Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Note 17 - Financial Instruments

v3.10.0.1
Note 17 - Financial Instruments
12 Months Ended
Nov. 30, 2018
Disclosure Text Block Supplement [Abstract]  
Financial Instruments

(a) Fair values

The Company follows ASC topic 820, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC topic 820 apply to other accounting pronouncements that require or permit fair value measurements. ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and establishes a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are defined as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.

Level 3 inputs are unobservable inputs for asset or liabilities.

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

(i) The Company calculates expected volatility based on historical volatility of the Company’s peer group that is publicly traded for options that have an expected life that is more than eight years (Level 2) while the Company uses its own historical volatility for options that have an expected life of eight years or less (Level 1).
(ii) The Company calculates the interest rate for the conversion option based on the Company’s estimated cost of raising capital (Level 2).

An increase/decrease in the volatility and/or a decrease/increase in the discount rate would have resulted in an increase/decrease in the fair value of the conversion option and warrants.

Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis are as follows:

  November 30, 2018   November 30, 2017
  Carrying   Fair   Carrying   Fair
  amount   value   amount   value
  $   $   $   $
Financial Liabilities              
Convertible debentures(i)   1,790,358         1,795,796     1,290,465          1,316,386

(i) The Company calculates the interest rate for the Debentures and due to related parties based on the Company’s estimated cost of raising capital and uses the discounted cash flow model to calculate the fair value of the Debentures and the amounts due to related parties.

The carrying values of cash, accounts receivable, accounts payable, accrued liabilities and employee cost payable approximates their fair values because of the short-term nature of these instruments.

 

(b) Interest rate and credit risk

 

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates, relative to interest rates on cash and the convertible debenture due to the short-term nature of these obligations.

Trade accounts receivable potentially subjects the Company to credit risk. The Company provides an allowance for doubtful accounts equal to the estimated losses expected to be incurred in the collection of accounts receivable.

The following table sets forth details of the aged accounts receivable that are not overdue as well as an analysis of overdue amounts and the related allowance for doubtful accounts:

         November 30,     November 30, 
        2018   2017
         $     $ 
             
Total accounts receivable          305,912            756,468
Less allowance for doubtful accounts           (66,849)             (66,849)
Total accounts receivable, net          239,063            689,619
             
Not past due          239,063            689,619
Past due for more than 31 days      
   but no more than 120 days                    -               5,176
Past due for more than 120 days            66,849              61,673
Total accounts receivable, gross          305,912            756,468

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of uncollateralized accounts receivable. The Company’s maximum exposure to credit risk is equal to the potential amount of financial assets. For the year ended November 30, 2018 and 2017, two customers accounted for substantially all the revenue and all the accounts receivable of the Company.

 

The Company is also exposed to credit risk at period end from the carrying value of its cash. The Company manages this risk by maintaining bank accounts with a Canadian Chartered Bank. The Company’s cash is not subject to any external restrictions.

 

(c) Foreign exchange risk

The Company has balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss while a weakening U.S. dollar will lead to a FX gain. For each Canadian dollar balance of $1.0 million, a +/- 10% movement in the Canadian currency held by the Company versus the U.S. dollar would affect the Company’s loss and other comprehensive loss by $0.1 million.

(d) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements with expected cash drawdown.

The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at November 30, 2018:

                   
         Less than   3 to 6   6 to 9   9 months   Greater than   
         3 months   months   months   to 1 year   1 year  Total
         $   $   $   $   $   $ 
Third parties            
Accounts payable     2,643,437                   -                  -                 -                   -    2,643,437
    Accrued liabilities        353,147                   -                  -                 -                   -       353,147
Related parties            
Employee costs payable         222,478                   -                  -                 -                   -       222,478
Convertible debentures (Note 7)          52,274     1,376,805         12,603         12,466        537,808    1,991,956
            3,271,336     1,376,805         12,603         12,466        537,808    5,211,018