Annual report [Section 13 and 15(d), not S-K Item 405]

Note 12 - Warrant Liability

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Note 12 - Warrant Liability
12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

12.

Warrant liability

 

 

The Company accounted for the warrants issued in connection with the Securities Purchase Agreement on Note 11, to purchase 750,000 shares in accordance with the guidance contained in ASC Topic 815 “Derivatives and Hedging”. These warrants contain provisions—such as a mandatory conversion feature upon a change in control—that preclude equity classification were recorded as a liability. Accordingly, the Company classified the warrants as a liability at fair value and adjusts them to fair value at each reporting period. This liability is re-measured at each balance sheet date until the warrants are exercised or expire, and any change in fair value will be recognized in the Company’s statement of operations. The fair value of the warrants was estimated using the Monte-Carlo option pricing model to determine the fair value of its liability-classified warrants. These instruments are classified within Level 3 of the fair value hierarchy due to the use of unobservable inputs. Key assumptions used in the valuation as of December 19, 2024 and December 31, 2024, included:

 

   

As of December 19, 2024

   

As of December 31, 2024

 

Expected life of the options to convert

    5       4.97  

Risk-free rate

    4.34 %     4.29 %

Historical volatility

    99.13 %     96.71 %

Valuation date stock price

    1.75       2.52  

Strike price

 

$1.93/$1.92

   

$1.93/$1.92

 

Probability of completing a change in control

    30 %     20 %

Volatility if change in control occurs

    100 %     100 %

Dividend yield

    0 %     0 %

 

 

 

The following table provides a rollforward of the Level 3 warrant liability for the year ended December 31, 2024 (in thousands):

 

   

Warrant liability

 

Fair value as of January 1, 2024

  $  

Initial measurement on December 19, 2024

    986  

Change in fair value of warrant liabilities

    507  

Fair value as of December 31, 2024

  $ 1,493  

 

The warrant liability was initially recorded at a fair value of $986,000 and subsequently remeasured to $1,493,000 as of December 31, 2024. The change in fair value of $507,000 was recognized as a non-cash expense in the statement of operations for the year ended December 31, 2024.