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DERIVATIVE LIABILITIES, DISCLOSURE

12 Months Ended

Aug. 31, 2024

NOTE 10. DERIVATIVE LIABILITIES

The Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), under which convertible instruments, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt from derivative accounting treatment. As a result, embedded conversion options in convertible debt are recorded as a liability and are revalued at fair value at each reporting date. If the fair value of the note exceeds the face value of the related debt, the excess is recorded as change in fair value in operations on the issuance date.

The derivative liabilities are subject to Level 3 inputs, meaning that the fair value is determined by the Company using the Black-Scholes option pricing model, incorporating the Company’s stock price, volatility, US risk-free interest rate, dividend rate, and estimated life.

On October 19, 2022, the Company entered into two identical convertible loan notes with a face value of $27,500 each, including an original issuer discount (‘OID’) of $2,500 in each. The Company identified embedded derivatives related to these Convertible Loan Notes totaling $28,511 for each loan note. These embedded derivatives included certain conversion features, whereby they are convertible at the initial conversion price of $225.00 per share of common stock, or 50% of the lowest price in the past 30 trading days, whichever is lower. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		247.94%
Risk-free rate		4.35%

The initial fair value of the embedded debt derivative was $57,022. The proceeds of the note of $50,000 was allocated as a debt discount. The amount in excess of the proceeds of the Note of $7,022 was charged as interest to the Statement of Operations for the year. The Original Issuer Discount of $5,000 was charged as interest on the Note.

On December 21, 2022, the Company entered into a convertible loan note with a face value of $22,000, including an original issuer discount (‘OID’) of $2,000. The Company identified embedded derivatives related to this Convertible Loan Note totaling $23,627. The embedded derivatives included certain conversion features, whereby they are convertible at the initial conversion price of $297.00 per share of common stock, or 50% of the lowest price in the past 30 trading days, whichever is lower. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		243.36%
Risk-free rate		3.78%

The initial fair value of the embedded debt derivative was $23,627. The proceeds of the note of $20,000 were allocated as a debt discount. The amount in excess of the proceeds of the Note of $3,627 was charged as interest to the Statement of Operations for the year. The Original Issuer Discount of $2,000 was charged as interest on the Note.

On March 5, 2023, the Company entered into a convertible loan note with a face value of $50,000, with a related party to formalize amounts owed. The Company identified embedded derivatives related to this Convertible Loan Note totaling $50,340. The embedded derivatives included certain conversion features, whereby they are convertible at an initial price of $297.00 per share of common stock. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible

Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		216.64%
Risk-free rate		4.25%

The initial fair value of the embedded debt derivative was $50,340. The proceeds of the note of $50,000 were allocated as a debt discount. The amount in excess of the proceeds of the Note of $340 was charged as interest to the Statement of Operations for the year.

On July 28, 2023, the Company entered into a convertible loan note with a face value of $22,000, including an original issuer discount (‘OID’) of $2,000. The Company identified embedded derivatives related to this Convertible Loan Note totaling $37,542. The embedded derivatives included certain conversion features, whereby they are convertible at the initial conversion price of $60.00 per share of common stock, or 50% of the lowest price in the past 30 trading days, whichever is lower. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		213.90%
Risk-free rate		4.25%

The initial fair value of the embedded debt derivative was $37,542. The proceeds of the note of $20,000 were allocated as a debt discount. The amount in excess of the proceeds of the Note of $17,542 was charged as interest to the Statement of Operations for the year. The Original Issuer Discount of $2,000 was charged as interest on the Note.

The fair value of the embedded debt derivative was reviewed at August 31, 2023, using the following inputs:

Dividend yield		0.00%
Volatility		222.58%
Risk-free rate		4.27%

The fair value of the embedded debt derivative was $249,636 an increase in the valuation of the embedded debt derivative of $81,163 for the year. This increase was charged as a loss on revaluation of the derivative liability to the statement of operations for the year.

