Derivative Liabilities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Derivative Liabilities

10. Derivative liability

The short-term convertible notes, together with certain warrants issued to Leonite and the short term convertible notes disclosed in note 7 above and note 12 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 March 31, 2020, the derivative liability was valued at $18,449,168, primarily due to the increase in the number of warrants due to Leonite in terms of the warrant conversion price protection afforded the warrant holder.

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

	Three months ended March 31, 2020
Calculated stock price	$	0.0001
Risk free interest rate		0.05% to 0.33%
Expected life of convertible notes and warrants		1 to 53 months
expected volatility of underlying stock		193.9% to 363.7%
Expected dividend rate		0	%

The movement in derivative liability is as follows:

	March 31, 2020		December 31, 2019
Opening balance	$	8,694,272	$	4,618,080
Derivative liability on issued convertible notes and variable priced warrants		—		1,477,163
Fair value adjustments to derivative liability		9,754,896		2,599,029
Closing balance	$	18,449,168	$	8,694,272