Convertible Promissory Notes and Short Term Loans

9 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Convertible Promissory Notes and Short Term Loans

5. CONVERTIBLE PROMISSORY NOTES AND SHORT TERM LOANS 

During the nine months ended December 31, 2020, the Company issued $7,040,500 (face value) in a series of convertible promissory notes (the “Series A Notes”) sold under subscription agreements to accredited investors. The Notes mature one year from the final closing date of the offering and accrue interest at 12% per annum. The Notes will automatically convert into common stock (in each case, subject to the trading volume of the Company’s common stock being a minimum of $500,000 for each trading day in the 20 consecutive trading days immediately preceding the conversion date), upon the earlier to occur of (i) the Company’s common stock being listed on a national securities exchange, in which event the conversion price will be equal to 75% of the volume weighted average price of the common stock for the 20 trading days prior to the conversion date, or (ii) upon the closing of the Company’s next equity round of financing for gross proceeds of greater than $5,000,000, in which event the conversion price will be equal to 75% of the price per share of the common stock (or of the conversion price in the event of the sale of securities convertible into common stock) sold in such financing. The Company may, at its discretion redeem the notes for 115% of their face value plus accrued interest. The Company is obligated to issue warrants that accompany the convertible notes and provide 50% warrant coverage. The warrants have a 3-year term from date of issuance and an exercise price that is 120% of the 20-day volume weighted average price of the Company’s common shares at the time final closing. The Company is obligated to pay the placement agent of the Notes a 12% cash fee. Net proceeds to the Company from convertible note issuances to December 31, 2020 amounted to $6,095,640 after payment of the placement agent fee. The Company is also obligated to issue warrants to the placement agent that have a 10-year term and cover 12% of funds raised, with an exercise price that is 120% of the 20-day volume weighted average price of the Company’s common shares at the time final closing. Both the noteholder and placement agent warrants will not be issued until final closing since their exercise price is variable and will not be struck until that date. The Company determined that the conversion and redemption features, investor warrants and placement agent warrants contained in those Notes represented a single compound derivative liability that meets the requirements for liability classification under ASC 815. The Company accounted for these obligations by determining the fair value of the related derivative liability associated with the embedded conversion and redemption features, as well as investor warrants and placement agent warrants. The initial fair value of the derivative liabilities generated as a result of issuing the Series A Notes that were issued until December 31, 2020 was $5,429,803 (Note 7). The Company recognized debt issuance costs in the amount of $1,676,198 and treated these as a deduction from the convertible note liabilities directly, as a contra-liability, and amortized the debt issuance cost over the term of the Notes. The Company recognized initial debt discount in the amount of $4,598,464 and accreted the interest over the remaining lives of those Notes. For the nine months ended December 31, 2020, the Company recorded amortization of debt issuance cost in the amount of $260,869, interest accretion for the debt discount in the amount of $461,926 as well as $160,958 interest accruals for those Notes. In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.

	Total
	$
Face value of convertible notes issued		7,040,500
Debt discount		(4,598,464	)
Debt issuance costs		(1,676,198	)
Day 1 value of convertible notes issued		765,838
Accretion of debt discount during nine months ended December 31, 2020		461,926
Amortization of debt issuance cost during nine months ended December 31, 2020		260,869
Total accretion and amortization expenses		722,795
Balance as at December 31, 2020		1,488,633

In addition, as at December 31, 2020, the Company had promissory notes outstanding of $450,065 (March 31, 2020 – $916,301). The promissory notes generally have a term of 1-year term, at interest rates of between 10%, and 12% with allowance for the Company to repay early, and the possibility to convert into equity on the basis of mutual consent. Management has evaluated the terms of these notes issued in prior years in accordance with the guidance provided by ASC 470 and ASC 815 and concluded that there is no derivative or beneficial conversion feature attached to these notes.

As at December 31, 2020, the Company also had short term loan outstanding of $1,556,896 (March 31, 2020 – $1,152,001) and held funds in escrow for to be issued as convertible notes after December 31, 2020 in the amount of $2,200,000 (March 31, 2020 – nil)

General and administrative expenses include interest expense on the above debt instruments of $109,699 and $37,456 for the nine months ended December 31, 2020 and 2019, respectively.