Note 11 – Convertible Notes

During the three months ended August 31, 2026 the Company issued five convertible promissory notes to five lenders with an aggregate face amount of $773,500 and aggregate purchase prices of $670,500, reflecting original issue discounts of $84,000 and issuance costs of $19,000 withheld at closing: a $180,000 note issued July 17, 2026 (6% per annum); a $115,500 note issued August 7, 2026 (6%); a $203,000 note issued August 13, 2026 (10%), repayable in twelve monthly instalments of $18,608 beginning September 13, 2026 and issued with 101,500 restricted shares of common stock (Note 14); a $150,000 note issued August 18, 2026 (6%); and a $125,000 note issued August 25, 2026 (12%). Each note matures twelve months from its issuance date and becomes convertible six months after issuance at a conversion price equal to 60% of the lowest trading price of the common stock over the twenty prior trading days (four notes) or 75% of the five-day volume weighted average price subject to a $0.15 per share minimum market price (one note). Each note carries a 4.99% beneficial ownership limitation that may be increased to 9.99% on 60 days’ notice. The notes are unsecured obligations of the Company. A further note with a face amount of $325,000 was dated August 21, 2026 but had not been funded at August 31, 2026 and is not recognized in these condensed consolidated financial statements; see Note 24.

The variable-price conversion features of the five notes were bifurcated as derivative liabilities under ASC 815-15 and measured at fair value at issuance in an aggregate amount of $612,901. Where the fair value of the conversion feature exceeded the proceeds remaining after original issue discount and issuance costs, the host note was recorded at nil and the excess of $43,886 was recognized as a loss on initial measurement within the gain (loss) on change in fair value of derivative liabilities; the remaining $569,014 was recorded as a debt discount. For the $203,000 note issued with 101,500 commitment shares, the proceeds remaining after the derivative were allocated between the note and the shares on the basis of their relative fair values, and $4,703 was allocated to the shares. Together with the original issue discounts, issuance costs and the amount allocated to the commitment shares, total debt discounts of $676,717 were recorded on the notes issued during the quarter and are amortized to interest expense on a straight-line basis over the twelve-month terms of the notes.

During the three months ended August 31, 2026 the holders of four notes converted principal and accrued interest into 3,231,320 shares of common stock (Note 14): the holder of Master Note Tranche 1 delivered five notices of conversion for 2,220,000 shares at conversion prices of $0.1106 to $0.1528 per share, reducing the principal of that tranche to $74,747 at August 31, 2026; the $250,000 non-current note issued in fiscal 2025 was converted in full on July 31, 2026, together with $133,333 of accrued interest, into 511,111 shares at $0.75 per share; the remaining $40,296 balance of a note issued in fiscal 2026 was converted in full on July 22, 2026 into 268,640 shares at $0.15 per share; and a further fiscal 2026 note was settled in full on August 12, 2026 by the issuance of 231,569 shares at $0.14175 per share, including guaranteed interest. The Company also repaid principal of $169,856 in cash on three fiscal 2026 notes during the quarter, and $36,859 of maintenance fees earned under the Maintenance Agreement (Note 7) were applied against the Master Note balances rather than settled in cash. Debt discount released on the Tranche 1 conversions was recorded within additional paid-in capital, as was the fair value of the embedded derivative attributable to the principal converted, measured at each conversion date (Note 1); a $1,750 fee per conversion notice was recognized in interest expense.

Interest expense on the convertible notes for the three months ended August 31, 2026 included $403,410 of debt discount amortization. The discount on Master Note Tranche 1 is amortized on a straight-line basis over the remaining term of the note to maturity, and the unamortized discount attributable to principal settled during the period is written off pro rata on settlement — to additional paid-in capital for principal converted into common stock and to interest expense for principal settled by application of maintenance fees. Accrued interest payable of $111,094 at August 31, 2026 (May 31, 2026: $182,688) comprises $112,045 on the Lender’s notes, $62,500 on a note converted in a prior year, $3,357 on the notes issued during the quarter, net of $66,806 of interest prepaid on the term note described in Note 12.

The notes outstanding at August 31, 2026 are convertible at discounts ranging from 60% to 85% of the trading or volume weighted average price over defined measurement periods preceding conversion, subject in certain cases to a floor price and to beneficial ownership limitations of 4.99% or 9.99%. The Company may prepay the principal amount and any unpaid interest at any time, provided that a minimum of six months’ interest is payable regardless of the prepayment date. Convertible notes payable consisted of the following:

As of August 31, 2026, the Company had convertible note principal outstanding of $3,062,528, unamortized debt discounts of $1,102,625, accrued interest payable of $111,094 and embedded derivative liabilities of $1,072,942. All convertible notes outstanding at August 31, 2026 mature within twelve months and are classified as current.