Convertible note 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 August 31, 2020, with a total change in fair value
of $187,401 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:
|
|
Year ended
August 31,
2020 |
|
Conversion price |
|
|
CAD$0.03 to CAD$0.25 |
|
Risk free interest rate |
|
|
0.18 to 2.12 |
% |
Expected life of derivative liability |
|
|
6 to 12 months |
|
Expected volatility of underlying stock |
|
|
93.9 to 231.8 |
% |
Expected dividend rate |
|
|
0 |
% |
The movement in derivative
liability is as follows:
|
|
August 31, 2020 |
|
|
|
|
|
Opening balance |
|
$ |
- |
|
Derivative financial liability arising from convertible notes |
|
|
653,984 |
|
Fair value adjustment to derivative liability |
|
|
187,401 |
|
|
|
$ |
841,385 |
|
|