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DERIVATIVE LIABILITIES, DISCLOSURE

3 Months Ended

Nov. 30, 2023

NOTE 9. 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 Company identified embedded derivatives as a Beneficial Conversion Feature of the 2020 Series A Preferred Stock, issued on November 6, 2020. This was evaluated as $5,000,000, based on the conversion terms of one share of preferred stock for 100,000,000 shares of Common Stock and the price of the Common Stock on the date of issue of $0.05 per share. This was posted to Additional Paid-in Capital and as a loss to the Statement of Operations for the year ended August 31, 2021.

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 $56,094 for each loan note. These embedded derivatives included certain conversion features, whereby they are convertible at an initial price of $0.0025 per share of common stock, or 50% of the lowest price in the past 30 days. 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		248.05%
Risk-free rate		4.35%

The initial fair value of the embedded debt derivative was $112,188. The proceeds of the note of $55,000, including the Original Issuer Discount of $5,000, was allocated as a debt discount. The amount in excess of the proceeds of the loan note of $57,188 was charged as interest to the Statement of Operations for the period.

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 $43,993. The embedded derivatives included certain conversion features, whereby they are convertible at an initial price of $0.00495 per share of common stock, or 50% of the lowest price in the past 30 days. 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		243.35%
Risk-free rate		3.78%

The initial fair value of the embedded debt derivative was $43,993. The proceeds of the note of $22,000, including the Original Issuer Discount of $2,000, were allocated as a debt discount. The amount in excess of the proceeds of the loan note of $21,993 was charged as interest to the Statement of Operations for the period.

On March 9, 2023, the Company entered into a convertible loan note with a face value of $50,000. The Company identified embedded derivatives related to this Convertible Loan Note totaling $406,654. The embedded derivatives included certain conversion features, whereby they are convertible at an initial price of $0.001 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		212.03%
Risk-free rate		4.34%

The initial fair value of the embedded debt derivative was $406,654. The proceeds of the note of $50,000 were allocated as a debt discount. The amount in excess of the proceeds of the loan note of $356,654 was charged as interest to the Statement of Operations for the period.

On July 28, 2023, the Company entered into a convertible loan note with a face value of $22,000. The Company identified embedded derivatives related to this Convertible Loan Note totaling $43,966. The embedded derivatives included certain conversion features, whereby they are convertible at a price per share of 50% of the lowest market price of the stock since the issuance of the Note. 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		213.59%
Risk-free rate		4.25%

The initial fair value of the embedded debt derivative was $43,966. The proceeds of the note of $22,000 were allocated as a debt discount. The amount in excess of the proceeds of the loan note of $21,966 was charged as interest to the Statement of Operations for the period.

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

Dividend yield		0.00%
Volatility		223.03%
Risk-free rate		4.27%

The fair value of the embedded debt derivative was $384,524, a decrease in the valuation of the embedded debt derivative of $222,277 for the year. This decrease was charged as a gain on revaluation of the derivative liability to the statement of operations.

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

	August 31, 2023
Balance, beginning of period	$	-
Additions		606,801
Market-to-market at modification date		(222,277)
Reclassified to additional paid-in capital upon modification of term		-
Balance, August 31, 2023	$	384,524
Net gain due to change in fair value for the period included in Statement of Operations	$	222,277

This mark-to-market decrease of $222,277 for the year was charged to the statement of operations as a gain on change in value of derivative liability of $384,524.

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 $312,317. The embedded derivatives included certain conversion features, whereby they are convertible at a price per share of 50% of the lowest market price of the stock in previous three months. 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		218.87-235.14%
Risk-free rate		4.52-4.80%

The fair value of the initial embedded debt derivative was $312,317.

The fair value of the embedded debt derivative was reviewed at November 30, 2023, using the following inputs:

Dividend yield		0.00%
Volatility		245.32%
Risk-free rate		4.22%

The fair value of the embedded debt derivative at November 30, 2023 was $581,659, a decrease in the valuation of the embedded debt derivative of $115,182 for the period.

The following table provides a summary of changes in fair value of the Company’s Level 3 derivative liabilities as at November 30, 2023:

	November 30, 2023
Balance, beginning of period	$	384,524
Additions		312,317
Market-to-market at modification date		(115,182)
Reclassified to additional paid-in capital upon modification of term		-
Balance, November 30, 2023	$	581,659
Net gain due to change in fair value for the period included in Statement of Operations	$	115,182

This mark-to-market decrease of $115,182 for the period ended November 30, 2023 was charged to the statement of operations as a gain on change in value of derivative liabilities.