Derivative liability

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Derivative liability

14. Derivative liability

The short-term convertible notes, together with certain warrants issued to Leonite and the short term convertible notes disclosed in note 12 above and note 16 below, have variable priced conversion rights with no fixed floor price and will reprice dependent on the share price performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $1,959,959 using a Black-Scholes valuation model.

The derivative liability is marked-to-market on a quarterly basis. As of December 31, 2019, the derivative liability was valued at $8,694,272.

The following assumptions were used in the Black-Scholes valuation model:

	Year ended December 31, 2019
Calculated stock price		$0.05 to $0.09
Risk free interest rate		1.43% to 2.56%
Expected life of convertible notes and warrants		3 to 60 months
expected volatility of underlying stock		102.3% to 687.3%
Expected dividend rate		0	%

The movement in derivative liability is as follows:

	December 31, 2019		December 31, 2018
Opening balance	$	4,618,080	$	2,859,832
Derivative liability on issued convertible notes and variable priced warrants		1,477,163		1,335,709
Fair value adjustments to derivative liability		2,599,029		422,539
Closing balance	$	8,694,272	$	4,618,080