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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-13 · 150 added, 251 removed, 188 unchanged (68% of the section changed)

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Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties.

As a result of many factors, such as those set forth in the section of the Registration Statement on Form S-1 filed on October 23, 2023 captioned “Risk Factors” and in the section of this Reported captioned “Cautionary Statement Regarding Forward-Looking Statements”, actual results may differ materially from those anticipated in these forward-looking statements.

As a result of many factors, such as those set forth in the section of the Registration Statement on Form S-1 filed on April 2, 2024 captioned “Risk Factors” and in the section of this Reported captioned “Cautionary Statement Regarding Forward-Looking Statements”, actual results may differ materially from those anticipated in these forward-looking statements.

Unless the context otherwise requires, references to “we”, “us”, “our” and “the Company” refer to the business and operations of AEON Biopharma, Inc.

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We are a clinical stage biopharmaceutical company focused on developing our proprietary botulinum toxin complex, ABP-450 (prabotulinumtoxinA) injection (“ABP-450”) for debilitating medical conditions, with an initial focus on the neurology and gastroenterology markets.

We plan to develop ABP-450 to address the estimated $3.0 billion global therapeutic botulinum toxin market, which is projected to grow to $4.4 billion in 2027 1 .

We recently completed a Phase 2 study of ABP-450 for the treatment of cervical dystonia and have an ongoing Phase 2 study of ABP-450 for the treatment of both chronic and episodic migraine.

We plan to develop ABP-450 to address the estimated $3.0 billion global therapeutic botulinum toxin market, which is projected to grow to $4.4 billion in 2027, according to the Decision Resources Group Therapeutic Botulinum Toxin Market Analysis Global as of 2021.

We have completed a Phase 2 study of ABP-450 for the treatment of cervical dystonia and are conducting a Phase 2 study of ABP-450 for the treatment of both chronic and episodic migraine.

The topline data from the episodic migraine cohort of the Phase 2 study was reported in October 2023 and interim topline data from the chronic migraine cohort of the Phase 2 study was reported in May 2024.

ABP-450 is the same botulinum toxin complex that is currently approved and marketed for cosmetic indications by Evolus, Inc.

under the name Jeuveau in the United States and Nuceiva in Canada and the European Union.

ABP-450 is manufactured by Daewoong Pharmaceutical Co.

ABP-450 is manufactured by Daewoong Pharmaceutical Co., LTD.

(“Daewoong”) in compliance with current good manufacturing processes (“cGMP”) in a facility that has been approved by the U.S.

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We selected these initial indications based on a comprehensive product assessment screen designed to identify indications where we believe ABP-450 can deliver significant value to patients, physicians and payors and where its clinical, regulatory and commercial characteristics suggest viability.

We believe that ABP-450 has application in a broad range of indications and we plan to continue to explore additional indications that satisfy our product assessment screens.

Decision Resources Group Therapeutic Botulinum Toxin Market Analysis Global 2021.

We believe that ABP-450

has application in a broad range of indications and we plan to continue to explore additional indications that satisfy our product assessment screens.

The FDA accepted our investigational new drug (“IND”) application for ABP-450 as a preventative treatment for migraine in October 2020, and we began treating patients in our Phase 2 clinical study beginning in March 2021.

On October 19, 2023, we announced topline results from our Phase 2 clinical trial of ABP-450 for the preventive treatment of episodic migraine.

In October 2023, we announced topline results from our Phase 2 clinical trial of ABP-450 for the preventive treatment of episodic migraine.

The Phase 2 clinical trial for episodic migraine did not meet its primary endpoint, though it did show statistical significance on multiple secondary and exploratory endpoints, including the percentage of patients achieving a reduction from baseline of at least 50% in monthly migraine days and 75% in monthly migraine days during the weeks 21 to 24 of the treatment period and improvements on certain patient and rating scales.

We plan to announce topline data related to chronic migraine in the second half of 2024.

The FDA accepted our IND application for ABP-450 as a treatment for cervical dystonia in October 2020, and we began treating patients in our Phase 2 clinical study beginning in April 2021.

ABP-450 demonstrated a favorable safety profile for patients with episodic migraine.

We believe the totality of the data provides evidence of a dose response favoring the higher 195U dose and lends support to our decision to progress ABP-450 into Phase 3 with respect to migraine.

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.

The FDA accepted our IND application for ABP-450 as a treatment for cervical dystonia in October 2020, and we began treating patients in our Phase 2 clinical study beginning in March 2021.

Topline data from the Phase 2 study, released in September 2022, confirmed that ABP-450 met all primary endpoints and a number of other key secondary endpoints, supporting the safety and efficacy of ABP-450 in reducing signs and symptoms associated with cervical dystonia.

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Daewoong licenses the same 900 kDa botulinum toxin to Evolus for cosmetic indications, which it markets and sells under the name Jeuveau in the United States and Nuceiva in Canada and the European Union.

We have never been profitable from operations and, as of September 30, 2023, we had an accumulated deficit of $423.1 million.

We have never been profitable from operations and, as of March 31, 2024, we had an accumulated deficit of $591.6 million.

We have never generated revenue from ABP-450.

Losses from operations were $29.6 million, income from operations of $57.9 million and $33.4 million for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and for the nine months ended September 30, 2022, respectively.

Consolidated net losses attributable to our common stockholders were $38.0 million, income of $43.9 million and losses were $18.0 million for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and for the nine months ended September 30, 2022, respectively.

As of September 30, 2023, we had $16.2 million in cash.

Losses from operations were $13.0 million and $74.2 million for the three months ended March 31, 2023 (Predecessor) and March 31, 2024 (Successor), respectively.

Consolidated net losses were $17.6 million and $118.0 million for the three months ended March 31, 2023 (Predecessor) and March 31, 2024 (Successor), respectively.

As of March 31, 2024, we had $1.6 million in cash and cash equivalents.

We have concluded that we do not have sufficient cash to fund our operations for 12 months from the date of our financial statements without additional financing, and as a result, there is substantial doubt about our ability to continue as a going concern.

As of the date of this Report, we have sufficient cash to fund our operating plan through mid-December 2023.

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 of the date of this Report, we have sufficient cash to fund our operating plan through June 2024, including the $15 million of financing related to the issuance of certain Convertible Notes with Daewoong.

For more information, see “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources .” 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.

We do not expect to receive any revenue from ABP-450 or any future product candidates that we develop unless and until we obtain regulatory approval and commercialize ABP-450 or any future product candidates.

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We expect to incur significant expenses related to building our commercialization infrastructure, including marketing, sales and distribution functions, inventory build prior to commercial launch, training and deploying a specialty sales force and implementing a targeted marketing campaign.

Description of the Merger

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 our common stock.

Description of the Merger, Forward Purchase Agreements and Convertible Note Subscription

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 our Class A common stock, par value $0.0001 per share (“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).

In addition, Priveterra entered into separate Forward Purchase Agreements with each of ACM ARRT J LLC (“ACM”), and Polar Multi-Strategy Master Fund (“Polar”), on June 29, 2023, for an OTC Equity Prepaid Forward Transaction.

The Forward Purchase Agreements provide that each of Polar and ACM will separately be paid directly an aggregate cash amount (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.

In satisfaction of the Prepayment Amount, on July 21, 2023, $66.7 million was obligated to be paid from the purchase of the Additional Shares by each of ACM and Polar pursuant to the terms of certain FPA Funding Amount PIPE Subscription Agreements between Priveterra and each of ACM and Polar.

We did not have access to the Prepayment Amount immediately following the Closing and, depending on the manner in which the OTC Equity Prepaid Forward Transactions are settled, may never have access to the Prepayment Amount, which may adversely affect our liquidity and capital needs.

As a result of becoming a public company, we will need to hire additional staff and implement processes and procedures to address public company regulatory requirements and customary practices.

We expect to incur additional annual expenses for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources and fees.

Forward Purchase Agreements

The Forward Purchase Agreements provided that each of Polar and ACM would separately be paid directly an aggregate cash amount (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 March 18, 2024, we entered into separate termination agreements with each of ACM and Polar terminating their respective Forward Purchase Agreements (each, an “FPA Termination Agreement” and together, the “FPA Termination Agreements”).

The FPA Termination Agreement with ACM provides that (i) ACM will retain 3,100,000 previously issued Additional Shares held by ACM pursuant to its respective Forward Purchase Agreement and subscription agreement (the “ACM Retained Shares”) and (ii) we will be subject to up to $1.5 million in liquidated damages if we fail to meet certain registration requirements for the ACM Retained Shares, subject to certain conditions set forth in ACM’s respective FPA Termination Agreement.

The Termination Agreement with Polar provides that (i) Polar will retain 3,175,000 previously issued Additional Shares held by Polar pursuant to its respective Forward Purchase Agreement and subscription agreement (the “Polar Retained Shares”) and (ii) we will be subject to up to $1.5 million in liquidated damages if we fail to meet certain registration requirements for the Polar Retained Shares, subject to certain conditions set forth in Polar’s respective FPA Termination Agreement.

We did not have access to the Prepayment Amount at any time following the

Closing and, pursuant to the FPA Termination Agreements, ACM and Polar will retain the Prepayment Amount in full.

The potential aggregate liquidated damages of up to $3.0 million and the terminated access to the Prepayment Amount may adversely affect our liquidity and capital needs.

Convertible Note Subscription

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

Each Convertible Note will contain customary events of default, will accrue interest at an annual rate of 15.79% and will have 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.

We will use the net proceeds from each Convertible Note to support the late-stage clinical development of ABP-450 and for general working capital purposes.

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

The Subscription Agreement further provides that we will issue and sell to Daewoong a second Convertible Note in the principal amount of $10.0 million no later than thirty (30) days following our compliance with certain conditions set forth in the Subscription Agreement, including our execution of an amendment to that certain License and Supply Agreement, by and between us and Daewoong, dated December 20, 2019, as amended on July 29, 2022, January 8, 2023 and April 24, 2023 (the “License Agreement”).

On March 19, 2024, we entered into a Fourth Amendment to the License Agreement (the “License Agreement Amendment”) with Daewoong, which amends the License Agreement.

Pursuant to the terms of the License Agreement Amendment, the License Agreement will terminate if, over any six month period, (a) we cease to commercialize ABP-450 in certain territories specified in the License Agreement and (b) we cease 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).

Components of Our Results of Operations

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Due to the stage of our development and our ability to use resources across all of our programs, most of our R&D costs are not recorded on a program-specific basis.

We expect our R&D expenses to continue to increase as we continue our Phase 2 clinical studies for ABP-450 to treat migraine, commence a Phase 2 study of ABP-450 for gastroparesis, and as we develop and initiate a Phase 3 study of ABP-450 in cervical dystonia.

We expect our R&D expenses to continue to increase as we continue our Phase 2 clinical studies for ABP-450 to treat migraine and as we develop and initiate a Phase 3 study of ABP-450 in cervical dystonia.

R&D expenses associated with these studies will include third-party costs such as expenses incurred under agreements with CROs, the cost of consultants who assist with the development of ABP-450 on a program-specific basis, investigator grants, sponsored research, product costs in connection with acquiring ABP-450 from Daewoong for use in conducting preclinical and clinical studies, and other third-party expenses attributable to the development of our product candidates.

