NOTE 7 — DERIVATIVE LIABILITY FOR AUTHORIZED SHARE DEFICIENCIES

As discussed in Note 8, the Company completed an underwritten offering in May 2022 that resulted in the issuance of 10,947,371 Class B pre-funded warrants (“Class B PFWs”) for gross proceeds of approximately $41.6 million or $3.80 per share. Exercisability of the Class B PFWs was subject to the Company’s ability to obtain shareholder approval for an

increase in authorized shares. Since the ability to obtain shareholder approval was outside the Company’s control, liability classification was required beginning on the date of issuance of the Class B PFWs on May 4, 2022.

The fair value of approximately $41.6 million related to the Class B PFWs on the date of issuance was accounted for as a derivative liability beginning on May 4, 2022. As discussed in Note 8, the Company’s shareholders approved an increase in authorized shares from 40.0 million shares to 100.0 million shares on June 16, 2022. Upon receipt of shareholder approval for the authorized share increase, fair value of the derivative liability had decreased to $35.0 million or $3.20 per share, which resulted in a gain of $6.6 million. This gain is included in non-operating income and the derivative liability of $35.0 million was reclassified into shareholders’ equity on June 16, 2022. Underwriter discounts of approximately $2.5 million related to the Class B PFWs were expensed on the date of issuance since the fair value of the Class B PFWs exceeded the net proceeds received by the Company. Fair value of the Class B PFWs was determined using the BSM option-pricing model with the following assumptions as of June 16, 2022:

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