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Note 5 - Warrants and Equity

12 Months Ended

Dec. 31, 2024

5. Warrants and Equity

Warrant and Stock Issuances

In February 2025, the Company entered into a securities purchase agreement with an institutional investor for the sale by the Company of 1,150,000 shares of common stock, and 2,121,029 pre-funded warrants to purchase shares of common stock, and series D warrants to purchase up to 6,543,058 shares of common stock. The combined purchase price for the securities was $1.07 per share of common stock (or pre-funded warrant in lieu thereof). Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and may be exercised at any time until all of the pre-funded warrants are exercised in full, subject to the beneficial ownership limitation. Each common warrant will be exercisable upon the receipt of shareholder approval, will have an exercise price of $1.07 per share, and expire five years from the initial exercise date. The Company received gross proceeds of $3.5 million.

In February 2025, the Company entered into a warrant exercise inducement offer letter with a holder of certain existing warrants to receive new warrants to purchase up to a number of shares of common stock equal to 200% of the number of warrant shares issued pursuant to the exercise of such existing warrants to purchase up to 5,828,570 shares of common stock (series C warrants) pursuant to which the Holder agreed to exercise for cash their existing warrants at a reduced exercise price of $1.00 in exchange for the Company's agreement to issue the inducement warrants to purchase up to 11,657,140 shares of the Company's common stock. Each inducement warrant will have an exercise price of $0.75, and will be exercisable as of the date of issuance and may be exercised for a period of five years therefrom. The Company received gross proceeds of $5.8 million. This brings the total gross proceeds received in February 2025 to $9.3 million.

In August 2024, the Company entered into a securities purchase agreement with an institutional investor for the sale by the Company of 283,000 shares of common stock, and 2,183,368 pre-funded warrants to purchase shares of common stock, series A warrants to purchase up to 2,466,368 shares of common stock, series B warrants to purchase up to 2,466,368 shares of common stock, and placement agent warrants. The combined purchase price for the securities was $2.23 per share of common stock (or pre-funded warrant in lieu thereof). Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and may be exercised at any time until all of the pre-funded warrants are exercised in full, subject to the beneficial ownership limitation. Each common warrant has an exercise price of $2.23 per share and will be exercisable beginning on the effective date of shareholder approval. The series A warrants expire on the earlier of (i) two years from the initial exercise date, or (ii) 60 days from the Company's public announcement that it has achieved the series A milestone event. The series B warrants expire on the earlier of (i) five years from the initial exercise date, or (ii) six months from the Company's public announcement that it has achieved the series B milestone event. The series A milestone event means the Company releases interim data for the first subject group from the MIRACLE trial whereby the complete remission rate for either dose of the Company's study drug is greater than placebo; and series B milestone event means the Company releases final topline data from the MIRACLE trial and documented a statistically significant improvement in the primary efficacy endpoint. In addition, in August 2024, the Company entered into a warrant amendment agreement, pursuant to which the Company agreed that effective upon closing of the offering, and subject to shareholder approval, to amend 895,834 existing warrants originally issued on December 26, 2023 at an exercise price of $9.60 per share and a termination date of February 14, 2029, so that the amended warrants would have a reduced exercise price of $2.23 per share and would expire five years from the date of shareholder approval. The Company calculated the valuation of the warrant amendment immediately prior to the offering, as well as the valuation of the warrant amendment with the repriced terms, and a 91% probability of obtaining shareholder approval. The loss on modification of the warrants of $0.4 million was recorded as a loss on issuance of warrant liabilities during the year ended December 31, 2024. In October 2024, the Company’s shareholders approved the issuance of both the August 2024 warrants, as well as the warrant amendment. The Company received gross proceeds of $5.5 million, before deducting the placement agent's fees and other offering expenses payable by the Company. Proceeds of offerings are allocated between common shares and warrants first by allocating to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which would include pre-funded warrants. As the fair value of the liability classified warrants in the August 2024 offering exceeded the total proceeds, no consideration was allocated to the Common Shares or Pre-Funded Warrants. The full proceeds of the August 2024 offering were recorded to warrant liabilities, with an initial liability of $6.1 million, and a loss on initial recognition of $0.8 million. Transaction costs related to the offering were correspondingly fully allocated to warrant liabilities, and $1.0 million in related transaction costs were expensed for the year ended December 31, 2024. In February 2025, the warrants associated with the August 2024 agreement were exercised in full as part of the warrant inducement, as discussed above.

