and (ii) the Company will be subject to up to $ 1,500,000 in liquidated damages if it fails to meet certain registration requirements for the ACM Retained Shares, subject to certain conditions set forth in the ACM Termination Agreement.

The Company has recorded the potential $ 1.5 million as a liability to the condensed consolidated balance sheet as of March 31, 2024.

ACM did not pay any cash to the Company for the ACM Retained Shares and retained all portions of the Prepayment Amount associated with the ACM Retained Shares.

On March 18, 2024, the Company and Polar entered into a termination agreement (the “Polar Termination Agreement”) terminating that certain Forward Purchase Agreement, dated June 29, 2023, by and among the Company and Polar (the “Polar FPA”).

The Polar Termination Agreement provides that (i) Polar will retain 3,175,000 previously issued shares of common stock held by Polar pursuant to the Polar FPA and its respective subscription agreement (the “Polar Retained Shares”) and (ii) the Company will be subject to up to $ 1,500,000 in liquidated damages if it fails to meet certain registration requirements for the Polar Retained Shares, subject to certain conditions set forth in the Polar Termination Agreement.

The Company has recorded the potential $ 1.5 million as a liability to the condensed consolidated balance sheet as of March 31, 2024.

Polar did not pay any cash to the Company for the Polar Retained Shares and retained all portions of the Prepayment Amount associated with the Polar Retained Shares.

As a result of the ACM Termination Agreement and Polar Termination Agreement, the Company recorded a charge to the condensed consolidated statement of operations of $ 20.3 million during the three months ended March 31, 2024 to reverse the related subscription receivable and derivative liability on the accompanying condensed consolidated balance sheet.

New Money PIPE Subscription Agreements and Letter Agreements

On June 29, 2023, Priveterra entered into separate subscription agreements (the “New Money PIPE Subscription Agreements”) with each of ACM ASOF VIII Secondary-C LP, the Polar Affiliate and certain other investors (collectively, the “New Money PIPE Investors”).

Pursuant to the New Money PIPE Subscription Agreements, the New Money PIPE Investors subscribed for and purchased, and Priveterra issued and sold to the New Money PIPE Investors, on the Closing Date, an aggregate of 1,001,000 shares of Priveterra Class A Common Stock for a purchase price of $ 7.00 per share, for aggregate gross proceeds of $ 7.0 million (the “New Money PIPE Investment”).

The Company recorded a loss of $ 3.8 million on the line in the Successor’s opening accumulated deficit related to issuance of common shares underlying the New Money PIPE Subscription Agreement equal to the market price of the stock on the Closing Date less the purchase price of $ 7.00 per share.

On June 29, 2023, the Sponsor entered into separate letter agreements (each, “Letter Agreement” and collectively, the “Letter Agreements”) with each of ACM ASOF VIII Secondary-C LP and Polar.

Pursuant to the Letter Agreements, in the event that the average price per share at which shares of common stock purchased pursuant to the New Money PIPE Subscription Agreements that

are transferred during the period ending on the earliest of (A) June 21, 2025, (B) the date on which the applicable Forward Purchase Agreement terminates and (C) the date on which all such shares are sold (such price, the “Transfer VWAP”, and such period, the “Measurement Period”) is less than $ 7.00 per share, then (i) ACM ASOF VIII Secondary-C LP and Polar shall be entitled to receive from Sponsor a number of additional shares of common stock that have been registered for resale by us under an effective resale registration statement pursuant to the Securities Act, under which ACM ASOF VIII Secondary-C LP and Polar may sell or transfer such shares of common stock in an amount that is equal to the lesser of (A) a number of shares of common stock equal to the Make-Whole Amount divided by the VWAP (measured as of the date the additional shares are transferred to ACM ASOF VIII Secondary-C LP or Polar, as applicable) and (B) an aggregate of 400,000 shares of common stock (the “Additional Founder Shares”) and (ii) Sponsor shall promptly (but in any event within fifteen (15) business days) after the Measurement Date, transfer the Additional Founder Shares to ACM ASOF VIII Secondary-C LP or Polar, as applicable.

“Make-Whole Amount” means an amount equal to the product of (A) $ 7.00 minus the Transfer VWAP multiplied by (B) the number of Transferred PIPE Shares.

“VWAP” means the per share volume weighted average price of the common stock in respect of the five consecutive trading days ending on the trading day immediately prior to the Measurement Date.

“Measurement Date” means the last day of the Measurement Period.

Based on the terms of the Letter Agreements, and applicable guidance in ASC 815 and SAB 5.T, “Accounting for Expenses or Liabilities Paid by Principal Stockholder(s)”, the Company has determined that the make-whole provision in the Letter Agreements is a freestanding financial instrument and a derivative instrument.

The Company has recorded the derivative liability and measured it at fair value with the initial value of the derivative ($ 0.4 million) recorded as a loss “on the line” in the Successor’s opening accumulated deficit (see Note 3).

Subsequent changes in fair value of the make-whole provision are recorded in the condensed consolidated statements of operations and comprehensive loss.

As of September 30, 2023 (Successor), the make-whole provision derivative liability was $ 0.7 million, included in the forward purchase agreements and derivative liability on the condensed consolidated balance sheets.

For the period from July 22, 2023 to September 30, 2023 (Successor), the Company recorded a loss related to the change in fair value of the make-whole provision derivative liability of $ 0.3 million.

Committed Financing

The proceeds from the interim convertible notes were used to fund Old AEON’s operations through the consummation of the Merger.

The Company recorded a loss of $ 13.7 million on the line in the Successor’s opening accumulated deficit related to issuance of common shares underlying the Committed Financing Agreements equal to the market price of the stock on the Closing Date less the purchase price of $ 7.00 per share.

As of March 31, 2024 (Successor), the make-whole provision derivative liability was $ 0.3 million, included in the embedded forward purchase agreements and derivative liabilities on the Successor’s condensed consolidated balance sheets.

For the three months ended March 31, 2024 (Successor), the Company recorded a gain related to the change in fair value of the make-whole provision derivative liability of $ 0.4 million.

Contingent Consideration and Contingent Founder Shares (Successor)

As part of the Merger, Founder Shares and certain Participating Stockholders shares (together, “Contingent Consideration Shares”), as further discussed below, contain certain contingent provisions.

As part of the Merger, certain Founder Shares and Participating Stockholders shares (together, “Contingent Consideration Shares”), as further discussed below, contain certain contingent provisions.

On April 27, 2023, Priveterra and Old AEON amended the Business Combination Agreement.

2 unchanged sentences

Pursuant to the terms of the Sponsor Support Agreement, as amended, effective immediately after the Closing, 50 % of the Founder Shares (i.e., 3,450,000 Founder Shares) (the “Contingent Founder Shares”) were unvested and subject to the restrictions and forfeiture provisions set forth in this Sponsor Support Agreement.

The remaining 50 % of the Founder Shares and 100 % of the Private

Placement Warrants are not subject to such restrictions and forfeiture provisions.

The remaining 50 % of the Founder Shares and 100 % of the Private Placement Warrants are not subject to such restrictions and forfeiture provisions.

The Contingent Founder Shares shall vest, and shall become free of the provisions as follows:

12 unchanged sentences

market (a “Qualifying License”) prior to the satisfaction of (x) the conditions for the issuance of the Episodic Migraine Contingent Consideration Shares and (y) the conditions for the issuance of the Chronic Migraine Contingent Consideration Shares, then upon the entry of AEON into such Qualifying License, 2,000,000 shares of common stock shall become due and payable to Participating Stockholders and the number of Episodic Migraine Contingent Consideration Shares and (A) the number of Episodic Migraine Contingent Consideration Shares shall be reduced by 1,000,000 or by 2,000,000 and (B) the number of Chronic Migraine Contingent Consideration Shares shall be reduced by 1,000,000 , but not below zero .

The Company accounts for the Contingent Consideration Shares as either equity-classified or liability-classified instruments based on an assessment of the Contingent Consideration Shares specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

As of September 30, 2023 (Successor), the contingent consideration liability was $ 72.1 million.

For the period from July 22, 2023 to September 30, 2023 (Successor), the income related to the change in fair value of contingent consideration was $69.7 million.

The Company classifies the Contingent Consideration Shares as a liability on the Successor’s condensed consolidated balance sheets and remeasured at each reporting period with changes to fair value recorded to the Successor’s condensed consolidated statements of operations and comprehensive loss.

The Company utilized the Probability-Weighted Expected Return Method (PWERM) model to value the contingent consideration based on earnout milestones, probability of forfeiture and success scenarios.

For the successor period July 22, 2023 to September 30, 2023, the Company recognized $69.7 million in income related to the change in fair value of contingent consideration on the condensed consolidated statements of operations and comprehensive loss.

As of March 31, 2024 (Successor), the contingent consideration liability was $ 168.1 million.

For the three months ended March 31, 2024 (Successor), the expense related to the change in fair value of contingent consideration was $63.8 million on the Successor’s condensed consolidated statements of operations and comprehensive loss.

Warrants (Successor)

Upon the Closing, 14,479,999 warrants initially issued by Priveterra in February 2021, consisting of 9,200,000 public warrants sold in the IPO and 5,279,999 warrants issued in a concurrent private placement, were assumed by AEON.

Upon the Closing, 14,479,999 warrants, initially issued by Priveterra in February 2021, consisting of 9,200,000 public warrants sold in the IPO and 5,279,999 warrants issued in a concurrent private placement, were outstanding.

The terms of the warrants are governed by a Warrant Agreement dated February 8, 2021 between the Company (then known as Priveterra Acquisition Corp.) and Continental Stock Transfer & Trust Company (the “Warrant Agreement”).

The warrants were accounted for as a liability at the Closing with changes in the fair value through September 30, 2023 recorded to the condensed consolidated statement of operations.

The Company utilized the publicly reported market price of the public warrants to value the warrant liability at $2.2 million as of September 30, 2023 (Successor).

For the Successor period from July 22, 2023 to September 30, 2023, the income from the change in fair value of warrants was $ 1.6 million.

Public warrants

Each whole public warrant entitles the holder to purchase one share of the Company’s common stock at a price of $ 11.50 per share.

The public warrants became exercisable 30 days after the completion of the Merger, and will expire at 5:00 p.m., New York City time, on July 21, 2028, the five-year anniversary of the completion of the Merger, or earlier upon redemption or liquidation.

Warrant holders may, until such time as there is an effective registration statement and during any period when the Company has failed to maintain an effective registration statement covering the shares of the Company’s common stock issuable upon exercise of the warrants, exercise warrants on a “cashless” basis” in accordance with Section 3(a)(9) of the Securities Act or another exception.

When exercised on a cashless basis, the number of shares received per warrant is capped at 0.361.

The Company may call the public warrants for redemption for cash:

● in whole and not in part;

● at a price of $ 0.01 per warrant;

● upon not less than 30 days ’ prior written notice of redemption to each warrant holder (the “ 30-day redemption period ” );

● if, and only if, there is an effective registration statement under the Securities Act of 1933 covering the issuance of the shares of common stock issuable upon exercise of the warrants, and a current prospectus relating thereto, available through the 30-day redemption period;

● if, and only if, the closing price of the Company's common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period ending three business days before the Company sends to the notice of redemption to the warrant holders.

