Quarterly report pursuant to Section 13 or 15(d)

Derivative Liability

Derivative Liability
9 Months Ended
May 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  

Convertible notes issued to several lenders, disclosed in note 11, 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 May 31, 2021, with a total change in fair value of $1,292,169 charged 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:


Nine months


May 31,


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 174.9 %
Expected dividend rate     0 %

The movement in derivative liability is as follows:


May 31,


    August 31,
Opening balance   $ 841,385     $ -  
Derivative financial liability arising from convertible notes     452,799       653,984  
Fair value adjustment to derivative liability     1,292,169     187,401  
    $ 2,586,353     $ 841,385