Note 8 - Common Stock Warrant Liabilities

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 and 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 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 consolidated balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a gain or loss on the condensed consolidated statements of operations.

Warrant Liability

The Company has previously issued freestanding warrants to purchase shares of its common stock in connection with financing activities. The outstanding  October 2022 Warrants are classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside the Company's control. The  January 2023 Warrants classified as liabilities were fully exercised during the three months ended March 31, 2024. The Black-Scholes Model is used to value the warrants classified as liabilities and the approach required management to estimate inputs including expected volatility and expected term and is most significantly impacted by the volatility of the Company's common stock price. These inputs are inherently subjective and require significant analysis and judgment to develop. 

The fair value of the warrants was measured at the time of issuance and is re-measured at each financial reporting date with any changes in fair value being recognized in change in fair value of warrant liabilities, a component of other income (expense), in the consolidated statements of operations and comprehensive income (loss). The Company will continue to re-measure the fair value of the  October 2022 Warrant liabilities until exercise or expiration of the warrants on  October 10, 2027.

In January 2024, the Company entered into an inducement letter with an investor from a registered direct offering in January 2023 which provided for the immediate exercise of certain of its existing outstanding warrants to exercise for cash an aggregate of 25,871 shares of the Company’s common stock at a reduced exercise price of $22.545 per share. Included in the exercise were the entirety of the January 2023 Warrants. The Company revalued the January 2023 Warrants on January 5, 2024, resulting in a fair value of $0.3 million. The $0.1 million increase in the fair value of the common stock warrant liability resulted in an offsetting change in fair value of warrant liabilities in the unaudited condensed consolidated statements of operations (see Note 7).

In May 2024, the Company closed on the May 2024 Warrant Inducement with the  May 2024 Holders which provided for the immediate exercise of certain of its existing outstanding warrants to exercise for cash an aggregate of 689,680 shares of the Company's common stock with an exercise price of $6.20. Included in the exercise were certain October 2022 Warrants. The Company revalued the October 2022 Warrants on May 1, 2024, resulting in a fair value of $0.1 million. The $0.1 million decrease in fair value of the common stock warrant liability resulted in an offsetting change in fair value of warrant liabilities in the unaudited condensed consolidated statement of operations (see Note 7).

Fair Value of Warrant Liabilities

Warrant liabilities are categorized within Level 3 of the fair value hierarchy and are measured at fair value on a recurring basis as follows (in thousands):

The key inputs for the  October 2022 Warrants using the Black-Scholes model were as follows: