|
Debt Issue Costs
|
●
|
The
Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not
or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the
statement of operations as amortization of debt discount.
|
|
|
|
|
|
Original Issue Discount
|
●
|
If debt is issued
with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the
note and is amortized over the life of the debt to the statement of operations as amortization of debt discount. If a conversion
of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
|
|
|
|
|
|
Valuation of Derivative Instruments
|
●
|
ASC 815 “Derivatives
and Hedging” requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative
instruments such as warrants, on their issuance date and measured at their fair value for accounting purposes. In determining
the appropriate fair value, the Company uses the Black-Scholes option pricing formula. Upon conversion of a note where the
embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares
at fair value, relieves all related notes, derivatives and debt discounts and recognizes a net gain or loss on debt extinguishment.
|
|
Income Per Share
|
●
|
Net
income per share data for both the years ending June 30, 2020 and 2019, is based on net
income available to common shareholders divided by the weighted average of the number
of common shares outstanding.
|
|
|
|
|
|
Impairment of Long-lived Assets
|
●
|
The
Company accounts for long-lived assets in accordance with the provisions of FASB Topic 360, Accounting for
the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. Fair values are determined based on
quoted market value, discounted cash flows or internal and external appraisals, as applicable.
During
the years ended June 30, 2020 and 2019, the Management determined and impaired $500,000 and $-0-, respectively as impairment
on intangible asset
|
|
|
|
|
|
|
|
ASC
350-50-05-01 states “ on accounting for costs incurred to develop a website, including whether to capitalize or
expense the following types of costs:
|
|
|
|
|
|
|
|
a)
|
Costs
incurred in the planning stage
|
|
|
|
b)
|
Costs incurred
in the website application and infrastructure development stage
|
|
|
|
c)
|
Costs incurred
to develop graphics
|
|
|
|
d)
|
Costs incurred
to develop content
|
|
|
|
e)
|
Costs incurred
in the operating stage.”
|
|
|
|
|
|
|
|
ASC
350-50-25-6 states “Costs incurred to purchase software tools, or costs incurred during the application development
stage for internally developed tools, shall be capitalized unless they are used in research and development and meet either
of the following conditions:
|
|
|
|
|
|
|
|
a)
|
They do not have
any alternative future uses.
|
|
|
|
b)
|
They are internally
developed and represent a pilot project or are being used in a specific research and development project (see paragraph 350-40-15-7).”
|
|
|
|
|
|
|
|
Further,
at ASC 350-50-25-7, “Costs to obtain and register an Internet domain shall be capitalized under Section 350-30-25.”
|
|
|
|
|
|
|
|
During
the years ended June 30, 2020 and 2019, the Management determined and capitalized $1,000,000 and $-0-, respectively, under
ASC 350-50 and accounted as an intangible asset and amortized the costs over the life of the relationship.
|
|
|
|
|
|
Derivative Financial Instruments
|
●
|
The
Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency
risks. The Company evaluates all of its financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair
value and then is revalued at each reporting date, with changes in fair value reported in the consolidated
statement of operations. For stock based derivative financial instruments, fair value accounting requires
bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity
instruments, and measurement of their fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt
instruments, management determines if the convertible debt host instrument is conventional convertible
debt and further if there is a beneficial conversion feature requiring measurement. If the instrument
is not considered conventional convertible debt, the Company will continue its evaluation process of
these instruments as derivative financial instruments.
Once
determined, derivative liabilities are adjusted to reflect fair value at the end of each reporting period. Any increase
or decrease in the fair value from inception is made quarterly and appears in results of operations as a change in fair
market value of derivative liabilities.
|
|
Restatement of Prior Financial
Information
|
|
Subsequent
to Form 10K for the year ended June 30, 2019 filing, during the interims review and based on such reviews, the following determinations
were made by the Company:
|
|
|
|
|
|
|
|
Error in Accounting
for Slotting and Set-up Fees
|
|
|
|
|
|
|
|
During our review,
we determined that the accounting treatment for the recognition of slotting fees and other fees paid or payable by the Company
to certain strategic partners was incorrect. Specifically, it has been determined that revenue relating to the slotting fee,
which was originally capitalized and amortized into expense over an 18-month period should instead be treated as a reduction
in revenue at the later of recognition of revenue for the transfer of the Nightfood product or when the Company pays or promised
to pay the slotting fee. In addition, certain fees related to platforms to launch our products and advertising efforts should
have been capitalized and recorded as an intangible asset. The Company previously recorded a portion of this fee as an intangible
asset – placement fee and expensed the remaining amount as advertising expense in the Period Ended December 31, 2019.
|
|
|
|
|
|
|
|
In accordance with
the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality (“SAB 99”) and Staff
Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (“SAB 108”), the Company has determined that the impact of adjustments relating
to the corrections of this accounting error are not material to previously issued annual audited and unaudited financial statements.
Accordingly, these changes are disclosed herein and will be disclosed prospectively.
|
|
|
As
of June 30, 2019 (A)
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Corrected
|
|
Consolidated
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
482,667
|
|
|
$
|
487,500
|
|
|
$
|
970,167
|
|
Current liabilities
|
|
$
|
2,955,272
|
|
|
$
|
223,333
|
|
|
$
|
3,178,605
|
|
Working capital
(deficit)
|
|
$
|
(2,472,605
|
)
|
|
$
|
264,167
|
|
|
$
|
(2,208,438
|
)
|
Total assets
|
|
$
|
482,667
|
|
|
$
|
487,500
|
|
|
$
|
970,167
|
|
Total liabilities
|
|
$
|
2,955,272
|
|
|
$
|
223,333
|
|
|
$
|
3,178,605
|
|
Total stockholders’
deficit
|
|
$
|
(2,472,605
|
)
|
|
$
|
264,167
|
|
|
$
|
(2,208,438
|
)
|
|
(A)
|
The
balance sheet impact of the errors was corrected in the quarter ended September 30, 2019.
|
|
|
As
of September 30, 2019
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Corrected
|
|
Consolidated
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
858,216
|
|
|
$
|
387,917
|
|
|
$
|
1,246,133
|
|
Current liabilities
|
|
$
|
3,287,252
|
|
|
$
|
1,151,666
|
|
|
$
|
4,438,918
|
|
Working capital
(deficit)
|
|
$
|
(2,429,036
|
)
|
|
$
|
(763,749
|
)
|
|
$
|
(3,192,785
|
)
|
Total assets
|
|
$
|
858,216
|
|
|
$
|
1,221,250
|
|
|
$
|
2,079,466
|
|
Total liabilities
|
|
$
|
3,287,252
|
|
|
$
|
1,151,666
|
|
|
$
|
4,438,918
|
|
Total stockholders’
deficit
|
|
$
|
(2,429,036
|
)
|
|
$
|
69,584
|
|
|
$
|
(2,359,452
|
)
|
|
|
As
of December 31, 2019
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Corrected
|
|
Consolidate
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
577,944
|
|
|
$
|
408,294
|
|
|
$
|
986,238
|
|
Current liabilities
|
|
$
|
4,514,446
|
|
|
$
|
249,007
|
|
|
$
|
4,763,453
|
|
Working capital
(deficit)
|
|
$
|
(3,936,502
|
)
|
|
$
|
159,287
|
|
|
$
|
(3,777,215
|
)
|
Total assets
|
|
$
|
1,550,298
|
|
|
$
|
102,607
|
|
|
$
|
1,652,905
|
|
Total liabilities
|
|
$
|
4,514,446
|
|
|
$
|
249,007
|
|
|
$
|
4,763,453
|
|
Total stockholders’
deficit
|
|
$
|
(2,964,148
|
)
|
|
$
|
(146,400
|
)
|
|
$
|
(3,110,548
|
)
|
|
|
For
the Year Ended June 30, 2019 (A)
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Corrected
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
352,172
|
|
|
$
|
-
|
|
|
$
|
352,172
|
|
Operating expenses
|
|
$
|
2,263,722
|
|
|
$
|
(264,167
|
)
|
|
$
|
1,999,555
|
|
Loss from operations
|
|
$
|
(1,911,550
|
)
|
|
$
|
264,167
|
|
|
$
|
(1,647,383
|
)
|
Other income (expenses)
|
|
$
|
2,686,793
|
|
|
$
|
-
|
|
|
$
|
2,686,793
|
|
Net income (loss)
|
|
$
|
(4,598,343
|
)
|
|
$
|
264,167
|
|
|
$
|
(4,334,176
|
)
|
Basic & diluted
EPS
|
|
$
|
(0.09
|
)
|
|
$
|
-
|
|
|
$
|
(0.09
|
)
|
|
(A)
|
The
income statement impact of the errors was corrected in the quarter ended September 30,
2019.
|
|
|
For
the Three Months Ended
September
30, 2019
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Corrected
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
206,497
|
|
|
$
|
(160,000
|
)
|
|
$
|
46,497
|
|
Operating expenses
|
|
$
|
570,858
|
|
|
$
|
(229,584
|
)
|
|
$
|
341,274
|
|
Loss from operations
|
|
$
|
(364,361
|
)
|
|
$
|
69,584
|
|
|
$
|
(294,777
|
)
|
Other income (expenses)
|
|
$
|
218,803
|
|
|
$
|
-
|
|
|
$
|
218,803
|
|
Net income (loss)
|
|
$
|
(583,164
|
)
|
|
$
|
69,584
|
|
|
$
|
(513,580
|
)
|
Basic & diluted
EPS
|
|
$
|
(0.01
|
)
|
|
$
|
-
|
|
|
$
|
(0.01
|
)
|
|
|
For
the Six Months Ended
December
31, 2019
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Corrected
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
379,488
|
|
|
$
|
(271,706
|
)
|
|
$
|
107,782
|
|
Operating expenses
|
|
$
|
1,326,290
|
|
|
$
|
(125,306
|
)
|
|
$
|
1,200,984
|
|
Loss from operations
|
|
$
|
(946,802
|
)
|
|
$
|
(146,400
|
)
|
|
$
|
(1,093,202
|
)
|
Other income (expenses)
|
|
$
|
557,320
|
|
|
$
|
-
|
|
|
$
|
557,320
|
|
Net income (loss)
|
|
$
|
(1,504,122
|
)
|
|
$
|
(146,400
|
)
|
|
$
|
(1,650,522
|
)
|
Basic & diluted
EPS
|
|
$
|
(0.02
|
)
|
|
$
|
-
|
|
|
$
|
(0.02
|
)
|
|
|
For
the Three Months Ended
December
31, 2019
|
|
|
|
Previously
Reported
|
|
|
Adjustments
|
|
|
As
Corrected
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
172,991
|
|
|
$
|
(111,706
|
)
|
|
$
|
61,285
|
|
Operating expenses
|
|
$
|
755,432
|
|
|
$
|
104,278
|
|
|
$
|
859,710
|
|
Loss from operations
|
|
$
|
(582,441
|
)
|
|
$
|
(215,984
|
)
|
|
$
|
(798,425
|
)
|
Other income (expenses)
|
|
$
|
338,517
|
|
|
$
|
-
|
|
|
$
|
338,517
|
|
Net income (loss)
|
|
$
|
(920,958
|
)
|
|
$
|
(215,984
|
)
|
|
$
|
(1,136,942
|
)
|
Basic & diluted
EPS
|
|
$
|
(0.02
|
)
|
|
$
|
-
|
|
|
$
|
(0.02
|
)
|
3.
|
Going Concern
|
●
|
The
Company’s financial statements are prepared using generally accepted accounting principles, which contemplate the realization
of assets and liquidation of liabilities in the normal course of business. Because the business is new and has
limited operating history and relatively few sales, no certainty of continuation can be stated.
|
|
|
●
|
The
accompanying consolidated financial statements have been prepared assuming the Company
will continue as a going concern. For the year ended June 30, 2020, the Company had a
net loss of $4,412,063, negative cash flow from operations of $1,531,084 and accumulated
deficit of $17,631,122. Management is taking steps to raise additional funds to address
its operating and financial cash requirements to continue operations in the next twelve
months. Management has devoted a significant amount of time in the raising of capital
from additional debt and equity financing. However, the Company’s ability to continue
as a going concern is dependent upon raising additional funds through debt and equity
financing and generating revenue. There are no assurances the Company will receive the
necessary funding or generate revenue necessary to fund operations.
|
|
|
|
The
Company has limited available cash resources and we do not believe our cash on hand will be adequate to satisfy our ongoing
working capital needs. The Company is continuing to raise capital through private placement of our common stock and through
the use of convertible notes to finance the Company’s operations, of which it can give no assurance of success. However,
the Company has a strong ongoing relationship with Eagle Equities and we expect to be able to continue to finance our operations
as we have over the previous several quarters, although no assurance can be guaranteed. We believe that our current capitalization
structure, combined with ongoing increases in revenues, will enable us to successfully secure required financing to continue
our growth. In the short term, the Company plans to continue to take advantage of convertible notes as a financing vehicle,
as it allows for today’s operating capital to be either repaid, or converted to equity at future valuations.
|
|
|
|
|
|
|
|
Because
the business is new and has limited operating history and sales, no certainty of continuation can be stated. Management has
devoted a significant amount of time in the raising of capital from additional debt and equity financing. However, the Company’s
ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating
revenue. There are no assurances the Company will receive the necessary funding or generate revenue necessary to fund operations.
|
|
|
|
|
|
|
|
Even
if the Company is successful in raising additional funds, the Company cannot give any
assurance that it will, in the future, be able to achieve a level of profitability from
the sale of its products to sustain its operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. The accompanying
financial statements do not include any adjustments to reflect the possible future effects
on recoverability and reclassification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Further,
we are subject to the continued impact of COVID-19, as further discussed below. See footnote
18.
|
4.
|
Accounts receivable
|
●
|
The
Company’s accounts receivable arise primarily from the sale of the Company’s snack products. On a periodic basis,
the Company evaluates each customer account and based on the days outstanding of the receivable, history of past write-offs,
collections, and current credit conditions, writes off accounts it considers uncollectible. With most of our retail and distribution
partners, invoices will typically be due in 30 days or less. The Company does not accrue interest on past due accounts and
the Company does not require collateral. Accounts become past due on an account-by-account basis. Determination that an account
is uncollectible is made after all reasonable collection efforts have been exhausted. The Company has not provided any sales
allowances for June 30, 2020 and 2019, respectively.
|
|
|
|
|
5.
|
Customer Concentrations
|
●
|
During the year
ended June 30, 2020, one customer accounted for greater than 10% of gross sales. As of June 30, 2020, the Company had receivables
due from seven customers, two of whom accounted for over 20% of the outstanding balance. Four of the other five accounted
for over 10% of the total balance. As of June 30, 2019, the Company had receivables due from six customers, three of whom
accounted for over 20% of the outstanding balance.
|
6.
|
Inventories
|
●
|
Inventories consists of the
following at June 30, 2020 and 2019.
|
|
|
2020
|
|
|
2019
|
|
Finished
Goods-bars
|
|
$
|
-
|
|
|
$
|
30,800
|
|
Finished Goods-ice
cream
|
|
|
195,817
|
|
|
|
346,229
|
|
Raw materials - ingredients
|
|
|
26,309
|
|
|
|
25,477
|
|
Packaging
|
|
|
53,479
|
|
|
|
3,933
|
|
TOTAL
|
|
$
|
275,605
|
|
|
$
|
406,439
|
|
|
|
|
Inventories
are stated at the lower of cost (FIFO) or net realizable value. The Company periodically
reviews the value of items in inventory and provides write-downs or write-offs of inventory
based on its assessment of market conditions and the products relative shelf life. Write-downs
and write-offs are charged to loss on inventory write down.
|
7.
|
Other
current assets
|
●
|
Other
current assets consist of the following vendor deposits at June 30, 2020 and 2019. The majority of this amount relates to
deposits towards distribution and marketing partnerships i.e. slotting fees.
|
|
|
June
30,
2020
|
|
|
June 30,
2019
|
|
Prepaid
advertising costs
|
|
$
|
398,045
|
|
|
$
|
-
|
|
Vendor
deposits – Other
|
|
$
|
40
|
|
|
$
|
1,000
|
|
TOTAL
|
|
$
|
398,085
|
|
|
$
|
1,000
|
|
Intangible
assets consist of the following at June 30, 2020 and 2019. The amount of the intangible assets represents fees and expenses in
connection with the development and launch of platforms used to track conversions, optimize ads, and scale online customer growth
through a hybrid distribution model.
|
|
June
30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Intangible
assets
|
|
$
|
1,000,000
|
|
|
$
|
-
|
|
Amortization of intangible
assets
|
|
|
(500,000
|
)
|
|
|
-
|
|
Impairment
of intangible assets
|
|
|
(500,000
|
)
|
|
|
|
|
TOTAL
|
|
$
|
-
|
|
|
$
|
-
|
|
During
the quarter ending March 31, 2020, the Company determined it would be unable to generate sufficient traction from these digital
assets. The Company made the decision to stop utilizing the assets and began conversations with the creditor about eliminating
the remaining debt associated with the assets which was successfully negotiated in April 2020. As of the time of this filing,
the balance sheet remains unchanged, as this successful renegotiation is conditional upon payment being completed prior to December
1, 2020, which would result in the elimination of $731,118 in total debt should payment be made totaling $166,224 in cash and
approximately 4,000 pints of Nightfood ice cream. Should the Company make said payments and retire the debt prior to December
1, 2020, the Company would realize a Gain on Extinguishment of Debt of approximately $560,000. Because this reduction in debt
is conditional, the full $731,118.33 is currently included in the liabilities section of our balance sheet.
9.
|
Other Current Liabilities
|
●
|
Other current liabilities
consist of the following at June 30, 2020 and 2019.
|
|
|
2020
|
|
|
2019
|
|
Accrued
consulting fees – related party
|
|
$
|
9,974
|
|
|
$
|
33,974
|
|
Accrued
interest
|
|
|
192,625
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
202,599
|
|
|
$
|
33,974
|
|
10.
|
Convertible Notes Payable
|
●
|
Convertible
Notes Payable consist of the following at June 30, 2020 and 2019.
|
|
|
|
On
April 30, 2018, the Company entered into a convertible promissory note and a security purchase agreement
dated April 30, 2018, in the amount of $225,000. The lender was Eagle Equities, LLC. The notes have
a maturity of April 30, 2019 and interest rate of 8% per annum and are convertible at a price of 60%
of the lowest closing bid price on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid,
but carries a penalty in association with the remittance amount, as there is an accretion component
to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation
under ASC 815, “Derivatives and Hedging.” The fair value of the $225,000 Notes was calculated
using the Black-Scholes pricing model at $287,174, with the following assumptions: risk-free interest
rate of 2.24%, expected life of 1 year, volatility of 202%, and expected dividend yield of zero. Because
the fair value of the note exceeded the net proceeds from the $225k Notes, a charge was recorded to
“Financing cost” for the excess of the fair value of the note, for a net charge of $62,174.
As of June 30, 2020 and 2019, the debt discount was $0.
On
June 5, 2018, the Company received cash in conjunction with a convertible promissory note and Securities Purchase Agreement
dated June 5, 2018. The note was in the amount of in the amount of $210,000. The lender was Eagle Equities, LLC. The notes
have a maturity of June 6, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen
(15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with
the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies
for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the
$210,000 Notes was calculated using the Black-Scholes pricing model at $265,498, with the following assumptions: risk-free
interest rate of 2.09%, expected life of 1 year, volatility of 200%, and expected dividend yield of zero. Because the
fair value of the note exceeded the net proceeds from the $210k Notes, a charge was recorded to “Financing cost”
for the excess of the fair value of the note, for a net charge of $55,498. As of June 30, 2020, and 2019, the debt discount
was $0. This note has been successfully retired via conversions into shares during the year ended June 30, 2020. The Company
fair valued the notes as of conversion date and accounted for a loss on conversion of $180,755 included under line item
“Loss on debt extinguishment upon note conversion, net”.
On
July 2, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated July 12,
2018, in the amount of $207,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 12, 2019 and interest
rate of 8% per annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market
on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion.
The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component
to satisfy the note with cash The convertible note qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $207,000 Notes was calculated using the Black-Scholes pricing
model at $257,842, with the following assumptions: risk-free interest rate of 2.59%, expected life of 1 year, volatility
of 183%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $207k
Notes, a charge was recorded to “Financing cost” for the excess of the fair value of the note, for a net charge
of $50,842. As of June 30, 2020, and 2019, the debt discount was $0 and $1,134, respectively.
|
|
|
|
This
note has been successfully retired via conversions into shares during the year ended June 30, 2020. The Company fair valued
the notes as of conversion date and accounted for a loss on conversion of $73,760 included under line item “Loss on debt extinguishment upon note conversion, net”.
|
|
|
|
|
|
|
|
On
November 16, 2018, the Company entered into a convertible promissory note and a security purchase
agreement dated November 16, 2018, in the amount of $130,000. The lender was Eagle Equities,
LLC. The notes have a maturity of November 16, 2019 and interest rate of 8% per annum and
are convertible at a price of 65% of the lowest closing bid price on the primary trading market
on which the Company’s Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $130,000 Notes was calculated using the Black-Scholes
pricing model at $131,898, with the following assumptions: risk-free interest rate of 2.71%,
expected life of 1 year, volatility of 150%, and expected dividend yield of zero. Because
the fair value of the note exceeded the net proceeds from the $130k Notes, a charge was recorded
to “Financing cost” for the excess of the fair value of the note, for a net charge
of $1,898. As of June 30, 2020, and 2019, the debt discount was $0 and $48,795, respectively.
|
|
|
|
|
|
|
|
This note has been
successfully retired via conversions into shares during the year ended June 30, 2020. The Company fair valued the notes as
of conversion date and accounted for a loss on conversion of $19,845 included under line item “Loss on debt extinguishment upon note conversion, net”.
|
|
|
|
|
|
|
|
On
December 18, 2018, the Company entered into a convertible promissory note and a security purchase
agreement dated December 18, 2018, in the amount of $130,000. The lender was Eagle Equities,
LLC. The notes have a maturity of December 18, 2019 and interest rate of 8% per annum and
are convertible at a price of 65% of the lowest closing bid price on the primary trading market
on which the Company’s Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $130,000 Notes was calculated using the Black-Scholes
pricing model at $128,976, with the following assumptions: risk-free interest rate of 2.64%,
expected life of 1 year, volatility of 144%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the $130k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note.
As of June 30, 2020, and 2019, the debt discount was $0 and $60,425, respectively.
|
|
|
|
|
|
|
|
This note has been
successfully retired via conversions into shares during the year ended June 30, 2020. The Company fair valued the notes as
of conversion date and accounted for a loss on conversion of $36,927 included under line item “Loss on debt extinguishment upon note conversion, net”.
|
|
|
|
On
January 28, 2019, the Company entered into a convertible promissory note and a security
purchase agreement dated January 28, 2019, in the amount of $234,000. The lender was
Eagle Equities, LLC. The notes have a maturity of January 28, 2020 and interest rate
of 8% per annum and are convertible at a price of 65% of the lowest closing bid price
on the primary trading market on which the Company’s Common Stock is then listed
for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid,
but carries a penalty in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The
fair value of the $234,000 Notes was calculated using the Black-Scholes pricing model
at $226,452, with the following assumptions: risk-free interest rate of 2.60%, expected
life of 1 year, volatility of 135%, and expected dividend yield of zero. Because the
fair value of the note did not exceed the net proceeds from the $234k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the
note. As of June 30, 2020, and 2019, the debt discount was $0 and $131,528, respectively.
|
|
|
|
|
|
|
|
This note has been
successfully retired via conversions into shares during the year ended June 30, 2020. The Company fair valued the notes as
of conversion date and accounted for a loss on conversion of $80,394 included under line item “Loss on debt extinguishment upon note conversion, net”.
|
|
|
|
|
|
|
|
On
February 14, 2019, the Company entered into a convertible promissory note and a security purchase
agreement dated February 14, 2019, in the amount of $104,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 14, 2020 and interest rate of 8% per annum and
are convertible at a price of 70% of the lowest closing bid price on the primary trading market
on which the Company’s Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $104,000 Notes was calculated using the Black-Scholes
pricing model at $90,567, with the following assumptions: risk-free interest rate of 2.53%,
expected life of 1 year, volatility of 136%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the $104k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note.
