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 ended May 31, 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 174.9 |
% |
Expected dividend rate |
|
|
0 |
% |
The movement in derivative liability
is as follows:
|
|
May 31, 2021
|
|
|
August 31, 2020 |
|
|
|
|
|
|
|
|
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 |
|
|