v3.26.3
DERIVATIVE LIABILITIES
 9 Months Ended
Sep. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITIES

NOTE 11: DERIVATIVE LIABILITIES

 

The Company entered into several convertible notes payable, with terms that include variable conversion prices. The Company evaluated these terms and determined that the conversion option on the convertible notes payable contained characteristics that required the Company to classify them as derivative liabilities. The Derivative Instruments have been accounted for utilizing ASC 815 “Derivatives and Hedging.” The Company has incurred a liability for the estimated fair value of Derivative Instruments. The estimated fair value of the Derivative Instruments has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with changes in fair value recorded as gains or losses on revaluation in other income (expense).

 

The Company identified embedded features in some of the agreements which were classified as liabilities. These embedded features included a variable conversion price that would convert those instruments into a variable number of common shares. The accounting treatment of derivative financial instruments requires that the Company treat the instrument as liability and record the fair value of the instrument as derivatives as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.

 

The Company determined the derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2026. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate.

 

Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each conversion option is estimated using the Black-Scholes valuation model. The following assumptions were used for the nine months ended September 30, 2026 and 2025:

 

    

Nine Months Ended

September 30, 2026

    Inception 
Expected term   0.01 - 1.00 years    1.00 years 
Expected volatility   210- 334%   358% – 390%
Expected dividend yield   -    - 
Risk-free interest rate   3.44 – 4.33%   3.48 – 4.15%
Market price  $0.0001 – $0.0003   $0.0001 - $0.0003 

 

  

Nine Months Ended

September 30, 2025

   Inception 
Expected term   0.25 years    0.75 – 1.00 years 
Expected volatility   374%   120% – 125% 
Expected dividend yield   -    - 
Risk-free interest rate   4.01%   4.85%
Market price  $0.0002 – $0.001   $0.0078 - $0.013 

 

  

Year Ended

December 31, 2025

   Inception 
Expected term   0.21 - 1.00 years    1.00 years 
Expected volatility   358%   358% – 390%
Expected dividend yield   -    - 
Risk-free interest rate   3.67%   3.48 – 4.15%
Market price  $0.0002 – $0.001   $0.0001 - $0.0003 

 

 

Activity related to the derivative liabilities for the periods ended September 30, 2026 and December 31, 2025 is as follows:

 

   September 30,
2026		   December 31,
2025		 
Beginning balances  $1,400,996   $338,986 
Recognition of derivative liability on conversion options of notes   461,517    1,127,825 
Derivative expense   788,504    1,115,146 
Conversion of note payable   (795,872)   (1,058,487)
Change in fair value of derivative liabilities   (596,390)   (122,474)
Ending balances  $1,258,755   $1,400,996