As of June 30, 2020, and 2019, the debt discount was $0 and $56,821, respectively. $50,000
of the note has been successfully retired via conversion into shares during the year ended
June 30, 2020. The Company fair valued the notes as of conversion date and accounted for a
loss on conversion of $4,098 included under line item “Loss on debt extinguishment upon note conversion, net”.
|
|
|
|
|
|
|
|
On
April 29, 2019, the Company entered into a convertible promissory note and a security purchase
agreement dated April 29, 2019, in the amount of $208,000. The lender was Eagle Equities,
LLC. The notes have a maturity of April 29, 2020 and interest rate of 8% per annum and are
convertible at a price of 70% of the lowest closing bid price on the primary trading market
on which the Company’s Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $208,000 Notes was calculated using the Black-Scholes
pricing model at $170,098, with the following assumptions: risk-free interest rate of 2.42%,
expected life of 1 year, volatility of 118%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the 208k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note.
As of June 30, 2020, and 2019, the debt discount was $0 and $141,204, respectively
|
|
|
|
On June
11, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated June 11, 2019, in
the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 11, 2020 and interest rate of
8% per annum and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which
the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $240,217,
with the following assumptions: risk-free interest rate of 2.05%, expected life of 1 year, volatility of 16%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note. As of June 30, 2020, and 2019,
the debt discount was $0 and $227,713, respectively.
|
|
|
|
|
|
|
|
On July 5, 2019,
the Company entered into a convertible promissory note and a security purchase agreement dated July 5, 2019, in the amount
of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 5, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.”
The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $239,759, with the following
assumptions: risk-free interest rate of 1.98%, expected life of 1 year, volatility of 118%, and expected dividend yield of
zero. Because the fair value of the note did not exceed the net proceeds from the 300k Notes, no charge was recorded to “Financing
cost” for the excess of the fair value of the note. As of June 30, 2020, the debt discount was $2,627.
|
|
|
|
|
|
|
|
On August 8, 2019,
the Company entered into a convertible promissory note and a security purchase agreement dated August 8, 2019, in the amount
of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 8, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.”
The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $254,082, with the following
assumptions: risk-free interest rate of 1.79%, expected life of 1 year, volatility of 113%, and expected dividend yield of
zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded to “Financing
cost” for the excess of the fair value of the note. As of June 30, 2020, the debt discount was $26,452.
|
|
|
|
|
|
|
|
On August 29, 2019,
the Company entered into a convertible promissory note and a security purchase agreement dated August 29, 2019, in the amount
of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 29, 2020 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.”
The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $234,052, with the following
assumptions: risk-free interest rate of 1.75%, expected life of 1 year, volatility of 113%, and expected dividend yield of
zero. Because the fair value of the note did not exceed the net proceeds from the $300,000 Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note. As of June 30, 2020, the debt discount was $37,833.
|
|
|
|
|
|
|
|
On September 24,
2019, the Company entered into a convertible promissory note and a security purchase agreement dated September 24, 2019, in
the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of September 24, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which
the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $118,009,
with the following assumptions: risk-free interest rate of 1.78%, expected life of 1 year, volatility of 113%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note. As of June 30, 2020, the debt discount
was $27,482.
|
|
|
|
On November 7, 2019,
the Company entered into a convertible promissory note and a security purchase agreement dated November 7, 2019, in the amount
of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 7, 2020 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.”
The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $121,875, with the following
assumptions: risk-free interest rate of 1.58%, expected life of 1 year, volatility of 122%, and expected dividend yield of
zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge was recorded to “Financing
cost” for the excess of the fair value of the note. As of June 30, 2020, the debt discount was $43,074.
|
|
|
|
|
|
|
|
On December
31, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated December 31, 2019,
in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 31, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on
which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The
note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to
satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $189,172,
with the following assumptions: risk-free interest rate of 1.59%, expected life of 1 year, volatility of 115%, and expected
dividend yield of zero. Because the fair value of the note exceed the net proceeds from the $150k Notes, $39,172 was recorded
to “Financing cost” for the excess of the fair value of the note. As of June 30, 2020, the debt discount was $75,205.
|
|
|
|
|
|
|
|
On February 6, 2020,
the Company entered into a convertible promissory note and a security purchase agreement dated February 6, 2020, in the amount
of $200,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.”
The fair value of the $200,000 Notes was calculated using the Black-Scholes pricing model at $156,061, with the following
assumptions: risk-free interest rate of 1.51%, expected life of 1 year, volatility of 113%, and expected dividend yield of
zero. As of June 30, 2020, the debt discount was $94,064.
|
|
|
|
|
|
|
|
On February 26,
2020, the Company entered into a convertible promissory note and a security purchase agreement dated February 26, 2020, in
the amount of $187,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest closing bid price on the primary trading market on which
the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $187,000 Notes was calculated using the Black-Scholes pricing model at $150,268,
with the following assumptions: risk-free interest rate of 1.18%, expected life of 1 year, volatility of 118%, and expected
dividend yield of zero. As of June 30, 2020, the debt discount was $99,218.
|
|
|
|
On April
30, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated April 30, 2020, in
the amount of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at
the time of valuation. The lender was Eagle Equities, LLC. The notes have a maturity of April 30, 2021 and interest rate of
8% per annum and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which
the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $128,369,
with the following assumptions: risk-free interest rate of 0.16%, expected life of 1 year, volatility of 106%, and expected
dividend yield of zero. As of June 30, 2020, the debt discount was $106,916.
|
|
|
|
|
|
|
|
On June 23, 2020,
the Company entered into a convertible promissory note and a security purchase agreement dated June 23, 2020, in the amount
of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of
valuation. The lender was Eagle Equities, LLC. The notes have a maturity of June 23, 2021 and interest rate of 8% per annum
and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash.
The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.”
The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $132,236, with the following
assumptions: risk-free interest rate of 0.18%, expected life of 1 year, volatility of 108%, and expected dividend yield of
zero. As of June 30, 2020, the debt discount was $129,700.
|
|
|
|
Below
is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of June 30, 2020:
|
|
|
Principal
($)
|
|
|
Debt
Discount ($)
|
|
|
Net
Value
($)
|
|
Balance
at June 30, 2018
|
|
|
1,576,024
|
|
|
|
(942,154
|
)
|
|
|
633,870
|
|
Convertible
notes payable issued during fiscal year ended June 30, 2019
|
|
|
1,602,005
|
|
|
|
-
|
|
|
|
1,602,005
|
|
Note
paid
|
|
|
(102,076
|
)
|
|
|
-
|
|
|
|
(102,076
|
)
|
Notes
converted into shares of common stock
|
|
|
(1,327,953
|
)
|
|
|
-
|
|
|
|
(1,327,953
|
)
|
Debt
discount associated with new convertible notes
|
|
|
-
|
|
|
|
(1,482,314
|
)
|
|
|
(1,482,314
|
)
|
Amortization
of debt discount
|
|
|
-
|
|
|
|
1,794,209
|
|
|
|
1,794,209
|
|
Balance at June 30,
2019
|
|
|
1,748,000
|
|
|
|
(630,259
|
)
|
|
|
1,117,741
|
|
Convertible
notes payable issued during fiscal year ended June 30, 2020
|
|
|
2,148,400
|
|
|
|
-
|
|
|
|
2,148,400
|
|
Notes
converted into shares of common stock
|
|
|
(961,000
|
)
|
|
|
-
|
|
|
|
(961,000
|
)
|
Debt
discount associated with new convertible notes
|
|
|
-
|
|
|
|
(1,684,711
|
)
|
|
|
(1,684,711
|
)
|
Amortization
of debt discount
|
|
|
-
|
|
|
|
1,709,759
|
|
|
|
1,709,759
|
|
Balance at June 30,
2020
|
|
|
2,935,400
|
|
|
|
(605,211
|
)
|
|
|
2,330,189
|
|
11.
|
Derivative Liability
|
|
Due
to the variable conversion price associated with some of these convertible promissory notes disclosed in Note 8 above, the
Company has determined that the conversion feature is considered a derivative liability for instruments which are convertible
and have not yet been settled. The accounting treatment of derivative financial instruments requires that the Company record
the fair value of the derivatives on the date they are deemed to be derivative liabilities.
|
|
|
|
During
the year ended June 30, 2020, the Company recorded a gain in fair value of derivative liability of $858,774. The Company will
measure the fair value of each derivative instrument in future reporting periods and record a gain or loss based on the change
in fair value.
|
|
|
|
|
|
|
|
Below is a reconciliation
of the derivative liability as presented on the Company’s balance sheet as of June 30, 2020:
|
Derivative liability as of
June 30, 2018
|
|
$
|
1,765,187
|
|
Initial derivative
liability accounted for convertible notes payable issued during the period ended June 30, 2019
|
|
|
1,565,535
|
|
Change in derivative
liability during the period
|
|
|
712,627
|
|
Reclassify derivative
liability associated with Notes converted
|
|
|
(2,736,601
|
)
|
Derivative liability as of June 30, 2019
|
|
$
|
1,306,748
|
|
Initial
derivative liability accounted for convertible notes payable issued during the period ended June 30, 2020
|
|
|
1,723,883
|
|
Change in derivative
liability during the period
|
|
|
(858,774
|
)
|
Reclassify derivative
liability associated with Notes converted
|
|
|
(581,219
|
)
|
Balance at June 30, 2020
|
|
$
|
1,590,638
|
|
12.
|
Line of Credit
|
|
On March
19, 2020, the Company secured a $200,000 line of credit with Celtic Bank Corporation. This LOC has a “Flex Credit”
component of calculating interest, which means the interest rate on any draws taken against the LOC is set at the time of
said draw. As of the date of this filing, the Company has made one draw against the credit line for a gross amount of $5,000
(including proceeds and draw fees). Three payments have been made against this draw of approximately $368 each. Such payments
will continue to be automatically deducted from the corporate checking account until the draw and all fees have been paid
in full. The Company may or may not choose to use this line of credit for additional financing needs.
|
|
|
June
30,
2020
|
|
|
June
30,
2019
|
|
Line
of Credit
|
|
$
|
3,897
|
|
|
$
|
0
|
|
Total borrowings
|
|
|
3,897
|
|
|
|
0
|
|
Less:
current portion
|
|
|
3,897
|
|
|
|
0
|
|
Long
term debt
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
Interest
expense for the years ended June 30, 2020 and 2019, totaled $463 and $0, respectively.
|
13.
|
Stockholders’ Deficit
|
●
|
On October
16, 2013, the Nightfood, Inc. became a wholly-owned subsidiary of Nightfood Holdings, Inc. Accordingly, the stockholders’
equity has been revised to reflect the share exchange on a retroactive basis.
|
|
|
●
|
The
Company is authorized to issue Two Hundred Million (200,000,000) shares of $0.001 par value per share
Common Stock. Holders of Common Stock are each entitled to cast one vote for each Share held of record
on all matters presented to shareholders. Cumulative voting is not allowed; hence, the holders of a
majority of the outstanding Common Stock can elect all directors. Holders of Common Stock are entitled
to receive such dividends as may be declared by the Board of Directors out of funds legally available
therefore and, in the event of liquidation, to share pro-rata in any distribution of the Company’s
assets after payment of liabilities. The Board of Directors is not obligated to declare a dividend
and it is not anticipated that dividends will be paid unless and until the Company is profitable. Holders
of Common Stock do not have pre-emptive rights to subscribe to additional shares if issued by the Company.
There are no conversion, redemption, sinking fund or similar provisions regarding the Common Stock.
