Convertible
notes issued to several lenders, disclosed in note 10(g) and (h), above have conversion rights that are linked to the Company’s
stock price, at a factor ranging from 50% to 75% of an average stock price over a period ranging from 15 to 20 days prior to the date
of conversion. These conversion rights may also include a fixed maximum conversion price. The number of shares issuable upon conversion
of these convertible notes is therefore not determinable until conversion takes place. The Company has determined that these conversion
features meet the requirements for classification as derivative liabilities and has measured their fair value using a Black Scholes valuation
model which takes into account the following factors:
|
● |
Historical
share price volatility; |
|
● |
Maturity
dates of the underlying securities being valued; |
|
● |
Risk
free interest rates; and |
|
● |
Expected
dividend policies of the Company. |
The fair value
of the derivative liabilities was initially recognized as a debt discount and was re-assessed at February 28, 2021, with a total change
in fair value of $718,912 credited to the unaudited condensed consolidated statement of loss and comprehensive loss. The value of the
derivative liability will be re-assessed at each financial reporting date, with any movement thereon recorded in the statement of loss
and comprehensive loss in the period in which it is incurred.
The following
assumptions were used in the Black-Scholes valuation model:
|
|
Six months
ended
February 28,
2021
|
|
Conversion price |
|
|
CAD$0.0375 to CAD$0.06 |
|
Risk free interest rate |
|
|
0.04
to 0.21 |
% |
Expected life of derivative liability |
|
|
6 to 12 months |
|
Expected volatility of underlying stock |
|
|
106.5% to 171.20 |
% |
Expected dividend rate |
|
|
0 |
% |
The movement
in derivative liability is as follows:
|
|
February 28,
2021
|
|
|
August 31, 2020 |
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
841,385 |
|
|
$ |
- |
|
Derivative financial liability arising from convertible notes |
|
|
270,535 |
|
|
|
653,984 |
|
Fair value adjustment to derivative liability |
|
|
(748,912 |
) |
|
|
187,401 |
|
|
|
|
363,008 |
|
|
$ |
841,385 |
|
|