The
short-term convertible note issued to several lenders, disclosed in note 13(m)(n)(p)(q) and (t), above have conversion rights
that are linked to the Company’s stock price, typically at a factor ranging from 70% to 75% of an average stock price
over a period ranging from 15 to 30 days. The number of shares issuable upon conversion of these convertible notes is
therefore not determinable until conversion takes place. In order to estimate the potential impact of the conversion of these
convertible notes, we calculate what the expected gain or loss would amount to, based on a Black Scholes valuation model which
takes into account the following factors:
|
● |
Historical
share price volatility; |
|
● |
Maturity
dates of the underlying securities being valued; |
|
● |
Risk
free interest rates; and |
|
● |
Expected
dividend policies of the Company. |
This
expected gain or loss gives rise to a derivative liability which is recorded as a gain or loss in the statement of loss and comprehensive
loss with a corresponding liability recorded on the balance sheet.
The
value of the derivative financial liabilities above was re-assessed at May 31, 2020 and a total of $628,353 was credited to the
unaudited condensed consolidated statement of loss and comprehensive loss. The value of the derivative liability will be re-assessed
at each financial reporting period, with any movement thereon recorded in the statement of loss and comprehensive loss in the
period in which it is incurred.
The
following assumptions were used in the Black-Scholes valuation model:
|
|
Nine months ended May 31, 2020 |
|
Conversion price |
|
|
CAD$0.04 to CAD$0.25
|
|
Risk free interest rate |
|
|
0.18 to 2.12 |
% |
Expected life of derivative liability |
|
|
6 to 9 months |
|
Expected volatility of underlying stock |
|
|
93.9 to 231.8 |
% |
Expected dividend rate |
|
|
0 |
% |
The
movement in derivative liability is as follows:
|
|
May 31, 2020 |
|
|
|
|
|
Opening balance |
|
$ |
- |
|
Derivative financial liability arising from convertible notes |
|
|
413,853 |
|
Fair value adjustment to derivative liability |
|
|
31,532 |
|
|
|
$ |
445,385 |
|
|