All of the outstanding Shares of Common Stock are fully paid and non-assessable and all of the Shares
of Common Stock offered thereby will be, upon issuance, fully paid and non-assessable. Holders of Shares
of Common Stock will have full rights to vote on all matters brought before shareholders for their
approval, subject to preferential rights of holders of any series of Preferred Stock. Holders of the
Common Stock will be entitled to receive dividends, if and as declared by the Board of Directors, out
of funds legally available, and share pro-rata in any distributions to holders of Common Stock upon
liquidation. The holders of Common Stock will have no conversion, pre-emptive or other subscription
rights. Upon any liquidation, dissolution or winding-up of the Company, assets, after the payment of
debts and liabilities and any liquidation preferences of, and unpaid dividends on, any class of preferred
stock then outstanding, will be distributed pro-rata to the holders of the common stock. The holders
of the common stock have no right to require the Company to redeem or purchase their shares. Holders
of shares of common stock do not have cumulative voting rights, which means that the holders of more
than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors
to be elected, if they so choose, and, in that event, the holders of the remaining shares will not
be able to elect any of our directors.
The
Company had 61,796,680 and 53,773,856 shares of its $0.001 par value common stock issued and outstanding as of June 30,
2020 and 2019 respectively.
|
|
During
the year ended June 30, 2020:
|
|
●
|
The
Company issued 1,385,990 shares of common stock for services with a fair value of $308,768
|
|
|
|
|
●
|
and
issued 580,666 shares of common stock in consideration of interest payments with a fair value of $88,762
|
|
|
|
|
●
|
and
issued 6,056,168 shares of common stock as consideration for convertible debt with a fair value of $961,000.
|
|
During
the year ended June 30, 2019:
|
|
●
|
the
Company sold 84,389 shares of common stock for cash proceeds of $50,000,
|
|
|
|
|
●
|
and
issued 483,808 shares of common stock for services with a fair value of $345,656,
|
|
|
|
|
●
|
and
issued 281,957 shares of common stock for payment of certain accounts payable liabilities with a fair value of $63,850,
|
|
|
|
|
●
|
and
issued 400,000 shares of common stock for the exercise of warrants valued at $120,000,
|
|
|
|
|
●
|
and
issued 667,959 shares of common stock in consideration of interest payments with a fair value of $95,805,
|
|
|
|
|
●
|
and
issued 9,247,414 shares of common stock as consideration for convertible debt with a
fair value of $1,327,953.
During
the years ended June 30, 2020 and 2019, the Company recorded a Loss on fair value of
shares issued upon notes conversion of $977,000 and $2,736,601, respectively.
|
|
|
Preferred
Stock
On
July 9th 2018 the Company was authorized to issue One Million (1,000,000) shares of $0.001 par value per share
Preferred Stock. Of the 1,000,000 shares 10,000 shares are designated as Series A preferred Stock Holders of Common Stock
are each entitled to cast 100,000 votes for each Share held of record on all matters presented to shareholders.
In
addition to his ownership of the common stock, Mr. Folkson owns 1,000 shares of our Series A Preferred Stock (“A
Stock”) which votes with the common stock and has an aggregate of 100,000,000 votes.
Dividends
|
|
|
|
|
|
●
|
The Company has never declared
dividends.
|
|
|
●
|
The
following is a summary of the Company’s outstanding common stock purchase warrants. A portion of the 500,000 warrants
shown below at an exercise price of $.15 have not yet vested. These warrants were issued as compensation for a four-year
advisory agreement. 150,000 warrants vested on July 24, 2018, another 150,000 on July 24, 2019, another would vest 150,000
on July 24, 2020, and the remaining 50,000 on July 24, 2021, should advisor complete the term of his engagement.
The
aggregate intrinsic value of the warrants as of June 30, 2020 is $28,025. The aggregate intrinsic value of the warrants
as of June 30, 2019 was $318,450.
|
|
|
|
Outstanding
at
|
|
|
Issued
/
|
|
|
|
|
|
Outstanding
|
|
Exercise Price
|
|
|
June
30,
2018
|
|
|
(exercised) in
2019
|
|
|
Expired
|
|
|
June
30,
2019
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
|
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.20
|
|
|
|
105,000
|
|
|
|
|
|
|
|
-
|
|
|
|
105,000
|
|
$
|
0.30
|
|
|
|
500,000
|
|
|
|
(400,000
|
)
|
|
|
-
|
|
|
|
100,000
|
|
$
|
0.40
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
150,000
|
|
$
|
0.75
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
1,405,000
|
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
1,155,000
|
|
|
|
|
Outstanding
at
|
|
|
Issued
/
|
|
|
|
|
|
Outstanding
|
|
Exercise Price
|
|
|
June
30,
2019
|
|
|
(exercised) in
2020
|
|
|
Expired
|
|
|
June
30,
2020
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
|
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.20
|
|
|
|
105,000
|
|
|
|
|
|
|
|
-
|
|
|
|
105,000
|
|
$
|
0.30
|
|
|
|
100,000
|
|
|
|
|
|
|
|
-
|
|
|
|
100,000
|
|
$
|
0.40
|
|
|
|
150,000
|
|
|
|
|
|
|
|
-
|
|
|
|
150,000
|
|
$
|
0.75
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
1,155,000
|
|
|
|
|
|
|
|
-
|
|
|
|
1,155,000
|
|
|
|
Options
|
|
|
|
|
|
●
|
The Company has never issued
options.
|
14.
|
Related Party Transactions
|
●
|
During
the third quarter 2015, Mr. Folkson began accruing a consulting fee of $6,000 per month which the aggregate of $72,000 and
$72,000 is reflected in professional fees and presented in the accrued expenses – related party for 2020 and 2019 respectively.
|
|
|
●
|
The
original consulting Agreement for Mr. Folkson had a term of one year, and then converted into a month to month agreement effective
January 1, 2016. A new twelve month consulting agreement was entered into for Mr. Folkson effective July 1, 2019, which paid
Folkson the same $6,000 monthly consulting fee. In addition, the Company made bonuses available to Folkson upon the Company
hitting certain revenue milestones of $1,000,000 in a quarter and $3,000,000 in a quarter. Achieving those milestones would
earn Folkson warrants with a $.50 and $1 strike price which would need to be exercised within 90 days of the respective quarterly
or annual filing.
|
15.
|
Income Tax
|
A reconciliation
of the statutory income tax rates and the Company’s effective tax rate is as follows:
|
|
|
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Statutory U.S. federal rate
|
|
|
(21.00
|
)%
|
|
|
(21.00
|
)%
|
Effect of higher U.S. Federal statutory tax
rate
|
|
|
-
|
%
|
|
|
-
|
%
|
State income taxes (net of federal tax benefit)
|
|
|
(7.00
|
)%
|
|
|
(7.00
|
)%
|
Permanent differences
|
|
|
7.10
|
%
|
|
|
6.70
|
%
|
Valuation allowance
|
|
|
(20.9
|
)%
|
|
|
(21.3
|
)%
|
True up of net operating loss
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
The
tax effects of the temporary differences and carry forwards that give rise to deferred tax assets consist of the following:
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
$
|
1,460,670
|
|
|
|
1,155,359
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(1,460,670
|
)
|
|
|
(1,155,359
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
At
June 30, 2020 the Company had estimated U.S. federal net operating losses of approximately $7,358,518
for income tax purposes. $2,614,000 will expire between 2031 and 2037 while the balance of the tax
operating loss can be carried forward indefinitely. For financial reporting purposes, the entire amount
of the net deferred tax assets has been offset by a valuation allowance due to uncertainty regarding
the realization of the assets. The net change in the total valuation allowance for the year ended June
30, 2020 was an increase of $398,550. The Company follows FASC 740-10-25 P which requires a company
to evaluate whether a tax position taken by the company will “more likely than not” be
sustained upon examination by the appropriate tax authority. The Company has analyzed filing positions
in all of the federal and state jurisdictions where it is required to file income tax returns, as well
as all open tax years in these jurisdictions. The Company believes that its income tax filing positions
and deductions would be sustained on audit and does not anticipate any adjustments that would result
in a material change to its financial position. Therefore, no reserves for uncertain income tax positions
have been recorded.
|
|
|
The
Company may not be able to utilize the net operating loss carryforwards for its US income taxes in
future periods should it experience a change in ownership as defined in Section 382 of the Internal
Revenue Code (“IRC”). Under section 382, should the Company experience a more than 50%
change in its ownership over a 3 year period, the Company would be limited based on a formula as defined
in the IRC to the amount per year it could utilize in that year of the net operating loss carryforwards.
As
of June 30, 2020 the Company had not performed an analysis to determine if the Company was subject to the provisions of Section
382. The Company is subject to U.S. federal income tax including state and local jurisdictions. Currently, no federal or state
income tax returns are under examination by the respective taxing jurisdictions.
The
Company’s accounting policy is to recognize interest and penalties related to uncertain tax positions in income tax expense.
The Company has not accrued interest for any periods.
The
Company has not filed its federal and state income tax returns for the fiscal years ended June 30, 2020, 2019, 2018, June 30,
2017 and 2016 respectively, however it believes due to the reported losses there is no material liability outstanding.
|
16.
|
Fair Value of Financial
Instruments
|
Cash
and Equivalents, Receivables, Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities.
|
|
|
|
|
|
The carrying
amounts of these items approximated fair value.
|
|
|
|
|
|
Fair value is defined
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards
Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).
|
|
|
|
|
|
Level 1—Valuations
based on quoted prices for identical assets and liabilities in active markets.
|
|
|
|
|
|
Level 2—Valuations
based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other
inputs that are observable or can be corroborated by observable market data.
|
|
|
|
|
|
Level 3—Valuations
based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other
market participants. These valuations require significant judgment.
|
|
|
|
|
|
The application
of the three levels of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:
|
|
|
Fiscal
2020 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
and long-term debt
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
2,935,400
|
|
|
$
|
2,935,400
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
2,935,400
|
|
|
$
|
2,935,400
|
|
|
|
Fiscal
2019 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
and long-term debt
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,748,000
|
|
|
$
|
1,748,000
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,748,000
|
|
|
$
|
1,748,000
|
|
|
|
Fiscal
2020 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,590,638
|
|
|
$
|
1,590,638
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,590,638
|
|
|
$
|
1,590,638
|
|
|
|
Fiscal
2019 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,306,748
|
|
|
$
|
1,306,748
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,306,748
|
|
|
$
|
1,306,748
|
|
Management
considers all of its derivative liabilities to be Level 3 liabilities. At June 30, 2020 and 2019, respectively the Company
had outstanding derivative liabilities, including those from related parties of $1,590,638 and $1,306,748, respectively.
17.
|
Net Loss
per Share of Common Stock
|
●
|
The
Company has adopted FASB Topic 260, “Earnings per Share,” which requires presentation of
basic and diluted EPS on the face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. In the accompanying financial statements,
basic loss per share of common stock is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the year. Basic net loss per common share is based upon
the weighted average number of common shares outstanding during the period. Dilution is computed by
applying the treasury stock method. Under this method, options and warrants are assumed to be exercised
at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby
were used to purchase common stock at the average market price during the period.
