NOTE 10. Convertible Promissory Notes and Embedded Derivative Liabilities

Variable Conversion Convertible Notes

On December 31, 2025, the Company issued a convertible promissory note (the “CROM Note”) to Crom Structured Opportunities Fund I, LP with a principal amount of $183,370 and received net cash proceeds of $153,400 after original issue discount and fees of $29,970, which were recorded as a debt discount. The CROM Note matures twelve months from issuance and includes a one-time interest charge of 8%, earned at issuance, which increased both the note principal and debt discount by $14,670. The CROM Note may not be prepaid by the Company prior to maturity.

During the six months ended June 30, 2026, the Company issued four additional convertible promissory notes (the “Q1 2026 Notes”) with aggregate principal of $724,240 and received aggregate cash proceeds of $577,300 after original issue discounts and fees of $146,940, which were recorded as debt discounts. The Q1 2026 Notes also include one-time interest charges of 8%, increasing principal and debt discount by $57,939, and mature twelve months from their respective issuance dates. The Q1 2026 Notes may not be prepaid by the Company prior to maturity.

The CROM Note and the Q1 2026 Notes are convertible, at the holders’ option, into shares of the Company’s common stock at a conversion price equal to 80% of the lowest closing market price of the Company’s common stock during the ten trading days immediately preceding conversion. The Company is required to reserve a specified number of shares for potential conversion and is subject to penalties if shares are not timely delivered upon conversion.

Because the conversion price is variable and based on the market price of the Company’s common stock, the embedded conversion features are not considered indexed to the Company’s own stock and are therefore accounted for as embedded derivative liabilities under ASC 815, Derivatives and Hedging. The derivative liability is measured at fair value at issuance and remeasured at fair value at each reporting date, with changes in fair value recognized in earnings.

At issuance, the Company recorded derivative liabilities of $156,644 for the CROM Note and $619,420 for the Q1 2026 Notes, of which $577,300 was recorded as a debt discount and $42,120 was recorded as interest expense on the statement of operations. Debt discounts are amortized to interest expense using the effective interest method over the contractual terms of the notes.

During the three months ended June 30, 2026, the Company recognized $246,701 of debt discount amortization and a loss of $87,709 from the change in the fair value of derivative liabilities. During the six months ended June 30, 2026, the Company recognized $429,958 of debt discount amortization and a loss of $101,957 from the change in fair value of derivative liabilities. As a result, the derivative liability was $878,021 at June 30, 2026.

As of June 30, 2026, the aggregate principal balance of the CROM Note and the Q1 2026 Notes was $980,220. After deducting unamortized debt discounts attributable to those convertible notes of $550,262, the net carrying amount of the notes was $429,958.

The embedded derivative liabilities are classified within Level 3 of the fair value hierarchy because significant valuation inputs are unobservable. Fair value was estimated using the Black-Scholes option-pricing model.

The following assumptions were used in the Black-Scholes model during the three months ended June 30, 2026:

 Schedule of Black-Scholes Model

The following table summarizes the change in the derivative liabilities during the six months ended June 30, 2026:

 Schedule of Change in Derivative Liabilities

RAAC Convertible Promissory Note

In April 2026, the Company entered into a Convertible Promissory Note Agreement with RAAC providing for borrowings of up to $750,000 to finance costs associated with the acquisition, onboarding, verification, and tokenization of the Blythe Project. The note bears interest at 5.0% per annum, matures on the earlier of twelve months from issuance or the closing of the Blythe Project, and may be prepaid by the Company without penalty upon at least thirty days’ prior notice.

Unlike the Company’s other convertible promissory notes, the RAAC Note does not contain a variable conversion feature based on the Company’s common stock price. Instead, any conversion may occur only upon the mutual written agreement of the parties and would be settled through a proportional ownership interest in the Blythe Project or an allocation of ION.au digital tokens.

As of June 30, 2026, the outstanding balance of the RAAC Note was $598,350. During the six months ended June 30, 2026, the Company recognized interest expense related to the RAAC Note of $3,061.