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CONVERTIBLE DEBT

6 Months Ended

Jun. 30, 2025

NOTE 11 – CONVERTIBLE DEBT

A summary of the Company’s convertible debt during the 6-month period ended June 30, 2025 and the year ended December 31, 2024 is presented below:

	June 30, 2025			December 31, 2024

Beginning balance convertible notes	$	-			-
New notes		1,604,348			-
Payments		-			-
Conversion to common stock		-			-
Subtotal notes		1,604,348			-
Fair value adjustment		(17,856	)		-
Convertible note payable, net of fair value adjustment	$	1,586,492			-

As permitted under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments (“ASC 825”), the Company elects to account for its convertible promissory note, which meets the required criteria, at fair value at inception and at each subsequent reporting date. Subsequent changes in fair value are recorded as a component of non-operating loss in the consolidated statements of operations. This election is made on an instrument-by-instrument basis as permitted under ASC 825. The portion of total changes in fair value of the convertible promissory note attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive income in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss). As a result of electing the fair value option, direct costs and fees related to the convertible promissory note are expensed as incurred.

The Company estimates the fair value of the convertible promissory note using a Monte Carlo simulation model, which uses as inputs the fair value of our common stock and estimates for the equity volatility and volume volatility of our common stock, the time to expiration of the convertible promissory note, the risk-free interest rate for a period that approximates the time to expiration, and probability of default. Therefore, we estimate our expected future volatility based on the actual volatility of our common stock and historical volatility of our common stock utilizing a lookback period consistent with the time to expiration. The time to expiration is based on the contractual maturity date, giving consideration to the voluntary, mandatory and potential accelerated redemption scenarios. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of measurement for time periods approximately equal to the time to expiration. Probability of default is estimated using Bloomberg's Default Risk function which uses our financial information to calculate a default risk specific to the Company.

May 2025 Convertible Promissory Note

On May 23, 2025 the Company issued two convertible promissory notes (the “May 2025 Notes”) to two separate investors. One of the May 2025 Notes had a principal amount of $235,000 and the other had a principal amount of $75,000. The May 2025 Notes accrue interest at 10%. Beginning on the 180th day after the issuance date, the investors shall have the right to convert the May 2025 Notes into common stock at a conversion price equal to 75% of the lowest trading price of the Company’s common stock during the ten trading day period ending on the latest trading day prior to the conversion date. The May 2025 Notes may be prepaid before maturity, however, they are subject to the following prepayment terms: 1) if the note is prepaid during the period beginning on the issuance date and ending on the 60^th day following issuance, the outstanding principal and accrued interest must be repaid at 115% of the outstanding balance, 2) if the note is prepaid during the period beginning on 61^st day following issuance and ending on the 120^th day following issuance, the outstanding principal and accrued interest owed shall be repaid at 120% of the outstanding balance, and 3) if the note is repaid during the period beginning on the 121^st day after issuance and ending on the 180^th day after issuance, the outstanding principal and accrued interest owed shall be repaid at 125% of the outstanding balance.

Due to certain embedded features within the May 2025 Notes, the Company elected to account for the May 2025 Notes and all the embedded features at fair value at inception. Subsequent changes in fair value are recorded as a component of non-operating income (loss) in the consolidated statements of operations. As a result of electing the fair value option, $13,100 of direct costs and fees related to the issuance of the May 2025 Notes were expensed immediately.

The fair value of the May 2025 notes was estimated using a Monte Carlo simulation model. Key assumptions included a stock price of $0.42, expected annualized volatility of 89.0%, risk-free interest rate of 3.96%, dividend yield of 0%, and a discount rate of 22.0%. The model incorporated a one-year forecast horizon with 52 weekly steps and 50,000 simulation trials. Event assumptions included an 80% probability of prepayment (assumed August 18, 2025), 15% probability of payment at maturity (May 23, 2026), and 5% probability of default, with valuation as of June 30, 2025.

For the three and six months ended June 30, 2025 the Company recorded a loss of $8,728 and $8,728, respectively, related to the change in fair value of the May 2025 Notes which was recognized in other income (expense) in the unaudited condensed consolidated statements of operations and comprehensive loss.

Interest expense on the May 2025 Notes totaled $3,250 for the three and six months ended June 30, 2025.

June 2025 Convertible Promissory Note

On June 9, 2025 the Company issued a secured convertible promissory note (the “June 2025 Note”) to an investor. The June 2025 Note has a principal amount of $1,304,347.83 and was issued with an 8% original issue discount. As a result the Company received proceeds of $1,200,000 from the investor in exchange for the June 2025 Note. Interest accrues at a rate of 18% per annum on the June 2025 Note, however, the first six months of interest accrue on the June 2025 Note immediately. The June 2025 Note has a maturity date of June 9, 2026. The June 2025 Note is convertible into common stock at a conversion price of $0.40 per share.

Due to certain embedded features within the June 2025 Note, the Company elected to account for the June 2025 Note and all the embedded features at fair value at inception. Subsequent changes in fair value are recorded as a component of non-operating income (loss) in the consolidated statements of operations. As a result of electing the fair value option, $300,870 of direct costs and fees related to the issuance of the June 2025 Note were expensed immediately.

The fair value of the convertible notes was estimated using a Monte Carlo simulation model. Significant assumptions included a stock price of $0.42, expected annualized volatility of 89.0%, risk-free interest rate of 3.96%, dividend yield of 0%, and a discount rate of 22.0%. The simulation used a one-year forecast horizon with 52 weekly steps and 50,000 trials. Event assumptions included an 80% probability of prepayment (assumed August 18, 2025), 10% probability of a qualified financing event (assumed December 8, 2025), 5% probability of payment at maturity (June 29, 2026), and 5% probability of default (assumed June 9, 2026), with a valuation date of June 30, 2025.

For the three and six months ended June 30, 2025 the Company recorded a gain of $26,584 and $26,584, respectively, related to the change in fair value of the June 2025 Note which was recognized in other income (expense) in the consolidated statements of operations.

Interest expense on the June 2025 Note totaled $13,696 for the three and six months ended June 30, 2025.

The following table presents the change in the balances of the May 2025 Notes and the June 2025 Note for the periods identified:

Balance, January 1, 2025	$	-
May 2025 Notes issued		300,000
June 2025 Note issued		1,304,348
Change in fair value of the May 2025 Notes		(26,584	)
Change in fair value of the June 2025 Note		8,728
Balance, June 30, 2025	$	1,586,492