13. DERIVATIVE LIABILITIES

The Company’s derivative liabilities consist of warrants, denominated in a currency other than the Company’s functional currency (the “Warrant Liabilities”) and conversion rights embedded in the Debentures (the “Debenture Convertible Features”), see Note 11.

Warrant Liabilities

As at December 31, 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, 620,230 Third Tranche Warrants, 1,986,112 Fourth Tranche Warrants and 20,000 warrants issued in a private placement (Note 15) on June 20, 2023 (“Private Placement Warrants”).

The fair value of the Private Placement Warrants amounted to $23 (June 20, 2023 - $45,120). As at December 31, 2023 the Company utilized the Black-Scholes option-pricing model for the Private Placement Warrants and used the following assumptions: stock price $0.47 (June 20, 2023 - $12.50), dividend yield – nil (June 20, 2023 – nil), expected volatility 105% (June 20, 2023 – 65.0%), risk free rate of return 3.88% (June 20, 2023 – 4.58%), and expected term of 1.50 years (June 20, 2023 – expected term of 2 years).

The fair value of the IPO Warrants and Rep Warrants amounted to $11,285 (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 $24,000 (December 31, 2022 - $2,917,000). As at December 31, 2023 the Company utilized the Monte Carlo option-pricing model to value the First Tranche Warrants using the following assumptions: stock price $0.47 (December 31, 2022 - $56.50), dividend yield – nil (December 31, 2022 – nil), expected volatility 100.0% (December 31, 2022 – 95.0%), risk free rate of return 4.23% (December 31, 2022 – 4.22%), and expected term of 2 years (December 31, 2022 – expected term of 3 years).

As at December 31, 2023 the Second Tranche Warrants had a fair value that amounted to $15,000 (January 17, 2023 - $2,378,000). As at December 31, 2023 the Company utilized the Monte Carlo option-pricing model to value the Second Tranche Warrants using the following assumptions: stock price $0.47 (January 17, 2023 - $60.50), dividend yield – nil (January 17, 2023 – nil), expected volatility 105.0% (January 17, 2023 – 95.0%), risk free rate of return 4.12% (January 17, 2023 – 3.80%), and expected term of 2.55 years (January 17, 2023 – expected term of 3.5 years).

As at December 31, 2023 the Third Tranche Warrants had a fair value that amounted to $192,000 (October 18, 2023 - $1,251,000). As at December 31, 2023 the Company utilized the Monte Carlo option-pricing model to value the Second Tranche Warrants using the following assumptions: stock price $0.47 (October 18, 2023 - $2.64), dividend yield – nil (October 18, 2023 – nil), expected volatility 107.5% (October 18, 2023 – 105.0%), risk free rate of return 3.98% (October 18, 2023 – 5.00%), and expected term of 3.3 years (October 18, 2023 – expected term of 3.5 years).

As at December 31, 2023 the Fourth Tranche Warrants had a fair value that amounted to $724,000 (November 30, 2023 - $1,053,000). As at December 31, 2023 the Company utilized the Monte Carlo option-pricing model to value the Second Tranche Warrants using the following assumptions: stock price $0.47 (November 30, 2023 - $0.84), dividend yield – nil (November 30, 2023 – nil), expected volatility 107.5% (November 30, 2023 – 105.0%), risk free rate of return 3.97% (November 30, 2023 – 4.44%), and expected term of 3.42 years (November 30, 2023 – expected term of 3.5 years).

Debenture Convertible Feature

As at December 31, 2023 the fair value of the First Tranche Debentures’ convertible feature amounted to $164,000 (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 $0.47 (December 31, 2022 - $56.50), dividend yield – nil (December 31, 2022 – nil), expected volatility 100.0% (December 31, 2022 – 95.0%), risk free rate of return 5.03% (December 31, 2022 – 4.41%), discount rate 17.50% (December 31, 2022 – 13.65%), and expected term of 1 year (December 31, 2022 – 2 years).

As at December 31, 2023 the fair value of the Second Tranche Debentures’ convertible feature amounted to $429,000 (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 $0.47 (January 17, 2023 - $60.50), dividend yield – nil (January 17, 2023 – nil), expected volatility 105.0% (January 17, 2023 – 95.0%), risk free rate of return 4.51% (January 17, 2023 – 4.02%), discount rate 17.50% (January 17, 2023 – 11.65%), and expected term of 1.55 years (January 17, 2023 – 2.50 years).

As at December 31, 2023 the fair value of the Third Tranche Debentures’ convertible feature amounted to $491,000 (October 18, 2023 - $1,152,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions: stock price $0.47 (October 18, 2023 - $2.64), dividend yield – nil (October 18, 2023 – nil), expected volatility 107.5% (October 18, 2023 – 105.0%), risk free rate of return 4.12% (October 18, 2023 – 5.11%), discount rate 17.25% (October 18, 2023 – 18.25%), and expected term of 2.30 years (October 18, 2023 – 2.50 years).

As at December 31, 2023 the fair value of the Third Tranche Debentures’ convertible feature amounted to $640,000 (November 30, 2023 - $1,065,000). The Company utilized the Monte Carlo option-pricing model for valuing the convertible feature using the following assumptions: stock price $0.47 (November 30, 2023 - $0.84), dividend yield – nil (November 30, 2023 – nil), expected volatility 107.5% (November 30, 2023 – 105.0%), risk free rate of return 4.12% (November 30, 2023 – 4.61%), discount rate 17.25% (November 30, 2023 – 18.25%), and expected term of 2.42 years (November 30, 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 Company’s Level 1 and 3 financial instruments for the year ended December 31, 2023 were as follows:

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

Changes in the fair value of Company’s Level 1 and 3 financial instruments for the year ended December 31, 2022 were as follows:

Due to the expiry date of the warrants and conversion feature being subsequent to December 31, 2024, the liabilities have been classified as non-current.