Derivative Liabilities

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Derivative Liabilities

11. Derivative liability

The short-term convertible notes, together with certain warrants issued to Leonite and the short term convertible notes and warrants disclosed in note 8 above and note 13 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 $2,209,959 using a Black-Scholes valuation model.

In terms of various debt extinguishment agreements entered into with convertible note holders, as disclosed in note 8 above, the Company agreed to settle certain convertible debt for a fixed cash price, resulting in a debt extinguishment, which included the extinguishment of the derivative liability which was previously recorded on the variable priced conversion feature of the convertible debt.

In addition, the Company entered into an agreement with Leonite Capital LLC whereby certain warrants held by Leonite Capital LLC were cancelled and new warrants were issued with new pricing terms. The derivative liability associated with these warrants was included in the extinguishment calculations.

The derivative liability is marked-to-market on a quarterly basis. As of September 30, 2020, the derivative liability was valued at $19,678,918.

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

	Nine months ended September 30, 2020
Calculated stock price	$	0.0001 to 0.0034
Risk free interest rate		0.05% to 0.33%
Expected life of convertible notes and warrants		1 to 60 months
expected volatility of underlying stock		193.9% to 779.0%
Expected dividend rate		0	%

The movement in derivative liability is as follows:

	September 30, 2020			December 31, 2019
Opening balance	$	8,694,272		$	4,618,080
Derivative liability mark-to-market on convertible debt extinguishment		126,444,276			—
Derivative liability on revised convertible notes and warrants arising from convertible debt extinguishment		6,349,265			—
Derivative liability cancelled on debt extinguishment		(144,893,444	)		—
Derivative liability on issued convertible notes and variable priced warrants		450,000			1,477,163
Fair value adjustments to derivative liability		22,634,549			2,599,029
Closing balance	$	19,678,918		$	8,694,272