NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES

Convertible Promissory Notes are categorized as equity or debt based on the terms of the notes and the guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging.

Convertible notes that meet the criteria for equity classification (e.g., conversion into a fixed number of shares with no obligation to deliver cash) are recorded in equity at issuance. Instruments classified as equity are not subsequently remeasured, and no interest expense is recognized.

Convertible notes that include a contractual obligation to deliver cash or other financial assets, or that do not meet the criteria for equity classification, are recorded as debt. These notes are initially recognized at the proceeds received, net of discounts and issuance costs in accordance with ASC 480-10-55-44 on the consolidated balance sheets, and subsequently measured at amortized cost using the effective interest method. Interest expense is recognized in the statement of operations.

If the instrument contains embedded conversion features or other terms that require bifurcation under ASC 815, these features are separated from the host contract and recorded as derivative liabilities at fair value. Derivative liabilities are remeasured at fair value at each reporting date, with changes in fair value recognized in the consolidated statements of operations.

The Company accounts for derivative financial instruments in accordance with Accounting Standards Codification (ASC) 815, Derivatives and Hedging. Under this guidance, the Company evaluates whether an embedded feature within a financial instrument is required to be accounted for separately as a derivative.

Embedded derivatives that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that are not eligible for the scope exceptions under ASC 815, are bifurcated from the host instrument and accounted for as separate derivative financial instruments. These derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value, with changes in fair value recognized in the consolidated statements of operations in the period in which they occur.

When the Company issues convertible debt instruments that contain embedded conversion features with variable settlement terms or other features that result in a potential issuance of a variable number of shares, the embedded conversion feature is assessed under ASC 815 -15-25 and ASC 815-10-15-83. If the conversion feature requires bifurcation, it is separated from the debt host and accounted for as a derivative liability.

On July 10, 2020, PCTI (the accounting acquirer) assumed the balance of a past-due 15% convertible note issued by the Company on September 13, 2017. As of March 31, 2026, and December 31, 2025, the outstanding principal balance of this note was $25,000.

On May 28, 2025 (the “Issue Date”), the Company entered into a 12%, $200,000 face value promissory note (the “May 2025 Note”), with a third-party (the “Holder”) due May 28, 2026 (the “Maturity Date”). The Holder shall have the right from time to time, and at any time following, convert all or any part of the outstanding and unpaid principal, interest and any other amounts due into fully paid and non-assessable shares of common stock of the Company. The per share conversion price into which Principal Amount and interest (including any Default Interest) under this Note shall be convertible into shares of Common Stock hereunder as further described in this Note (the “Conversion Price”) shall equal the Market Price (as defined in the Note), subject to adjustment as provided in this Note. “Market Price” shall mean 70% of the lowest Trading Price (as defined below) for the Common Stock during the five (5) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the volume weighted average price on the Principal Market as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Quotestream or Bloomberg). The Company received proceeds of $191,000 on June 3, 2025, and the Company reimbursed the investor for expenses for legal fees and due diligence of $9,000. Pursuant to ASC 815, the Company determined that the conversion feature is embedded in the debt host and accounted for the conversion feature as a derivative liability with an initial fair value of $179,173 by the Monte Carlo simulation valuation method (with assumptions of volatility of 236.61% and risk free rate of 4.16%). In conjunction with this Note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 200,000 post reverse split (1,000,000,000 prior to the reverse split) shares of common stock at an exercise price of $1.00 post reverse split ($0.0002 prior to the reverse split) per share, subject to adjustments and expires on the five-year anniversary of the Issue Date. At issuance, the Company had insufficient authorized shares available to settle these outstanding warrants, and these warrants were initially classified and recorded as a derivative liability. The warrants were valued at $969,039 at issuance, by the Monte Carlo simulation valuation method (with assumptions of volatility of 187.76% and risk free rate of 4.05%). The derivative liabilities from the embedded conversion feature and liability-classified warrants resulted in a debt discount of $191,000, and a derivative expense of $957,212 at issuance. For the three months ended March 31, 2026, amortization of the debt discount (including debt issuance costs) of $64,491 based on the effective interest method was charged to interest expense. As of March 31, 2026, and December 31, 2025, the outstanding principal balance of the convertible note was $200,000, with a carrying value of $97,017, and $32,526 net of unamortized discounts of $102,983 and $167,474, as of March 31, 2026, and December 31, 2025, respectively. As of November 28, 2025, the Company was in default of this note due to violation of the “Amortization Payments” term as specified in the note agreement, which requires the Company to make monthly repayment instalment of $37,300 over a six-month period starting from November 28, 2025, and repay all remaining outstanding amounts under this note on May 28, 2026, the Maturity Date.

