v3.26.1
Derivative Liability
 3 Months Ended
Mar. 31, 2026
Derivative Liability [Abstract]  
DERIVATIVE LIABILITY

11. DERIVATIVE LIABILITY

 

Derivative Liability consisted of the following:

 

   March 31,   December 31, 
   2026   2025 
         
Initial Recognition on Convertible Debt  $503,384   $596,195 
Add/Less: Change during the period   47,448    (92,811)
Total Derivative Liability  $550,832   $503,384 

 

The Company analyzed the conversion feature of the Debentures for derivative accounting consideration under ASC 815 Derivatives and Hedging and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion features. ASC 815 requires that the conversion features are bifurcated and separately accounted for as an embedded derivative contained in the Company’s convertible debt. The embedded derivative is carried on the balance sheet at fair value. Any unrealized change in fair value, as determined at each measurement period, is recorded as a component of the income statement and the associated carrying amount on the balance sheet is adjusted by the change.

 

As of March 31, 2026, the Company’s conversion features of the Debentures were treated as derivative liability and changes in the fair value were recognized in earnings. The Company estimated the fair value of conversion features of the Debentures using Monte Carlo model and the following assumptions:

 

Schedule of Derivative liability    
Risk Free Interest Rate   0.00%
Expected Term   1.5 years 
Expected Volatility   158.08%
Expected Dividends   None 

 

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term of the Debentures. The Company had no reason to believe that future volatility over the expected remaining life of these warrants was likely to differ materially from historical volatility. The risk-free rate is set to 0%, as both the end price and the minimum price grow and are discounted back at the same risk-free rate in a Geometric Brownian Motion model.

 

The derivative liability of $596,195 was recognized by the Company on issuance as note payable. The derivative liability was further revalued as of March 31, 2026 at $550,832 and the Company recorded $47,448 as the changes in fair value of derivative liability for the three months ended March 31, 2026.