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Derivative Liability

9 Months Ended

Sep. 30, 2024

13	DERIVATIVE LIABILITY

The convertible notes and warrants issued by the Company to Cavalry, Mercer and RRH as described in Note 12 have variable priced conversion rights with no fixed floor price and will re-price dependent on the share price performance over varying periods of time and certain notes and warrants have fundamental transaction clauses which might result in cash settlement, due to these factors, all convertible notes and any warrants attached thereto are valued and give rise to a derivative financial liability, which was initially valued at inception of the convertible notes using a Black-Scholes valuation model.

Between September 12, 2023 and December 20, 2023, and between April 2, 2024 and June 25, 2024, the Company entered into a convertible note agreement with RRH which have variable priced conversion rights with no fixed floor price and will re-price dependent on the share price performance over varying periods of time, which gave rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $416,317 and $268,873, respectively, but limited to the cash value of the convertible notes of $235,000 and $170,000, respectively, using a Black-Scholes valuation model.

On August 6, 2024, the Company received a conversion notice from the holder of RRH Note 2 (see Note 12) pursuant to which $13,833 of the remaining principal, interest and late payment penalty under the RRH 2 Note was converted into 164,679 shares of Common Stock at a conversion price of $0.084 per share. As a result of the conversion of the RRH Note 2, all other outstanding promissory notes and warrants of the Company that contain price-based anti-dilution protection had the conversion prices of such notes and the exercise price of such warrants adjusted to $0.084 per share and certain warrants of the Company that contain “full ratchet” anti-dilution price protection had the number of shares exercisable for such warrants increased by the full ratchet provision and the conversion prices of such warrants adjusted to $0.084 per share (the “Triggering Event”).

Convertible notes with an aggregate principal and interest balance outstanding on August 6, 2024 of $2,165,578 have such price-based anti-dilution protection. Based on the conversion by the RRH Note 2 as described above, the conversion price of these notes will reset to $0.084. In addition, certain warrants exercisable for 3,145,342 shares of common stock at an exercise price of $0.345 per share, have a full ratchet provision which results in an increase in the number of shares of Common Stock exercisable for such warrants by 9,773,028 to a total number of shares of Common Stock exercisable for such warrants of 12,918,370. In addition to this, certain warrants exercisable for 457,897 shares of common stock have exercise price protection which will reduce the exercise price of these warrants to $0.084 per share from $0.345 per share, resulting in a decrease in potential proceeds receivable from the exercise price of such warrants by $119,511.

The value of the derivative liability related to the anti-dilution price protected convertible notes and warrants was evaluated immediately prior to the Triggering Event and immediately after the Triggering Event, resulting in an additional derivative liability of $4,318,669 on the convertible notes and $2,051,405 on the warrants. In addition, a payment was not made on a convertible note with a no notice default clause, resulting in the triggering of a variable priced conversion feature, which gave rise to a derivative liability on the payment due date, this gave rise to an additional derivative liability of $56,329, both determined using a Black-Scholes valuation model.

The net mark-to-market movement of the derivative liability for the three months ended September 30, 2024 was a net mark-to-market credit of $5,538,008 and for the nine months ended September 30, 2024 was a net mark-to-market credit of $6,461,496, determined by using a Black-Scholes valuation model.

The following assumptions were used in the Black-Scholes valuation model:

	nine months ended September 30, 2024		Year ended December 31, 2023
Conversion price	$	0.0491 to $0.345	$	0.104 to $0.345
Risk free interest rate		3.58 to 5.50 %		3.60 to 5.55%
Expected life of derivative liability		1 to 35 months		3.5 to 47 months
Expected volatility of underlying stock		24.3 to 262.09%		158.72 to 217.01%
Expected dividend rate		0%		0%

The movement in derivative liability is as follows:

	September 30, 2024			December 31, 2023
Opening balance	$	1,434,196		$	2,550,642
Derivative financial liability arising from convertible note and warrants		226,329			385,000
Derivative liability arising on anti-dilutive convertible notes and warrants		6,370,074			-
Fair value adjustment to derivative liability		(6,461,496	)		(1,501,446	)
	$	1,569,103		$	1,434,196