Annual report pursuant to Section 13 and 15(d)

Derivatives

v3.21.2
Derivatives
12 Months Ended
Apr. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives

Note 13 – Derivatives

 

The Company completed financings in October 2020 and January 2021 which included notes and warrants which contain embedded features subject to derivative accounting. See Note 7 for a full description of these financings. Both the notes and the warrants included provisions which provided for a reduction in the conversion and exercise prices, respectively, if the Company completed a future qualified offering at a lower price. These provisions represent embedded derivatives which are valued separately from the host instrument (meaning the notes and warrants) and recognized as derivative liabilities on the Company’s balance sheet. The Company initially measures these financial instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company also measures these financial instruments on the date of settlement (meaning when the note is converted or the warrant is exercised) at their estimated fair value and recognizes changes in their estimated fair value in results of operations. Any discount on the carrying value of the note is fully amortized on the date of settlement and recognized as interest expense.

 

The Company estimated the fair value of these embedded derivatives using a multinomial lattice mode1. The range of underlying assumptions used in the binomial model to determine the fair value of the derivative warrant liability upon issuance, at the end of each fiscal reporting quarter, and upon settlement of the derivative liability are set forth below. In addition, the Company’s stock price on each measurement date was used in the model.

    April 30, 2021
Risk-free interest rate     0.08-0.61%  
Expected dividend yield     —    
Expected term (in years)     1.54-5.00  
Expected volatility     86.74-110.56 %  

 

The fair value of the derivative liabilities recognized upon the closing of the October 2020 and January 2021 financings exceeded the net proceeds totaling $1,080,000 from those financings. Therefore, a derivative expense totaling $4,630,288 was recognized, of which $148,587 and $4,481,701 related to the October 2020 and January 2021 financings, respectively.

 

Changes in the derivative liability during the year ended April 30, 2021 were as follows:

 

     
Recognized upon closing of October 2020 financing   $ 728,587  
Recognized upon closing of January 2021 financing     4,981,701  
Eliminated upon conversion of notes/exercise of warrants     (5,390,415 )
Changes in fair value from issuance through April 30, 2021     2,492,894
Derivative liability at April 30, 2021   $ 2,812,767  

 

Changes in the fair value of derivates during the fiscal year ended April 30, 2021 resulted in an expense of $2,492,894, and primarily related to an increase in the Company’s stock price following the closings of the financings.

 

As of April 30, 2021, all of the notes had been converted into common stock and 873,332 of the warrants were outstanding. The fair value of the remaining derivatives at April 30, 2021 totaled $2,812,767 using the following assumptions:

    April 30, 2021
Current stock price   $ 4.04  
Risk-free interest rate     0.08-0.61%  
Expected dividend yield     —    
Expected term (in years)     1.54-5.00  
Expected volatility     86.74-110.56 %