Convertible notes issued to
several lenders, disclosed in note 14(h), (i) and (j), above have conversion rights that are linked to the Company’s stock
price, at a factor ranging from 50% to 75% of an average stock price over a period ranging from 15 to 20 days prior to the date
of conversion. These conversion rights may also include a fixed maximum conversion price. The number of shares issuable upon conversion
of these convertible notes is therefore not determinable until conversion takes place. The Company has determined that these conversion
features meet the requirements for classification as derivative liabilities and has measured their fair value using 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. |
The fair value of the derivative
liabilities was initially recognized as a debt discount and was re-assessed at November 30, 2020, with a total change in fair value
of $156,998 charged to the consolidated statement of loss and comprehensive loss. The value of the derivative liability will be
re-assessed at each financial reporting date, 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:
|
|
Three months ended November 30, 2020 |
|
Conversion price |
|
|
CAD$0.0375 to CAD$0.06 |
|
Risk free interest rate |
|
|
0.16 to 0.21 |
% |
Expected life of derivative liability |
|
|
6 to 12 months |
|
Expected volatility of underlying stock |
|
|
158.85 to 171.20 |
% |
Expected dividend rate |
|
|
0 |
% |
The movement in derivative liability
is as follows:
|
|
November 30,
2020 |
|
|
August 31, 2020 |
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
841,385 |
|
|
$ |
- |
|
Derivative financial liability arising from convertible notes |
|
|
120,535 |
|
|
|
653,984 |
|
Fair value adjustment to derivative liability |
|
|
(156,998 |
) |
|
|
187,401 |
|
|
|
|
804,922 |
|
|
$ |
841,385 |
|
|