Note 11 - Convertible Notes Payable and Derivative Liability

Convertible Notes

On July 22, 2025, the Company entered into an agreement with third party Coventry Enterprises LLC (“Coventry”) in which the Company issued a $200,000 promissory note to Coventry (the “Coventry Note”) at 10% annual interest. The Coventry Note includes $20,000 of guaranteed interest and was issued with an original issue discount of $20,000 and $10,000 allocated to legal documentation fees, resulting in net proceeds to the Company of $170,000. The Coventry Note is repayable in 12 equal monthly installments of $18,333.33 beginning on August 22, 2025, and maturing on July 22, 2026. In the event of default this note is convertible into shares of the Company’s common stock at a conversion price based on the lowest trading price for the twenty days previous to the conversion date if the Company fails to pay the note by July 22, 2026. During the period ended March 31, 2026, the Company made payments totaling $165,000 and intends to make monthly payments of $18,333 through July 2026 to pay the note in full. The Company has deemed that this convertible loan does not require adjustments to bifurcate the conversion option from the host instrument and account for it as a free-standing derivative financial instrument under ASC 815, Derivatives and Hedging Activities as the loan is only convertible upon default. The aggregate debt discount of $50,000 is being amortized to interest expense over the respective term of the note. As of March 31, 2026, the note had $15,479 of unamortized discount remaining to be amortized through the maturity date.

In connection with the Coventry Note the Company issued 5,000,000 shares of its restricted common stock Coventry as commitment stock (the “Commitment Stock”). If the Company repays all of its obligations in full and in accordance with the terms of the Coventry Note and is never in default during the term of the Coventry Note, then Coventry shall, within ten calendar days thereafter, return the 5,000,000 of the Commitment Stock shares to the Company’s treasury for cancellation. As a result of the cancellation terms, the Company has not allocated any proceeds to the relative fair value of the commitment shares as they have not been earned as of March 31, 2026.

On July 22, 2025, the Company entered into a share purchase agreement with third party Quick Capital LLC (“Quick Capital”) in which the Company issued a $55,556 promissory note to Quick Capital (the “QC Note”) which matures in nine months. The QC Note includes $6,667 of guaranteed interest and was issued with an original issue discount of $5,556 and $3,000 allocated to legal documentation fees, resulting in net proceeds to the Company of $47,000. The combined $62,222 total owed to Quick Capital is convertible into shares of the Company’s common stock at a fixed conversion price of $.01 per share or, at the discretion of Quick Capital, at a variable conversion price of 65% of the lowest trading price for the twenty trading days previous to the conversion date. In connection with the Purchase Agreement, the Company also issued to Quick Capital a warrant resulting in the issuance of 2,777,778 warrant shares at an exercise price of $.02 per share with a 5-year term. The warrants had a relative fair value of $43,044 which was recorded as a discount on the note.

The Company has deemed that this convertible loan requires adjustments to bifurcate the conversion option from the host instrument and account for it as a free-standing derivative financial instrument under ASC 815, Derivatives and Hedging Activities. The fair value of the derivative on the date of issuance was recorded as a debt discount up to the face value of the note with the excess being charged directly to interest expense. The aggregate debt discount of $62,222 is being amortized to interest expense over the respective term of the note. As of March 31, 2026, the note had $4,996 of unamortized discount remaining to be amortized through the maturity date.

On February 5, 2026, the Company entered into an agreement with third party Solomon Bokchin in which the Company issued a $25,000 promissory note (the “Bokchin Note”) which matures in six months and accrues interest at a rate of 10%. The Bokchin Note is convertible into shares of the Company’s common stock at a fixed conversion price of $.01 per share or, at the discretion of Bokchin, at a variable conversion price of 50% of the lowest trading price for the ten trading days previous to the conversion date.

The Company has deemed that this convertible loan requires adjustments to bifurcate the conversion option from the host instrument and account for it as a free-standing derivative financial instrument under ASC 815, Derivatives and Hedging Activities. The fair value of the derivative on the date of issuance was recorded as a debt discount up to the face value of the note with the excess being charged directly to interest expense. The aggregate debt discount of $25,000 is being amortized to interest expense over the respective term of the note. As of March 31, 2026, the note had $4,996 of unamortized discount remaining to be amortized through the maturity date.

Derivative Liabilities

The fair values of the conversion option of outstanding convertible notes payable and common stock warrants were determined to be derivative liabilities under ASC 815 due to variable conversion features on convertible notes payable disclosed above. In addition, as a result of the variable conversion features, all other potentially dilutive instruments must also be recorded at fair value pursuant to ASC 815. The fair value of the derivative liabilities was estimated using a black-scholes model with the following assumptions:

All fair value measurements related to the derivative liabilities are considered significant unobservable inputs (Level 3) under the fair value hierarchy of ASC 820.

The table below presents the change in the fair value of the derivative liability during the nine months ended March 31, 2026:

The total impact of derivative liabilities recognized in the Company’s consolidated statements of operations includes the change in fair value of derivatives, with the Company recognizing a total gain of $626,355 for the three months ended March 31, 2026 and a total gain of $437,344 during the nine months ended March 31, 2026 and a day one loss charged to interest expense of $949,865.