Annual report pursuant to Section 13 and 15(d)

WARRANT LIABILITY

v3.22.2.2
WARRANT LIABILITY
12 Months Ended
Apr. 30, 2022
Warrant Liability  
WARRANT LIABILITY

NOTE 9 — WARRANT LIABILITY

 

As of April 30, 2022, the Company’s warrants liability was valued at $2,440,000. Under the guidance in ASC 815-40, certain warrants do not meet the criteria for equity treatment. As such, these warrants are recorded at fair value as of each reporting date with the change in fair value reported within other income (expense) in the accompanying consolidated statements of operations as “Change in fair value of warrant liability” until the warrants are exercised, expired or other facts and circumstances lead the warrant liability to be reclassified to stockholder’s equity. The Company utilized a Monte Carlo Simulation model to estimate the fair value of the March 2022 warrants, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration. The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:

 

Initial Measurement

 

The Company accounts for the 625,000 warrants issued in connection with the Definitive Agreement which occurred on March 18, 2022 (see Note 10) in accordance with the guidance contained in ASC 815 “Derivatives and Hedging” whereby under that provision these warrants do not meet the criteria for equity treatment and must be recorded as a liability. The initial valuation of these warrants was valued at $3,652,000 and was allocated to the proceeds of the Definitive Agreement.

 

The key inputs for the warrant liability were as follows as of March 18, 2022:

 

Key Valuation Inputs      
Expected term (years)     5.50  
Annualized volatility     84.4 %
Volatility if fundamental transaction occurs     100.00 %
Risk-free interest rate     2.15 %
Stock price   $ 8.00  
Dividend yield     0.00 %
Exercise price   $ 8.60  
Probability of fundamental transaction     85 %
Date of fundamental transaction (1)     2 years to 5.5 years  

 

1) The fundamental transaction is simulated to occur 85% during one trading day through the 3.5 year period, 85% of the time.

 

 

U.S. GOLD CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2022

 

Subsequent Measurement

 

The key inputs for the warrant liability were as follows as of April 30, 2022:

 

Key Valuation Inputs      
Expected term (years)     5.39  
Annualized volatility     84.2 %
Volatility if fundamental transaction occurs     100.00 %
Risk-free interest rate     2.92 %
Stock price   $ 5.65  
Dividend yield     0.00 %
Exercise price   $ 8.60  
Probability of fundamental transaction     85 %
Date of fundamental transaction     1.90 years to 5.4 years  

 

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liability for the year ended April 30, 2022:

 

   

Warrant

Liability

 
Fair value as of April 30, 2021   $  
Initial fair value of warrant liability upon issuance     3,652,000  
Change in fair value     (1,212,000 )
Fair value as of April 30, 2022   $ 2,440,000