In December 2023, the Company entered into a Securities Purchase Agreement with an institutional investor and certain of the Company's executive officers, employees, advisors and a member of its board of directors for the sale by the Company of 240,151 shares (taking into account the reverse stock splits we have completed) of the Company's common stock, and pre-funded warrants to purchase 229,506 shares of common stock (taking into account the reverse stock splits we have completed) in lieu thereof in a registered direct offering (Pre-Funded Warrants). In a concurrent private placement, the Company also sold to the investors unregistered warrants to purchase up to an aggregate of 939,312 shares of common stock. Subject to certain ownership limitations, each of the Common Warrants will become exercisable on the effective date of such stockholder approval as may be required by the applicable rules and regulations of the Nasdaq Stock Market with respect to issuance of all of the Common Warrants and the common stock upon the exercise thereof. Subject to certain ownership limitations, each Common Warrant will have an exercise price of $9.60 per share, expire five years from the date of stockholder approval and will become exercisable beginning on the effective date of stockholder approval for the shares issuable upon the exercise of the Common Warrants. Subject to certain ownership limitations, each Pre-Funded Warrant is exercisable into one share of common stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). The combined purchase price of one share of common stock (or pre-funded warrant in lieu thereof) and accompanying Common Warrant was $9.60 for the institutional investor, and $10.35 for the executive officers, employees, advisors and the member of the Company's board of directors who participated in the offering. The Company received gross proceeds of $4.5 million, before deducting the placement agent's fees and other offering expenses payable by the Company. Proceeds of the December 2023 Offering were allocated between common shares and warrants first by allocating proceeds to the warrants classified as a liability based on their fair value and then allocating the residual to the equity instruments, which includes the Pre-Funded Warrants. Transaction costs related to the issuance of shares were recognized in stockholder's equity (deficit), while costs of $510,000 allocated to warrant liabilities were expensed for the year ended December 31, 2023.

Lincoln Park Equity Line

The Company did not utilize the 2021 Lincoln Park purchase agreement during the year ended December 31, 2024. The 2021 Lincoln Park Agreement terminated in June 2024.

Other Components of Equity

In March 2024, the Company issued 6,834 shares of common stock to consultants in exchange for services to be provided. In addition, during the year ended December 31, 2024, the Company issued 20,485 shares of common stock related to the vesting of restricted stock units.

Preferred Stock

The Company's certificate of incorporation authorizes the Company to issue these shares in one or more series, to determine the designations and the powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations and restrictions thereof, including the dividend rights, conversion or exchange rights, voting rights (including the number of votes per share), redemption rights and terms, liquidation preferences, sinking fund provisions and the number of shares constituting the series. No preferred stock was issued or outstanding as of December 31, 2024.

Warrant Background

Upon its issuance of warrants to purchase shares of common stock, the Company evaluates the terms of the warrant issue to determine the appropriate accounting and classification of the warrant issue pursuant to FASB ASC Topic 480, Distinguishing Liabilities from Equity, FASB ASC Topic 505, Equity, FASB ASC 815, Derivatives and Hedging, and ASC 718, Compensation - Stock Compensation. Warrants are classified as liabilities when the Company may be required to settle a warrant exercise in cash and classified as equity when the Company settles a warrant exercise in shares of its common stock.

Liability classified warrants are valued at fair value at the date of issue and at each reporting date pursuant to FASB ASC 820, Fair Value Measurement, (ASC 820) and are reflected as a warrant liability on the Company's consolidated balance sheet. The change in the warrant liability during each reporting period is reflected as a gain (loss) from change in fair value of warrant liability in the Company's consolidated statement of operations.

Equity classified warrants issued to non-employees in exchange for services are accounted for in accordance with ASC 718 which requires all stock-based payments be recognized in the consolidated statements of operations based on their fair value. For further information, see Note 2. Basis of presentation, principles of consolidation and significant accounting policies – Stock-based Compensation.

At December 31, 2024 and 2023, the Company has the following warrants outstanding:

