NOTE 9 – DERIVATIVE LIABILITIES ASSOCIATED WITH CONVERTIBLE NOTES

The Company evaluates the conversion features of its convertible debt instruments in accordance with ASC 815, Derivatives and Hedging, to determine whether such features require bifurcation and separate accounting as derivative liabilities. Certain of the Company’s convertible notes contain embedded conversion features with terms including variable conversion prices based on future market prices and mandatory conversion features. As a result, certain of these features are accounted for as derivative liabilities under ASC 815.

Derivative liabilities are recorded at fair value at inception and remeasured at fair value at each reporting date, with changes in fair value recognized in earnings. For convertible instruments issued with embedded derivative features, the initial fair value of the derivative is recorded as a debt discount to the extent permitted under applicable accounting guidance and amortized to interest expense over the contractual term of the related debt instrument using the effective interest method.

The fair value of derivative liabilities is estimated using valuation techniques that incorporate both observable and unobservable inputs. Due to the use of significant unobservable inputs, these measurements are classified within Level 3 of the fair value hierarchy under ASC 820, Fair Value Measurement. The Company utilized option-pricing models, including the Black-Scholes model for the derivative liability related to the November 2025 Convertible note and the Axiom Note.

Key assumptions for used in the Black-Scholes model for the derivative liability value related to the Axiom Note during the six months ended June 30, 2026 are as follows:

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

As of June 30, 2026, the aggregate fair value of the Company’s derivative liabilities was $4,301,556, which is presented as derivative liabilities – convertible instruments on the accompanying condensed consolidated balance sheet. The Company recognized a loss on change in fair value of derivative liabilities of $1,765,482 during the six months ended June 30, 2026.

The Company will continue to remeasure the derivative liabilities at fair value at each reporting date, with changes in fair value recognized in earnings.