The Company may also call the public warrants for redemption:

● in whole and not in part;

● at $ 0.10 per warrant upon a minimum of 30 days ’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares to be determined by reference to a table in the Warrant Agreement, based on the redemption date and the “ fair market value ” (as defined in the Warrant Agreement ) of common stock except as otherwise described below;

● if, and only if, the closing price of the Company’s common stock equals or exceeds $ 10.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 -trading day period ending three business days before the Company sends to the notice of redemption to the warrant holders.

Private placement warrants

Each private placement warrant was identical to the public warrants initially sold by Priveterra in the IPO, except that the private placement warrants, so long as they are held by the Sponsor or its permitted transferees, (i) will not be redeemable by the Company and (ii) may be exercised by the holders on a cashless basis.

The warrants are accounted for as a liability at the Closing with changes in the fair value recorded to the Successor’s condensed consolidated statement of operations.

The Company utilized the publicly reported market price of the public warrants to value the warrant liability at $ 12.0 million and $ 1.4 million as of March 31, 2024 (Successor) and December 31, 2023 (Successor), respectively.

For the three months ended March 31, 2024 (Successor), the expense from the change in fair value of warrants was $ 20.9 million.

Warrant exercises

During the three months ended March 31, 2024 (Successor), an aggregate of 6,203,847 warrants were exercised on a cashless basis for 960,688 shares of common stock with an impact to additional paid in capital of $ 10.3 million.

On March 29, 2024, the Company delivered notice of redemptions to warrant holders with a redemption date of April 29, 2024 for a cashless redemption of the Company’s outstanding public warrants.

The number of shares of common stock that each exercising warrant holder will receive by virtue of the cashless exercise (instead of paying the $ 11.50 per Public Warrant cash exercise price) will be calculated in accordance with the terms of the Warrant Agreement.

A summary of activity of the Company’s issued and outstanding public warrants for the three months ended March 31, 2024 (Successor) is as follows (unaudited):

Issued and Outstanding, January 1, 2024

Number of warrants exercised

( 4,912,867 )

( 1,291,047 )

( 6,203,914 )

Issued and Outstanding, March 31, 2024

Medytox Top-off Right

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The Settlement Agreement stated that in the event the shares of Old AEON common stock the Predecessor issued to Medytox represent less than 10 % of the Predecessor’s total outstanding shares immediately prior to the consummation of the Merger (the “Target Ownership”), the Company will issue additional shares of Old AEON common stock to Medytox sufficient to cause Medytox to achieve the Target Ownership (the “Top-off Right”).

Because the shares of Old AEON common stock due to be issued to Medytox represented less than 10 % of the Predecessor’s total outstanding shares immediately prior to consummation of the Merger, the Predecessor issued additional shares of Old AEON common stock (the “Top-off Shares”) to Medytox sufficient to cause Medytox to achieve the Target Ownership immediately prior to the Merger to the Top-off Right.

stock (the “Top-off Shares”) to Medytox sufficient to cause Medytox to achieve the Target Ownership immediately prior to the Merger to the Top-off Right.

Based on the terms of the Settlement Agreement, the Top-off Right is a freestanding financial instrument, and is accounted for as a derivative liability pursuant to ASC 815.

Accordingly, the Company recognized a loss of $ 5.0 million in the Predecessor period, reflecting the change in fair value through the closing date of the Merger.

At the Closing of the Merger, the derivative liability was derecognized, and the issuance of the Top-off Shares was recognized on the line in the Successor’s opening additional paid-in capital (see Note 3).

Accordingly, the Company recognized a loss of $ 11.8 million in the Predecessor period, reflecting the change in fair value through the Closing Date.

At the Closing, the derivative liability was derecognized, and the issuance of the Top-off Shares was recognized as purchase consideration in the Successor’s opening additional paid-in capital (see Note 3 Forward Merger ).

Summary of Recurring Fair Value Measurements

4 unchanged sentences

Embedded Forward Purchase Agreement and Make Whole Derivative

Balance, December 31, 2022

Balance, January 1, 2024

Issuance of convertible notes

Change in fair value

Conversion to common shares

Balance, July 21, 2023

Balance, July 22, 2023

Change in fair value

Balance, September 30, 2023

Warrant cashless exercise

Termination of forward purchase agreements

Commitments and Contingencies

4 unchanged sentences

Lease expense is recognized on a straight-line basis over the lease term.

The following table summarizes supplemental balance sheet information related to the operating lease as of September 30, 2023 (in thousands) (unaudited):

The following table summarizes supplemental balance sheet information related to the operating lease as of March 31, 2024 (in thousands, unaudited):

Minimum lease payments by fiscal year

7 unchanged sentences

Discount rate

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases for the periods from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), and the nine months ended September 30, 2022 (Predecessor) (in 000’s) (Unaudited).

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases for the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor) (in thousands) (unaudited).

Three Months Ended

Nine Months Ended

September 30,

July 1, 2023 to July 21, 2023

July 22, 2023 to September 30, 2023

January 1, 2023 to July 21, 2023

July 22, 2023 to September 30, 2023

Cost of operating leases

Cash paid for operating leases

Daewoong License and Supply Agreement

On December 20, 2019, the Predecessor entered the Daewoong Agreement, pursuant to which Daewoong agreed to manufacture and supply ABP-450 and grant the Company an exclusive license for therapeutic indications to import, distribute, promote, market, develop, offer for sale and otherwise commercialize and exploit ABP-450 in the United States, the European Union, the United Kingdom, Canada, Australia, Russia, the Commonwealth of Independent States and South Africa (collectively the “covered territories”).

