Derivative Liabilities

6 Months Ended

Jun. 30, 2024

Derivative Liabilities

Derivative Liabilities

Note 5: Derivative Liabilities

Derivative liabilities – Convertible Notes

In Q3, 2022, the convertible debt issued February 7, 2022, March 11, 2022, June 28, 2022 and July 26, 2022 became eligible for conversion on August 6, 2022, September 7, 2022, December 25, 2022 and January 22, 2023 respectively. The Company engaged a third-party consultant to determine the fair value of the convertible notes at the end of each quarter. The subsequent evaluation determined that the notes should be accounted for as derivative liabilities upon the date they became convertible due to the variable conversion price included in each note based on Financial Accounting Standards Board (“FASB”) guidance. The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective terms of the related notes. These notes have been fully converted and in one case, repaid in full and debt discount has been fully amortized for all notes.

The total derivative liabilities associated with these notes eligible for conversion at December 31, 2023 was $8,977 and at June 30, 2024 derivative liabilities were nil as this note was fully settled in Q1. Therefore, the Company’s debt discount relating to these convertible notes was nil at June 30, 2024. The Company recorded interest expense for the amortization of the discount in the amount of $1,755 during Q1 of 2024 and nil in Q2. The Company recorded a change in the value of embedded derivative liabilities expense of $2,320 for the three months ended March 31, 2024, and nil for Q2, 2024. The Company also recorded a change in the value of derivative liabilities in the amount of $11,298 settled by repayment of the final outstanding note to the end of March 31, 2024, and, as the note was fully settled in Q1 of 2024, no change in the value of derivative liabilities is necessary in the following quarters.

On July 26, 2022, due to the tainted equity environment, existing convertible notes required derivative treatment. The convertible note in the amount of $8,200 and the convertible note in the amount of $3,105,896.72 (discussed in Note 4) had an initial debt discount of $397,542, loss on initial derivative of $126,888 and a derivative liability of $524,330.

On June 30, 2024, the derivative liability value of these notes was $79,927 and represents a decrease in fair value of $100,530 since December 31, 2023.

On January 8, 2024, the Company, as part of a debt restructuring, issued four convertible promissory notes for payables owed to executives and management of the Company totaling $326,883 reflecting amounts due for services provided pursuant to the terms of Consulting Agreements between the Holders and the Company. Each note is a one-year term, carrying an interest rate of 10% per annum and will convert at $0.001389 per share (70% of the 30-day Volume Weighted Average Price preceding the date of the notes). As of June 30, 2024, accrued interest for these notes was $15,493. These notes had an initial debt discount of $326,833 loss on initial derivative of $572,415 and a derivative liability of $899,248. On June 30, 2024, the derivative liability value of these notes was $126,430 and had a gain of $558,170 during the period.

Derivative liabilities – Warrants

Due to the tainted equity environment at July 26, 2022, the Company recognized derivative liability for existing warrants in the amount of $273,679. On December 31, 2023, a gain on derivative liabilities was recognized in the amount of $26,620 leaving a fair value at December 31, 2023 of $18,705 for warrants. To June 30, 2024, a gain on derivative liabilities has been recognized in the amount of $14,240 leaving a fair value of $4,464 for warrants at June 30, 2024.

Derivative liabilities (fair value)

Beginning Balance	$	208,142
Change due to Issuances		899,248
Change due to Conversions		(11,298	)
Mark-to-market		(885,269	)
Ending Balance	$	210,823