Pulse Biosciences Inc

1. Description of the Business

Pulse Biosciences, Inc. is a novel bioelectric medicine company committed to health innovation using its patented Nano-pulse Stimulation ("NPS") technology, a revolutionary energy modality that delivers nanosecond-duration pulses of electrical energy, each less than a millionth of asecond long, to non-thermally clear targeted cells while sparing adjacent noncellular tissue. NPS technology, also referred to as Nanosecond Pulsed-Field Ablation ("nsPFA") technology when used to ablate cellular tissue, can be used to treat a variety of medical conditions for which an optimal solution remains unfulfilled. The Company developed its proprietary CellFX System, a novel nsPFA delivery platform, and commercialized the initial application of its nsPFA technology to treat benign lesions of the skin. In parallel, the Company has designed a variety of applicators, or end-effectors, to explore the potential use of the CellFX platform to treat disorders in other medical specialties, such as cardiology, gastroenterology, gynecology, and ear, nose and throat. These applicators include devices for open surgical procedures, endoscopic or minimally invasive procedures, and endoluminal catheters, and each has been used in preclinical studies. Based on our preclinical experience and the potential to significantly improve outcomes for patients in a large and growing market, the Company decided in2022 to focus its primary efforts on the use of nsPFA energy and the CellFX platform in the treatment of atrial fibrillation ("AF") and in a select few other markets where it could have a profound positive impact on healthcare for both patients and providers.

The Company was incorporated in Nevada on* May 19, 2014.On June 18, 2018,*the Company reincorporated from the State of Nevada to the State of Delaware. The Company is located in Hayward, California. The Company maintains a website at www.pulsebiosciences.com where general information about the Company is available.

The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital. The Company doesnot currently have any material cash flows from operations. It has had minimal revenue and currently generatesno revenue and will need to raise additional capital to finance its operations. However, there can beno assurances that the Company will be able to obtain additional financing on acceptable terms and in the amounts necessary to fully fund its operating requirements.

2. Summary of Significant Accounting Policies

Going Concern

As of* March**31,* 2024, the Company had an accumulated deficit of $347.1 million, cash outflows from operations of $9.8 million for thethree months then ended, cash and cash equivalents of $34.9 million and a net loss of $10.1 million. The Company anticipates net losses for the next several years or until it can generate substantial product revenue and achieve profitability. Based on the Company’s current operating plan, the Company has determined that, with its current financial resources, the Company would be able to operate into thefirst quarter of2025. As the Company’s operating plan doesnot allow the Company to operate for a period oftwelve months from the date the condensed consolidated financial statements are issued without additional financing, based on the Accounting Standards Codification (“ASC”)205-40, Presentation of Financial Statements–* Going Concern*, the Company is required to disclose that substantial doubt regarding the Company’s ability to continue as a going concern exists. This evaluation initially cannot take into consideration the potential mitigating effects of plans that havenot been fully implemented as of the date the financial statements are issued. To continue to fund the operations of the Company beyond this time period, management has developed a plan, which primarily consists of raising additional capital through a rights offering expected to close in thesecond quarter of2024. Additionally, the Company* mayutilize some combination of public or private equity offerings, debt financings, or potential new collaborations in the future. There isno* assurance, however, that any additional financing or any revenue-generating collaboration will be available when needed or that management of the Company will be able to obtain financing or enter into a collaboration on terms acceptable to the Company. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements donot include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the Company’s* December 31, 2023* audited Consolidated Financial Statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The condensed consolidated financial statements have been prepared in accordance with the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) and, as permitted by such rules and regulations, omit certain information and footnote disclosures necessary to present the financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The condensed consolidated balance sheet as of* December 31, 2023* was derived from the audited consolidated financial statements as of that date but doesnot include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form10-K for the year ended* December 31, 2023*. The results of operations for thethree-month period ended* March 31, 2024*, arenot necessarily indicative of the results to be expected for the entire year or any future periods.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the financial statements of Pulse Biosciences, Inc. and its wholly-owned subsidiaries. Intercompany balances and transactions, if any, have been eliminated in consolidation.