Convertible
debt that is convertible into 24,638,241 and 8,538,462 shares of the Company’s common stock are not included in
the computation for the fiscal years ended June 30, 2020 and 2019, respectively. Additionally, there are 1,155,000 and
1,155,000 warrants that are exercisable into shares of stock as of June 30, 2020 and June 30, 2019, respectively.
|
|
|
2020
|
|
|
2019
|
|
Numerator
- basic and diluted loss per share net loss
|
|
$
|
(4,412,063
|
)
|
|
$
|
(4,598,343
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available
to common stockholders
|
|
$
|
(4,412,063
|
)
|
|
$
|
(4,598,343
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
– basic and diluted loss per share – weighted average common shares outstanding
|
|
|
57,443,347
|
|
|
|
47,827,114
|
|
Basic and diluted earnings
per share
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
18.
|
Commitments and Contingencies
|
●
|
As of
June 30, 2020 and 2019, the Company has no material commitments or contingencies.
|
|
|
|
|
|
|
●
|
Litigation: From
time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. We are not aware of any such legal proceedings that we believe will have, individually
or in the aggregate, a material adverse effect on our business, financial condition or operating results.
|
|
|
|
|
|
|
●
|
Coronavirus (COVID-19):
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic which continues to
spread throughout the U.S. and the globe. In addition to the devastating effects on human life, the pandemic is having a negative
ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states
and many countries have issued policies intended to stop or slow the further spread of the disease such as issuing temporary
Executive Orders that, among other stipulations, effectively prohibit in-person work activities for most industries and businesses,
having the effect of suspending or severely curtailing operations. COVID-19 and the U.S’s response to the pandemic are
significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic
may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. The extent of the
ultimate impact of the pandemic on the Company’s operational and financial performance will depend on various developments,
including the duration and spread of the outbreak, which cannot be reasonably predicted at this time. Accordingly, while management
reasonably expects the COVID-19 outbreak to negatively impact the Company, the related consequences and duration are highly
uncertain and cannot be predicted at this time.
|
19.
|
Subsequent Events
|
●
|
Subsequent
to the end of the Fiscal Year, noteholder Eagle Equities converted $347,000 of principal and $36,448.23 of interest of outstanding
notes to stock. The average conversion price in these transactions was $.117. 3,288,917 shares were issued to the noteholder
in these transactions.
|
|
|
|
|
|
|
●
|
On August 12, 2020
the Company entered into a convertible promissory note and security purchase agreement dated and funded August 12, 2020, in
the amount of $205,700. The lender was Eagle Equities, LLC.
|
|
|
|
|
|
|
●
|
On October 13, 2020 the Company entered into a convertible promissory
note and security purchase agreement dated and funded October 13, 2020, in the amount of $205,700. The lender was Eagle Equities,
LLC.
|
Nightfood Holdings, Inc.
Financial Statements
For the three and nine months ended March 31, 2021
and 2020
Nightfood Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
ASSETS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
73,181
|
|
|
$
|
197,622
|
|
Accounts receivable (net of allowance of $0 and $0, respectively)
|
|
|
44,033
|
|
|
|
61,013
|
|
Inventory
|
|
|
344,914
|
|
|
|
275,605
|
|
Other current asset
|
|
|
251,752
|
|
|
|
398,085
|
|
Total current assets
|
|
|
713,880
|
|
|
|
932,325
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
723,880
|
|
|
$
|
932,325
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,393,256
|
|
|
$
|
1,286,149
|
|
Accrued expense - related party
|
|
|
9,974
|
|
|
|
9,974
|
|
Fair value of derivative liabilities
|
|
|
1,312,177
|
|
|
|
1,590,638
|
|
Convertible notes payable - net of discounts
|
|
|
2,077,852
|
|
|
|
2,330,189
|
|
Accrued expenses
|
|
|
72,044
|
|
|
|
-
|
|
Accrued interest
|
|
|
209,161
|
|
|
|
192,625
|
|
Short-term borrowings- line of credit
|
|
|
589
|
|
|
|
3,897
|
|
Total current liabilities
|
|
|
5,075,053
|
|
|
|
5,413,472
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Preferred
stock, ($0.001 par value, 100,000,000 shares authorized, and 1,000 issued and outstanding as of
March 31, 2021 and 1,000
outstanding as of June 30, 2020, respectively)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Common
stock, without par value, 200,000,000 shares authorized, and 78,685,171 issued and outstanding as of March 31, 2021 and 61,796,680
outstanding as of June 30, 2020, respectively
|
|
|
78,685
|
|
|
|
61,797
|
|
Additional paid in capital
|
|
|
16,683,505
|
|
|
|
13,088,177
|
|
Accumulated deficit
|
|
|
(21,084,364
|
)
|
|
|
(17,631,122
|
)
|
Total stockholders’ deficit
|
|
|
(4,342,173
|
)
|
|
|
(4,481,147
|
)
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
713,880
|
|
|
$
|
932,325
|
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
three months
|
|
|
three months
|
|
|
nine months
|
|
|
nine months
|
|
|
|
period ended
|
|
|
period ended
|
|
|
period ended
|
|
|
period ended
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
96,726
|
|
|
|
119,475
|
|
|
|
270,919
|
|
|
|
227,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sold
|
|
|
102,922
|
|
|
|
157,265
|
|
|
|
443,083
|
|
|
|
352,240
|
|
Advertising & promotional
|
|
|
64,158
|
|
|
|
470,820
|
|
|
|
316,483
|
|
|
|
673,814
|
|
Amortization of intangibles
|
|
|
-
|
|
|
|
166,667
|
|
|
|
-
|
|
|
|
500,000
|
|
Selling, general and administrative
|
|
|
103,462
|
|
|
|
92,423
|
|
|
|
311,920
|
|
|
|
295,107
|
|
Professional Fees
|
|
|
217,025
|
|
|
|
99,727
|
|
|
|
578,535
|
|
|
|
366,725
|
|
Total operating expenses
|
|
|
487,567
|
|
|
|
986,902
|
|
|
|
1,650,021
|
|
|
|
2,187,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(391,240
|
)
|
|
|
(867,427
|
)
|
|
|
(1,389,501
|
)
|
|
|
(1,960,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense - bank debt
|
|
|
337
|
|
|
|
-
|
|
|
|
1,012
|
|
|
|
-
|
|
Interest expense - shareholder
|
|
|
72,110
|
|
|
|
40,616
|
|
|
|
267,640
|
|
|
|
82,952
|
|
Gain on extinguishment of debt
|
|
|
(57,035
|
)
|
|
|
-
|
|
|
|
(54,819
|
)
|
|
|
-
|
|
Change in derivative liability
|
|
|
1,152,119
|
|
|
|
(256,468
|
)
|
|
|
832,480
|
|
|
|
(612,093
|
)
|
Interest expense - amortization BCF
|
|
|
210,430
|
|
|
|
439,507
|
|
|
|
787,217
|
|
|
|
1,270,943
|
|
Other expense - non cash
|
|
|
170,514
|
|
|
|
445
|
|
|
|
204,391
|
|
|
|
39,618
|
|
Total interest expense
|
|
|
1,548,474
|
|
|
|
224,100
|
|
|
|
2,074,040
|
|
|
|
781,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,939,714
|
)
|
|
|
(1,091,527
|
)
|
|
|
(3,453,142
|
)
|
|
|
(2,742,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.05
|
)
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of capital outstanding - basic
|
|
|
74,194,855
|
|
|
|
58,712,745
|
|
|
|
68,091,616
|
|
|
|
56,447,392
|
|
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the three and nine months ended March
31, 2021 and 2020
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total Stockholders’
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance, June 30, 2019
|
|
|
53,773,856
|
|
|
$
|
53,774
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
10,692,679
|
|
|
$
|
(13,219,059
|
)
|
|
$
|
(2,472,605
|
)
|
Common stock issued for services
|
|
|
122,762
|
|
|
|
123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,274
|
|
|
|
-
|
|
|
|
49,397
|
|
Common stock issued for interest
|
|
|
110,404
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
26,487
|
|
|
|
-
|
|
|
|
26,597
|
|
Issuance of common stock for debt conversion
|
|
|
1,409,349
|
|
|
|
1,409
|
|
|
|
|
|
|
|
|
|
|
|
335,591
|
|
|
|
-
|
|
|
|
337,000
|
|
Derivative liability reclassed upon debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
213,739
|
|
|
|
-
|
|
|
|
213,739
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(513,581
|
)
|
|
|
(513,581
|
)
|
Balance, Three Months as of September
30, 2019
|
|
|
55,416,371
|
|
|
$
|
55,416
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
11,317,770
|
|
|
$
|
(13,732,640
|
)
|
|
$
|
(2,359,452
|
)
|
Common stock issued for services
|
|
|
85,000
|
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,415
|
|
|
|
-
|
|
|
|
21,500
|
|
Common stock issued for interest
|
|
|
107,227
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
15,632
|
|
|
|
-
|
|
|
|
15,739
|
|
Issuance of common stock for debt conversion
|
|
|
1,500,495
|
|
|
|
1500
|
|
|
|
|
|
|
|
|
|
|
|
218,500
|
|
|
|
-
|
|
|
|
220,000
|
|
Derivative liability reclassed upon debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
128,605
|
|
|
|
-
|
|
|
|
128,605
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,136,941
|
)
|
|
|
(1,136,941
|
)
|
Balance, Three Months as of December
31, 2019
|
|
|
57,109,093
|
|
|
$
|
57,109
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
11,701,922
|
|
|
$
|
(14,869,581
|
)
|
|
$
|
(3,110,549
|
)
|
Common stock issued for interest
|
|
|
320,650
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
40,615
|
|
|
|
-
|
|
|
|
40,936
|
|
Issuance of common stock for debt conversion
|
|
|
2,760,223
|
|
|
|
2,760
|
|
|
|
|
|
|
|
|
|
|
|
351,240
|
|
|
|
-
|
|
|
|
354,000
|
|
Derivative liability reclassed upon debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
217,050
|
|
|
|
-
|
|
|
|
217,050
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,091,527
|
)
|
|
|
(1,091,527
|
)
|
Balance, Three Months as of March 31, 2020
|
|
|
60,189,966
|
|
|
$
|
60,190
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
12,310,827
|
|
|
$
|
(15,961,108
|
)
|
|
$
|
(3,590,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
|
61,796,680
|
|
|
$
|
61,797
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
13,088,177
|
|
|
$
|
(17,631,122
|
)
|
|
$
|
(4,481,147
|
)
|
Common stock issued for interest
|
|
|
312,938
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
36,165
|
|
|
|
-
|
|
|
|
36,478
|
|
Issuance of common stock for debt conversion
|
|
|
2,975,979
|
|
|
|
2,976
|
|
|
|
|
|
|
|
|
|
|
|
344,024
|
|
|
|
-
|
|
|
|
347,000
|
|
Issuance of warrants for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,711
|
|
|
|
|
|
|
|
65,711
|
|
Loss on fair value of shares issued upon debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
397,532
|
|
|
|
-
|
|
|
|
397,532
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943,823
|
)
|
|
|
(943,823
|
)
|
Balance, Three Months as of September 30, 2020
|
|
|
65,085,597
|
|
|
$
|
65,086
|
|
|
$
|
1,000
|
|
|
$
|
1
|
|
|
$
|
13,931,609
|
|
|
|
(18,574,945
|
)
|
|
$
|
(4,578,249
|
)
|
Common stock issued for services
|
|
|
583,914
|
|
|
|
584
|
|
|
|
|
|
|
|
|
|
|
|
88,089
|
|
|
|
|
|
|
|
88,673
|
|
Common stock issued for interest
|
|
|
336,132
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
24,672
|
|
|
|
-
|
|
|
|
25,008
|
|
Issuance of common stock for debt conversion
|
|
|
2,881,220
|
|
|
|
2,881
|
|
|
|
|
|
|
|
|
|
|
|
212,119
|
|
|
|
-
|
|
|
|
215,000
|
|
Loss on fair value of shares issued upon debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(39,065
|
)
|
|
|
-
|
|
|
|
(39,065
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(598,705
|
)
|
|
|
(598,705
|
)
|
Balance, Three Months as of December 31, 2020
|
|
|
68,886,863
|
|
|
$
|
68,887
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
14,217,423
|
|
|
$
|
(19,173,650
|
)
|
|
$
|
(4,887,338
|
)
|
Common stock issued for services
|
|
|
255,000
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
$
|
43,345
|
|
|
|
|
|
|
|
43,600
|
|
Common stock issued for interest
|
|
|
1,065,263
|
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
92,753
|
|
|
|
|
|
|
|
93,818
|
|
Issuance of common stock for debt conversion
|
|
|
8,478,045
|
|
|
|
8,478
|
|
|
|
|
|
|
|
|
|
|
|
741,522
|
|
|
|
|
|
|
|
750,000
|
|
Issuance of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,243
|
|
|
|
|
|
|
|
81,243
|
|
Loss on fair value of shares issued upon debt conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,507,218
|
|
|
|
|
|
|
|
1,507,218
|
|
Net loss
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,910,614
|
)
|
|
|
(1,939,714
|
)
|
Balance, Three Months as of March 31,
2021
|
|
|
78,685,171
|
|
|
$
|
78,685
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
16,663,105
|
|
|
$
|
(21,084,264
|
)
|
|
$
|
(4,342,473
|
)
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the nine months ending
|
|
|
For the nine months ending
|
|
|
|
March 31,
2021
|
|
|
March 31,
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,453,142
|
)
|
|
$
|
(2,742,049
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used for operations:
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
132,273
|
|
|
|
70,897
|
|
Amortization of intangible assets
|
|
|
-
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Warrants for services
|
|
|
126,555
|
|
|
|
-
|
|
Deferred financing fees
|
|
|
102,800
|
|
|
|
39,493
|
|
Change in derivative liability
|
|
|
887,301
|
|
|
|
(612,093
|
)
|
Gain on extinguishment of debt upon notes conversion
|
|
|
(54,819
|
)
|
|
|
-
|
|
Stock issued for interest
|
|
|
204,391
|
|
|
|
82,952
|
|
Amortization of debt discount
|
|
|
787,217
|
|
|
|
1,270,943
|
|
Impairment expense related
to intangible assets
|
|
|
-
|
|
|
|
500,000
|
|
(Increase) decrease in accounts receivable
|
|
|
16,980
|
|
|
|
(5,838
|
)
|
(Increase) decrease in inventory