Between September 26, 2023 and November 9, 2023, the Company entered into four convertible loan notes with an aggregate face value of $107,800, including Original Issuer Discounts of $9,800. The Company identified embedded derivatives related to these Convertible Loan Notes totaling $214,317. The embedded derivatives included certain conversion features, whereby they are convertible at the initial conversion price of $36.00-72.00 per share or 50% of the lowest price in the last 30 trading days, whichever is lower. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		218.61-234.67%
Risk-free rate		4.52-4.80%

The fair value of the initial embedded debt derivatives was $214,317. The proceeds of the notes of $98,000 were allocated as a debt discount. The amount in excess of the proceeds of the Notes of $116,317 was charged as interest to the Statement of Operations for the year. The Original Issuer Discounts of $9,800 were charged as interest on the Notes.

Between December 21, 2023 and February 9, 2024, the Company entered into three convertible loan notes with an aggregate face value of $88,000, including Original Issuer Discounts of $8,000. The Company identified embedded derivatives related to these Convertible Loan Notes totaling $97,354. The embedded derivatives included certain conversion features, whereby they are convertible at the initial conversion price of $57.00 per share or 50% of the lowest price in the last 30 trading days, whichever is lower. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		254.60-262.01%
Risk-free rate		3.93-4.12%

The fair value of the initial embedded debt derivative was $97,354. A total of $69,335 was allocated as a debt discount, with $28,019 charged as interest on the Notes to the Statement of Operations for the year. The Original Issuer Discounts of $8,000 were charged as interest on the Notes.

Between March 12, 2024 and May 30, 2024, the Company entered into three convertible loan notes with an aggregate face value of $155,100, including Original Issuer Discounts of $14,100. The Company identified embedded derivatives related to these Convertible Loan Notes totaling $240,754. The embedded derivatives included certain conversion features, whereby they are convertible at the initial conversion price of $12.00-15.00 per share or 50% of the lowest price in the last 30 trading days, whichever is lower. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		248.18-256.37%
Risk-free rate		4.09-4.64%

The fair value of the initial embedded debt derivative was $240,754. The proceeds of the notes of $141,000 were allocated as a debt discount. The amount in excess of the proceeds of the Notes of $99,754 was charged as interest to the Statement of Operations for the year. The Original Issuer Discounts of $14,100 were charged as interest on the Notes.

Between July 12, 2024 and August 29, 2024, the Company entered into two convertible loan notes with an aggregate face value of $110,000, including Original Issuer Discounts of $10,000. The Company identified embedded derivatives related to these Convertible Loan Notes totaling $576,414. The embedded derivatives included certain conversion features, whereby they are convertible at the initial conversion price of $0.75-1.59 per share or 50% of the lowest price in the last 30 trading days, whichever is lower. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Notes and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value for the embedded derivative using the Black Scholes Model based on the following assumptions:

Dividend yield		0.00%
Volatility		343.13-347.72%
Risk-free rate		3.67-4.12%

The fair value of the initial embedded debt derivative was $576,414. The proceeds of the Notes of $100,000 were allocated as a debt discount. The amount in excess of the proceeds of $476,414 was charged as interest to the Statement of Operations for the year. The Original Issuer Discounts of $10,000 were charged as interest on the Notes.

The fair value of the embedded debt derivative was reviewed at August 31, 2024 and 2023, using the following inputs:

	August 31,
	2024	2023
Dividend yield	0.00%	0.00%
Volatility	343.13%	222.58%
Risk-free rate	3.72%	4.27%

The fair value of the embedded debt derivative at August 31, 2024 was $1,875,818, an increase in the valuation of the embedded debt derivative of $497,284 for the year. The fair value of the embedded debt derivative at August 31, 2023 was $249,696, an increase in the valuation of the embedded debt derivative of $81,163 for the year.

The following table provides a summary of changes in fair value of the Company’s Level 3 derivative liabilities as at August 31, 2024 and 2023:

	As at August 31,
	2024		2023
			(Restated)
Balance, beginning of year	$	249,696	$	-
Additions		1,128,838		168,533
Mark-to-market at modification date		497,284		81,163
Reclassified to additional paid-in capital upon modification of term		-		-
Balance, end of year	$	1,875,818	$	249,696
Net (loss) due to change in fair value for the year included in statement of operations	$	(497,284)	$	(81,163)

The mark-to-market increase of $497,284 for the year ending August 31, 2024 was charged to the statement of operations as a loss on change in value of derivative liabilities. The mark-to-market increase of $81,163 for the year ending August, 31, 2023 was charged to the statement of operations as a loss on change in value of derivative liabilities.