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Note 4 - Warrants and Equity

3 Months Ended

Mar. 31, 2025

4. 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 was 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. All of the pre-funded warrants were exercised during the three months ended March 31, 2025. Each common warrant will be exercisable upon the receipt of shareholder approval (which is anticipated to occur in the near term), 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 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 (Series C warrants) of the Company's common stock. Each inducement warrant has an exercise price of $0.75 and is exercisable as of the date of issuance and may be exercised for a period of five years. The Company received gross proceeds of $5.8 million. Total gross proceeds received in February 2025 were $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.

Other Components of Equity

During the three months ended March 31, 2025, all remaining pre-funded warrants were exercised, leaving no remaining pre-funded warrants outstanding as of March 31, 2025. In March 2024, the Company issued 6,834 shares of common stock to consultants in exchange for services to be provided.

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:

	*March 31, 2025*	*December 31, 2024*
Risk-free interest rate	3.9% to 4.3%	4.2% to 4.4%
Volatility	101.3% to 246.1%	76.9% to 99.4%%
Expected life (years)	0.4 to 4.9	0.6 to 4.8
Dividend yield	—%	—%

A summary of the Company's liability classified warrant activity during the three months ended March 31, 2025 and related information follows:

	*Number of Shares*			*Range of Warrant Exercise*				*Weighted Average*		*Weighted Average Remaining Contractual*
	*Under Warrant*			*Price per Share*				*Exercise Price*		*Life (Years)*
Balance at January 1, 2025		6,063,040		$	2.23	$	94.50	$	3.32		3.5
Granted		18,654,178		$	0.75	$	1.34	$	0.88		—
Exercised		(5,828,570	)	$	1.00	$	1.00		1.00		—
Balance at March 31, 2025		18,888,648		$	2.79	$	94.50	$	1.24		4.9
Exercisable at March 31, 2025		12,346,590		$	0.75	$	94.50	$	1.33		4.8

For a summary of the changes in fair value associated with the Company's warrant liability for the three months ended March 31, 2025, 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. 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 granted equity-classified warrants to purchase up to 3,334 shares of Company common stock with a ten-year term and an exercise price of $9.15. The warrants vest annually over four years while services are being performed.

At March 31, 2025, the Company had 197,993 equity classified warrants outstanding and 50,512 warrants were exercisable. At December 31, 2024, the Company had 1,746,993 equity classified warrants outstanding and 1,697,744 warrants were exercisable.