NOTE 8 – DERIVATIVE LIABILITIES ASSOCIATED WITH CONVERTIBLE NOTES

The Company evaluates the conversion features of its convertible debt instruments in accordance with ASC 815, Derivatives and Hedging, to determine whether such features require bifurcation and separate accounting as derivative liabilities. Certain of the Company’s convertible notes contain embedded conversion features with terms including provisions with variable conversion prices based on future market prices and mandatory conversion features. As a result, these features are required to be accounted for as derivative liabilities under ASC 815.

Derivative liabilities are recorded at fair value. For convertible instruments issued with embedded derivative features, the initial fair value of the derivative is recorded as a debt discount and amortized to interest expense over the contractual term of the related debt instrument using the effective interest method.

The fair value of derivative liabilities is estimated using valuation techniques that incorporate both observable and unobservable inputs. Due to the use of significant unobservable inputs, these measurements are classified within Level 3 of the fair value hierarchy under ASC 820. The Company utilized option-pricing models, including the Black-Scholes model for the derivative liability related to the November 2025 note.

Key assumptions for used in the Black-Scholes model for the derivative liability value related to November 2025 Convertible Note during the three months ended March 31, 2026 are as follows:

The Company utilized a probability weighted expected value approach for the derivatives related to the Series 2023, 2025 and 2026 Convertible Notes. Because the conversion feature of these notes is only triggered by certain events, and because the discount is fixed (meaning although the number of shares that could be issued to the note holder is variable, they will get the same discount to market) the Company estimated the fair value by multiplying the estimated probability that the triggering events would result in conversion by the fixed discount of the notes. As of March 31, 2025, the Company applied an estimated probability of 10% to such events based on management’s assessment of current financing discussions, market conditions, and the specific terms of the underlying instruments. The estimated probability is subjective and could reasonably be different. Small changes in this estimate could result in a significantly higher or lower fair value measurement at the reporting date.

Key assumptions for the derivative liability value related to Series 2023, 2025 and 2026 series Convertible Notes are as follows:

The following tables present the changes in the derivative balance for the three moths ended March 31, 2026:

As of March 31, 2026, the derivative liability balance was $104,667. Loss on derivative was $14,212 for the three months ended March 31, 2026.

The Company will continue to reassess these instruments at each reporting date for changes in fair value and classification.