NOTE 9: GAIN ON EXTINGUISHMENT OF DEBT 

During the year ended June 30, 2026, the Company recognized an aggregate gain on extinguishment of debt of $2,923,004. The gain arose from eight distinct transactions or determinations, each accounted for in accordance with ASC 405-20, Extinguishments of Liabilities, and ASC 470-50, Debt — Modifications and Extinguishments, as applicable. The components are summarized in the following table:

The components relating to the Series D Convertible Preferred Stock exchanges and the equitization of accrued compensation are described in detail in Note 6, Note 7, and Note 13. The remaining two components, relating to negotiated cash settlements of debt at a discount, are described below.

Gain on Extinguishment of Note Payable — Cash Settlement at a Discount — $26,584

During the year ended June 30, 2026, the Company negotiated a settlement with Labrys Fund II, L.P., the holder of two promissory notes issued by the Company (see Note 5). The aggregate carrying value of the notes, consisting of principal of $114,431, accrued interest of $4,901 and accrued default penalties of $57,252, was $176,584 at the time of settlement. The Company and Labrys Fund II, L.P. agreed to extinguish the obligations in full for a lump-sum cash payment of $150,000, representing a discount of $26,584 to the carrying value, pursuant to a Settlement and Mutual Release Agreement dated April 10, 2026 (see Exhibit 10.42). Upon receipt of the $150,000 payment, Labrys Fund II, L.P. provided a full release of all claims under the notes.

In accordance with ASC 470-50-40, the Company recognized a gain on extinguishment of debt of $26,584, representing the difference between the carrying amount of the extinguished liability ($176,584) and the reacquisition price ($150,000). The gain is included within the caption "Gain on extinguishment of debt" in the consolidated statement of operations for the year ended June 30, 2026. In the consolidated statement of cash flows, the portion of the $150,000 payment applied to accrued interest is included in operating activities and the remainder is included in "Repayment of notes payable and convertible notes payable" within financing activities.

Gain on Settlement of Vendor Payables — Cash Settlement at a Discount — $22,023

During the year ended June 30, 2026, the Company negotiated settlements with certain unrelated third-party vendors with respect to outstanding trade payables. The aggregate carrying value of the settled payables was $42,023. The Company reached negotiated agreements with these vendors to settle all outstanding obligations in full for aggregate cash payments of $20,000, representing a discount of $22,023 to the carrying value. Upon payment, the vendors provided full releases of all claims.

In accordance with ASC 405-20-40-1, the Company derecognized the settled liabilities upon legal release and recognized a gain of $22,023, representing the difference between the carrying amount of the extinguished payables ($42,023) and the aggregate settlement payments ($20,000). The gain is included within the caption "Gain on extinguishment of debt" in the consolidated statement of operations for the year ended June 30, 2026. None of the vendors involved in these settlements were related parties.

During the year ended June 30, 2025, the Company obtained a legal opinion concluding that certain aged debt instruments were beyond the applicable statute of limitations and that the Company had a complete defense to liability with respect to those obligations. Based on that legal opinion, the Company recognized a gain on extinguishment of debt of $725,059, comprised of the following: