DERIVATIVE LIABILITIES

6 Months Ended

Mar. 31, 2021

DERIVATIVE LIABILITIES

DERIVATIVE LIABILITIES

9.     DERIVATIVE LIABILITIES

In January 2016, the Company completed a private placement of 227,273 units of the Company at $66.00 per unit (“Unit”) for gross proceeds of $14,999,992. Each Unit consisted of one common share of the Company, one 7-year cash and cashless exercise warrant (the “7-Year Warrants”), and one half of one 2-year cash exercise warrant (the “2-Year Warrants”). The 7-Year Warrants and 2-Year Warrants have an exercise price of $66.00 per common share (collectively, the “2016 Warrants”). The holders of the 7-Year Warrants may elect, in lieu of exercising the 7-Year Warrants for cash, a cashless exercise option, in whole or in part, to receive common shares equal to the fair value of the 7-Year Warrants based on the number of 7-Year Warrants to be exercised multiplied by a ten-day weighted average market price less the exercise price with the difference divided by the weighted average market price. If a warrant holder exercises this option, there will be variability in the number of shares issued per 7-Year Warrant.

Additionally, the 2016 Warrants contain provisions which may require the Company to redeem the 2016 Warrants, at the option of the holder, in the event of a major transaction, such as a change of control or sale of the Company’s assets (“Major Transaction”). The redemption value would be subject to a Black-Scholes valuation at the time of exercise. In the event the consideration for a Major Transaction payable to the common shareholders is in cash, in whole or in part, the redemption of the 2016 Warrants would be made in cash pro-rata to the composition of the consideration. The potential for a cash settlement for the 2016 Warrants outside the control of the Company, in accordance with U.S. GAAP, requires the 2016 Warrants to be treated as financial liabilities measured at fair value through profit or loss. The 2016 Warrants are not traded in an active market.

Valuation

The Company uses the Black-Scholes option pricing model to estimate fair value. The following weighted average assumptions were used to estimate the fair value of the derivative warrant liabilities on March 31, 2021 and 2020:

		March 31,		March 31,
	2021			2020
Risk-free interest rate		0.29	%	0.46	%
Expected life		1.79	years	2.79	years
Expected annualized volatility		85.9	%	88.7	%
Dividend		—		—
Liquidity discount		20	%	20	%

Sensitivity

The derivative warrants are a recurring Level 3 fair value measurement. The key level 3 inputs used by management to determine the fair value are the market price, expected volatility and liquidity discount. If the market price were to increase by a factor of 10% this would increase the obligation by approximately $244,273 as of March 31, 2021. If the market price were to decrease by a factor of 10% this would decrease the obligation by approximately $226,083 as of March 31, 2021. If the volatility were to increase by 10%, this would increase the obligation by approximately $241,066 as of March 31, 2021. If the volatility were to decrease by 10%, this would decrease the obligation by approximately $236,776 as of March 31, 2021.

The following table is a continuity schedule of changes to the Company’s derivative liabilities:

	Total
Balance, September 30, 2019	$	16,520
Change in fair value		110,856
Balance, September 30, 2020	$	127,376
Change in fair value		1,039,086
Balance, March 31, 2021	$	1,166,462
Derivatives with expected life of less than one year	$	—
Derivatives with expected life greater than one year	$	1,166,462