|
|
|
(69,309
|
)
|
|
|
120,560
|
|
(Increase) in other current assets
|
|
|
146,333
|
|
|
|
(579,746
|
)
|
Increase in accounts payable
|
|
|
107,107
|
|
|
|
50,173
|
|
Increase (decrease) in accrued expenses
|
|
|
243,881
|
|
|
|
(24,000
|
)
|
Net cash used by operating activities
|
|
|
(841,133
|
)
|
|
|
(1,328,708
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash paid for intangible assets
|
|
|
-
|
|
|
|
(333,333
|
)
|
Net cash used by investing activities
|
|
|
-
|
|
|
|
(333,333
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from the sale of stock
|
|
|
-
|
|
|
|
-
|
|
Proceeds from the issuance of convertible debt - net
|
|
|
720,000
|
|
|
|
1,737,000
|
|
|
|
|
|
|
|
|
|
|
Borrowings under line of credit
|
|
|
-
|
|
|
|
5,000
|
|
Repayment to Shareholders
|
|
|
-
|
|
|
|
-
|
|
Repayment of convertible debt
|
|
|
-
|
|
|
|
-
|
|
Repayment of related party advance
|
|
|
-
|
|
|
|
-
|
|
Repayment of Short-term debt
|
|
|
(3,308
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
716,692
|
|
|
|
1,742,000
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
|
|
|
(124,442
|
)
|
|
|
79,959
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning
of period
|
|
|
197,622
|
|
|
|
30,142
|
|
Cash and cash equivalents, end of
period
|
|
$
|
73,180
|
|
|
$
|
110,101
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow
Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
248,940
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Summary of Non-Cash Investing and Financing
Information:
|
|
$
|
-
|
|
|
$
|
-
|
|
Initial derivative liability and debt discount
|
|
$
|
512,993
|
|
|
$
|
1,463,278
|
|
Intangible assets acquired and adjusted in accounts payable
balance
|
|
$
|
-
|
|
|
$
|
666,667
|
|
Stock issued for debt conversion
|
|
$
|
1,314,298
|
|
|
$
|
911,000
|
|
Stock issued for interest
|
|
$
|
153,334
|
|
|
$
|
82,952
|
|
Derivative liability reclassed to loss on extinguishment
of debt upon notes conversion
|
|
$
|
1,716,114
|
|
|
$
|
-
|
|
True-up adjustment in debt discount and derivative liability
|
|
$
|
37,360
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
Description of
Business
|
Nightfood Holdings, Inc. (the “Company”)
is a Nevada Corporation organized October 16, 2013 to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York
Corporation from its sole shareholder, Sean Folkson. All of its operations are conducted by its two subsidiaries: Nightfood,
Inc. (“Nightfood”) and MJ Munchies, Inc. (“Munchies”). Nightfood’s business model is to manufacture and
distribute snack products specifically formulated for nighttime snacking to help consumers satisfy nighttime cravings in a better, healthier,
more sleep friendly way. Management believes Nightfood is the first brand to achieve mainstream distribution of snacks focused on
better sleep, and expects the category of “sleep-friendly” snacking to become an important segment of the total snacking
market in coming years. Munchies has acquired a portfolio of intellectual property around the brand name Half-Baked, and intends to license
said IP to operators in the cannabis edibles space and other related spaces.
|
●
|
The Company’s
fiscal year end is June 30.
|
|
●
|
The Company currently
maintains its corporate address in Tarrytown, New York.
|
|
2.
|
Summary of Significant
Accounting Policies
|
|
●
|
Management is
responsible for the fair presentation of the Company’s financial statements, prepared
in accordance with U.S. generally accepted accounting principles (GAAP).
|
Interim Financial Statements
These unaudited condensed consolidated
financial statements for the three and nine months ended March 31, 2021 and 2020, respectively, reflect all adjustments including normal
recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations
and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.
These interim unaudited condensed
consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes
thereto for the years ended June 30, 2020 and 2019, respectively, which are included in the Company’s June 30, 2020 Annual Report
on Form 10-K filed with the United States Securities and Exchange Commission on October 13, 2020. The Company assumes that the users
of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding
period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results
of operations for the three and nine months ended March 31, 2021 are not necessarily indicative of results for the entire year ending
June 30, 2021.
We made certain reclassifications
to prior period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect
on our condensed consolidated statement of financial position, results of operations or cash flows.
Use of Estimates
|
●
|
The preparation
of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates are used in the determination
of depreciation and amortization, the valuation for non-cash issuances of common stock, and
the website, income taxes and contingencies, valuing convertible notes for BCF and derivative
liability, among others.
|
Cash and Cash Equivalents
|
●
|
The Company classifies
as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various
instruments with original maturities of three months or less at the time of purchase. The
Company places its cash and cash equivalents on deposit with financial institutions in the
United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000
for substantially all depository accounts. The Company from time to time may have amounts
on deposit in excess of the insured limits.
|
Fair Value of Financial Instruments
|
●
|
Statement of financial
accounting standard FASB Topic 820, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values of financial instruments. The carrying
amounts reported in the statements of financial position for assets and liabilities qualifying
as financial instruments are a reasonable estimate of fair value.
|
Inventories
|
●
|
Inventories consisting
of packaged food items and supplies are stated at the lower of cost (FIFO) or net realizable
value, including provisions for spoilage commensurate with known or estimated exposures which
are recorded as a charge to cost of sales during the period spoilage is incurred. The Company
has no minimum purchase commitments with its vendors.
|
Advertising Costs
|
●
|
Advertising costs
are expensed when incurred and are included in advertising and promotional expense in the
accompanying statements of operations. Although not traditionally thought of by many as “advertising
costs”, the Company includes expenses related to graphic design work, package design,
website design, domain names, and product samples in the category of “advertising costs”.
The Company recorded advertising costs of $316,483 and $673,814 for the nine months ended
March 31, 2021 and 2020, respectively. The Company recorded advertising costs
of $64,158 and $470,820 for the three months ended March 31, 2021 and 2020, respectively.
|
Income Taxes
|
●
|
The Company has
not generated any taxable income, and, therefore, no provision for income taxes has been
provided.
|
|
●
|
Deferred income
taxes are reported for timing differences between items of income or expense reported in
the financial statements and those reported for income tax purposes in accordance with FASB
Topic 740, “Accounting for Income Taxes”, which requires the use of the asset/liability
method of accounting for income taxes. Deferred income taxes and tax benefits are recognized
for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, and for
tax loss and credit carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company provides for deferred taxes
for the estimated future tax effects attributable to temporary differences and carry-forwards
when realization is more likely than not.
|
|
●
|
A valuation allowance
has been recorded to fully offset the deferred tax asset even though the Company believes
it is more likely than not that the assets will be utilized.
|
|
●
|
The Company’s
effective tax rate differs from the statutory rates associated with taxing jurisdictions
because of permanent and temporary timing differences as well as a valuation allowance.
|
Revenue Recognition
|
●
|
The Company generates
its revenue by selling its nighttime snack products wholesale to retailers and wholesalers.
|
|
●
|
All sources of
revenue are recorded pursuant to FASB Topic 606 Revenue Recognition, to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. This includes
a five-step framework that requires an entity to: (i) identify the contract(s) with a customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations in the contract,
and (v) recognize revenue when the entity satisfies a performance obligation. In addition,
this revenue generation requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers.
|
|
●
|
The Company offers
sales incentives through various programs, consisting primarily of advertising related credits.
The Company records certain advertising related credits with customers as a reduction to
revenue as no identifiable benefit is received in exchange for credits claimed by the customer.
|
|
●
|
The Company revenue
from contracts with customers provides that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services.
|
The Company incurs costs associated
with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities
and recognizes these costs at the same time that it recognizes the underlying product revenue. As this policy election is in line with
the Company’s previous accounting practices, the treatment of shipping and handling activities under FASB Topic 606 did not have
any impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
The adoption of ASC 606 did not result
in a change to the accounting for any of the Company’s revenue streams that are within the scope of the amendments. The Company’s
services that fall within the scope of ASC 606 are recognized as revenue as the Company satisfies its obligation to the customer.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers, which updates revenue recognition guidance relating to contracts with customers. This standard
states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for
annual reporting periods, and interim periods therein, beginning after July 1, 2018. The Company adopted ASU 2014-09 and its related
amendments (collectively known as “ASC 606”) during the first quarter of fiscal 2019 using the full retrospective method.
Management reviewed ASC 606-10-32-25
which states “Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer
(or to other parties that purchase the entity’s goods or services from the customer). Consideration payable to a customer also
includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other
parties that purchase the entity’s goods or services from the customer). An entity shall account for consideration payable to a
customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct
good or service (as described in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the consideration
payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate
of variable consideration is constrained) in accordance with paragraphs 606-10-32-5 through 32-13.”
If the consideration payable to a
customer is a payment for a distinct good service, then in accordance with ASC 606-10-32-26, the entity should account for it the same
way that it accounts for other purchases from suppliers (expense). Further, “if the amount of consideration payable to the customer
exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for
such an excess as a reduction of the transaction price. If the entity cannot reasonably estimate the fair value of the good or service
received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.”
Under ASC 606-10-32-27, if the consideration
payable to a customer is accounted for as a reduction of the transaction price, “an entity shall recognize the reduction of
revenue when (or as) the later of either of the following events occurs:
|
a)
|
The entity
recognizes revenue for the transfer of the related goods or services to the customer.
|
|
b)
|
The entity pays
or promises to pay the consideration (even if the payment is conditional on a future event).
That promise might be implied by the entity’s customary business practices.”
|
Management reviewed each arrangement
to determine if each fee paid is for a distinct good or service and should be expensed as incurred or if the Company should recognize
the payment as a reduction of revenue.
The Company recognizes revenue upon
shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as
costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the
performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers.
Concentration of Credit Risk
|
●
|
Financial instruments
that potentially subject the Company to concentrations of credit risk consist principally
of cash deposits at financial institutions. At various times during the year, the Company
may exceed the federally insured limits. To mitigate this risk, the Company places its cash
deposits only with high credit quality institutions. Management believes the risk of loss
is minimal. At March 31, 2021 and June 30, 2020, the Company did not have any uninsured cash
deposits.
|
Beneficial Conversion Feature
|
●
|
For conventional
convertible debt where the rate of conversion is below market value, the Company records
any “beneficial conversion feature” (“BCF”) intrinsic value as additional
paid in capital and related debt discount.
|
When the Company records a BCF, the
relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount
is amortized over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts
is immediately expensed.
