v3.26.3
Derivative Liabilities
 12 Months Ended
Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liabilities

Note 11 - Derivative Liabilities

 

The convertible notes assumed in the SWC acquisition on March 31, 2025 and certain convertible notes issued during the year ended June 30, 2026 (see Note 5) contain conversion features priced at a discount to the trading price of the Company’s common stock. Because the conversion price varies with the market price, the features are not indexed to the Company’s own stock and are bifurcated and accounted for as derivative liabilities. The commitment warrant issued under the Equity Purchase Agreement on October 8, 2025 (see Note 8) permits the holder to elect cash settlement upon a change of control and is also accounted for as a derivative liability, recorded at its fair value of $258,723 at issuance and $977,270 at June 30, 2026.

 

The Company estimated the fair value of the embedded conversion features using the Black-Scholes option pricing model with the following assumptions:

 

   June 30, 2026   June 30, 2025 
         
Expected term (years)   0.27 - 5.00     2.18 - 2.43  
Expected volatility   147.60% - 242.30%   207.70% - 233.30%
Expected dividends   0.00%   0.00%
Risk free interest rate   3.48% - 4.15%   3.72% - 3.89%

 

The following table presents the changes in derivative liabilities measured at fair value on a recurring basis using Level 3 inputs for the years ended June 30, 2026 and 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   5,750,798    109,283    5,860,081 
Fair value mark to market adjustment   

(1,073,220

)   65,540    

(1,007,680

)
Derivative liabilities – June 30, 2026  $5,483,343   $472,050   $5,955,393 

 

The fair value mark to market adjustment for each year is presented in other income (expense) in the consolidated statements of operations.

 

During the year ended June 30, 2025, the conversion of principal on a related party convertible note extinguished the related derivative liability, resulting in a gain on debt extinguishment of $500,678.

 

During the year ended June 30, 2026, the fair value of the embedded conversion features at issuance exceeded the net proceeds of the related notes, and the Company recognized derivative expense of $1,438,825 and a loss on settlement of accounts payable - related party of $109,283 in other income (expense). See Note 5.

 

Related Party

 

Derivative liabilities of $472,050 and $297,227 at June 30, 2026 and 2025, respectively, relate to convertible notes held by the Company’s Chief Executive Officer and by its Chief Revenue Officer, who is also a director. The related party notes include a note issued to the Chief Revenue Officer in March 2026 upon conversion of $73,927 of accounts payable (see Note 5).

 

 

NIGHTFOOD HOLDINGS, INC. AND SUBSIDIARIES

DBA TECHFORCE ROBOTICS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025

 

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 years ended June 30, 2026 and 2025, the Company recorded a change in fair value gain (loss) of its derivative liabilities as follows:

 

Year Ended June 30, 
2026   2025 
        
$(1,007,680)  $190,102 

 

For the years ended June 30, 2026 and 2025, the Company recognized derivative expense as follows:

 

Year Ended June 30, 
2026   2025 
        
$1,438,825   $653,792 

 

The derivative liabilities recognized during the year ended June 30, 2026 arose from the issuance of five (5) convertible notes with an aggregate face value of $4,880,104 and the commitment warrant. The aggregate fair value at the commitment dates was $5,860,081, consisting of $5,601,358 for the conversion features and $258,723 for the warrant. The fair value mark to market adjustment for the year is a gain of $1,726,227 on the conversion features, net of a loss of $718,547 on the warrant (see Note 8). Where the fair value of a conversion feature at the commitment date exceeded the net proceeds of the related note, the excess was recognized as derivative expense; such excesses totaled $1,438,825 for the year. See Note 5.

 

See Notes 6 and 12 for additional fair value disclosures.

 

 

NIGHTFOOD HOLDINGS, INC. AND SUBSIDIARIES

DBA TECHFORCE ROBOTICS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2026 AND 2025