On July 15, 2025 (the “Issue Date”), the Company entered into a 12%, $200,000 face value promissory note (the “July 2025 Note”) with a third-party (the “Holder”) due July 14, 2026 (the “Maturity Date”). The July 2025 Note is with the same lender and the same terms as the May 2025 Note. The Company received proceeds of $191,000 on July 15, 2025, and the Company reimbursed the investor for expenses for legal fees and due diligence of $9,000. Pursuant to ASC 815, the Company determined that the conversion feature is embedded in the debt host and accounted for the conversion feature as a derivative liability with an initial fair value of $187,309 by the Monte Carlo simulation valuation method (with assumptions of volatility of 257.88% and risk free rate of 4.11%). In conjunction with this Note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 200,000 post reverse split (1,000,000,000 prior to the reverse split) shares of common stock at an exercise price of $1.00 post reverse split ($0.0002 prior to the reverse split) per share, subject to adjustments and expires on the five-year anniversary of the Issue Date. At issuance, the Company had insufficient authorized shares available to settle these outstanding warrants, these warrants are classified and recorded as a derivative liability. The warrants were valued at $836,069 at issuance, by the Monte Carlo simulation valuation method (with assumptions of volatility of 185.97% and risk free rate of 4.05%). The derivative liabilities from the embedded conversion feature and liability-classified warrants resulted in a debt discount of $191,000, and a derivative expense of $832,378 at issuance. For the three months ended March 31, 2026, amortization of the debt discount (including debt issuance costs) of $39,885 based on the effective interest method was charged to interest expense. As of March 31, 2026, and December 31, 2025, the outstanding principal balance of the convertible note was $200,000, with a carrying value of $75,699, and $35,814, respectively, net of unamortized discounts of $124,301 and $164,186 as of March 31, 2026, and December 31, 2025. The Company was in default of this note due to the cross default provisions in this note in connection with default of the May 28, 2025, note.

On September 24, 2025 (the “Issue Date”), the Company entered into a 12%, $200,000 face value promissory note (the “September 2025 Note”) with a third-party (the “Holder”) due September 23, 2026 (the “Maturity Date”). The September 2025 Note is with the same lender and the same terms as the May 2025 Note. The Company received proceeds of $191,000 on September 24, 2025, and the Company reimbursed the investor for expenses for legal fees and due diligence of $9,000. Pursuant to ASC 815, the Company determined that the conversion feature is embedded in the debt host and accounted for the conversion feature as a derivative liability with an initial fair value of $176,598 by the Monte Carlo simulation valuation method (with assumptions of volatility of 212.92% and risk free rate of 3.63%). In conjunction with this Note, the Company issued 2 common stock purchase warrants; each warrant entitles the Holder to purchase 200,000 post reverse split (1,000,000,000 prior to the reverse split) shares of common stock at an exercise price of $1.00 post reverse split ($0.0002 prior to the reverse split) per share, subject to adjustments and expires on the five-year anniversary of the Issue Date. At issuance, the Company had insufficient authorized shares available to settle these outstanding warrants, these warrants are classified and recorded as a derivative liability. The warrants were valued at $332,395 at issuance, by the Monte Carlo simulation valuation method (with assumptions of volatility of 259.75% and risk free rate of 3.70%). The derivative liabilities from the embedded conversion feature and liability-classified warrants resulted in a debt discount of $191,000, and a derivative expense of $317,993 at issuance. For the three months ended March 31, 2026, amortization of the debt discount (including debt issuance costs) of $18,420 based on the effective interest method was charged to interest expense. As of March 31, 2026, and December 31, 2025, the outstanding principal balance of the convertible note was $200,000, with a carrying value of $29,994, and $11,574, respectively, net of unamortized discounts of $170,006 and $188,426, as of March 31, 2026, and December 31, 2025, respectively. The Company was in default of this note due to the cross default provisions in this note in connection with the default of the May 28, 2025, note.