Daewoong supplies the Company with ABP-450 at an agreed-upon transfer price, with no milestone or royalty payments and no minimum purchase requirements.

Daewoong is responsible for all costs related to the manufacturing of ABP-450, including costs related to the operation and upkeep of its manufacturing facility, and the Company is responsible for all costs related to obtaining regulatory approval, including clinical expenses, and commercialization of ABP-450.

The Company’s exclusivity is subject to its exercise of commercially reasonable efforts to:

(i) achieve all regulatory approvals necessary for ABP-450 to be marketed in the territory for therapeutic indications and (ii) commercialize ABP-450 in the territory for therapeutic indications.

During the term of the Daewoong Agreement, the Company cannot purchase, sell or distribute any competing products in a covered territory or sell ABP-450 outside a covered territory.

The initial term of the Daewoong Agreement is from December 20, 2019 to the later of (i) the fifth anniversary of approval from the relevant governmental authority necessary to market and sell ABP-450 or (ii) December 20, 2029, and automatically renews for unlimited additional three-year terms, provided the Daewoong Agreement is not earlier terminated.

The Daewoong Agreement will terminate upon written notice by either the Company or Daewoong upon a continuing default that remains uncured within 90 days (or 30 days for a payment default) by the other party, or without notice upon the bankruptcy or insolvency of the Company.

The Company has accrued $ 0.2 million and $ 0.1 million for ABP-450 supplies as of December 31, 2022 (Predecessor) and September 30, 2023 (Successor), respectively.

Legal Proceedings

8 unchanged sentences

The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

See Note 2 for additional information.

The Company’s loss before income taxes was entirely generated from its U.S.

As a result of its continuing losses, the Company had no provision for income taxes in the periods from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), and the three and nine months ended September 30, 2022 (Predecessor).

Convertible Preferred Stock (Predecessor)

As of December 31, 2022 (Predecessor), the Predecessor’s certificate of incorporation, as amended and restated, authorized the Predecessor to issue up to 44,666,035 shares of preferred stock at a par value of $ 0.0001 per share.

The Predecessor’s convertible preferred stock was converted and exchanged into shares of the Company’s common stock at the Closing.

The Predecessor had the following convertible preferred stock issued and outstanding at December 31, 2022:

Carrying Value,

Net of Issuance

Shares Issued

and Outstanding

(in thousands)

The holders of the convertible preferred stock had various rights and preferences as follows:

Voting Rights

The holders of each share of convertible preferred stock, prior to the conversion of the preferred stock in connection with the Closing, previously had the right to one vote for each share of common stock into which such preferred stock could be converted, and with respect to such vote, such holder had have full voting rights and powers equal to the voting rights and powers of the holders of common stock.

Prior to the conversion of the preferred stock in connection with the Closing, each holder of the convertible preferred stock is entitled to vote, together with holders of common stock, with respect to any question upon which holders of common stock had the right to vote.

Election of Directors

The holders of Series A and Series A-2 convertible preferred stock, voting together as a single class are entitled to elect one director of the Company.

The holders of Series B and Series B-2 convertible preferred stock, voting together as a single class, are entitled to together elect one director of the Company.

The holders of the convertible preferred stock and common stock (voting together as a single class and not as separate series, and with the preferred stock voting on an as-converted basis using then-effective conversion prices) are entitled to elect any remaining directors of the Company.

The holders of shares of Series B, Series B-1 and Series B-2 convertible preferred stock are entitled to non-cumulative dividends, out of any assets legally available therefore, on a pari passu basis and prior and in preference to any declaration or payment of any dividend on the Series A, Series A-1 and Series A-2 convertible preferred stock, or common stock of the Company, at the rate of $ 0.5847768 per calendar year for each share of Series B, Series B -1 and Series B -2 convertible preferred stock, payable when, as and if declared by the Board of Directors.

The holders of shares of Series A, Series A-1 and Series A-2 convertible preferred stock are entitled to non-cumulative dividends, out of any assets legally available therefore, on a pari passu basis and prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at the rate of $ 0.4382 per calendar year for each share of Series A, Series A -1 and Series A -2 preferred stock, payable when, as and if declared by the Board of Directors.

Declared but unpaid dividends with respect to a share of preferred stock shall, upon conversion of such share to common stock, be paid to the extent assets are legally available therefore in cash.

There were no cash dividend declared through the Closing.

In the event of any liquidation event, the holders of Series B-2 convertible preferred stock would be entitled to receive, on a pari passu basis and prior and in preference to any distribution of the proceeds of such liquidation event (“Proceeds”) to the holders of Series A-2 convertible preferred stock, Series B convertible preferred stock, Series B-1 convertible preferred stock, Series A convertible preferred stock, Series A-1 convertible preferred stock and common stock, an amount per share equal to the Series B original issue price of $ 7.3097 per share, plus declared but unpaid dividends on each such share (the “Series B-2 Liquidation Preference”).

Subject to the payments set forth above, in the event of any liquidation event, the holders of Series A-2 convertible preferred stock would be entitled to receive, on a pari passu basis and prior and in preference to any distribution of the Proceeds of such liquidation event to the holders of Series B convertible preferred stock, Series B-1 convertible preferred stock, Series A convertible preferred stock, Series A-1 convertible preferred stock and common stock, an amount per share equal to the Series A original issue price of $ 5.4779 per share, plus declared but unpaid dividends on each such share (the “Series A-2 Liquidation Preference”).

Subject to the payments set forth above, in the event of any liquidation event, the holders of Series B convertible preferred stock and Series B-1 convertible preferred stock would be entitled to receive, on a pari passu basis and prior and in preference to any distribution of the Proceeds of such liquidation event to the holders of Series A convertible preferred stock, Series A-1 convertible preferred stock and common stock, an amount per share equal to the Series B original issue price of $ 7.3097 per share, plus declared but unpaid dividends on each such share (the “Series B Liquidation Preference”).

Subject to the payments set forth above, the holders of Series A convertible preferred stock and Series A-1 convertible preferred stock would be entitled to receive, on a pari passu basis and prior and in preference to any distribution of the Proceeds of such Liquidation Event to the holders of common stock, an amount per share equal to the Series A issue price of $ 5.4779 , plus declared but unpaid dividends on each such share (the “Series A Liquidation Preference”).

Upon the completion of the distributions above, the remaining Proceeds available for distribution to stockholders, if any, would be distributed ratably among the holders of convertible preferred stock and common stock in proportion to the number of shares of common stock that would be held by each such holder if all shares of convertible preferred stock were converted into common stock at the then effective conversion price.

Each share of convertible preferred stock can be converted, at the option of the holder thereof, at any time after the date of issuance of such share into such number of fully paid and non-assessable shares of common stock.

The conversion rate is 1 :1 initially.

Each share of convertible preferred stock would automatically convert into shares of common stock based on the applicable conversion rate at the time in effect upon the earlier of (A) immediately prior to the closing, and conditioned upon such closing, of the sale of the Company’s common stock in an underwritten public offering at a public offering price per share of not less than (w) $ 7.3097 minus the sum of (x) the fair market value of the per unit membership interest of A1, as determined by the Board of Directors of the Company in good faith (the “A-1 Per Unit Price”) plus (y) the fair market value of the per unit membership interest of AC HoldCo, as determined by the Board of Directors of the Company in good faith (the “AC Per Unit Price”) plus (z) the fair market value of the per unit membership interest of Z HoldCo, as determined by the Board of Directors of the Company in good faith (together with the A-1 Per Unit Price and the AC Per Unit Price, the “Aggregate Spin-Out Value”), and yielding net proceeds (after discounts and commissions) to the Company of at least $ 50 million, or (B) on the date specified by affirmative vote at a meeting or by written consent from the holders of at least two-thirds of the convertible preferred stock then outstanding, voting as a single class on an as-converted-to-common stock basis (the “Preferred Supermajority”).

In the event that the Preferred Supermajority enacts a conversion of the Series A Preferred Stock in conjunction with the consummation of an initial public offering of the common stock in which the public offering price per share of the common stock (the “IPO Per Share Price”) is less than 71.4286 % of the then effective per share Series A-2 Liquidation Preference (the “Adjusted Series A-2 Preference Amount”), then the number of shares of common stock issuable with respect to each share of Series A convertible preferred stock, each share of Series A-1 convertible Preferred Stock and each share of Series A-2 convertible preferred stock will be equal to the greater of (A) the quotient obtained by dividing (x) the Adjusted Series A-2 Preference Amount by (y) the IPO Per Share Price, or (B) the quotient obtained by dividing the Series A original issue price of $ 5.4779 per share by the applicable conversion price for such series of the Series A Preferred Stock, each as in effect on the date of effective conversion.

In the event of an automatic conversion in conjunction with the consummation of an initial public offering of the common stock in which the IPO Per Share Price is less than the Series B original issue price of $ 7.3097 per share, then the applicable conversion price for the Series B convertible preferred stock, the Series B-1 convertible preferred stock and the Series B-2 convertible preferred stock for purposes of the approved conversion will be the IPO Per Share Price, rounded to the nearest whole cent with one-half cent rounded up.

The convertible preferred stock is not redeemable.

The Company has classified the convertible preferred stock as temporary equity on the accompanying condensed consolidated balance sheets as these shares could be redeemed upon the occurrence of certain change in control events that are outside of the Company’s control.

Convertible Preferred Stock Warrants

Pursuant to the terms of the Company’s Bridge Note, in 2016 the Company issued Longitude warrants to purchase 342,011 shares of the Company’s Series B convertible preferred stock at an exercise price of $ 7.3097 per share.

The warrants are exercisable, in whole or in part, from the date of issuance and expired on May 31, 2023.

As of December 31, 2022 (Predecessor), the Predecessor’s certificate of incorporation, as amended and restated, authorized the Predecessor to issue up to 207,450,050 shares of common stock at a par value of $ 0.0001 per share.

As of December 31, 2022 (Predecessor), 138,848,177 shares were issued and 138,825,356 shares were outstanding.

The holders of common stock were entitled to receive dividends whenever funds are legally available, when and if declared by the Predecessor’s Board of Directors, subject to the prior rights of the holders of the Predecessor’s convertible preferred stock.

As of December 31, 2022 (Predecessor), no cash dividend had been declared to date.

Each share of common stock was entitled to one vote.

The number of authorized shares of common stock could be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of preferred stock and common stock, voting together as a single class.

At the effective time of the Merger (“Effective Time”), (i) each outstanding share of Old AEON common stock (on an as-converted basis after taking into effect the conversion of the outstanding warrants of Old AEON exercisable for shares of Old AEON preferred stock, the conversion of the shares of Old AEON preferred stock into Old AEON common stock in accordance with the

governing documents of Old AEON as of the Effective Time, the conversion of the outstanding convertible notes of Old AEON into Old AEON common stock in accordance with the terms of such convertible notes and after giving effect to the issuance of Old AEON common stock in connection with the merger of ABP Sub, Inc.

with and into Old AEON) issued and outstanding immediately prior to the Effective Time converted into the right to receive approximately 2.328 shares of the Company’s common stock.

In addition, each share of Priveterra Class B common stock (“Founder Shares”), par value $ 0.0001 per share, issued and outstanding immediately prior to the Effective Time converted into one share of common stock (of which 3,450,000 Founder Shares are subject to certain vesting and forfeiture conditions).

As of September 30, 2023 (Successor), the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to 500,000,000 of common stock at a par value of $ 0.0001 per share.

As of September 30, 2023 (Successor), 37,159,600 shares were issued and outstanding .

See Note 2 Summary of Significant Accounting Policies for additional information.

As of March 31, 2024 (Successor), the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to 500,000,000 shares of common stock at a par value of $ 0.0001 per share.

As of March 31, 2024 (Successor), 38,120,288 shares were issued and outstanding .

The holders of common stock are entitled to receive dividends whenever funds are legally available, when and if declared by the Company’s Board of Directors.

As of September 30, 2023 (Successor), no cash dividend has been declared to date.

As of March 31, 2024 (Successor), no cash dividend has been declared to date.

Each share of common stock is entitled to one vote.

Refer to Note 3 for more information on the number of shares of common stock outstanding immediately following the Merger.

Refer to Note 3 Forward Merger for more information on the number of shares of common stock outstanding immediately following the Merger.

Common Stock Reserved

The table below summarizes the Company’s reserved common stock for further issuance as of September 30, 2023 (Successor) and December 31, 2022 (Predecessor):

September 30,

Conversion of convertible preferred stock

The table below summarizes the Company’s reserved common stock for further issuance as of March 31, 2024 (Successor) and December 31, 2023 (Successor):

Stock options issued and outstanding

2 unchanged sentences

Contingent consideration

Convertible preferred stock warrants outstanding

Total common stock reserved

Share-based Compensation Stock Incentive Plans

AEON 2013 Stock Incentive Plan (Predecessor)

In 2013, the Predecessor established its 2013 Stock Incentive Plan (the “2013 Stock Incentive Plan”) as amended from time to time, that provides for the granting of nonqualified stock options, restricted stock and stock appreciation rights to employees, members of the Board of Directors and non-employee consultants.

The 2013 Stock Incentive Plan provides for stock options to be granted with exercise prices not less than the estimated fair value of the Predecessor’s common stock, and incentive options to be granted to individuals owning more than 10 % of the total combined voting power of all classes of stock of the Predecessor with exercise prices not less than 110 % of the estimated fair value of the Predecessor’s common stock on the date of grant.

2019 Incentive Award Plan

In June 2019, ABP Sub Inc., the Predecessor’s wholly-owned subsidiary, established its 2019 Incentive Award Plan (the “2019 Incentive Award Plan”), as amended from time to time, that provides for the granting of incentive and nonqualified stock options, restricted stock units, restricted stock and stock appreciation rights to its employees, members of the Board of Directors and non-employee consultants.

The 2019 Incentive Award Plan provides for stock options to be granted with exercise prices not less than the estimated fair value of the Predecessor’s common stock, and incentive options to be granted to individuals owning more than 10 % of the total combined voting power of all classes of stock of the Predecessor with exercise prices not less than 110 % of the estimated fair value of the Predecessor’s common stock on the date of grant.

Stock options granted generally expire ten years after their original date of grant and generally vest between three years to four years with 25 % vesting on the first anniversary of the date of grant and then monthly vesting after that.

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Restricted stock awards granted generally become fully vested between one to three years .

As of December 31, 2022 (Predecessor), the aggregate number of shares available for future grant under the 2013 Stock Incentive Plan was 27,884,000 shares.

Upon the Closing, the 2013 Stock Incentive Plan was terminated and the stock options were cancelled.

The following table summarizes stock option activity under the Predecessor’s 2013 Stock Incentive Plan (unaudited):

Outstanding, January 1, 2022

Options granted

Options forfeited

Outstanding, December 31, 2022

Exercisable, December 31, 2022

Outstanding, January 1, 2023

Options granted

Options forfeited

Options cancelled in connection with Merger

( 9,694,890 )

Outstanding, July 21, 2023

Exercisable, July 21, 2023

As of December 31, 2022 (Predecessor), the weighted average remaining contractual life of options outstanding and options exercisable were 2.5 years.

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2022 (Predecessor) was $ 0.3 million.

The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying options and the estimated fair value of the Predecessor’s common stock at December 31, 2022 (Predecessor).

All awards were vested prior to 2022.

As such during the periods from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), and the three and nine months ended September 30, 2022, the Company did not recognize share-based compensation expense related to stock options granted under the 2013 Stock Incentive Plan.

As of December 31, 2022 and September 30, 2023, there was no unrecognized compensation expense related to non-vested stock options.

2019 Incentive Award Plan

In June 2019, ABP Sub Inc., the Predecessor’s wholly owned subsidiary, established its 2019 Incentive Award Plan (the “2019 Incentive Award Plan”), as amended from time to time, that provides for the granting of incentive and nonqualified stock options, restricted stock units, restricted stock and stock appreciation rights to its employees, members of the Board of Directors and non-employee consultants.

The 2019 Incentive Award Plan has similar grant terms as the Company’s 2013 Stock Incentive Plan.

In connection with the Merger, the Successor assumed the 2019 Incentive Award Plan and all options and RSU awards that were outstanding immediately prior to the Merger were converted into substantially similar awards covering shares of the Successor’s common stock based on a conversion ratio of approximately 77.65 to 1 share.

