Annual report pursuant to Section 13 and 15(d)

Derivative Liability

v3.21.2
Derivative Liability
12 Months Ended
Aug. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITY
18. DERIVATIVE LIABILITY

 

Convertible note issued to several lenders, disclosed in note 14(h), (i) and (j), 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 August 31, 2020, with a total change in fair value of $187,401 charged to the 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:

 

    Year ended
August 31,
2021
 
Conversion price     CAD$0.03 to CAD$0.25  
Risk free interest rate     0.18 to 2.12 %
Expected life of derivative liability     6 to 12 months  
Expected volatility of underlying stock     93.9 to 231.8 %
Expected dividend rate     0 %

 

The movement in derivative liability is as follows:

 

    August 31,
2021
 
       
Opening balance   $ 841,385  
Derivative financial liability arising from convertible notes     653,826  
Fair value adjustment to derivative liability     (1,173,025 )
    $ 322,186