	Number of Shares Under Outstanding Warrants at December 31, 2024		Number of Shares Under Outstanding Warrants at December 31, 2023		Weighted Average Exercise Price at December 31, 2024		Remaining Contractual Life at December 31, 2024 (Years)
Liability Classified Warrants ⁽¹⁾
Issued March 2019		—		17,573	$	—		—
Issued April 2019		—		58,336		—		—
Issued February 2020		67,670		67,670		94.50		0.6
Issued December 2023		939,316		939,316		2.57		4.8
Issued August 2024		5,056,054		—		2.24		3.4
		6,063,040		1,082,895	$	3.32
Equity Classified Warrants
Issued April 2020 - Consulting		—		1,112	$	—		—
Issued December 2020 - Consulting		556		556		70.80		1.0
Issued April 2021 - Consulting		4,767		4,767		54.45		1.3
Issued August 2021 - Consulting		16,667		16,667		46.20		6.6
Issued June 2022 - Consulting		3,334		3,334		22.35		7.5
Issued September 2022 - Consulting		16,667		16,667		18.60		7.7
Issued June 2023 - Consulting		10,001		10,001		9.00		8.5
Issued August 2023 - Consulting		6,667		6,667		9.30		3.6
Issued December 2023 - Pre-Funded Warrants		—		229,506		—		—
Issued March 2024 - Consulting		3,334		—		9.15		9.2
Issued August 2024 - Pre-Funded Warrants		1,649,000		—		0.001		n/a
Issued October 2024 - Consulting		36,000		—		2.36		9.8
		1,746,993		289,277	$	0.99
Balance outstanding		7,810,033		1,372,172	$	2.80

⁽¹⁾ If the Company subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of its common stock into a smaller number of shares, the warrant exercise price is proportionately reduced and the number of shares under outstanding warrants is proportionately increased. Additionally, if the Company combines (by combination, reverse stock split or otherwise) its outstanding shares of common stock into a smaller number of shares, the warrant exercise price is proportionately increased and the number of shares under outstanding warrants is proportionately decreased.

Liability Classified Warrants

The Company uses the Black-Scholes option pricing model (BSM) to determine the fair value of its warrants at the date of issue and outstanding at each reporting date. The risk-free interest rate assumption is based upon observed interest rates on zero coupon US Treasury bonds linearly interpolated to obtain a maturity period commensurate with the term of the warrants. Estimated volatility is a measure of the amount by which the Company's stock price is expected to fluctuate each year during the expected life of the warrants.

The assumptions used in determining the fair value of the Company’s outstanding liability classified warrants are as follows:

	Year Ended December 31,
	2024		2023
Risk-free interest rate		4.2% to 4.4%		3.8% to 5.4%
Volatility		76.9% to 99.4%		79.5% to 108.7%
Expected life (years)		0.6 to 4.8		0.3 to 5.0
Dividend yield		—%		—%

In addition, for the Series A and Series B warrants issued in August 2024, the assumptions used for the probability of the milestone events successfully occurring were 75% and 25%, respectively, as of December 31, 2024.

A summary of the Company's liability classified warrant activity during the year ended December 31, 2024 and related information follows:

	Number of Shares Under Warrant			Range of Warrant Exercise Price per Share	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Outstanding at December 31, 2023		1,082,895		9.60 to 157.50	$	24.32		5.1
Granted		5,056,054		2.23 to 2.79	$	2.24		3.4
Expired		(75,909	)	99.00 to 157.50	$	143.96		—
Outstanding at December 31, 2024		6,063,040		2.23 to 94.50	$	3.32		3.5

Vested and Exercisable at December 31, 2024		6,063,040		2.23 to 94.50	$	3.32		3.5

For a summary of the changes in fair value associated with the Company's warrant liability for the years ended December 31, 2024 and 2023, see Note 2. Basis of presentation, principles of consolidation and significant accounting policies – Fair Value of Financial Instruments.

Equity Classified Warrants

In January 2025, the Company granted equity-classified warrants to two consultants to purchase up to 50,000 shares each of Company common stock with a ten-year term and an exercise price of $1.64. The first 50,000 of these warrants vest based on performance of certain services, and the other 50,000 vest annually over four years.

In October 2024, the Company issued consultants ten-year warrants to purchase up to 36,000 shares of common stock (taking into account the reverse stock splits we have completed). 30,000 warrants vest annually over a four-year term, 5,000 warrants vest monthly over a three-year term, and 1,000 warrants vested immediately.

In March 2024, the Company issued a consultant a ten-year warrant to purchase up to 3,334 shares of common stock (taking into account the reverse stock splits we have completed). The warrants vest annually over a four-year term.

In August 2023, the Company granted equity-classified warrants to a consultant to purchase up to 6,667 shares (taking into account the reverse stock splits we have completed) of Company common stock with a five-year term and an exercise price of $9.30. The warrants vest based on performance of certain services. As of December 31, 2024, no related vesting criteria were met.

In June 2023, the Company granted equity-classified warrants to purchase 10,000 shares of common stock with a ten-year term and an exercise price of $9.00 vesting annually over four years while services are being performed.

At December 31, 2024 the Company had 1,746,993 equity classified warrants outstanding of which 1,697,744 warrants were exercisable (taking into account the reverse stock splits we have completed). At December 31, 2023, the Company had 289,277 equity classified warrants outstanding of which 266,350 were exercisable (taking into account the reverse stock splits we have completed).