CONVERTIBLE PROMISSORY NOTES

3 Months Ended

Mar. 31, 2021

	Promissory Note			Convertible Promissory Note - Liability Component			Derivative Liability			Deferred Derivative Loss (Increase)			Total
	$			$			$			$			$
Balance December 31, 2020		11,903			91,721			1,610,858			(280,637	)		1,433,845
Proceeds net of transaction costs		-			3,711			761,214			(593,364	)		171,621
Conversions		-			(112,171	)		(1,085,254			-			(1,197,425	)
Fair value change		-			39,849			(618,210	)		227,865			(350,496	)
Interest expense		-			8,498			-			-			8,498
Accretion expense		-			11,988			-			-			11,988
Foreign exchange (gain) loss		(76	)		(1,067	)		-			-			(1,143	)

Balance March 31, 2021		11,827			42,589			668,608			(646,136	)		76,888

The convertible bonds consisted of a liability component (“financial liability”) and an embedded derivative conversion feature (“derivative liability”) and contra asset account of deferred derivative loss due to significant amount of fair value of the derivative liability at inception in excess of the net proceeds. The net proceeds of these convertible bonds were first allocated to the fair value of the derivative liability. As the fair value of the derivative liability at inception exceeds the net proceeds, the indication of significant loss at inception exists. As a result, nominal values of US$1,000 per newly issued convertible bonds were allocated to the financial liability. The remaining balance was set up as deferred derivative loss as a contra asset account. The deferred derivative losses were then amortized to profit and loss over the life of the convertible bonds. Subsequent changes in fair value of the conversion feature were recognized at FVTPL (Note 2(k)).

During the three months ended March 31, 2021, the Company issued convertible promissory notes for gross proceeds of $184,837 (US$147,500) (three months ended March 31, 2020 – $88,149 (US$66,500)). The notes are unsecured, bear interest at between 10% and 12% per annum from the date of issuance and mature between six months and one year after the date of issuance. Any amount of interest or principal that is not paid on the maturity date bears interest at 15% to 22% per annum from the maturity date to the date of payment. Any amount of principal and/or interest that is unpaid may be converted, at the option of the holder, in whole or in part into common shares of the Company at a price equal to 61% of the Market Price. The “Market Price” means either the lowest closing bid price for the Company’s stock as reported on the OTC during the fifteen trading days or the average of the two closing bid prices during the twenty-five trading days prior to a Notice of Conversion. The Company may prepay the principal and all accrued interest at any time between the date of issuance and the maturity date, together with a prepayment premium of between 15% and 40% of the amount prepaid, determined by reference to the date of repayment.

At inception, the net proceeds of $171,621 (US$137,000 or gross proceeds of US$147,500 net of US$10,500 cash discount and transaction costs) were allocated to the derivative liability at $761,214 related to the conversion feature which was determined using the Black-Scholes option pricing model. The remaining balance of the net proceeds were then allocated to nominal values of $3,771 (U$1,000 per each convertible bond issued) and deferred derivative loss, a contra asset account of $593,364.

During the three months ended March 31, 2021, the Company recognized through profit and loss a change in the fair value of the derivative liability and the amortization of the deferred derivative loss of $350,496 (March 31, 2020 – $57,109). As at March 31, 2021, the fair value of the derivative liability related to the conversion feature of $668,608 was determined using the Black-Scholes option pricing model based on the following assumptions: share price of US$0.0087; a risk-free rate of 0.23%; stock price volatility ranging from 297% to 363%; dividend yield of 0%; and expected life of conversion features ranging from 0.23 to 0.93 years. (December 31, 2020 – $1,610,858, determined using the Black-Scholes option pricing model based on the following assumptions: share price ranging from US$0.001 to US$0.004; a risk-free rate of 0.25%; stock price volatility ranging from 172% to 502%; dividend yield of 0%; and expected life of conversion features ranging from 0 to 0.8 years.)

c)	During the three months ended March 31, 2021, promissory notes with a face value of US$206,000 were converted into 87,526,697 common shares of the Company (three months ended March 31, 2020 - US$171,575 converted and 229,986,206 common shares issued).

Digatrade Financial Corp 6-K