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Fair Value Measurements
6 Months Ended
Nov. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 22.

Fair value measurements

Financial instruments

The Company has classified its financial instruments as described in Note 3 Significant accounting policies in our Annual Report.  

The carrying values of accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their fair values due to their short periods to maturity.

At November 30, 2021 the Company’s long-term debt of $18,305 (May 31, 2021 - $20,358) is subject to fixed interest rates. The Company’s long-term debt is valued based on discounting the future cash outflows associated with the long-term debt. The discount rate is based on the incremental premium above market rates for Government of Canada securities of similar duration. In each period thereafter, the incremental premium is held constant while the Government of Canada security is based on the then current market value to derive the discount rate.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of November 30, 2021 and May 31, 2021 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30,

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

2021

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

331,783

 

 

$

 

 

$

 

 

$

331,783

 

Convertible notes receivable

 

 

 

 

 

1,560

 

 

 

 

 

 

1,560

 

Equity investments measured at fair value

 

 

5,918

 

 

 

2,384

 

 

 

 

 

 

8,302

 

Debt securities classified under available-for-sale method

 

 

 

 

 

 

 

 

154,442

 

 

 

154,442

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

 

 

 

 

 

 

 

40,455

 

 

 

40,455

 

Contingent consideration

 

 

 

 

 

 

 

 

62,339

 

 

 

62,339

 

APHA 24 Convertible debenture

 

 

 

 

 

 

 

 

284,724

 

 

 

284,724

 

Total recurring fair value measurements

 

$

337,701

 

 

$

3,944

 

 

$

541,960

 

 

$

883,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31,

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

2021

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

488,466

 

 

 

 

 

 

$

488,466

 

Convertible notes receivable

 

 

 

 

2,485

 

 

 

 

 

2,485

 

Equity investments measured at fair value

 

 

9,251

 

 

 

2,934

 

 

 

 

 

12,185

 

Debt securities classified under available-for-sale method

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

 

 

 

 

 

78,168

 

 

 

78,168

 

Contingent consideration

 

 

 

 

 

 

60,657

 

 

 

60,657

 

APHA 24 Convertible debenture

 

 

 

 

 

 

399,444

 

 

 

399,444

 

Total recurring fair value measurements

 

$

497,717

 

 

$

5,419

 

 

$

538,269

 

 

$

1,041,405

 

 

The Company’s financial assets and liabilities required to be measured on a recurring basis are its equity investments measured at fair value, debt securities classified as available-for-sale, acquisition-related contingent consideration, and warrant liability.

Convertible notes receivable, and equity investments recorded at fair value. The estimated fair value is determined using quoted market prices, broker or dealer quotations or discounted cash flows and is classified as Level 2. Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1.

Debt securities classified as available-for sale are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3. The Company classified these securities as level 2 in the period of acquisition, when the valuation was determined to reflect the recent market transaction.

The warrants associated with the warrant liability are classified as Level 3 derivatives. Consequently, the estimated fair value of the warrant liability is determined using the Black-Scholes pricing model. Until the warrants are exercised, expire, or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity, the warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded in change in fair value of warrant liability. Any significant adjustments to the unobservable inputs disclosed in the table below would have a direct impact on the fair value of the warrant liability.

The contingent consideration from the acquisition of SweetWater, first due in December 2023 and payable in cash, is determined by discounting future expected cash outflows at a discount rate of 5%. The inputs into the future expected cash outflows are classified as Level 3.

The APHA 24 Convertible debentures are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3.

The balances of assets and liabilities categorized within Level 3 of the fair value hierarchy measured at fair value on a recurring basis are reconciled, as follows:

 

 

 

APHA 24

 

 

 

 

 

 

 

 

 

 

Debt

 

 

 

 

 

 

 

Convertible

 

 

Warrant

 

 

Contingent

 

 

Securities

 

 

 

 

 

 

 

Debt

 

 

Liability

 

 

Consideration

 

 

AFS

 

 

Total

 

Balance, May 31, 2021

 

 

(399,444

)

 

 

(78,168

)

 

 

(60,657

)

 

 

 

 

 

(538,269

)

Additions

 

 

 

 

 

 

 

 

 

 

 

170,799

 

 

 

170,799

 

Disposals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on fair value

 

 

114,720

 

 

 

37,713

 

 

 

(1,682

)

 

 

(16,357

)

 

 

134,394

 

Balance, November 30, 2021

 

$

(284,724

)

 

$

(40,455

)

 

$

(62,339

)

 

$

154,442

 

 

$

(233,076

)

 

 

The unrealized gain (loss) on fair value for the convertible debenture, the warrant liability, contingent consideration, and debt securities classified under available-for-sale method is recognized in non-operating income (loss) using the following inputs:

 

Financial asset / financial liability

 

Valuation

technique

 

Significant

unobservable

input

 

Inputs

APHA Convertible debentures

 

Black-Scholes

 

Volatility,

expected life

 

70%

2.5 years

Warrant liability

 

Black-Scholes

 

Volatility,

expected life

 

70%

3.8 years

Contingent consideration

 

Discounted

cash flows

 

Discount rate,

achievement

 

5%

100%

Debt securities classified under available-for-sale method

 

Black-Scholes

 

Interest rate,

conversion

 

20%

0% to 60%

 

Items measured at fair value on a non-recurring basis

The Company's prepaids and other current assets, long lived assets, including property and equipment, goodwill and intangible assets are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital management approach in the period. The Company considers its cash and cash equivalents and marketable securities as capital.