On July 31, 2025, the Company entered into an Exchange Agreement, whereby, the Company agreed that the holder may exchange any part or all of the outstanding principal and interest (the Exchange Amount) of the promissory note entered into on February 9, 2021 at any time and from time to time into the number of common shares equal to the Exchange Amount divided by the lowest trading price from the previous ten (10) trading days, and to extend the maturity date of the note to March 31, 2026. The Company determined the Exchange Agreement represented a substantial modification to the existing debt. Accordingly, the Company extinguished the promissory note dated February 9, 2021, as well as the accrued interest as of July 31, 2025, and recorded two convertible notes, one for the principal amount of $2,200,000 with an annual interest rate of 15% and one for the accrued interest of $1,358,229 with no additional interest in the future. The embedded conversion features for these convertible notes were accounted for as derivatives, which were valued at an initial amount of $1,842,831 on July 31, 2025 by the Monte Carlo simulation valuation method (with assumptions of volatility of 321% and risk free rate of 4.24%), and were recorded as debt discount that will be amortized based on the effective interest method through the new maturity date of the note of March 31, 2026. For the three months ended March 31, 2026, amortization of the debt discount of $814,637 based on the effective interest method was charged to interest expense. As of March 31, 2026, and December 31, 2025, the outstanding principal balance of the two convertible notes was $3,458,229, with a carrying value of $3,458,229 as of Mach 31, 2026, and $2,643,592, respectively, net of unamortized discount of $814,637 as of December 31, 2025.

On January 22, 2026 (the “Issue Date”), the Company entered into a 12%, $147,000 face value promissory note (the “January 2026 Note”) with a third-party (the “Holder”) due October 30, 2026 (the “Maturity Date”). The Company received proceeds of $140,000 on January 22, 2026, and the Company reimbursed the investor for expenses for legal fees and due diligence of $7,000. Pursuant to ASC 815, the Company determined that the conversion feature is embedded in the debt host and accounted for the conversion feature as a derivative liability with an initial fair value of $162,818 by the Monte Carlo simulation valuation method (with assumptions of volatility of 191.43% and risk free rate of 3.57% resulted in a debt discount of $140,000, and an expense of $22,818 at issuance recognized in the consolidated statements of operations. For the three months ended March 31, 2026, amortization of the debt discount (including debt issuance costs) of $11,569 based on the effective interest method was charged to interest expense. As of March 31, 2026, the outstanding principal balance of the convertible note was $147,000, with a carrying value of $11,569, net of unamortized discounts of $135,431 as of March 31, 2026.

On January 22, 2026 (the “Issue Date”), the Company entered into a 12%, $75,000 face value promissory note (the “2^nd January 2026 Note”) with a third-party (the “Holder”) due October 30, 2026 (the “Maturity Date”). The Company received proceeds of $75,000 on January 22, 2026. Pursuant to ASC 815, the Company determined that the conversion feature is embedded in the debt host and accounted for the conversion feature as a derivative liability with an initial fair value of $82,961 by the Monte Carlo simulation valuation method (with assumptions of volatility of 191.43% and risk free rate of 3.57% resulted in a debt discount of $75,000, and an expense of $7,961 at issuance recognized in the consolidated statements of operations. For the three months ended March 31, 2026, amortization of the debt discount of $5,085 based on the effective interest method was charged to interest expense. As of March 31, 2026, the outstanding principal balance of the convertible note was $75,000, with a carrying value of $5,085, net of unamortized discounts of $69,915 as of March 31, 2026.

The following table summarizes the Company’s convertible notes payable:

SCHEDULE OF CONVERTIBLE NOTES PAYABLE

The Company valued the derivative liabilities at March 31, 2026, and December 31, 2025, at $2,955,700 and $4,193,434 respectively.

A summary of the activity related to derivative liabilities for the three months ended March 31, 2026, and 2025, is as follows:

SCHEDULE OF DERIVATIVE LIABILITIES AT FAIR VALUE