Debt Issue Costs
|
●
|
The Company may
pay debt issue costs in connection with raising funds through the issuance of debt whether
convertible or not or with other consideration. These costs are recorded as debt discounts
and are amortized over the life of the debt to the statement of operations as amortization
of debt discount.
|
Original Issue Discount
|
●
|
If debt is issued
with an original issue discount, the original issue discount is recorded to debt discount,
reducing the face amount of the note and is amortized over the life of the debt to the statement
of operations as amortization of debt discount. If a conversion of the underlying debt occurs,
a proportionate share of the unamortized amounts is immediately expensed.
|
Valuation of Derivative Instruments
|
●
|
ASC 815 “Derivatives
and Hedging” requires that embedded derivative instruments be bifurcated and assessed,
along with free-standing derivative instruments such as warrants, on their issuance date
and measured at their fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Trinomial Tree option pricing formula. Upon conversion of
a note where the embedded conversion option has been bifurcated and accounted for as a derivative
liability, the Company records the shares at fair value, relieves all related notes, derivatives
and debt discounts and recognizes a net gain or loss on derivative liability under the line
item “change in derivative liability”.
|
Derivative Financial Instruments
|
●
|
The Company does
not use derivative instruments to hedge exposures to cash flow, market or foreign currency
risks. The Company evaluates all of its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and then is revalued at each reporting date, with changes
in fair value reported in the consolidated statement of operations. For stock based derivative
financial instruments, Fair value accounting requires bifurcation of embedded derivative
instruments such as conversion features in convertible debt or equity instruments, and measurement
of their fair value for accounting purposes. In determining the appropriate fair value, the
Company uses the Trinomial Tree option-pricing model. In assessing the convertible debt instruments,
management determines if the convertible debt host instrument is conventional convertible
debt and further if there is a beneficial conversion feature requiring measurement. If the
instrument is not considered conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial instruments.
|
Once determined, derivative liabilities
are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value from inception is
made quarterly and appears in results of operations as a change in fair market value of derivative liabilities.
Stock-Based Compensation
The Company accounts for share-based
awards issued to employees in accordance with FASB ASC 718. Accordingly, employee share-based payment compensation is measured at the
grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. Additionally,
share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. The
Company applies ASC 718, “Equity Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees.
Customer Concentration
|
●
|
During the nine
months ended March 31, 2021, the Company had one customer account for approximately 37% of
the gross sales. One other customer accounted for approximately 23% of gross sales, and one
other customer accounted for over 11% of gross sales. During the nine months ended March
31, 2020, one customer accounted for approximately 45% of the gross sales.
|
During the three months ended March
31, 2021, the Company had one customer account for approximately 44% of the gross sales. During the three months ended March 31, 2020,
one customer accounted for approximately 36% of the gross sales while three other customers accounted for over 10% of gross sales.
Vendor Concentration
During the three-month period
ended March 31, 2021, no vendors accounted for more than 14% of our operating expenses. During the nine-month period ended March 31,
2021, no vendor accounted for more than 8% of our operating expenses.
During the three-month period
ended March 31, 2021, no vendors accounted for more than 9% of our operating expenses. During the nine-month period ended March 31,
2020 no vendor accounted for more than 8%.
Receivables Concentration
|
●
|
As of March 31,
2021, the Company had receivables due from eight customers. Five of which each
accounted for approximately 17-22% of the total balance. As of June 30, 2020, the Company
had receivables due from four customers, two of whom accounted for over 70% of the outstanding
balance. Two of the four accounted for approximately 30% of the total balance.
|
Income/Loss Per Share
|
●
|
Net income/loss
per share data for both the three and nine-month periods ending March 31, 2021 and 2020,
are based on net income/loss available to common shareholders divided by the weighted average
of the number of common shares outstanding. The Company does not present a diluted Earnings
per share as the convertible debt and interest that is convertible into shares of the Company’s
common stock would not be included in this computation, as the Company is generating a loss
and therefore these shares would be antidilutive.
|
Impairment of Long-lived Assets
|
●
|
The Company accounts
for long-lived assets in accordance with the provisions of FASB Topic 360, Accounting for
the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. Fair values are determined
based on quoted market value, discounted cash flows or internal and external appraisals,
as applicable.
|
During the period ended March 31,
2021 and 2020, Management determined and impaired $-0- and $-500,000-, respectively as impairment on intangible asset
Reclassification
The Company may make certain reclassifications to prior
period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect on its consolidated
statement of financial position, results of operations or cash flows.
Recent Accounting Pronouncements
ASU No. 2019-12, Simplifying the Accounting for Income
Taxes
In December 2019, the FASB issued
ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The ASU is intended to enhance and simplify aspects of the income tax accounting
guidance in ASC 740 as part of the FASB's simplification initiative. This guidance is effective for fiscal years and interim periods
within those years beginning after December 15, 2020 with early adoption permitted. The Company will adopt this ASU on January 31, 2021
and does not expect there to be a material impact on our Consolidated Financial Statements.
In March 2020, the FASB issued ASU
2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
This guidance provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting
to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”)
and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This ASU is applied prospectively
and becomes effective immediately upon the transition from LIBOR. The Company’s secured credit facility agreement references LIBOR,
which is expected to be discontinued as a result of reference rate reform. The Company expects to adopt the guidance upon transition
from LIBOR, but does not believe the adoption will have a material effect on its consolidated financial statements.
In August 2020, the FASB issued ASU
2020-06 to simplify the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s
own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and
for convertible instruments. The update also provides for expanded disclosure requirements to increase transparency. For SEC filers,
excluding smaller reporting companies, this update is effective for fiscal years beginning after December 15, 2021 including interim
periods within those fiscal years. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023,
including interim periods therein. The Company believes the adoption of this guidance will not materially impact our financial statements
and related disclosures.
The Company will continue to monitor
these emerging issues to assess any potential future impact on its financial statements.
|
●
|
The Company’s
financial statements are prepared using generally accepted accounting principles, which contemplate
the realization of assets and liquidation of liabilities in the normal course of business.
Because the business is new and has limited operating history and relatively few sales, no
certainty of continuation can be stated.
|
|
●
|
The accompanying
consolidated financial statements have been prepared assuming the Company will continue as
a going concern. For the nine months ended March 31, 2021, the Company had a net loss of
$3,453,142 (comprised of operating loss of $1,379,102 and other expenses of $2,074,040, most
of which is comprised of changes in derivative liability and amortization of Beneficial Conversion
Features related to convertible note financing and changes in the share price of the common
stock), negative cash flow from operations of $876,638 and accumulated deficit of $21,084,264.
|
Subsequent to the end of the quarter,
the Company completed a financing round of $4,500,000, consisting of $3,000,000 in cash and the rollover of $1,500,000 of previously
existing convertible debt. As of the time of this filing, the Company is debt free.
The Company believes it has sufficient
cash on hand to operate for the next several quarters. We do not believe our cash on hand will be adequate to satisfy our long-term working
capital needs. We believe that our current capitalization structure, combined with ongoing increases in distribution, revenues, and market
capitalization, will enable us to successfully secure required financing to continue our growth.
Because the business has limited operating
history and sales, no certainty of continuation can be stated. Management has devoted a significant amount of time in the raising of
capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern will again be
dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company
will receive the necessary funding or generate revenue necessary to fund operations long-term.
The Company cannot give any
assurance that it will, in the future, be able to achieve a level of profitability from the sale of its products to sustain its
operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the financials are issued. The
accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and
reclassification of assets or the amounts and classification of liabilities that may result from the outcome of this
uncertainty.
|
●
|
The outbreak of
the novel coronavirus (COVID-19), including the measures to reduce its spread, and the impact
on the economy, cannot fully be understood and identified. Indications to date are that there
are somewhat offsetting factors relating to the impact on our Company. Industry data shows
that supermarket sales remain up, with more people spending more time at home. Anecdotally
and statistically, snacking activity is also up while consumers are reporting a decrease
in sleep quality and sleep satisfaction. Industry sales data also showed ice cream as one
of the categories experiencing the largest increase with year over year growth averaging
over 30% through a series of five one-week periods between March 15 and April 12, 2020 according
to IRI data.
|
The offsetting factors are the impact
of the virus on the overall economy, and the impact that a down economic period can have on consumer behavior, including trial of new
brands. Greater unemployment, recession, and other possible unforeseen factors are shown to have an impact. Research indicates that consumers
are less likely to try new brands during economic recession and stress, returning to the legacy brands they’ve known for decades.
With consumers generally making fewer
shopping trips, while buying more on those occasions and reverting back to more familiar brands, certain brand-launch marketing tactics,
such as in-store displays and in-store product sampling tables, are either impaired or impermissible. So, while overall night snacking
demand is up, and consumer need/desire for better sleep is also stronger, driving consumer trial and adoption has been more difficult
and expensive during these circumstances.
From both public statements, and ongoing
exploratory meetings between Nightfood Management and experts from certain global food and beverage conglomerates, it has been affirmed
to Management that there is increased strategic interest in the nighttime nutrition space as a potential high-growth opportunity, partially
due to recent declines in consumer sleep quality and increases in at-home nighttime snacking.
We have experienced no major issues
with supply chain or logistics. Order processing function has been normal to date, and our manufacturers have assured us that their operations
are “business as usual” as of the time of this filing.
It is possible that the fallout from
the pandemic could make it more difficult in the future for the Company to access required growth capital, possibly rendering us unable
to meet certain debts and expenses.
More directly, COVID has impaired
Nightfood’s ability to execute certain in-store and out-of-store marketing initiatives. For example, since the inception of COVID,
the Company was unable to conduct in-store demonstrations and unable to participate in local pregnancy, baby expos, and health expos
that were originally intended to be part of our marketing mix.
Additionally, with more consumers
shopping online, both for delivery or at-store pickup, the opportunity for shoppers to learn about new brands at-shelf has been somewhat
diminished. Management is working to identify opportunities to build awareness and drive trial under these new circumstances.
It is impossible to know what the
future holds with regard to the virus, both for our company and in the broader sense. There are many uncertainties regarding the current
coronavirus pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how
it will impact its customers, vendors, and business partners. It is difficult to know if the pandemic has materially impacted the results
of operations, and we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to
numerous uncertainties. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments
accordingly, if necessary.
|
●
|
The Company’s
accounts receivable arise primarily from the sale of the Company’s ice cream. On a
periodic basis, the Company evaluates each customer account and based on the days outstanding
of the receivable, history of past write-offs, collections, and current credit conditions,
writes off accounts it considers uncollectible. With most of our retail and distribution
partners, invoices will typically be due in 30 days. The Company does not accrue interest
on past due accounts and the Company does not require collateral. Accounts become past due
on an account-by-account basis. Determination that an account is uncollectible is made after
all reasonable collection efforts have been exhausted. The Company has not provided any accounts
receivable allowances for March 31, 2021 and June 30, 2020, respectively.
|
|
●
|
Inventory consists
of the following at March 31, 2021 and June 30, 2020,
|
|
|
March 31,
2021
|
|
|
June 30,
2020
|
|
Finished goods – ice cream
|
|
$
|
194,205
|
|
|
$
|
195,817
|
|
Raw material – ingredients
|
|
|
83,416
|
|
|
|
26,309
|
|
Packaging
|
|
|
67,293
|
|
|
|
53,479
|
|
TOTAL
|
|
$
|
344,914
|
|
|
$
|
275,605
|
|
Inventories are stated at the lower
of cost or net realizable value. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs
of inventory based on its assessment of market conditions and the products relative shelf life. Write-downs and write-offs are charged
to loss on inventory write down.
|
●
|
Other current
assets consist of the following vendor deposits at March 31, 2021 and June 30, 2020. The
majority of this amount relates to deposits towards distribution and marketing partnerships.
|
|
|
March
31,
2021
|
|
|
June 30,
2020
|
|
Prepaid
advertising costs
|
|
$
|
222,186
|
|
|
$
|
398,045
|
|
Vendor
deposits – Other
|
|
$
|
29,526
|
|
|
$
|
40
|
|
TOTAL
|
|
$
|
251,712
|
|
|
$
|
398,085
|
|
Intangible
assets consist of the following at March 31, 2021 and June 30, 2020. The amount of the intangible assets represents fees and expenses
in connection with the development and launch of platforms used to track conversions, optimize ads, and scale online customer growth
through a hybrid distribution model.
|
|
March
31,
|
|
|
June 30,
2020
|
|
Intangible
assets
|
|
$
|
-
|
|
|
$
|
1,000,000
|
|
Amortization
of intangible assets
|
|
|
-
|
|
|
|
(500,000
|
)
|
Impairment
of intangible assets
|
|
|
-
|
|
|
|
(500,000
|
)
|
TOTAL
|
|
$
|
-
|
|
|
$
|
-
|
|
During
the quarter ending March 31, 2020, the Company determined it would be unable to generate sufficient traction from these digital assets.
