11. DERIVATIVE LIABILITIES

Warrant Liabilities

As of September 30, 2023, the Warrant Liabilities represent aggregate fair value of publicly traded 61,765 Series A warrants (“IPO Warrants”), 2,721 representative’s warrants (“Rep Warrants”), 82,129 First Tranche Warrants, 53,226 Second Tranche Warrants and 20,000 warrants issued in a private placement (Note 12) on June 20, 2023 (“Private Placement Warrants”).

The fair value of the Private Placement Warrants amount to $2,407 (June 20, 2023 - $45,120). As at September 30, 2023 the Company utilized the Black-Scholes option-pricing model for the Private Placement Warrants and used the following assumptions: stock price $5.50 (June 20, 2023 - $12.50), dividend yield – nil (June 20, 2023 – nil), expected volatility 59% (June 20, 2023 – 65.0%), risk free rate of return 4.91% (June 20, 2023 – 4.58%), and expected term of 1.75 years (June 20, 2023 – expected term of 2 years).

The fair value of the IPO Warrants and Rep Warrants amount to $64,161 (December 31, 2022 - $275,115). The Rep Warrants are exercisable one year from the effective date of the IPO registration statement and will expire three years after the effective date.

The fair value of the First Tranche Warrants amounted to $234,000 (December 31, 2022 - $2,917,000). As at September 30, 2023 the Company utilized the Monte Carlo option-pricing model to value the First Tranche Warrants using the following assumptions: stock price $5.60 (December 31, 2022 - $56.50), dividend yield – nil (December 31, 2022 – nil), expected volatility 80.0% (December 31, 2022 – 95.0%), risk free rate of return 4.97% (December 31, 2022 – 4.22%), and expected term of 2.25 years (December 31, 2022 – expected term of 3 years).

On January 17, 2023 the Company issued Second Tranche Warrants. As at September 30, 2023 the Second Tranche Warrants had a fair value that amounted to $75,000 (January 17, 2023 - $2,378,000). As at September 30, 2023 the Company utilized the Monte Carlo option-pricing model to value the Second Tranche Warrants using the following assumptions: stock price $5.60 (January 17, 2023 - $60.50), dividend yield – nil (January 17, 2023 – nil), expected volatility 80.0% (January 17, 2023 – 95.0%), risk free rate of return 4.85% (January 17, 2023 – 3.80%), and expected term of 2.80 years (January 17, 2023 – expected term of 3.5 years).

Debenture Convertible Feature

On June 30, 2022, the Company issued First Tranche Debentures with an equity conversion feature, see Note 8. As at September 30, 2023 the fair value of the First Tranche Debentures’ convertible feature amounted to $887,000 (December 31, 2022 - $1,457,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions: stock price $5.60 (December 31, 2022 - $56.50), dividend yield – nil (December 31, 2022 – nil), expected volatility 80.0% (December 31, 2022 – 95.0%), risk free rate of return 5.35% (December 31, 2022 – 4.41%), discount rate 16.23% (December 31, 2022 – 13.65%), and expected term of 1.25 years (December 31, 2022 – 2 years).

On January 17, 2023, the Company issued Second Tranche Debentures with an equity conversion feature, see Note 8. As at September 30, 2023 the fair value of the Second Tranche Debentures’ convertible feature amounted to $696,000 (January 17, 2023 - $1,599,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions: stock price $5.60 (January 17, 2023 - $60.50), dividend yield – nil (January 17, 2023 – nil), expected volatility 80.0% (January 17, 2023 – 95.0%), risk free rate of return 5.12% (January 17, 2023 – 4.02%), discount rate 16.01% (January 17, 2023 – 11.65%), and expected term of 1.80 years (January 17, 2023 – 2.50 years).

The IPO Warrants, Rep Warrants, and Private Placement Warrants (the “Equity Warrants”) are classified as Level 1 financial instruments, while the Debenture Warrants and Debenture Convertible Feature are classified as Level 3 financial instruments.

Changes in the fair value of the Company’s financial instruments for the nine months ended September 30, 2023 and 2022 were as follows:

 SCHEDULE OF CHANGES IN THE FAIR VALUE OF COMPANY'S LEVEL 3 FINANCIAL INSTRUMENTS

Due to the expiry date of the warrants and conversion feature being greater than one year, the liabilities have been classified as non-current.