NOTE 5 - FAIR VALUE MEASUREMENTS

The Company accounts for fair value measurements in accordance with ASC 820, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for inputs used in measuring fair value:

The Company measures its bifurcated derivative liabilities associated with its convertible notes at fair value on a recurring basis, see NOTE 10. These instruments are classified within Level 3 of the fair value hierarchy because their valuation relies on significant unobservable inputs, including expected equity volatility, expected term, and debt discount rates.

The following table presents the Company’s financial liabilities measured at fair value on a recurring basis:

SCHEDULE OF FINANCE LIABILITIES MEASURED AT FAIR VALUE 

The carrying amounts of cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short-term nature.

The note payables are carried at amortized cost. The estimated fair value of these instruments approximate their carrying value due to the interest rate approximating current market rates for similar collateralized borrowings.

Derivative Liabilities – Convertible Note Payables

In connection with the convertible notes issued under the Securities Purchase Agreement with Streeterville Capital, LLC, as described in NOTE 10, the Company bifurcated the embedded conversion feature from each note and recognized it as a derivative liability under ASC 815. Each derivative liability is initially recognized at fair value on the issuance date of the respective convertible note and is subsequently remeasured at fair value at each reporting date and each conversion date. Changes in fair value are recognized in the statement of operations.

The Company estimates the fair value of each derivative liability using a Monte Carlo simulation model, which simulates a large number of potential stock price paths and computes the expected present value of the conversion payoff under each path.

Valuation Inputs and Basis of Significant Assumptions

The following inputs were used in the Monte Carlo simulation at each instrument inception measurement date:

SCHEDULE OF VALUATION OF MEASUREMENT INPUT 

The following inputs were used in the Monte Carlo simulation to remeasure the derivative liabilities at each reporting date:

The following range of inputs were used in the Monte Carlo simulation to remeasure the derivative liabilities at conversion dates (derivatives with multiple conversions are presented with the range of inputs):

As described in NOTE 10, the convertible notes have no stated maturity. The Company estimated an expected term based on the timing of expected draws from the SPA, the economic structure of the SPA, the conversion mechanics, and its assessment of expected noteholder conversion behavior. This estimate is reassessed at each remeasurement date.

In the above table, the Company disclosed a range of closing day stock prices, historical volatilities, risk-free rates, and debt discount rates used as model inputs for conversion calculations, if the note had multiple conversions during the period. Convertible Note 1 had multiple conversions which fell on the following dates: April 16, 2026 and April 21, 2026. Convertible Note 4 had multiple conversions which fell on the following dates: January 26, 2026, February 18, 2026, March 3, 2026, March 18, 2026 and April 9, 2026.

The Company estimated expected equity volatility using the historical volatility of a peer group of comparable-stage companies operating in the autonomous vehicle, robotics, and AI/logistics technology industries, supplemented by the Company’s own limited trading history.

The risk-free rate was derived from the continuously compounded yield on U.S. Treasury securities with a remaining term approximately equal to the assumed instrument term, observed as of each measurement date.

The debt discount rate represents the Company’s estimated cost of non-convertible debt with terms comparable to the convertible notes. This rate was calibrated using observable market data for similarly situated issuers in the Company’s industry and credit profile, adjusted for the specific terms of the SPA.

Sensitivity of Level 3 Fair Value Measurements

Because the derivative liabilities are valued using significant unobservable inputs, their fair value measurements are classified within Level 3. Changes in those inputs can have a material effect on the reported fair value. The table below describes the directional sensitivity of the derivative liability fair value to changes in the most significant unobservable inputs, holding all other inputs constant:

Equity volatility is the most significant unobservable input. The conversion feature has an asymmetric payoff structure (the noteholder benefits from lower stock prices that produce a lower conversion price under the Lookback Formula, subject to the $0.25 floor), and higher volatility generally increases the expected value of that optionality. A hypothetical 10 percentage point increase or decrease in assumed volatility, holding other inputs constant, would result in a directionally significant change in the fair value of the derivative liabilities; however, the magnitude of such change depends on the then-current stock price relative to the conversion price range and cannot be quantified without reference to the applicable simulation outputs. Management considers the volatility assumption to be the key source of estimation uncertainty in the Level 3 measurement.

Expected term affects the number of simulated conversion opportunities and the present value weighting of simulated payoffs; a longer term increases the value of the conversion optionality. Debt discount rate affects the discount applied to the simulated payoffs; a higher rate reduces present value.

The interrelationship between equity volatility and stock price should also be noted: at lower stock prices, the conversion discount embedded in the Lookback Formula produces larger absolute payoffs per share for the noteholder, and higher volatility amplifies this effect. The $0.25 floor price limits downside exposure in scenarios where the stock price falls significantly.

Derivative Liabilities – Convertible Notes Payable Roll-Forward

The following table provides a reconciliation of the derivative liabilities – convertible notes payable measured at fair value using Level 3 inputs for the three and six months ended June 30, 2026:

 SCHEDULE OF RECONCILIATION OF THE DERIVATIVE LIABILITIES MEASURED AT FAIR VALUE

The total net change in fair value of derivative liabilities – convertible notes payable recognized in the statement of operations for the three months and six months ended June 30, 2026 and 2025 was a gain of $93,053, and $1,222,822, and a gain of $190,000, and $190,000, respectively. This is presented within “Change in fair value of derivative liabilities” in the accompanying statement of operations.

Amounts reclassified upon conversion represent the fair value of the pro-rata portion of each derivative liability, remeasured as of the applicable conversion date and derecognized in connection with the settlement of the related converted principal. The change in fair value through the conversion date is included in “Change in fair value of derivative liabilities - conversion remeasurement” in the table above. For a description of the full conversion accounting policy, including the treatment of the host debt component upon conversion, see NOTE 10.

Derivative Liabilities - Written Call Options

During the three and six months ended June 30, 2026, the Company wrote (sold) call options on exchange-traded equity securities as part of its cash management program. Written call options are accounted for as derivative instruments under ASC 815 and are reported as derivative liabilities in the accompanying balance sheet. The options are measured at fair value on a recurring basis using quoted prices for identical instruments in active markets and are classified within Level 1 of the fair value hierarchy. Changes in fair value are recognized in gain (loss) on investments in other income (expense) in the statement of operations. As of June 30, 2026, the aggregate fair value of written call options was $58,830 covering 10,600 underlying shares with an aggregate notional of $2,067,000, all of which expire within twelve months. The Company held no written option positions at December 31, 2025.

Investments

During the three and six months ended June 30, 2026, the Company held exchange-traded equity securities and written call options that were measured at fair value on a recurring basis and classified within Level 1 of the fair value hierarchy.

During the three and six months ended June 30, 2026, the Company recognized a realized loss of $123,506 and a gain of $322,818, and an unrealized gain of $241,136 and a loss of $260,976 related to equity securities and written call option activity, which is included in other income (expense) in the statement of operations.

As of June 30, 2026, the Company held exchange-traded equity securities and written call options. At December 31, 2025, the Company held no equity securities or written call option positions.