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Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates that affect the amounts reported in the financial statements and accompanying notes to the financial statements. Estimates include, but arenot limited to, the valuation and recognition of stock-based compensation, inventory valuation, warranty obligations, income taxes, and the useful lives assigned to long-lived assets. The Company evaluates its estimates and assumptions based on historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from these estimates.

Significant Accounting Policies

The Company’s significant accounting policies are described in the Company’s Annual Report on Form10-K for the year ended* December 31, 2023*. The Company continually evaluates the accounting policies and estimates used in preparing the consolidated financial statements. During both the year ended* December**31,* 2023, and thethree-month period ended* March 31, 2024,*the Company issued stock options to certain employees which contain market conditions related to overall market capitalization. Additionally, the Company has issued stock options to certain employees which contain performance conditions related to certain financial measures and achievements of strategic/operational milestones.

Stock-Based Compensation

The Company's stock-based compensation programs include stock options and an employee stock purchase program.

The Company periodically issues stock options to officers, directors, employees, and consultants for services rendered. Such issuances vest and expire according to terms established at the issuance date. Stock-based payments to officers, directors and employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values, which are estimated using the Black-Scholes option-pricing model. Stock-based compensation expense is charged to operations on a straight-line basis over the vesting period. The Company has granted stock options with both time-based as well as performance-based vesting conditions. For stock awards with performance-based vesting conditions, the Company doesnot recognize compensation expense until it is probable that the performance-based vesting condition will be achieved. The analysis to determine such probability involves estimates and judgements from management and the estimate of expense* may*be revised periodically.

The Company has also issued certain stock options with market-based vesting conditions. These vesting conditions relate to the achievement of certain market capitalization targets of the Company. The grant date fair value for these stock options was determined using a Monte Carlo simulation. The expense is recognized over the requisite service period for each tranche of the awards. The requisite service period is the service period derived from the Monte Carlo simulation model. If the market capitalization targets are met sooner than the derived service period, the Company will accelerate the recognition of stock-based compensation expense to reflect the cumulative expense associated with the vested shares. The Monte Carlo simulation requires the Company to make assumptions and judgements about the variables used in the calculation including the expected term, volatility of the Company's common stock, an assumed risk-free interest rate, and cost of equity. The assumptions used in the option-pricing model represent management’s best estimates. If factors change and different assumptions are used, the Company's stock-based compensation expense could be materially different in the future.

See Note6 for a detailed discussion of the Company’s stock plans and stock-based compensation expense.

Product Warranty

The Company provides a standard warranty on eligible products which provides the customer assurances that the products comply with the agreed-upon specifications. The standard warranty doesnot provide any services in addition to those assurances. The Company accrued a warranty reserve for products sold based upon the best estimate of the nature, frequency, and costs of future claims. These estimates are inherently uncertain given the short history of sales, and changes to the historical or projected warranty experience* maycause material changes to the warranty reserve in the future. In June 2023,the Company reduced the accrued warranty liability to zero. Based upon the Company's shift in focus, there are a limited number of consoles currently covered under the standard warranty. All inventory has been fully written off, therefore the only incremental costs to fulfill a warranty claim in2024* would be shipping costs or the costs to replace the CellFX nsPFA electrode, which would be immaterial in nature.

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Warranty accrual activity consisted of the following for thethree-month periods ended* March 31, 2024and2023* (in thousands):

Net Loss per Share

The Company calculates basic net loss per share by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding during the period. For purposes of this calculation, options to purchase common stock and common stock warrants are considered common stock equivalents. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted net loss per share.

Basic and diluted net loss per common share is the same for all periods presented because all warrants, stock options and restricted stock units outstanding are anti-dilutive.

The following outstanding stock options, and warrants were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect:

Recent Accounting PronouncementsNot Yet Adopted**

As of* March31,* 2024, there wereno material changes to the information provided regarding recent accounting pronouncements in Note2, “Summary of Significant Accounting Policies” in the Company’s Form10-K for the fiscal year ended* December31,* 2023.

3. Fair Value of Financial Instruments

The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value intothree levels, and requires that assets and liabilities carried at fair value be classified and disclosed inone ofthree categories, as presented below.

