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WARRANT LIABILITIES

12 Months Ended

Dec. 31, 2023

NOTE 7 – WARRANT LIABILITIES

In 2004, the Company issued warrants to various investors and brokers for the purchase of Series C preferred stock in connection with a private placement (the “Series C Warrants”). The Series C Warrants were subsequently extended and, upon closing of the reverse recapitalization transaction with Ritter, exchanged for warrants to purchase common stock of the Company, at $7.195 per share, subject to adjustment. As of December 31, 2023, the Series C Warrants had a remaining term of 0.49 years. The Series C Warrants were determined to be liability-classified pursuant to the guidance in ASC 480 and ASC 815-40, based on the inclusion of a leveraged ratchet provision for subsequent dilutive issuances. On April 25, 2022, the Series C warrants were repriced from $7.195 per share exercise price to $6.00 per share exercise price with 49,318 additional ratchet Warrants issued. On May 26, 2022, the Series C warrants were repriced from $6.00 per share exercise price to $5.136 per share exercise price with 49,952 additional ratchet Warrants issued. As a result of these repricings, 247,625 warrants were forfeited and 346,896 warrants were reissued. On December 22, 2022, the Series C Warrants were repriced again from $5.136 per share exercise price to $1.32 per share exercise price with 1,002,717 additional ratchet Warrants issued.

Additionally, on December 22, 2022, in conjunction with the issuance of the Debenture to Alpha (see Note 8 – Convertible Debt – Related Party), the Company issued to Alpha a warrant to purchase 2,500,000 shares of the Company’s common stock (the “Alpha Warrant”). The exercise price of the Alpha Warrant was $1.65 (equal to 125% of the conversion price of the Debenture on the closing date). The Alpha Warrant may be exercised by Alpha, in whole or in part, at any time before June 22, 2028, subject to certain terms and conditions described in the Alpha Warrant. The fair value of this warrant was included in Warrant liabilities-related party on the Company’s consolidated balance sheet as of December 31, 2022. On December 5, 2023, the Company entered into an Amendment No. 1 with regard to Securities Purchase Agreement, with Alpha. This Amendment amended two instruments which the Company issued under the Securities Purchase Agreement dated December 21, 2022: (a) the 8% Senior Convertible Debenture dated December 22, 2022 in favor of Alpha, and (b) the Common Stock Purchase Warrant dated December 22, 2022 in favor of Alpha. The Amendment reduced the conversion price of the Debenture from $1.32 per share to $0.73 per share (subject to possible future adjustment pursuant to the terms of the Debenture) and reduced the exercise price of the Warrant from $1.65 per share to $0.73 per share (subject to possible future adjustment pursuant to the terms of the Warrant). The Amendment also eliminated certain adjustment provisions of the Warrant. The Company determined the event resulted in equity classification for the Warrant and, accordingly, the Company remeasured the warrant liabilities to fair value, and reclassified.

As a result of the Alpha Warrant repricing, on December 5, 2023 the Series C Warrants were repriced again from $1.32 per share exercise price to $0.73 per share exercise price with 203,652 additional ratchet Series C Warrants issued, resulting in 455,623 of these Series C Warrants outstanding and exercisable as of December 31, 2023.

The following table summarizes the activity in liability classified warrants for the year ended December 31, 2023:

SCHEDULE OF WARRANTS ACTIVITY

	Common Stock Warrants
	Shares			Weighted– Average Exercise Price		Range of Exercise Price		Weighted–Average Remaining Life (Years)
Total outstanding – December 31, 2022		3,849,571		$	1.53		$1.32 - $1.65		3.9
Exercised		—			—		—		—
Forfeited		(2,751,976	)		1.53		—		—
Expired		(1,097,595	)		1.32		1.32		—
Granted		455,623			0.73		0.73		0.49
Total outstanding – December 31, 2023		455,623		$	0.73	$	0.73		0.49
Exercisable		455,623		$	0.73	$	0.73		0.49

The following table summarizes the activity in the Common Stock Warrants received in exchange for the Series C Warrants for the year ended December 31, 2022:

	Common Stock Warrants
	Shares			Weighted– Average Exercise Price		Range of Exercise Price		Weighted–Average Remaining Life (Years)
Total outstanding –December 31, 2021		248,162		$	7.20	$	7.20		2.00
Exercised		(536	)		7.20
Forfeited		(247,625	)		7.20
Expired		—			—
Granted		3,849,570			1.53
Total outstanding – December 31, 2022		3,849,571		$	1.53	$	1.32 - 1.65		3.9
Exercisable		1,349,571		$	1.32	$	1.32		1.00

The following table presents the Company’s fair value hierarchy for its Common Stock Warrant liabilities measured at fair value on a recurring basis as of December 31, 2023:

	Quoted
	Market		Significant
	Prices for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
Common Stock Warrant liabilities	(Level 1)		(Level 2)		(Level 3)			Total
Balance as of December 31, 2022	$	—	$	—	$	3,622,647		$	3,622,647
Exercises		—		—		—			—
Fair value of warrant reclassified from liabilities to equity		—		—		(1,626,694	)		(1,626,694	)
Loss on debt extinguishment		—		—		94,116			94,116
Gain on change in fair value of warrant liabilities		—		—		(2,035,469	)		(2,035,469	)
Balance as of December 31, 2023	$	—	$	—	$	54,600		$	54,600

There were no transfers of financial assets or liabilities between category levels for the year ended December 31, 2023.

The value of the warrant liabilities was based on a valuation received from an independent valuation firm determined using a Monte-Carlo simulation. For volatility, the Company considers comparable public companies as a basis for its expected volatility to calculate the fair value of common stock warrants and transitions to its own volatility as the Company develops sufficient appropriate history as a public company. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected term of the common stock warrant. The Company uses an expected dividend yield of zero based on the fact that the Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future. Any significant changes in the inputs may result in significantly higher or lower fair value measurements.

The following are the assumptions used in, and the weighted average and the range of assumptions used in estimating the fair value of warrant liabilities (weighted average calculated based on the number of outstanding warrants on each issuance) as of December 31, 2023 and December 31, 2022:

	December 31, 2023			December 31, 2022
	Actual			Range	Weighted Average
Risk-free interest rate		5.13	%	3.906% — 4.628%		4.15	%
Expected volatility (peer group)		68.9	%	88% — 103%		98	%
Term of warrants (in years)		0.49		.90 — 5.48		3.9
Expected dividend yield		0.00	%	0.00%		0.00	%