Additionally, the exercise price for the awards were repriced to $ 10.00 for all options.

The fair value of the replacement awards that were vested, based on the value immediately prior to the Merger, were included as purchase consideration in the Merger.

The remaining value of the replacement awards will be recognized in the successor period as compensation expense over the remaining vesting period, which includes stock-based compensation expense of $ 1.3 million recorded in the successor period for the impact of the stock option repricing.

The fair value of the replacement awards that were vested, based on the value immediately prior to the Merger, of $ 13.3 million were included as purchase consideration (see Note 3 Forward Merger for additional information).

The remaining value of the replacement awards will be recognized in the successor period as compensation expense over the remaining vesting period, which included stock-based compensation expense of $ 1.0 million recorded in the third quarter of fiscal year 2023 of the successor period for the impact of the stock option repricing.

Prior to the consummation of the Merger, a total of 237,500 shares of ABP Sub Inc.

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Of such RSU awards, 127,801 RSUs accelerated vesting concurrently with the Merger.

As such, the Company included an additional $ 1.8 million in purchase consideration (see Note 3 for additional information).

Additionally, of such RSU awards, 466,468 RSU’s contained performance-based vesting criteria based on the achievement of the same milestones as the contingent consideration (see Note 6 for additional information).

As of September 30, 2023, the milestones 1 and 2 were determined to be probable, and the Company began expensing the proportionate RSU’s over the vesting life, calculated as the expected completion date from the date the milestone was determined to be probable.

For the period from July 22, 2023 to September 30, 2023 (Successor), the Company has recognized $ 0.2 million of such RSU with earnout vesting criteria, $ 0.2 million in selling, general and administrative expenses and a de minimus amount in research and development expenses in the condensed consolidated statement of operations.

As such, the Company included an additional $ 1.8 million in purchase consideration (see Note 3 Forward Merger for additional information).

As of March 31, 2024, milestones 1 and 2 were determined to be probable, and the Company began expensing the proportionate RSU’s over the vesting term, calculated as the period from the date the milestone was determined to be probable and the expected achievement date of the milestone.

For the three months ended March 31, 2024 (Successor), the Company has recognized $ 0.2 million

of such RSU with earnout vesting criteria, $ 0.2 million in selling, general and administrative expenses and a de minimus amount in research and development expenses associated with such performance-based RSU’s in the Successor’s condensed consolidated statement of operations.

The following table summarizes stock option activity under 2019 Incentive Award Plan (unaudited):

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Options forfeited

Outstanding, December 31, 2022

Exercisable, December 31, 2022

Outstanding, January 1, 2023

Options granted

Options forfeited

Outstanding, July 21, 2023

Exercisable, July 21, 2023

Outstanding, July 22, 2023 (converted)

Options granted

Options forfeited

Outstanding, September 30, 2023

Exercisable, September 30, 2023

There were no options granted in the 2019 Incentive Plan during 2023.

The weighted average fair value of options granted during the year ended December 31, 2022 was $ 488.02 .

There were no options granted in 2023.

As of December 31, 2022 and September 30, 2023, the weighted average remaining contractual life of options outstanding and options exercisable was 8.1 years and 7.3 years.

As of December 31, 2022 and September 30, 2023, total unrecognized compensation expense related to nonvested stock options was $ 12.3 million and $ 5.1 million, respectively, which is expected to be recognized over the weighted-average remaining requisite service period of 24 months and 12 months , respectively.

Outstanding, March 31, 2024

Exercisable, March 31, 2024

There were no options granted in the 2019 Incentive Plan during 2023, and no options will be granted from this plan after the Closing.

As of March 31, 2024 (Successor) and December 31, 2023 (Successor), the weighted average remaining contractual life of options outstanding and options exercisable was 6.8 years and 7.1 years, respectively.

During the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor), the Company recognized $ 0.8 million and $ 1.4 million, respectively, of share-based compensation expense related to stock options granted.

As of March 31, 2024 (Successor) and December 31, 2023 (Successor), total unrecognized compensation expense related to nonvested stock options was $ 4.1 million and $ 4.9 million, respectively, which is expected to be recognized over the weighted-average remaining requisite service period of 9 months and 10 months , respectively.

The following table summarizes restricted stock units activity under the 2019 Incentive Award Plan:

Outstanding, July 22, 2023

Outstanding, September 30, 2023

Vested, September 30, 2023

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), the Company recognized $ 0.1 million, $ 0.4 million, $ 0.5 million, and $ 0.4 million, respectively, of share-based compensation expense related to restricted stock units granted.

As of September 30, 2023, total unrecognized compensation expense related to nonvested restricted stock units was $ 10.5 million, which is expected to be recognized over the weighted-average remaining requisite service period of 33 months .

Outstanding, January 1, 2024

Outstanding, March 31, 2024

During the three months ended March 31, 2024 (Successor), the Company recognized $ 0.7 million of share-based compensation expense related to restricted stock units granted, including $ 0.2 million with earnout vesting criteria.

As of March 31, 2024 (Successor), total unrecognized compensation expense related to nonvested restricted stock units was $ 8.5 million, of which $ 4.4 million was related to the earnout vesting criteria, and the remaining $ 4.1 million is expected to be recognized over the weighted-average remaining requisite service period of 28 months .

The unrecognized compensation expense with the earnout criteria will be recognized when the milestones are determined to be probable over the RSU’s vesting term, calculated as the period from the date the milestone was determined to be probable and the expected achievement date of the milestone.

AEON Biopharma Inc 2023 Incentive Award Plan

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Any shares issued pursuant to the 2023 Plan may consist, in whole or in part, of authorized and unissued common stock, treasury common stock or common stock purchased on the open market.

Outstanding, July 22, 2023

As of March 31, 2024, there were 2,859,778 shares of common stock available for issuance under the 2023 Plan.

Outstanding, January 1, 2024

Options granted

Options forfeited

Outstanding, September 30, 2023

Exercisable, September 30, 2023

The weighted average fair value of options granted in 2023 was $ 3.18 .

The weighted average remaining contractual life of options outstanding and options exercisable was 9.9 years.

During the periods from July 22, 2023 to September 30, 2023 (Successor), the

Company recognized $ 0.1 million of share-based compensation expense related to stock options granted.

As of September 30, 2023, total unrecognized compensation expense related to nonvested stock options was $ 1.0 million, which is expected to be recognized over the weighted-average remaining requisite service period of 38 months .

Outstanding, March 31, 2024

Exercisable, March 31, 2024

The weighted average fair value of options granted as of March 31, 2024 (Successor) and December 31, 2023 (Successor) was $ 5.70 and $ 3.18 , respectively.

The weighted average remaining contractual life of options outstanding and options exercisable as of March 31, 2024 (Successor) and December 31, 2023 (Successor) was 9.8 years and 9.6 years, respectively.

During the three months ended March 31, 2024 (Successor), the Company recognized $ 0.1 million of share-based compensation expense related to stock options granted.

As of March 31, 2024 (Successor) and December 31, 2023 (Successor), total unrecognized compensation expense related to nonvested stock options was $ 5.6 million and $ 0.9 million, respectively, which is expected to be recognized over the weighted-average remaining requisite service period of 42 months and 35 months , respectively.

Share-based Compensation Expense and Valuation Information

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The Company records share-based compensation expense net of actual forfeitures.

During the periods from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), and the three and nine months ended September 30, 2022 (Predecessor), the Company recognized $ 0.1 million, $ 2.4 million, $ 2.3 million, $ 2.4 million, $ 1.0 million and $ 3.7 million, respectively, of share-based compensation expense in selling, general and administrative expenses, respectively, and $ 0.1 million, $ 0.3 million, $ 0.4 million, $ 0.3 million, $ 0.1 million and $ 0.6 million, respectively, in research and development expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

The fair value of stock options under the 2019 Stock Incentive Award Plan was estimated using the following assumptions:

Nine Months Ended

September 30,

During the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor), the Company recognized $ 1.2 million and $ 1.2 million, respectively, of share-based compensation expense in selling, general and administrative expenses, respectively, and $ 0.4 million and $ 0.2 million, respectively, in research and development expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

The fair value of stock options under the 2019 and 2023 Stock Incentive Award Plan was estimated using the following assumptions:

Three Months Ended

Expected volatility

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Expected dividend yield

Fair Value of the Underlying Common Stock.

For Predecessor periods, since the Predecessor’s common stock was not traded in a public stock market exchange, the Board of Directors considered numerous factors including new business and economic developments affecting the Predecessor and independent appraisals, when appropriate, to determine the fair value of the Predecessor’s common stock.

Independent appraisal reports were prepared using valuation techniques, such as discounted cash flow analyses, from which a discount factor for lack of marketability was applied.

This determination of the fair value of the common stock was performed on a contemporaneous basis.

The Board of Directors determined the Company’s common stock fair value on an as needed basis.

For Successor periods, the fair value of the stock price is the closing price for the Company’s common stock as reported on the NYSE American.

Expected Life .

The expected life is calculated using the simplified method as the Company does not have sufficient historical information to provide a basis for the estimate.

The simplified method is based on the average of the vesting tranches and the contractual life of each grant.

Expected Volatility .

The expected volatility is estimated based on a study of selected publicly traded peer companies as the Company does not have any trading history for its common stock.

The Company selected the peer group based on similarities in industry, stage of development, size and financial leverage with the Company’s principal business operations.

For each grant, the Company measured historical volatility over a period equivalent to the expected life.

Risk-free Interest Rate .

The risk-free interest rate is based on the yield available on U.S.

Treasury zero-coupon issues whose term is similar in duration to the expected life of the respective stock option.

Expected Dividend Yield .

The Company has not paid and does not anticipate paying any dividends on its common stock in the foreseeable future.

Accordingly, the Company has estimated the dividend yield to be zero.

Subsequent Events

The Company has further evaluated subsequent events for recognition and remeasurement purposes as of and for the nine months ended September 30, 2023.

After review and evaluation, management has concluded that there were no material subsequent events as of the date that the financial statements were available to be issued.

The Company has further evaluated subsequent events for recognition and remeasurement purposes as of and for the three months ended March 31, 2024.

After review and evaluation, management has concluded that there were no material subsequent events as of the date that the financial statements were available to be issued, except as described below.

Pursuant to the terms of the Subscription Agreement with Daewoong relating to the sale and issuance by the Company of senior secured convertible notes in the principal amount of up to $ 15.0 million, on April 12, 2024, the Company issued and sold to Daewoong an additional Convertible Note for the remaining principal amount of $ 10.0 million (see Note 5 Daewoong Convertible Notes for more information).

On May 2, 2024, the Company paid approximately $ 21 thousand to redeem the remaining public warrants.

For more information, refer to the Warrants section in Note 6 Fair Value Measurements .

The Company will continue to evaluate the complete dataset and determine the next steps in the development of ABP-450.

Additionally, the Company has immediately commenced cash preservation measures and will review all strategic options.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements