NOTE 9 - DERIVATIVE LIABILITY

On April 4, 2025, the Company approved the issuance of up to $500,000 in convertible loan notes. The notes accrue interest at an annual rate of 18%. The maturity date is twelve months from the date of issuance.

On July 15, 2025, the Company approved the issuance of up to $775,000 in convertible loan notes. The notes accrue interest at an annual rate of 12%. The maturity date is six months from the date of issuance.

The following table presents the roll-forward of the Company’s derivative liability measured at fair value using Level 3 inputs for the six months ended June 30, 2026, and the year ended December 31, 2025:

 SCHEDULE OF DERIVATIVE LIABILITIES MEASURED AT FAIR VALUE LEVEL 3

The Company’s derivative financial instruments are classified as derivative liabilities and are measured at fair value on a recurring basis. On January 1, 2025, and January 1, 2026, the derivative liability balance was $0 and $479,865, respectively.

During the six months ended June 30, 2026, the derivative liability balance changed due to the face value of new issuances of $103,872 and an associated loss on derivative issuance of $72,177. These increases were offset by payments of derivative liability value of $20,509, and conversions of $60,179.

Additionally, the Company recognized a non-cash gain of $363,124 from changes in the fair value of derivative liabilities, which is recorded within other income (expense) in the consolidated statement of operations.

As of June 30, 2026, the total outstanding derivative liability balance was $212,102.

In accordance with SEC Staff Accounting Bulletin No. 108, management evaluated these items and concluded that the underlying errors were immaterial to all prior periods, both individually and in the aggregate. Accordingly, the adjustments were recognized entirely within the current quarter’s Consolidated Statement of Operations.

During the preparation of the condensed consolidated financial statements for the quarter ended June 30, 2026, management identified an accounting omission regarding the historical non-cash interest expense associated with the accretion of debt discounts on certain notes payable issued during fiscal year 2025. Specifically, the Company had omitted periodic straight-line accretion of debt discounts from inception through March 31, 2026, on its $57,000 note payable issued on October 9, 2025, and its $500,000 note payable offering initiated on April 4, 2025. Both instruments were initially assigned a $0 carrying value because the fair value of their bifurcated embedded derivative liabilities exceeded total cash proceeds, creating a debt discount to be amortized over the respective contractual terms of the agreements pursuant to ASC 835-30-35-2.

In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, and SAB No. 99, Materiality, the Company evaluated the quantitative and qualitative materiality of these errors on all affected prior interim and annual financial periods. Management determined that the cumulative under-recording of non-cash interest expense of $106,729 (consisting of $41,162 related to the fiscal year ended December 31, 2025, and $65,567 related to the three months ended March 31, 2026) was quantitatively and qualitatively immaterial to all prior historical periods, as well as to full-year operational expectations for fiscal year 2026.

Accordingly, the Company recorded a cumulative out-of-period catch-up correction of $106,729 within interest expense in the Condensed Consolidated Statement of Operations for the three months and six months ended June 30, 2026. This adjustment was recorded alongside standalone current-quarter accretion of $67,686, resulting in a total non-cash note accretion interest charge of $174,415 for the three months ended June 30, 2026. The recording of this cumulative correction had no impact on the Company’s historically reported revenues, operational cash flows, or structural liquidity metrics.