CONVERTIBLE DEBT

3 Months Ended

Sep. 30, 2025

NOTE 4 - CONVERTIBLE DEBT

On August 23, 2023, the Company entered into a Convertible Note Purchase Agreement and a Convertible Promissory Note with an unrelated party in the principal amount of $200 thousand (“note A”). On August 28, 2023, the Company entered into a Convertible Note Purchase Agreement and a Convertible Promissory Note with another unrelated party in the principal amount of $500 thousand (“note B”). On September 1, 2023, the Company entered into a Convertible Note Purchase Agreement and a Convertible Promissory Note with a third unrelated party in the principal amount of $150 thousand (note “C”). Notes A, B, and C (collectively, the “Notes”) are part of a private convertible debt offering of up to $2.0 million the Company is undertaking to raise additional reserve funds required to cover increases in wagers. The outstanding principal under the Notes, which will accrue interest at a rate equal to twelve percent (12%) per annum, is due and payable in a single balloon payment by the Company on the date that is one year following the date of issuance of each of the Notes. Accrued interest is to be paid monthly in cash beginning the first month after the issuance of each of the Notes. The Company has no right to prepay all or any portion of the outstanding principal under the Notes prior to their maturity dates. The outstanding principal under the Notes and accrued and unpaid interest are convertible, at the sole discretion of the holders of the Notes, into shares of the Company’s common stock, par value $.001 per share, at a conversion price equal to 80% of the lowest price per share that the Company sells shares of its common stock during the period beginning with the date of issuance of each of the Notes until their respective maturity dates, and if no shares are sold in such period, at a conversion price equal to $1.00 per share. The number of conversion shares issuable upon the conversion of the Notes is subject to adjustment from time to time upon the occurrence of certain events such as stock splits or combinations and stock or other distributions of assets to equity holders.

In August 2024, the Notes were extended for an additional year from their respective maturity dates.

In August 2025, Note A and Note C were amended and were extended through August 31, 2026 and Note B was amended and extended through October 1, 2025. The conversion options were amended on all of the Notes whereas the outstanding principal under the Notes and accrued and unpaid interest is convertible, at the sole discretion of the holders of the Notes, into shares of the Company’s common stock, par value $.001 per share, at a conversion price equal to the lower of $0.60 per share or an amount equal to 80% of the lowest price per share that the Company has sold shares of common stock in the last twelve-month period before the maturity date, provided, however that if no shares were sold during such twelve-month period, the conversion price shall be $0.60.

On September 9, 2025, in connection with the Amended Convertible Note Purchase Agreements dated August 23, 2025, the Company entered into a Convertible Promissory Note with an unrelated party in the principal amount of $100 thousand (“Note D”). The outstanding principal under Note D, which will accrue interest at a rate equal to twelve percent (12%) per annum, is due and payable in a single balloon payment by the Company on September 8, 2026, the maturity date of Note D. Accrued interest is to be paid monthly in cash beginning October 23, 2025. The Company has no right to prepay all or any portion of the outstanding principal under Note D prior to the Maturity Date. The outstanding principal under Note D and accrued and unpaid interest is convertible, at the sole discretion of the holders of Note D, into shares of the Company’s common stock, par value $.001 per share, at a conversion price equal to the lower of $0.60 per share or an amount equal to 80% of the lowest price per share that the Company has sold shares of common stock in the last twelve-month period before the maturity date, provided, however that if no shares were sold during such twelve-month period, the Conversion price shall be $0.60. The number of Conversion Shares issuable upon the conversion of Note D is subject to adjustment from time to time upon the occurrence of certain events such as stock splits or combinations and stock or other distributions of assets to equity holders.

At September 30, 2025 and 2024, total principal of $950 thousand and $850 thousand was outstanding, respectively. And total interest expense of $26 thousand and $26 thousand was recognized, respectively.

The fair value of the conversion feature upon issuance of the Notes was $765 thousand. The fair value of the conversion feature at September 30, 2025 and June 30, 2025 was $241 thousand and $509 thousand, respectively. As per ASC Topic 815, the embedded conversion option was bifurcated from the host contract and $132 thousand and $85 thousand was recorded as the host contract at September 30, 2025 and June 30, 2025, respectively. The fair value of the entire instrument is recorded as a level 3 financial instrument. See Note 1. The conversion option was valued by the Company using the Monte-Carlo model.

The following were the significant assumptions used in the Monte-Carlo model.

Expected

volatility

Risk-free

interest rate

Expected

dividend

yield

Expected life

(in years)

At September 1, 2023

68.2

4.87

2.00

The Company performed a debt modification analysis as per ASC Sub-topic 470-50 at September 30, 2025, for the amendments to the Notes in September and concluded that the change in conversion terms did not result in a substantial modification, therefore the total amount of the modification noted above was not considered a debt extinguishment. As per ASC Sub-topic 470-50, the modification was recognized as a part of the change in fair value of the derivative liability. See Note 7. The new fair value of the derivative liability was recorded as a level 3 financial instrument. See Note 1. The conversion option was valued by the Company using the Monte-Carlo model in September 2025 as follows:

Expected

volatility

Risk-free

interest rate

Expected

dividend

yield

Expected life

(in years)

At September 30, 2025

60.4

3.71

.92

VIP Play, Inc. 10-Q