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CONVERTIBLE DEBT

9 Months Ended

Sep. 30, 2025

NOTE 11 – CONVERTIBLE DEBT

A summary of the Company’s convertible debt during the 9-month period ended September 30, 2025 and the year ended December 31, 2024 is presented below:

	September 30, 2025			December 31, 2024

Beginning balance convertible notes	$	-			-
Issuance of new convertible notes		9,839,348			-
Payments		-			-
Conversion to common stock		-			-
Subtotal notes		9,839,348			-
Unamortized debt discount		(4,085,949	)		-
Fair value adjustment		1,691,933			-
Convertible note payable, net of fair value adjustment and unamortized debt discount	$	7,445,332			-

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 & July 2025 Convertible Promissory Notes

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-day 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.

On July 9, 2025 the Company issued two convertible promissory notes; one convertible promissory note was issued to Boot (the “Second Boot Note”) and other was issued to Vanquish Funding Group, Inc. (the “Vanquish Note”). Together, the two notes are referred to as the “July 2025 Notes”. The Second Boot Note has a principal amount of $75,000 and the Vanquish Note has a principal amount of $150,000. The July 2025 Notes have identical terms to the May 2025 Notes.

Due to certain embedded features within the May and July 2025 Notes, the Company elected to account for the May and July 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, $23,100 of direct costs and fees related to the issuance of the May 2025 Notes were expensed immediately. There were no direct costs and fees related to the issuance of the July 2025 Notes.

For the three and nine months ended September 30, 2025 the Company recorded a loss of $59,134 and $67,862, respectively, related to the change in fair value of the May and July 2025 Notes which was recognized in other income (expense) in the consolidated statements of operations.

Interest expense on the May and July 2025 Notes totaled $13,110 and $16,382 for the three and nine months ended September 30, 2025, respectively, and is included within change in fair value of the convertible notes in the consolidated statement of operations.

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 nine 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, $274,783 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 September 30, 2025.

For the three and nine months ended September 30, 2025 the Company recorded a loss of $1,650,655 and $1,624,071, 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 and $58,696 for the three and nine months ended September 30, 2025, respectively, and is included within change in fair value of the convertible notes in the consolidated statement of operations.

On August 5, 2025, the Company entered into an amendment to its June 2025 Note. The amendment was executed following the Company’s failure to make its initial interest payment, which constituted an event of default under the original agreement. Under the terms of the amendment, the Company issued 500,000 shares of common stock to the investor as consideration for curing the default and agreeing to subordinate its lien position to that of the August 2025 Note (as defined below) investor, which provided subsequent financing to the Company. The Company also paid $19,565 of accrued interest, curing the prior default in full.

The amendment further introduced provisions requiring the Company to apply 30% of any proceeds from future At-The-Market (“ATM”) equity offerings with A.G.P. toward repayment of the June 2025 Note, established a 24% default interest rate and a $500 daily penalty in the event of future payment defaults, and added a new Nasdaq listing compliance clause that would constitute an event of default upon delisting or failure to maintain listing standards. All other terms of the June 2025 Note, including its principal balance, stated interest rate, conversion features, and maturity date, remained unchanged.

The issuance of shares to the investor was accounted for as a non-cash debt modification expense, measured at the fair value of the shares on the amendment date of $439,000 and recorded in change in fair value of convertible notes in the condensed consolidated statements of operations. The amendment did not represent a substantial modification or extinguishment of the existing debt under ASC 470-50, as the primary economic terms of the June 2025 Note remained intact.

August 2025 Convertible Promissory Note

On August 5, 2025 the Company issued a senior secured convertible promissory note (the “August 2025 Note”) to an investor. The August 2025 Note has a principal amount of $8,000,000, an original issue discount of $720,000 and incurs interest at a rate of 9% per annum. Interest is payable in shares of common stock or in cash, at the Company’s election. The August 2025 Note may be converted by the investor at any time following issuance into shares of the Company’s common stock. The conversion price is set as the lower of $1.05 or a market price, equal to 92% of the lowest daily VWAP during the ten preceding trading days immediately preceding the conversion date. The terms of the August 2025 Note stipulate certain covenants, including commencing on September 30, 2025, on the final day of each fiscal quarter, the Company shall have an available cash and cash equivalents balance of at least $400,000.

The Company identified certain embedded features within the August 2025 Note that were required to bifurcated as derivative liabilities in accordance with ASC 815-40. Upon issuance, the Company recognized the fair value of the derivative liability of $2,817,218 which was included as a debt discount. Subsequent changes in the fair value of the derivative liability are recorded as a component of non-operating income (loss) in the consolidated statements of operations. Upon issuance, the Company capitalized $736,250 of direct costs and fees related to the issuance of the August 2025 Notes as additional debt discount which are amortized over the life of the August 2025 Note.

For the three and nine months ended September 30, 2025 the Company recorded a loss of $311,778 related to the change in fair value of the derivative liability which was recognized in change in fair value of convertible notes in the consolidated statements of operations.

Interest expense on the August 2025 Note totaled $295,519 for the three and nine months ended September 30, 2025, comprised of $187,519 for the amortization of debt discount and $108,000 for coupon interest.

The following table presents the change in fair value of the derivative liability for the periods identified:

Balance, January 1, 2025	$	-
Derivative liability associated with the August 2025 Note issued		2,817,218
Change in fair value of the derivative liability		311,778
Balance, September 30, 2025	$	3,128,996