Level1 - Observable inputs such as quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level1 inputs include money market funds.

Level2 - Inputs, other than quoted prices included within Level1, which are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. The Company didnot classify any of its investments within Level2 of the fair value hierarchy.

Level3 - Unobservable inputs for which there is little orno market data for the asset or liability which requires the reporting entity to develop its own assumptions. The Company didnot classify any of its investments within Level3 of the fair value hierarchy.

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The following table sets forth the fair value of the Company’s financial assets measured on a recurring basis as of* March 31, 2024* and* December 31, 2023*, respectively (in thousands):

The Company didnot have any financial liabilities measured on a recurring basis as of* March 31, 2024* or* December 31, 2023*.

4. Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

Depreciation expense was $0.1 million for each of thethree-month periods ended* March 31, 2024and2023*.

Intangible Assets, Net

Intangible assets primarily consist of acquired licenses to utilize certain patents, know-how and technology relating to the Company’s NPS technology for biomedical applications acquired from Old Dominion University Research Foundation (“ODURF”), Eastern Virginia Medical School, and the University of Southern California. In addition, the Company entered into a Sponsored Research Agreement with Old Dominion University’s Frank Reidy Research Center for Bioelectrics, which includes certain intellectual property rights arising from the research. The Company is amortizing the intangible assets over an estimated useful life of 12 years.

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Intangible assets, net consisted of the following (in thousands):

A schedule of the amortization of intangible assets for the remainder of2024 and the succeedingtwo fiscal years is as follows (in thousands):

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

5. Goodwill

In2014, the Company acquired three companies (the “Acquisitions”) for aggregate consideration of $5.5 million. In accordance with ASC Topic805, Business Combinations, the Company recorded goodwill of $2.8 million in connection with the Acquisitions as the consideration paid exceeded the fair value of the net tangible assets and the intangible assets acquired.

In accordance with ASC Topic350, Intangibles-Goodwill and Other (as amended by Accounting Standards Update2017-04), the Company reviews goodwill for impairment at least annually or whenever any events or circumstances indicate that it is more likely thannot that the fair value of a reporting unit is less than its carrying amount. The Company performed an updated goodwill impairment analysis as of* March 31, 2024*, and it was determined thatno impairment of goodwill existed.

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6. Stockholders’** Equity and Stock-Based Compensation**

Private Placement Securities Purchase Agreement

On* April 30, 2023,the Company entered into a Securities Purchase Agreement with Robert W. Duggan, the Company’s majority stockholder and Executive Chairman, pursuant to which the Company agreed to issue and sell to Mr. Duggan 10,022,937 shares of the Company’s common stock, par value $0.001 per share, in a Private Placement, at a price per share of $6.51. The parties completed the Private Placement on May 9, 2023,after satisfying all pre-closing conditions, and the Company issued the full number of shares to Mr. Duggan. The shares were paid for through the cancellation of the principal sum of $65.0 million borrowed by the Company pursuant to the2022* Loan Agreement (See Note8), together with all accrued and unpaid interest outstanding owed at the time of closing.

Rights Offerings

On* June**9,* 2022, the Company completed a rights offering (the*“2022* Rights Offering") resulting in the sale of 7,317,072 units (the “Units”), at a price of $2.05 per Unit, with each Unit consisting ofone share of the Company’s common stock, par value $0.001 per share, andone warrant (the*“2022* Rights Offering Warrants”) to purchaseone share of common stock at a price of $2.05 per share. The common stock and warrants comprising the Units separated upon the closing of the2022 Rights Offering and were issued individually.7,317,072 shares of common stock and warrants to acquire up to an additional 7,317,072 shares of common stock were issued in the2022 Rights Offering. The Company received aggregate gross proceeds from the2022 Rights Offering of $15 million. In* May 2023,the Company delivered an irrevocable notice of redemption to warrant holders and, on June 16, 2023,it redeemed the last of the outstanding2022* Rights Offering Warrants at a price of $0.01 per warrant share. See the Common Stock Warrants section below for further details. Robert W. Duggan, the Company’s majority stockholder and Executive Chairman, purchased approximately 56% of the shares offered through the2022 Rights Offering.

Common Stock** **Warrants

In connection with the2022 Rights Offering, the Company issued2022 Rights Offering Warrants to purchase a total of 7,317,072 shares of its common stock at an exercise price of $2.05. The2022 Rights Offering Warrants were subject to redemption by the Company for $0.01 per underlying share of common stock, onnot less than 30 days written notice, if the volume weighted average price of the Company’s common stock equals or exceeds 200% of the exercise price for the warrants, subject to adjustment, per share, for 20 consecutive trading days, provided that the Company* maynot* redeem the warrants prior to the date that isthree months after the issuance date. On* May 10, 2023,the Company issued a press release announcing that on May 9, 2023the terms for warrant redemption had been met. Pursuant to the redemption, the Company redeemed 66,175 warrants on the redemption date, June 16, 2023.Prior to the redemption date, warrants to purchase 7,250,897 shares were exercised, generating approximately $14.9 million of total gross proceeds to the Company. As of September30,* 2023, there wereno 2022 Rights Offering Warrants outstanding.

Equity Plans

2017 Equity Incentive Plan and2017 Inducement Equity Incentive Plan**

The Board of Directors of the Company (the “Board”) previously adopted, and the Company’s stockholders approved, the Company’s2017 Equity Incentive Plan (the*“2017* Plan”).

The2017 Plan has a 10-year term, and provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to employees, directors and consultants of the Company and any parent or subsidiary of the Company, as the Compensation Committee of the Board* maydetermine. Subject to an annual evergreen increase and adjustment in the case of certain capitalization events, the Company initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards under the2017* Plan. In addition, shares remaining available under the Company’s2015 Equity Incentive Plan, as amended (the*“2015* Plan”), and shares reserved butnot issued pursuant to outstanding equity awards that expire or terminate without being exercised or that are forfeited or repurchased by the Company will be added to the shares of common stock available for issuance under the2017 Plan. The2017 Plan is administered by the Board’s Compensation Committee. Effective at both* January 1, 2024and2023,* the number of shares of common stock available under the2017 Plan increased by 1,200,000, respectively, pursuant to the evergreen provision of the2017 Plan. Under the evergreen provision of the2017 Plan, the share increase is determined based on the least of (i)1,200,000 shares, (ii)4% of the Company’s common stock outstanding at* December 31of the immediately preceding year, or (iii) such number of shares as determined by the Board. Additionally, in December 2023,the number of shares of common stock available under the2017* Plan increased by 1,375,000 shares as a result of a stockholder vote held at a special meeting of stockholders. As of* March 31, 2024*,810,758 shares of common stock remained available for issuance under the2017 Plan.

During* November 2017,the Board adopted the2017* Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval.

The Inducement Plan has a 10-year term and provides for the grant of equity-based awards, including non-statutory stock options, RSUs, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the2017 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change in control” as defined under the Inducement Plan. Options issued under the Inducement Plan* mayhave a term up toten years and have variable vesting provisions. New hire grants generally vest 25% per year starting upon thefirst anniversary of the grant. Equity-based awards issued under the Inducement Plan are only issuable to individualsnot* previously engaged as employees or non-employee directors of the Company prior to the Inducement Plan’s adoption date. In* May 2021,the Board approved an amendment to the Inducement Plan to reserve an additional 1,000,000 shares of the Company’s common stock for issuance pursuant to the Inducement Plan. And, in March 2024,the Board approved asecond* amendment to the Inducement Plan to reserve an additional 2,000,000 shares of the Company’s common stock for issuance pursuant to the Inducement Plan. As of* March 31, 2024*,3,249,126 shares of common stock remained available for issuance under the Inducement Plan.

A summary of stock option activity under the2015 Plan,2017 Plan and Inducement Plan for thethree-months ended* March 31, 2024* is presented below:

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Time-based Options

The Company awards time-based options which vest and become exercisable, subject to the individual’s continued employment or service through the applicable vesting date. Time-based options can have various vesting schedules, most commonly new hire grants which generally vest 25% per year starting upon thefirst anniversary of the grant.

A summary of the time-based stock option activity under the2015 Plan,2017 Plan and Inducement Plan for thethree-months ended* March 31, 2024* is presented below:

The fair value of the time-based options granted during thethree-month period ended* March 31, 2024* was $3.5 million.

Performance-based Options

Certain stock options awarded by the Company contain performance conditions related to certain financial measures and achievements of strategic and operational milestones. Once a specific performance condition is fulfilled, the associated options will fully vest and become exercisable.

A summary of the performance-based option activity under the2017 Plan and Inducement Plan for thethree-months ended* March 31, 2024* is presented below:

The fair value of the performance-based options granted during thethree-month period ended* March 31, 2024* was $0.3 million.

Market-based Options

Certain stock options awarded by the Company contain market conditions related to achievement of certain market capitalization targets. The options will vest and become exercisable once the specific market capitalization targets are fulfilled.

A summary of the market-based option activity under the2017 Plan for thethree-months ended* March 31, 2024* is presented below:

The fair value of the market-based options granted during thethree-month period ended* March 31, 2024* was $0.7 million.

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The Company estimates the fair value of time-based and performance-based stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of these employee stock options is amortized on a straight-line basis over the requisite service period of the awards. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The fair value of time-based and performance-based stock options was estimated using the following weighted-average assumptions:

The Company estimates the fair value of market-based stock options on the grant date using a Monte Carlo simulation model. The estimated fair value of these employee stock options is amortized over the requisite service period for each tranche of the awards. The requisite service period is the service period derived from the Monte Carlo simulation model. If the market capitalization targets are met sooner than the derived service period, the Company will accelerate the recognition of stock-based compensation expense to reflect the cumulative expense associated with the vested shares. The fair value of market-based stock options was estimated using the following weighted-average assumptions:

2017 Employee Stock Purchase Plan

The Board previously adopted, and the Company's stockholders approved, the Company’s2017 Employee Stock Purchase Plan (the*“2017* ESPP”).

The2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Company common shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 250,000 common shares of the Company were available for purchase at adoption of the2017 ESPP. Pursuant to the2017 ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i)450,000 shares, (ii)1.5% of the Company’s common stock outstanding at* December**31* of the immediately preceding year, or (iii) such number of shares as determined by the Board. In2024, the Company reserved an additional 450,000 shares under the2017 ESPP pursuant to the evergreen provision. In2023, the Board waived the evergreen provision andno additional shares were reserved under the2017 ESPP. During thethree months ended* March 31, 2024,the Company issued 77,959 shares of common stock under the2017* ESPP. As of* March 31, 2024*,485,359 shares of common stock remained available for issuance under the2017 ESPP.

The Company estimates the fair value of ESPP grants on their grant date using the Black-Scholes option pricing model. The estimated fair value of ESPP grants is amortized on a straight-line basis over the requisite service period of the grants. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The Company utilizes its estimated volatility in the Black-Scholes option pricing model to determine the fair value of ESPP grants. The fair value of ESPP grants was estimated using the following weighted-average assumptions:

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Stock-based Compensation

Total stock-based compensation expense consisted of the following (in thousands):

As of* March 31, 2024*,not all of the performance conditions of the performance options are probable to be achieved. Compensation expense has only been recognized for those conditions that are assumed to be probable.

Total stock-based compensation expense by award type was as follows (in thousands):

7. Research Grants and Agreements

Sponsored Research Agreement

The Company* maysponsor research activities (“SRAs”) performed by ODURF. ODURF is compensated by the Company for its conduct of each study in accordance with the budget and payment terms set forth in the applicable task order. Task orders are typically performed over a12*-month period and funded through monthly payments to ODURF. Payments will be made upon ODURF certifying, to the Company’s reasonable satisfaction, that ODURF has met its obligations pursuant to the specified task order and statement of work. The principal investigator* maytransfer funds with the budget as needed without the Company’s approval so long as the obligations of ODURF under the task order and statement of work remain unchanged and unimpaired. During thethree*-month periods ended* March 31, 2024and2023*, the Company didnot incur any costs relating to any SRAs. As of* March 31, 2024*, the Company doesnot have any active SRAs with ODURF.

8. Commitments and Contingencies

2022 Loan Agreement

On* September20,* 2022, the Company and Robert W. Duggan, the Company's majority stockholder and Executive Chairman, entered into a Loan Agreement (“2022 Loan Agreement”) in connection with Mr. Duggan lending the principal sum of $65.0 million to the Company. The2022 Loan Agreement bore interest at a rate per annum equal to 5.0%, payable quarterly commencing on* January1,* 2023, with the principal sum payable on* March 20, 2024.On March 17, 2023,the Company and Mr. Duggan amended certain terms of the2022* Loan Agreement. There wereno changes to the interest rate, but the principal sum repayment date was changed to* September 30, 2024.During the year ended December 31, 2023,the Company made cash payments of $1.7 million for accrued interest on the loan, and recorded an additional $1.1 million of interest expense in relation to the2022* Loan Agreement. On* April 30, 2023,the Company entered into a Securities Purchase Agreement with Mr. Duggan, pursuant to which the Company agreed to issue and sell to Mr. Duggan 10,022,937 shares of the Company’s common stock, par value $0.001 per share, in a Private Placement, at a price per share of $6.51. These shares were paid for through the cancellation of the amounts then owed by the Company under the2022* Loan Agreement, the principal sum of $65.0 million and all accrued and unpaid interest outstanding, which totaled approximately $0.2 million as of* April 30, 2023.The parties completed the Private Placement on May 9, 2023and, upon closing and satisfaction of the outstanding debt, the2022* Loan Agreement terminated, without early termination fees or penalties being owed by the Company.No additional amounts are owed to Mr. Duggan under the2022 Loan Agreement.

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Operating Leases

In* January 2017,the Company entered into afive-year lease (the “Existing Lease”) for approximately 15,700 square feet for its corporate headquarters located in Hayward, California. The lease commenced in July 2017.*

In* May 2019,the Company entered into Lease Amendment1* (the “Lease Amendment”) in relation to the Existing Lease and added the lease of new premises of approximately 13,300 square feet and 21,300 square feet, (“Expansion Premises1” and “Expansion Premises2”, respectively). Additionally, the term of the Existing Lease was extended to* October 2029to be coterminous with Expansion Premises1* and Expansion Premises2.

The Company evaluated the lease amendment under the provisions of ASC842. It concluded that the Lease Amendment would be accounted for as a single contract with the Existing Lease because the additional lease payments due to the Lease Amendment wasnot commensurate with the right-of-use asset granted to the Company. Though the Lease Amendment was accounted for as a single contract, the Existing Premises, Expansion Premises1 (occupied in* November 2019)and Expansion Premises2* (occupied in* May 2020)*are accounted for as separate lease components. Accordingly, the Company measured and allocated consideration to each lease component as of the modification date.

Supplemental balance sheet information related to leases (in thousands):

Total cash paid for operating lease liabilities (in thousands):

Maturities of operating lease liabilities were as follows (in thousands):

Weighted-average remaining lease term and discount rate, as of* March 31, 2024*, were as follows:

Rent expense, including common area maintenance charges, was approximately $0.6 million and $0.5 million for thethree-month periods ended* March 31, 2024and2023*, respectively.

Legal Proceedings

From time to time, we* maybe involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, patent infringement, contract disputes, and other matters relating to various claims that arise in the normal course of our business, including the matter described below. The outcome of any legal proceedings is unpredictable but, regardless of outcome, they can have an adverse impact on us because of defense and settlement costs, diversion of management resources, negative publicity, reputational harm, and other factors. We maintain insurance that may*provide coverage for such matters, including customary employment practices liability insurance.

In* November 2022,the employment of our former Chief Financial Officer, Sandra Gardiner, terminated. Ms. Gardiner’s departure wasnot* the result of any disagreement with the Company on any matter relating to its operations, accounting policies or practices, although the Company determined that she wasnot eligible to receive any severance benefits under the terms and conditions of her then existing employment agreement. In* March 2023,Ms. Gardiner filed an arbitration demand with JAMS seeking severance benefits and other remedies, alleging breach of contract and unlawful termination in violation of public policy, among other things. We believe that Ms. Gardiner’s claims are without merit and we intend to vigorously defend ourselves against them. Because of the difficulty in predicting the outcome of any legal proceeding, particularlyone* that is in its early stages, the Company isnot able to conclude that a liability is probable and cannot predict what the final outcome of Ms. Gardiner’s arbitration proceeding will likely be or provide a reasonable estimate for the range of ultimate possible loss, if any. However, at this time, we believe that the final resolution of this matter willnot adversely affect our consolidated position, results of operations, or cash flows and that a liability isnot probable at this time.

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9. Segment Reporting

The Company operates and manages the business asone reportable and operating segment. The Company’s Chief Executive Officer acts as the chief operating decision maker (“CODM”) of the Company. The CODM reviews the results of the Company on a consolidated basis. All of the Company’s long-lived assets are based in the United States.

**10. ** Related Party Transactions

In* May 2022,the Company determinednot* to renew its annual director and officer liability insurance policy due to disproportionately high premiums quoted by insurance companies. Instead, on* May 31, 2022,the Company and Robert W. Duggan, majority stockholder and Executive Chairman, entered into a letter agreement (the “Letter Agreement”) pursuant to which Mr. Duggan agreed with the Company to personally provide indemnity coverage for aone-year period, and he agreed to deposit cash and/or marketable securities into athird*-party escrow, as security for these obligations, if requested by the Company. On* May 31, 2023,the last day of theone*-year period, the Company paid Mr. Duggan a fee of $1.0 million in consideration of the obligations set forth in the Letter Agreement. As of* March**31,* 2024, there wereno additional amounts owed to Mr. Duggan under the Letter Agreement.

On* September**20,* 2022, the Company and Robert W. Duggan, the Company's majority stockholder and Executive Chairman, entered into the2022 Loan Agreement in connection with Mr. Duggan lending the principal sum of $65.0 million to the Company. On* April 30, 2023,the Company entered into a Securities Purchase Agreement with Mr. Duggan, pursuant to which the Company agreed to issue and sell to Mr. Duggan 10,022,937 shares of the Company’s common stock, par value $0.001 per share, in a Private Placement, at a price per share of $6.51. These shares were paid for through the cancellation of the amounts then owed by the Company under the2022* Loan Agreement, the principal sum of $65.0 million and all accrued and unpaid interest outstanding, which totaled approximately $0.2 million as of* April 30, 2023.Upon closing of the Private Placement and satisfaction of the outstanding debt, the2022* Loan Agreement terminated, without early termination fees or penalties being owed by the Company.No additional amounts are owed to Mr. Duggan under the2022 Loan Agreement. See Note8 for further details.

**11. ** Restructuring Charges

In* February 2023,the Company eliminated seven positions and incurred a discrete restructuring related charge of $0.1 million which was fully recorded in February 2023and the related expenses are included within total cost and expenses on the condensed consolidated statement of operations for thethree* months ended* March**31,* 2023. This charge represents the total amount incurred in connection with the activity.

**12. ** Subsequent Events

As approved by the Company’s Board, a rights offering of up to $60 million worth of units (“Units”) will likely be available to all holders of record of the Company’s common stock, par value $0.01 (the “Common Stock”), as of the close of the market on a record date expected to be set by the Board in mid-* June 2024 (the “Proposed Rights Offering”). Each Unit will likely consist ofone share of Common Stock andtwo warrants, each to purchaseone-half ofone* share of Common Stock, with each warrant having different redemption provisions. The subscription price per Unit is expected to equal to the lesser of (i) $10.00 per Unit and (ii) the volume weighted average price of the Company’s Common Stock for theten trading day period through and including the expiration date of the offering, which hasnot yet been set by the Board. The subscription price would determine the final number of Units issuable, and subsequently the pro rata number of Units to which stockholders can subscribe. Each warrant will likely have a per share exercise price equal to 110% of the subscription price for the Units. The Company intends to distribute to all holders of Common Stock as of the record date non-transferable subscription rights to purchase Units at the price provided above.

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