Annual report pursuant to Section 13 and 15(d)

WARRANT LIABILITY

v3.23.2
WARRANT LIABILITY
 12 Months Ended
Apr. 30, 2023
Warrant Liability  
WARRANT LIABILITY

NOTE 9 — WARRANT LIABILITY

 

As of April 30, 2023 and 2022, the Company’s warrant liabilities were valued at $4,230,850 and $2,440,000, respectively. 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 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 stockholders’ equity. The Company utilized a Monte Carlo Simulation model to estimate the fair values of the April 2023 and 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 accounted for the 625,000 warrants issued on March 18, 2022 in accordance with the guidance contained in ASC 815 “Derivatives and Hedging” whereby under that provision these warrants did not meet the criteria for equity treatment and was recorded as a liability. The initial valuation of these warrants were valued at $3,652,000 on March 18, 2022. Additionally, the Company accounted for the 870,000 warrants issued on April 10, 2023 (see Note 10) in accordance with the guidance contained in ASC 815 “Derivatives and Hedging” whereby under that provision these warrants did not meet the criteria for equity treatment and was recorded as a liability at an initial valuation of $3,088,500. On April 10, 2023, the Company agreed to amend, effective as of the closing of the registered offering, certain existing warrants to purchase up to 625,000 shares of the Company at an exercise price of $8.60 per share and a termination date of September 18, 2027, so that the amended warrants will have a reduced exercise price of $6.16 per share and a termination date of October 10, 2028. Accordingly, the Company recognized a change in fair value due to modification of warrants of $262,500 during the year ended April 30, 2023 as reflected in the accompanying consolidated statements of operations.

 

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

 

SCHEDULE OF KEY INPUTS FOR THE WARRANT LIABILITY

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, 2023

 

The key inputs for the warrant liability were as follows as of April 10, 2023:

 

Key Valuation Inputs (2)      
Expected term (years)     5.50  
Annualized volatility     81.3 %
Volatility if fundamental transaction occurs     100.00 %
Risk-free interest rate     3.51 %
Stock price   $ 5.23  
Dividend yield     0.00 %
Exercise price   $ 6.16  
Probability of fundamental transaction     90 %
Date of fundamental transaction (1)     1.0 years to 5.5 years  

 

  1) The fundamental transaction is simulated to occur 90% during one trading day through the 4.5-year period, 90% of the time.
  2) Applies to the modified warrants and warrants issued in April 2023

 

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 key inputs for the warrant liability were as follows as of April 30, 2023:

 

Key Valuation Inputs      
Expected term (years)     5.45  
Annualized volatility     81.4 %
Volatility if fundamental transaction occurs     100.00 %
Risk-free interest rate     3.51 %
Stock price   $ 4.31  
Dividend yield     0.00 %
Exercise price   $ 6.16  
Probability of fundamental transaction     90 %
Date of fundamental transaction     1.00 years to 5.45 years  

 

 

U.S. GOLD CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2023

 

The following table sets forth a summary of the changes in the fair value of the Level 3 warrant liability for the years ended April 30, 2023 and 2022:

 

SCHEDULE OF CHANGES IN FAIR VALUE OF LEVEL THREE WARRANT LIABILITY

    Warrant
Liability		  
Fair value as of April 30, 2021   $ —  
Initial fair value of warrant liability upon issuance     3,652,000  
Change in fair value of warrant liability     (1,212,000 )
Fair value as of April 30, 2022     2,440,000  
Initial fair value of warrant liability upon issuance     3,088,500  
Change in fair value due to modification of warrants     262,500  
Change in fair value of warrant liability     (1,560,150 )
Fair value as of April 30, 2023   $ 4,230,850