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The Company records costs incurred in obtaining technology licenses 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 IPR&D recorded at the Closing was written off and is included on the line in the consolidated financial statements (see Note 3 to the consolidated financial statements).

The acquired IPR&D recorded at the Closing was written off and is included in the consolidated statement of operations for the Successor period ended December 31, 2023 (see Note 3 Forward Merger to the consolidated financial statements).

Change in Fair Value of Contingent Consideration

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.

Other (Loss) Income, Net

Other (loss) income, net primarily consists of gains and losses resulting from the remeasurement of the fair value of our convertible notes, forward purchase agreements, warrant liabilities, each described below, at each balance sheet date.

The Company determined that the Contingent Consideration Shares would be 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.

Other Loss, Net

Other loss, net primarily consists of gains and losses resulting from the remeasurement of the fair value of our convertible notes, forward purchase agreements, warrant liabilities, each described below, at each balance sheet date.

Change in fair value of convertible notes – The Company elected the fair value option to account for its convertible notes, with the subsequent changes in fair value recorded in the condensed consolidated statement of operations and comprehensive loss.

Change in fair value of forward purchase agreement and make whole derivative - 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.

Loss on embedded forward purchase agreement and make whole derivative - 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.

Change in fair value of warrants - Changes in the estimated fair value of our warrant liabilities are recognized as a non-cash gain or loss on the condensed consolidated statements of operations and comprehensive loss.

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

Change in fair value of warrants - Changes in the estimated fair value of our warrant liabilities are recognized as a non-cash gain or loss on the Successor’s condensed consolidated statements of operations and comprehensive loss.

Income Tax Benefit

Our tax provision is comprised of United States and state income taxes.

Our tax provision is comprised of federal and state income taxes.

We currently record a full valuation allowance against our net deferred tax assets.

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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:

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Total operating costs and expenses

(Loss) income from operations

Loss from operations

Other (loss) income:

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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

Comparison of 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), to the three and nine months ended September 30, 2022 (Predecessor)

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

Comparison of the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor)

Operating Expenses

Selling, General and Administrative (SG&A) Expenses

SG&A expenses were $1.1 million and $5.5 million for the period from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), respectively, an increase of $4.2 million, or 175%, compared to $2.4 million during the three months ended September 30, 2022 (Predecessor).

The increase in S&GA expenses was primarily attributable to an increase of $2.2 million in legal expenses and professional fees related to the Merger, $1.2 million related to repricing of stock options in connection with the Merger and an increase in stock-based compensation expense of $0.5 million due to vesting of restricted stock units granted in 2023.

SG&A expenses were $9.8 million and $5.5 million for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), respectively, an increase of $7.1 million, or 87%, compared to $8.2 million during the nine months ended September 30, 2022 (Predecessor).

The increase in SG&A expenses was primarily attributable to an increase of $5.9 million in legal expenses and professional fees related to the Merger and $1.2 million related to repricing of stock options in connection with the Merger.

SG&A expenses were $4.6 million for the three months ended March 31, 2024 (Successor), an increase of $0.8 million, or 21%, compared to $3.8 million during the three months ended March 31, 2023 (Predecessor).

The increase in S&GA expenses was primarily attributable to an increase of $0.5 million in legal expenses and professional fees related to the Merger and $0.2 million related to public company insurance for director and officers.

Research and Development (R&D) Expenses

R&D expenses were $1.6 million and $6.3 million for the period from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), respectively, an increase of $0.4 million, or 5%, compared to $7.5 million during the three months ended September 30, 2022 (Predecessor).

The increase was primarily attributable to a $0.2 million due to vesting of restricted stock units granted in 2023.

R&D expenses were $19.8 million and $6.3 million for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), respectively, an increase of $0.9 million, or 4%, compared to $25.2 million during the nine months ended September 30, 2022 (Predecessor).

The increase was primarily attributable to $0.8 million due to vesting of restricted stock units granted in 2023.

R&D expenses were $5.7 million for the three months ended March 31, 2024 (Successor), a decrease of $3.5 million, or 38%, compared to $9.2 million during the three months ended March 31, 2023 (Predecessor).

The decrease was primarily attributable to a $3.8 million decrease in R&D expenses due to wind down of Phase 2 clinical trials related to chronic and episodic migraine and cervical dystonia, offset by an increase of $0.3 million related to stock-based compensation expense.

Change in Fair Value of Contingent Consideration

At the Closing, the Company recognized a gain of $69.7 million related to the change in the fair value of the contingent consideration liability for the period from July 22, 2023 to September 30, 2023 (Successor) related to certain contingent provisions, restrictions and forfeiture provisions for Founder Shares and certain Participating Stockholders shares.

See Note 6 to the consolidated financial statements for further discussion.

Other Income (Loss), Net

Other income (loss), net was loss of $2.4 million and $14.0 million for the period from July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), respectively, an increase in net other loss of $15.8 million, compared to loss of $0.5 million during the three months ended September 30, 2022 (Predecessor).

The change is primarily due to loss on fair value of derivatives of $15.8 million (Successor), offset by income of $1.6 million for change in fair value of warrants (Successor), $5.0 million loss related to settlement of derivatives (Predecessor) and $2.6 million of income related to the change in value of convertible notes (Predecessor) compared to loss in the same period in the prior year primarily related to $0.7 million due to change in convertible notes (Predecessor).

Other income (loss), net was loss of $8.4 million and $14.0 million for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor), respectively, an increase in net other loss of $37.8 million, compared to income of $15.4 million during the nine months ended September 30, 2022 (Predecessor).

The change is due to loss on fair value of derivatives of $15.8 million (Successor), loss of $3.5 million related to the change in value of convertible notes

(Predecessor), income of $1.6 million for change in fair value of warrants (Successor), $5.0 million loss related to the change in fair value of derivatives (Predecessor) compared to income during the nine months ended September 30, 2022 (Predecessor) primarily related to a $15.3 million due to change in fair value of convertible notes.

The Company recognized a loss of $63.8 million related to the change in the fair value of the contingent consideration liability for the three months ended March 31, 2024 (Successor) related to certain contingent provisions, restrictions and forfeiture provisions for Founder Shares and certain Participating Stockholders shares, which was primarily attributable to the increase in the stock price of the Company from December 31, 2023 to March 31, 2024.

See Note 6 Fair Value Measurements to the condensed consolidated financial statements for further discussion.

Other Loss, Net

Other loss, net was loss of $43.9 million for the three months ended March 31, 2024 (Successor), an increase in net other loss of $39.3 million, compared to loss of $4.6 million during the three months ended March 31, 2023 (Predecessor).

The change is primarily due to loss on forward purchase agreements and derivative liabilities of $22.9 million (Successor), mainly related to the termination of the forward purchase agreements of $19.9 million and accrual for potential liquidated damages of $3.0 million in March 2024;

loss of $20.9 million for change in fair value of warrants (Successor), mainly due to the increase in the Company’s public warrant price from December 31, 2023 to March 31, 2024, offset by a decrease in the number of warrants outstanding at March 31, 2024 due to the cashless warrant exercises in the three months ended March 31, 2024;

and loss of $0.1 million related to the change in fair value of convertible notes (Successor) compared to loss in the same period in the prior year primarily related to $4.7 million due to change in convertible notes (Predecessor).

Liquidity and Capital Resources

Our primary sources of capital have been debt financing (Predecessor) and equity financing (Successor).

We have has experienced recurring losses from operations and have a net capital deficiency and negative cash flows from operations since our inception.

As of September 30, 2023 (Successor), we had reported cash of $16.2 million and an accumulated deficit of $423.1 million.

We have experienced recurring losses from operations and have a net capital deficiency and negative cash flows from operations since our inception.

As of March 31, 2024 (Successor), we had reported cash and cash equivalents of $1.6 million and an accumulated deficit of $591.6 million.

On July 21, 2023, the Company closed the Merger.

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The committed financings available immediately at the Closing provided the capital necessary to consummate the Merger and provided sufficient proceeds to fund the Company through the announcement of topline data from the Company’s Phase 2 study with ABP-450 for the preventive treatment of episodic migraine, which occurred in October 2023.

As of the date of this report, we have sufficient cash to fund our operating plan through mid-December 2023.

We are actively attempting to secure additional capital to fund our operations.

However, we cannot assure you that we will be able to raise additional capital on commercially reasonable terms or at all.

Prior to the Merger, Priveterra had entered into separate Forward Purchase Agreements with each of ACM and Polar.

The Forward Purchase Agreements provided that each of Polar and ACM would separately 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 Additional Shares and (ii) the redemption price per share of $10.63.

On March 18, 2024, we entered into separate FPA Termination Agreements with each of ACM and Polar terminating their respective Forward Purchase Agreements.

The FPA Termination Agreement with ACM provides that (i) ACM will retain 3,100,000 previously issued Additional Shares held by ACM pursuant to its respective Forward Purchase Agreement and subscription agreement and (ii) we will be subject to up to $1.5 million in liquidated damages if we fail to meet certain registration requirements for the ACM Retained Shares, subject to certain conditions set forth in ACM’s respective FPA Termination Agreement.

The Termination Agreement with Polar provides that (i) Polar will retain 3,175,000 previously issued Additional Shares held by Polar pursuant to its respective Forward Purchase Agreement and subscription agreement and (ii) we will be subject to up to $1.5 million in liquidated damages if we fail to meet certain registration requirements for the Polar Retained Shares, subject to certain conditions set forth in Polar’s respective FPA Termination Agreement.

We did not have access to the Prepayment Amount at any time following the Closing and, pursuant to the FPA Termination Agreements, ACM and Polar will retain the Prepayment Amount in full.

The potential aggregate liquidated damages of up to $3.0 million and the terminated access to the Prepayment Amount may adversely affect our liquidity and capital needs.

On March 19, 2024, we entered into the Subscription Agreement with Daewoong relating to our sale and issuance of Convertible Notes in the principal amount of up to $15.0 million, which are convertible into shares of common stock, subject to certain conditions and limitations set forth in each Convertible Note.

Each Convertible Note will contain customary events of default, will accrue interest

at an annual rate of 15.79% and will have 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.

We will use the net proceeds from each Convertible Note to support the late-stage clinical development of ABP-450 and for general working capital purposes.

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

On March 19, 2024, we entered into the License Agreement Amendment with Daewoong, which amends the License Agreement.

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

Additionally, the Company has 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.

In connection with the Merger, the Company also entered the Forward Purchase Agreements, which provide the Company with additional potential funding of up to approximately $73 million.

However, the amounts, if any, that we receive pursuant to the Forward Purchase Agreements will depend on numerous factors, including the trading price of our common stock over the life of the Forward Purchase Agreements, which will be no more than two years from the date of the Closing.

Under the terms of the Forward Purchase Agreements, the counterparties may also have the right under certain circumstances to accelerate the termination of the Forward Purchase Agreements, in which case we may not receive any proceeds and may incur material obligations.

For example, 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 we 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, we would potentially owe the Sellers an aggregate of approximately $12.6 million.

Further, we 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 our Common Stock on a national securities exchange.

Any of the above scenarios may adversely affect our liquidity and capital needs.

As of the date of this Report, we expect to have sufficient cash to fund our operating plan through June 2024, including $15 million of financing related to the issuance of certain Convertible Notes with Daewoong.

We have incurred operating losses and negative cash flows from operating activities since inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable.

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Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of financing and ultimately attain profitable operations.

Our primary use of cash is to fund operating expenses, which consist of R&D expenditures as well as SG&A expenditures.

Our primary use of cash is to fund operating expenses, which consist of R&D expenditures, including clinical trials, as well as SG&A expenditures.

Cash used to fund operating expenses is impacted by the timing of when we pay or prepay these expenses.

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We may receive additional capital from the cash exercise of the warrants.

However, the exercise price of our Warrants and the Private Placement Warrants is $11.50 per warrant and the last reported sales price of our common stock on November 10, 2023 was $4.18.

The likelihood that holders of Warrants will exercise their Warrants or Private Placement Warrants, and therefore the likelihood of any amount of cash proceeds that we may receive, is dependent upon the trading price of our Common Stock and we do not currently expect to receive any cash proceeds from the exercise of Warrants in the short- to medium-term due to the trading price of our common stock.

If the trading price for our common stock continues to be less than $11.50 per share, we do not expect holders to exercise their Warrants.

Additionally, the Private Placement Warrants may be exercised on a cashless basis and we will not receive any proceeds from such exercise, even if the Private Placement Warrants are in-the-money.

However, the exercise price of our warrants and the Private Placement Warrants is $11.50 per warrant and the last reported sales price of our common stock on May 13, 2024 was $1.68.

The likelihood that holders of warrants will exercise their warrants or Private Placement Warrants, and therefore the likelihood of any amount of cash proceeds that we may receive, is dependent upon the trading price of our common stock after effectiveness of our registration statement on Form S-1 registering the issuance of common stock underlying the warrants and Private Placement Warrants.

If the trading price for our common stock does not maintain a price above $11.50 per share after the effectiveness of such registration statement on Form S-1, we do not expect holders to exercise their warrants for cash.

Beginning the 61 st business day after the closing of the Business Combination, holders of warrants can exercise warrants on a cashless basis at any time when such registration statement is not available.

The warrants and Private Placement Warrants may be exercised on a cashless basis at any time and we will not receive any proceeds from such exercise, even if the Private Placement Warrants are in-the-money.

We will have broad discretion over the use of any proceeds from the exercise of such securities.

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Net Cash Used in Operating Activities

Net cash used in operating activities for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) were $21.7 million and $15.1 million, respectively, consisting primarily of a net loss of $38.0 million (Predecessor) and income of $43.9 million (Successor) and non-cash charges of $53.2 million, consisting primarily of $3.5 million related to the change in fair value of the convertible notes (Predecessor), $(1.6) million related to change in fair value of warrants (Successor), $15.8 million related to change in fair value of derivatives (Successor), $(69.7) million related to change in fair value of contingent consideration (Successor) and a $5.6 million non-cash expense related to stock-based compensation for our executives and directors, consisting of $3.2 million (Predecessor) and $2.4 million (Successor).

Net cash used in operating activities for the nine months ended September 30, 2022 was $27.1 million, consisting primarily of a net loss of $18.0 million and non-cash items of $10.7 million, consisting primarily of $15.3 million related to the change in the fair value of the convertible notes (Predecessor) offset by a $4.2 million non-cash expense related to stock-based compensation for our executives and directors (Predecessor).

Net cash used in operating activities for the three months ended March 31, 2024 (Successor) was $8.6 million, consisting primarily of a net loss of $118.0 million (Successor) and non-cash charges of $109.3 million, consisting primarily of $0.1 million related to the change in fair value of the convertible notes (Successor), $20.9 million related to change in fair value of warrants (Successor), $22.9 million related to loss on forward purchase agreement and derivative liabilities (Successor), $63.8 million related to change in fair value of contingent consideration (Successor) and a $1.6 million non-cash expense related to stock-based compensation for our executives and directors (Successor).

Net cash used in operating activities for the three months ended March 31, 2023 (Predecessor) was $11.1 million, consisting primarily of a net loss of $17.6 million and non-cash items of $6.1 million, consisting primarily of $4.7 million related to the change in the fair value of the convertible notes (Predecessor) and a $1.4 million non-cash expense related to stock-based compensation for our executives and directors (Predecessor).

Cash Flows from Investing Activities

Net cash used in investing activities for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) were $0 and $0, respectively, and $0.3 million for the nine months ended September 30, 2022 (Predecessor), related to the purchase of property and equipment.

Net cash used in investing activities for the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor) were $0 and a de minimus amount, respectively, related to the purchase of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities for the period from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) were $14.0 million and $0, respectively, primarily related to the issuance of convertible notes.

Net cash provided by financing activities for the nine months ended September 30, 2022 (Predecessor) was $44.5, primarily related to the issuance of convertible notes.

Net cash provided by financing activities for the three months ended March 31, 2024 (Successor) and March 31, 2023 (Predecessor) were $5.0 million and $6.0 million, respectively, primarily related to the issuance of convertible notes.

Convertible Notes (Predecessor)

Our convertible notes prior to the Merger included the Strathspey Crown Note, the SCH Convertible Note, the 2019 Convertible Notes, 2021 A1 Convertible Notes and the Daewoong Convertible Note, each described in more detail below.

Our convertible notes prior to the Merger included principal amounts outstanding for the Strathspey Crown Note of $17.5 million, 2019 Convertible Notes of $6.0 million, A1 Convertible Notes of $38.5 million and the Daewoong Convertible Note $60.0 million.

At the Closing, the convertible notes were converted into shares of Successor common stock.

Strathspey Crown Note and SCH Convertible Note.

Since December 2013, we had been party to an intercompany credit line promissory note (the “Strathspey Crown Note”), pursuant to which SCH, our majority stockholder, had advanced borrowings to us to fund our capital requirements.

Effective as of January 2, 2020, we and SCH cancelled all obligations under the Strathspey Crown Note and in exchange we issued a convertible promissory note to SCH (the “SCH Convertible Note”, with a principal amount of $17.5 million.

We accounted for the debt exchange as an extinguishment of the Strathspey Crown Note and recognized a loss on debt extinguishment of $11.8 million, representing the difference between the fair value of the SCH Convertible Note of $26.5 million, the fair value of which included the principal plus the value of the embedded features as described below at January 2, 2020 and total obligations outstanding under the Strathspey Crown Note of $15.8 million less the unamortized borrowing cost of $0.5 million.

The SCH Convertible Note and the interest due thereupon was paid out in shares of Old AEON common stock immediately prior to the consummation of the Merger, which were then converted into shares of Successor common stock at the Closing.

2019 Debt Financings .

In June 2019, we entered into a senior unsecured note purchase agreement (the “Original 2019 Note Purchase Agreement”), with Dental Innovations BVBA (“Dental Innovations”), pursuant to which we 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, we were 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 our completion of an initial public offering and (iii) our election to repay the Original 2019 Note in full.

Under the Original 2019 Note Purchase Agreement, Dental Innovations committed to purchase from us an additional promissory note with a principal amount of $5.0 million, subject to our 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 Note.

In December 2019, we 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 us an additional promissory note with a principal amount of $5.0 million subject to us 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, we 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 our board of directors.

All six such convertible promissory notes are referred to as the 2019 Convertible Notes.

The 2019 Convertible Notes and the interest due thereupon was converted into in shares of Old AEON common stock immediately prior to the consummation of the Merger, which were then converted into shares of Successor common stock at the Closing.

A1 Convertible Notes.

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

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

The 2021 A1 Convertible Notes were unsecured and subordinated to our other convertible notes.

The 2021 A1 Convertible Notes bore interest 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 remained outstanding.

Subsequent to December 31, 2021, we 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 are similar to those of the 2021 A1 Convertible Notes.

As of December 31, 2022 and June 30, 2023, the principal balance was $14.5 million, with an estimated fair value of $13.5 million and $15.2 million, respectively.

Additionally, on March 30, 2022, we 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 share of common stock in connection with an initial public offering.

On March 6, 2023, we entered into an agreement with A1 (the “Original A1 Note Subscription Agreement”), pursuant to which we issued subordinated convertible promissory notes to A1 with an aggregate principal amount of $6.0 million (the “March 2023 A1 Convertible Notes”), that matured upon 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 were unsecured and subordinated to the Company’s other convertible notes.

As of June 30, 2023, the principal amount outstanding was $6 million with an estimated fair value of $7.9 million.

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 cancelled 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 and 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).

On May 2, 2023, we entered into an agreement with A1, pursuant to which we issued subordinated convertible promissory notes to A1 with an aggregate principal amount of $6.0 million (“May 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 May 2023 A1 Convertible Notes bore interest at 15.79%, based on simple interest daily.

The May 2023 A1 Convertible Notes were unsecured and subordinated to the Company’s other convertible notes.

On June 23, 2023, A1 entered into an amendment to its Original A1 Note Subscription Agreement (the “Amended A1 Note Subscription Agreement”), to add the subscription of $20 million additional aggregate principal of subordinated convertible

promissory notes.

In connection therewith, on June 8, 2023, we and Priveterra entered into a Committed Financing Agreement with A1, or the Additional Committed Financing Agreement, pursuant to which A1 agreed to purchase, and Priveterra and we agreed to sell to A1, an additional $20 million aggregate principal of interim notes convertible into 2,857,143 shares of Priveterra Class A common stock, for a purchase price of $7.00 per share pursuant to the Additional Committed Financing Agreement.

On June 27, 2023, we entered into an agreement with A1, pursuant to which we issued subordinated convertible promissory notes to A1 with an aggregate principal amount of $2.0 million (“June 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 June 2023 A1 Convertible Notes bore interest at 15.79%, based on simple interest daily.

The June 2023 A1 Convertible Notes were unsecured and subordinated to the Company’s other convertible notes.

The 2021 A1 Convertible Notes and 2022 A1 Convertible Notes and the interest due thereupon were repaid in shares of Old AEON common stock immediately prior to the consummation of the Merger, which were then converted into shares of Successor common stock at the Closing.

The March 2023 A1 Convertible Notes, the May 2023 A1 Convertible Notes and the convertible notes subscribed for under the Amended A1 Note Subscription Agreement and Additional Committed Financing Agreement were repaid in shares of Priveterra Class A Common Stock immediately prior to the consummation of the Merger and are not subject to any contractual lock-up.

Daewoong Convertible Notes .

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

The 2020 Daewoong Convertible Notes have 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 2019 Convertible Notes.

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

Interest was 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.

In May 2021, the Daewoong Purchase Agreement was amended to provide for the issuance of an additional subordinated convertible promissory note by us 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 matures on May 12, 2026 (together with the 2020 Daewoong Convertible Notes, the “Daewoong Convertible Notes”).

On July 29, 2022, we entered into a Convertible Promissory Note Purchase Agreement between us and Daewoong (the “2022 Daewoong Note Purchase Agreement”), for total available financing of $30 million.

The note purchased under the 2022 Daewoong Note Purchase Agreement (the “2022 Daewoong Note”), had a stated interest rate of 15.79% per annum.

The 2022 Daewoong Note had a maturity date of December 29, 2023.

As of December 31, 2022 and 2021, and June 30, 2023, the principal amount outstanding (excluding the PIK Principal) under the Daewoong Convertible Notes and the 2022 Daewoong Note was $60.0 million and $30.0 million, and $60.0 million, respectively, with an estimated fair value of $67.3 million and $35.0 million, and $67.7 million, respectively.

On June 27, 2023, we entered into an agreement with Daewoong, (the “Daewoong Note Subscription Agreement”), pursuant to which we issued subordinated convertible promissory notes to Daewoong with an aggregate principal amount of $5.0 million (the “2023 Daewoong Convertible Notes”), that matured upon the date of the consummation of the Merger.

The 2023 Daewoong Convertible Notes were unsecured and subordinated to the Company’s other convertible notes.

The Daewoong Convertible Notes and the 2022 Daewoong Note and the interest due thereupon were repaid in shares of Old AEON common stock immediately prior to the consummation of the Merger, which were then converted into shares of Successor common stock at the Closing.

The 2023 Daewoong Convertible Notes were repaid in shares of Priveterra Class A Common Stock

immediately prior to the consummation of the Merger and are not subject to any contractual lock-up, which were then converted into shares of Successor common stock at the Closing.

Convertible Note Subscription (Successor)

We will use the net proceeds from each Convertible Note to support the late-stage clinical development of ABP-450 and for general working capital purposes.

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

On April 12, 2024, we issued and sold to Daewoong an additional Convertibe Note in the principal amount of $10.0 million.

Committed Financings and Forward Purchase Agreements in Connection with the Merger

Committed Financing

In connection with the Merger, on January 6, 2023, Priveterra and Old AEON entered into separate subscription agreements for convertible notes with each of A1 and Daewoong (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, $15 million and $5 million, respectively, for $20 million aggregate of principal of interim notes convertible into an aggregate of 2,857,143 shares of Priveterra Class A common stock for a purchase price of $7.00 per share.

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, an additional 20 million aggregate principal of interim notes convertible into 2,857,143 shares of Priveterra Class A common stock, for a purchase price of $7.00 per share.

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

Upon Closing, all of the aggregate principal amount of interim notes, along with accrued interest, converted into an aggregate of 5,797,611 of common stock.

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.

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.

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 a committed financing agreement between Priveterra, Old AEON, and each of two investors, A1 and Daewoong.

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 and (ii) 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.

Any reference herein to the “Forward Purchase Agreement” are to be treated as a reference to each Seller’s separate agreement and should be construed accordingly and any action taken by a Seller should be construed as an action under its own respective agreement.

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 redemption 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” 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 and (ii) the redemption price per share of $10.63.

As described above in Liquidity and Capital Resources , the Forward Purchase Agreements were terminated on March 18, 2024.

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.

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” 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 and (ii) the redemption price per share of $10.63.

On July 21, 2023, the Company was obligated to pay to 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 as Subscription Receivables on the condensed consolidated

balance sheets at present value of $60.7 million, with the $6.0 million being recorded to loss on forward purchase agreement derivative contract and PIPE loss on the condensed consolidated statements of operations.

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 our 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, we sell or issue 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 our 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 us receiving less of the Prepayment Amount.

We 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 our Common Stock continues to trade below the prevailing Reset Price.

Any of the above scenarios may adversely affect our 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.

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 us receiving less of the Prepayment Amount.

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 our Common Stock on

November 10, 2023, or $4.18, we 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 us $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 we would still be obligated to pay such Seller the Settlement Amount Adjustment of $2.00 per share.

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.

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

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

In addition, future debt or other contractual agreements may contain cross-default or cross-acceleration provisions that could be triggered if we defaulted on our 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 us.

We did not have access to the Prepayment Amount immediately following the Closing and, pursuant to the FPA Termination Agreements, 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 as Subscription Receivables on the Successor’s condensed consolidated balance sheet at December 31, 2023 at present value of $60.7 million, with the $6.0 million being reflected as a loss on forward purchase agreement derivative contract and PIPE loss on the Successor’s opening accumulated deficit.

Forward Purchase Agreement Subscription and Letter Agreements

On June 29, 2023, Priveterra entered into separate subscription agreements (the “FPA Funding Amount PIPE Subscription Agreements”) with each of ACM ARRT J LLC and Polar (collectively, the “FPA Funding PIPE Investors”).

On June 29, 2023, Priveterra entered into separate subscription agreements (the “FPA Funding Amount PIPE Subscription Agreements”) with each of ACM and Polar (collectively, the “FPA Funding PIPE Investors”).

Pursuant to the FPA Funding Amount PIPE Subscription Agreements, the FPA Funding PIPE Investors agreed to subscribe for and purchase, and Priveterra agreed to issue and sell to the FPA Funding PIPE Investors, on the Closing, an aggregate of up to 7,500,000 shares of Priveterra Class A common stock, less the Recycled Shares in connection with the Forward Purchase 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”).

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 (“ACM Investor”), 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”).

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.

Certain affiliates of ACM Investor purchased 236,236 shares from third parties through a broker in the open market prior to the Closing, for which all redemption rights were irrevocably waived.

ACM Investor held such redeemed shares as freely tradeable shares prior to the Closing, and the proceeds to the Company provided by such redeemed shares were netted against the $3.5 million that ACM Investor was otherwise obligated to pay the Company under its New Money PIPE Subscription Agreement.

Accordingly, Priveterra received $3.5 million from Polar and $0.9 million from ACM Investor (net of redeemed shares and fees) in connection with the New Money PIPE Subscription Agreements for the issuance of 1,001,000 shares.

On June 29, 2023, the Sponsor entered into separate letter agreements (each, “Letter Agreement” and collectively, the “Letter Agreements”) with each of ACM Investor and Polar.

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 Investor 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 Investor 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.

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Contingent Consideration

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.

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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”).

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, while the founder shares were recorded to equity.

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.

Based on the appropriate guidance, the Company determined that the Contingent Consideration Shares would be 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, while the founder shares were recorded to equity.

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

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.

Critical Accounting Policies

For the three months ended March 31, 2024 (Successor), the loss 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.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”).

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the financial statements as well as the expenses incurred during the reporting period.

Generally, we base our estimates on historical experience and on various other assumptions in accordance with United States GAAP that we believe to be reasonable under the circumstances.

Generally, we base our estimates on historical experience and on various other

assumptions in accordance with United States GAAP that we believe to be reasonable under the circumstances.

Actual results may differ materially from these estimates under different assumptions or conditions and such differences could be material to the financial position and results of operations.

On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience.

While our significant accounting policies are more fully described in the notes to our financial statements appearing elsewhere in this Report, we believe the following accounting policies to be most critical for fully understanding and evaluating our financial condition and results of operations, as these policies relate to the more significant areas involving management’s judgments and estimates.

Fair Value Option

We elected to account for our convertible promissory notes, warrants, forward purchase agreement and contingent consideration, which met the required criteria, at fair value at inception.

Subsequent changes in fair value are 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 related to instrument-specific credit risk.

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

Convertible Preferred Stock (Predecessor)

Prior to the Merger, we recorded convertible preferred stock at their respective issuance price, less issuance costs on the dates of issuance.

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

Although the convertible preferred stock was not redeemable, upon certain change in control events that were outside of our control, including liquidation, sale or transfer of control of us, holders of the convertible preferred stock had the right to receive their liquidation preference to any distribution of the proceeds under the terms of our amended and restated certificate of incorporation.

Contingent Considerations (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 and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).

Forward Purchase Agreements (Successor)

Based on the applicable guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”), the Company has determined it is a freestanding financial instrument and the prepaid forward contract is a derivative instrument.

The Company has recorded the prepaid forward contract as a derivative liability and measured it at fair value with the initial value of the derivative recorded as a loss in the consolidated statements of operations and comprehensive loss.

Subsequent changes in the fair value of the forward purchase agreements are recorded in the condensed consolidated statements of operations and comprehensive loss.

Warrants (Successor)

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480 and ASC Topic 815, “Derivatives and Hedging” (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares of common stock, among other conditions for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.

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 as a non-cash gain or loss on the condensed consolidated statements of operations and comprehensive loss.

Share-based Compensation

Immediately prior to the Closing, ABP merged with and into us so that we are the surviving corporation, which we refer to as the Subsidiary Merger.

Pursuant to the Subsidiary Merger, all options and RSU awards of ABP that are outstanding immediately prior to the merger converted into substantially similar awards covering shares of our common stock, with an adjustment to the number of shares subject to the award and, with respect to the options, the exercise price to reflect the economic value of the new award within our capital structure.

Additionally, we, in each case, determined the conversion ratio of the ABP awards by dividing the number of shares of our common stock outstanding on an as- converted basis by the number of shares of common stock of ABP outstanding, and then dividing by a number equal to the number of ABP options outstanding divided by the number of ABP awards outstanding plus the ABP shares held by the Company to account for the awards representing 21.63% of ABP’s fully diluted shares outstanding.

This resulted in a conversion ratio of 77.65 to 1 shares.

As of the date of this Report, ABP had granted options to purchase a total of 45,272 ABP Sub options which converted into options to purchase 3,515,218 shares of our common stock, and a total of 15,059 RSU awards which converted into RSU awards covering 1,169,366 shares of our common stock, although 127,801 of such RSU awards accelerated and vested at the Closing, which resulted in 1,041,565 shares of our common stock subject to RSU awards remaining outstanding following the Closing.

We do not anticipate any additional stock-based compensation expense to result from the ABP merger and the conversion of the awards.

The following table summarizes by grant date the number of shares of our common stock subject to outstanding stock options and RSU awards granted from September 2020 through September 30, 2023 reflecting the conversion described in the preceding paragraph, as well as the per share fair value of the underlying common stock, and for stock options, the associated per share exercise price:

# of Shares Underlying

Option Common Stock

Grants/ Exercise Price Value Per Share

on Grant Date

In connection with the Subsidiary Merger, AEON assumed the ABP 2019 Plan and the outstanding stock options and RSU awards under the ABP 2019 Plan converted into awards covering AEON common stock, and such options, all of which have “underwater” exercise prices, were repriced such that the per share exercise price is equal to the fair market value of AEON’s common stock on the date of the Subsidiary Merger.

As of March 31, 2024, there have been no changes to our critical accounting policies from those reported on our Annual Report Form 10-K.

Smaller Reporting Company

We are an emerging growth company, as defined in the Securities Act, as modified by the JOBS Act.

public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved.

For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments not previously approved.

In particular, in this Report, we have provided only two years of audited financial statements and unaudited financial statements and have not included all of the executive compensation- related information that would be required if we were not an emerging growth company.

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Recently Issued and Adopted Accounting Pronouncements

We describe the recently issued accounting pronouncements that apply to us in Note 2 of the condensed consolidated financial statements.

We describe the recently issued accounting pronouncements that apply to us in Note 2 Summary of Significant Accounting Policies of the condensed consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

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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 2. Management’s Discussion and Analysis