Note 7 – Common Stock Warrant Liabilities

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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 ASC 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity. For 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 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.

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On December 16, 2022, the Company closed on an offering for the sale of shares of its common stock and pre-funded warrants as part of the December 2022 Registered Direct Offering. The common stock and the pre-funded warrants were sold together with December 2022 Common Stock Warrants. The Company also issued the placement agent warrants to purchase shares (See Note 6).

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The Company deemed the December 2022 Common Stock Warrants and December 2022 Placement Agent Warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control. The December 2022 Common Warrants and December 2022 Placement Agent Warrants were recorded at the time of closing at a fair value, determined by using the Black-Scholes Model. As the total fair value of the common stock warrant liability exceeded the total proceeds, no proceeds were allocated to the common stock and pre-funded warrants issued as part of the transaction. The Company revalued the December 2022 Common Stock Warrants and December 2022 Placement Agent Warrants at December 31, 2022, resulting in a fair value of $11.2 million. The Company also revalued the December 2022 Common Stock Warrants and December 2022 Placement Agent Warrants at each reporting period in 2023, resulting in gains throughout the year.

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In October 2023, the Company entered into the October 2023 Inducement with a holder of certain of its existing warrants to exercise for cash an aggregate of 6,325,354 shares of the Company’s common stock at a reduced exercise price of $1.76 per share (see Note 6). Included in the exercise were the entirety of the December 2022 Common Stock Warrants. The Company revalued the December 2022 Common Stock Warrants on October 4, 2023, resulting in a fair value of $3.1 million. The decrease in the fair value of the common stock warrant liability throughout the year resulted in an offsetting gain on common stock warrant liabilities in the Statements of Operations. Since the December 2022 Placement Agent Warrants issued in the December 2022 Registered Direct Offering were not included in the October 2023 Inducement and have not been exercised, they were revalued at December 31, 2023.

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The Company used the Black-Scholes Model for determining the estimated fair value of the common stock warrant liabilities, including as part of the October 2023 Inducement. A summary of the weighted average (in aggregate) significant unobservable inputs used in measuring the warrant liability is determined using Level 3 inputs as follows:

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