v3.26.1
Derivative Liabilities
 9 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liabilities

Note 11- Derivative Liabilities

 

The convertible notes acquired in connection with the SWC acquisition on March 31, 2025, and certain notes issued during the nine months ended March 31, 2026 (see Note 5), contain embedded conversion features with variable pricing terms. Because these features allow conversion into an indeterminate number of common shares based on the trading price of the Company’s common stock, they are not considered indexed to the Company’s own stock and therefore require bifurcation from the host debt instrument in accordance with ASC 815.

 

The Company accounts for the bifurcated embedded derivatives as derivative liabilities, measured at fair value with subsequent remeasurement at each reporting period. The derivative liabilities are classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs.

 

 

NIGHTFOOD HOLDINGS, INC. AND SUBSIDIARIES

DBA TECHFORCE ROBOTICS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2026

 

Valuation Methodology

 

The Company used the Black-Scholes option pricing model to estimate the fair value of the embedded conversion option liabilities at both initial recognition and subsequent remeasurement dates.

 

The model utilized the following key assumptions:

 

   March 31, 2026   June 30, 2025 
           
Expected term (years)   0.52 – 3.00     2.18 - 2.43  
Expected volatility   158.70% – 223.60%    207.70% - 233.30% 
Expected dividends   0.00% – 0.00%    0.00% - 0.00% 
Risk free interest rate   3.68% – 3.81%    3.72% - 3.89% 

 

A reconciliation of the beginning and ending balances of derivative liabilities measured at fair value on a recurring basis using Level 3 inputs is presented below as of March 31, 2026 and June 30, 2025:

 

   Third Party   Related Party   Total 
Derivative liabilities – June 30, 2024  $-   $-   $- 
Fair value at commitment date   987,131    426,437    1,413,568 
Gain on debt extinguishment   -    (500,678)   (500,678)
Fair value mark to market adjustment   (181,366)   371,468    190,102 
Derivative liabilities – June 30, 2025   805,765    297,227    1,102,992 
Fair value at commitment date   5,280,354    109,283    5,389,637 
Fair value mark to market adjustment   (1,986,073)   (42,737)   (2,028,810)
Derivative liabilities – March 31, 2026  $4,100,046   $363,773   $4,463,819 

 

Related Party Component

 

A portion of the derivative liability relates to convertible notes held by the Company’s Chief Executive Officer and Chief Revenue Officer, who is also a member of the Board of Directors.

 

Conversion of Accounts Payable to Convertible Note Payable

 

In March 2026, the Company converted $73,927 of accounts payable to a convertible note payable. See Note 5.

 

Derivative Liabilities - Nine Months Ended March 31, 2026

 

The Company issued four convertible promissory notes containing embedded conversion features that require bifurcation and accounting as derivative liabilities. The Company estimates the fair value of each bifurcated conversion feature using the Black-Scholes option pricing model.

 

See Note 5 for third party convertible notes (3) and related party convertible note (1) and summary above.

 

Derivative Liability Activity

 

Changes in the fair value of derivative liabilities are recognized in other income (expense) in the consolidated statements of operations.

 

For the three and nine months ended March 31, 2026 and 2025, the Company recorded a change in fair value gain (loss) of its derivative liabilities as follows:

 

Three Months Ended March 31, 
2026   2025 
        
$1,290,823   $- 

 

Nine Months Ended March 31, 
2026   2025 
        
$2,028,810   $- 

 

 

NIGHTFOOD HOLDINGS, INC. AND SUBSIDIARIES

DBA TECHFORCE ROBOTICS

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2026

 

Debt Extinguishment and Related Impacts

 

During the year ended June 30, 2025, in connection with the conversion of principal on a convertible note (Loan #17), and consistent with ASC 470-50, the Company allocated a proportionate adjustment and remeasurement to the related derivative liability. This resulted in the recognition of a $500,678 gain on debt extinguishment, which is presented in other income (expense) in the consolidated statements of operations for that period.

 

During initial measurement in the prior fiscal year (year ended June 30, 2025), the Company determined that the fair value of the embedded derivative liabilities exceeded the proceeds allocated to the convertible note host instrument. Accordingly, the Company recorded a debt discount equal to the face amount of the note, and the excess, totaling $653,792, was recognized as derivative expense in the consolidated statements of operations for that period.

 

For the three and nine months ended March 31, 2026 and 2025, the Company recognized derivative expense as follows:

 

Three Months Ended March 31, 
2026   2025 
        
$590,630   $611,583 

 

 

Nine Months Ended March 31, 
2026   2025 
        
$1,486,387   $611,583 

 

The derivative liabilities recognized during the nine months ended March 31, 2026 arose from the issuance of convertible notes with an aggregate face value of $4,621,471. The fair value of the derivative liabilities at the commitment date of $5,280,354 exceeded the net proceeds of the notes, resulting in derivative expense of $1,486,387 (of which $109,283 was for a related party convertible note) recognized in the consolidated statement of operations. See Note 5 for additional information regarding the convertible notes and related debt discounts.

 

See Notes 6 and 12 for additional fair value disclosures.