The Company made the decision to stop utilizing the assets.
|
8.
|
Other Current
Liabilities
|
|
●
|
Other current
liabilities consist of the following at March 31, 2021 and June 30, 2020,
|
|
|
March 31,
2021
|
|
|
June 30,
2020
|
|
Accrued consulting fees – related party
|
|
$
|
9,974
|
|
|
$
|
9,974
|
|
Accrued interest
|
|
|
209,161
|
|
|
|
192,625
|
|
Accrued slotting fees
|
|
|
5,564
|
|
|
|
-
|
|
Other accrued expenses
|
|
|
66,480
|
|
|
|
|
|
TOTAL
|
|
$
|
291,179
|
|
|
$
|
202,599
|
|
|
●
|
Notes Payable
consist of the following at March 31, 2021,
|
On
April 30, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated April 30, 2018, in the
amount of $225,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 30, 2019 and interest rate of 8% per
annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $225,000 Notes was calculated using the Black-Scholes
pricing model at $287,174, with the following assumptions: risk-free interest rate of 2.24%, expected life of 1 year, volatility of 202%,
and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $225k Notes, a charge was
recorded to “Financing cost” for the excess of the fair value of the note, for a net charge of $62,174. As of March 31, 2021,
and June 30, 2020, the debt discount was $0.
On
February 14, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated February 14, 2019,
in the amount of $104,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 14, 2020 and interest rate of 8%
per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a
penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible
note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the
$104,000 Notes was calculated using the Black-Scholes pricing model at $90,567, with the following assumptions: risk-free interest rate
of 2.53%, expected life of 1 year, volatility of 136%, and expected dividend yield of zero. Because the fair value of the note did not
exceed the net proceeds from the $104k Notes, no charge was recorded to “Financing cost” for the excess of the fair value
of the note. As of March 31, 2021, and June 30, 2020, the debt discount was $0 and $0, respectively. $50,000 of the note has been
successfully retired via conversion into shares during the year ended June 30, 2020 and $54,000 of the note has been successfully retired
via conversion into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted
for a loss on conversion of $36,242 included under line item “Loss on debt extinguishment upon note conversion, net”.
On
April 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated April 29, 2019, in the
amount of $208,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 29, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $208,000 Notes was calculated
using the Black-Scholes pricing model at $170,098, with the following assumptions: risk-free interest rate of 2.42%, expected life of
1 year, volatility of 118%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from
the $208k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31,
2021, and June 30, 2020, the debt discount was $0 and $0, respectively. $208,000 of the note has been successfully retired via conversion
into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a
loss on conversion of $109,561 included under line item “Loss on debt extinguishment upon note conversion, net”.
On
June 11, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated June 11, 2019, in the amount
of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 11, 2020 and interest rate of 8% per annum and are
convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is
then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated
using the Black-Scholes pricing model at $240,217, with the following assumptions: risk-free interest rate of 2.05%, expected life of
1 year, volatility of 16%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from
the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note. As of March
31, 2021 and June 30, 2020, the debt discount was $0 and $46,726, respectively. This note has been successfully retired via conversions
into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for
a loss on conversion of $177,160 included under line item “Loss on debt extinguishment upon note conversion, net”.
On
July 5, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated July 5, 2019, in the amount
of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 5, 2020 and interest rate of 8% per annum and
are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender
has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance
with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model
at $239,759, with the following assumptions: risk-free interest rate of 1.98%, expected life of 1 year, volatility of 118%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020, the debt
discount was $0 and $2,627, respectively. This note has been successfully retired via conversions into shares during the nine
months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $648,036
included under line item “Loss on debt extinguishment upon note conversion, net”.
On
August 8, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 8, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 8, 2020 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our
lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance
with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model
at $254,082, with the following assumptions: risk-free interest rate of 1.79%, expected life of 1 year, volatility of 113%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021, and June 30, 2020 the debt discount
was $0 and $26,452, respectively. This note has been successfully retired via conversions into shares during the nine months ended
March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $611,909 included
under line item “Loss on debt extinguishment upon note conversion, net”.
On
August 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 29, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 29, 2020 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our
lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance
with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model
at $234,052, with the following assumptions: risk-free interest rate of 1.75%, expected life of 1 year, volatility of 113%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021, and June 30, 2020 the debt
discount was $0 and $37,833.
On
September 24, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated September 24, 2019,
in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of September 24, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $118,009, with the following assumptions: risk-free interest rate of 1.78%, expected life of 1 year, volatility of 113%,
and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020,
the debt discount was $0 and $27,482. This note has been successfully retired via conversions into shares during the nine months
ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $126,735
included under line item “Loss on debt extinguishment upon note conversion, net”.
On
November 7, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated November 7, 2019, in
the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 7, 2020 and interest rate of
8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $121,875, with the following assumptions: risk-free interest rate of 1.58%, expected life of 1 year, volatility of 122%,
and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020,
the debt discount was $0 and $43,074, respectively.
On
December 31, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated December 31, 2019,
in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 31, 2020 and interest rate of 8%
per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $189,172, with the following assumptions: risk-free interest rate of 1.59%, expected life of 1 year, volatility of 115%,
and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $150k Notes, $39,172 was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020, the debt
discount was $0 and $75,205, respectively.
On February 6, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated February 6, 2020, in the amount of $200,000. The lender was
Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at a price of
70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen
(15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $200,000 Notes was calculated using the Black-Scholes
pricing model at $156,061, with the following assumptions: risk-free interest rate of 1.51%, expected life of 1 year, volatility of 113%,
and expected dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $94,064, respectively.
On February 26, 2020, the Company
entered into a convertible promissory note and a security purchase agreement dated February 26, 2020, in the amount of $187,000. The
lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at
a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for
the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the
remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting
and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $187,000 Notes was calculated using the Black-Scholes
pricing model at $150,268, with the following assumptions: risk-free interest rate of 1.18%, expected life of 1 year, volatility of 118%,
and expected dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $99,218, respectively.
On April 30, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated April 30, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of April 30, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $128,369, with the following assumptions: risk-free interest rate of 0.16%, expected life of 1 year, volatility of 106%, and expected
dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $10,551 and $106,916, respectively.
On June 23, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated June 23, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of June 23, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $132,236, with the following assumptions: risk-free interest rate of 0.18%, expected life of 1 year, volatility of 108%, and expected
dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $30,432 and $129,700, respectively.
On August 12, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated August 12, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of August 12, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $126,029, with the following assumptions: risk-free interest rate of 0.13%, expected life of 1 year, volatility of 101%, and expected
dividend yield of zero. As of March 31, 2021, the debt discount was $46,269.
On October 13, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated October 13, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of October 13, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $126,471, with the following assumptions: risk-free interest rate of 0.13%, expected life of 1 year, volatility of 103.1%, and expected
dividend yield of zero. As of March 31, 2021, the debt discount was $67,913.
On December 21, 2020, the Company
entered into a convertible promissory note and a security purchase agreement dated December 21, 2020, in the amount of $205,700. This
note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle
Equities, LLC. The notes have a maturity of December 21, 2021 and interest rate of 8% per annum and are convertible at a price of 78%
of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty
(20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $121,112, with the following assumptions: risk-free interest rate of 0.09%, expected life of 1 year, volatility of 93.97%,
and expected dividend yield of zero. As of March 31, 2021, the debt discount was $87,931.
On February 22, 2021, the Company
entered into a convertible promissory note and a security purchase agreement dated December 21, 2020, in the amount of $205,700. This
note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle
Equities, LLC. The notes have a maturity of December 21, 2021 and interest rate of 8% per annum and are convertible at a price of 78%
of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty
(20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $139,381, with the following assumptions: risk-free interest rate of 0.09%, expected life of 1 year, volatility of 119,49%,
and expected dividend yield of zero. As of March 31, 2021, the debt discount was $125,252.
Below
is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of March 31, 2021:
|
|
Principal
($)
|
|
|
Debt
Discount
($)
|
|
|
Net
Value
($)
|
|
Balance at June 30, 2019
|
|
|
1,748,000
|
|
|
|
(630,259
|
)
|
|
|
1,117,741
|
|
Convertible notes payable issued during fiscal year ended June 30, 2020
|
|
|
2,148,400
|
|
|
|
-
|
|
|
|
2,148,400
|
|
Notes converted into shares of common stock
|
|
|
(961,000
|
)
|
|
|
-
|
|
|
|
(961,000
|
)
|
Debt discount associated with new convertible notes
|
|
|
-
|
|
|
|
(1,684,711
|
)
|
|
|
(1,684,711
|
)
|
Amortization of debt discount
|
|
|
-
|
|
|
|
1,709,759
|
|
|
|
1,709,759
|
|
Balance at June 30, 2020
|
|
|
2,935,400
|
|
|
|
(605,211
|
)
|
|
|
2,330,189
|
|
Convertible notes payable issued during nine months ended March 31, 2021
|
|
|
822,800
|
|
|
|
-
|
|
|
|
822,800
|
|
Notes converted into shares of common stock
|
|
|
(1,312,000
|
)
|
|
|
-
|
|
|
|
(1,312,000
|
)
|
Debt discount associated with new convertible notes
|
|
|
-
|
|
|
|
(512,993
|
)
|
|
|
(512,993
|
)
|
Amortization of debt discount
|
|
|
-
|
|
|
|
787,216
|
|
|
|
787,216
|
|
True-up adjustment in debt discount and derivative liability
|
|
|
-
|
|
|
|
(37,360
|
)
|
|
|
(37,360
|
)
|
Balance at March 31, 2021
|
|
|
2,446,200
|
|
|
|
(368,348
|
)
|
|
|
2,077,852
|
|
Amortization
expense for the nine months ended March 31, 2021 and 2020, totaled $787,216 and $1,270,943, respectively and Amortization expense for
the three months ended March 31, 2021 and 2020, totaled $210,429 and $439,507 respectively.
As of March 31, 2021 and June 30, 2020,
the unamortized portion of debt discount was $368,348 and $605,211, respectively.
Interest expense for the nine months
ended March 31, 2021 and 2020, totaled $267,640 and $82,952, respectively and interest expense for the three months ended March 31, 2021
and 2020, totaled $72,110 and $40,616, respectively.
As
of March 31, 2021 and June 30, 2020, the accrued interest related to convertible notes was $209,161 and $192,625, respectively.
Due to the variable conversion price
associated with some of these convertible promissory notes disclosed in Note 8 above, the Company has determined that the conversion
feature is considered a derivative liability for instruments which are convertible and have not yet been settled. The accounting treatment
of derivative financial instruments requires that the Company record the fair value of the derivatives on the date they are deemed to
be derivative liabilities.
During the nine month period ended
March 31, 2021, the Company recorded a change in fair value of derivative $887,301. The Company will measure the fair value of each derivative
instrument in future reporting periods and record the change based on the change in fair value.
Below
is a reconciliation of the derivative liability as presented on the Company’s balance sheet as of March 31, 2021:
|
|
|
|
Derivative liability as of June 30, 2020
|
|
$
|
1,590,638
|
|
Initial derivative liability accounted for convertible notes payable
issued during the period ended March 31, 2021
|
|
|
512,993
|
|
True-up adjustment in debt discount and derivative liability
|
|
|
37,360
|
|
Change in derivative liability during the period
|
|
|
887,301
|
|
Reclassify derivative liability associated
with Notes converted into loss on debt conversion account
|
|
|
(1,716,114
|
)
|
Balance at March 31, 2021
|
|
|
1,312,178
|
|
Change in derivative liability for the
nine months ended March 31, 20210 and 2020, totaled $887,301 and $(612,093), respectively and change in derivative liability for the
three months ended March 31, 2021 and 2020, totaled $1,096,709 and $(256,468), respectively.
As
of March 31, 2021 and June 30, 2020, the derivative liability related to convertible notes was $ 1,312,178 and $1,590,638, respectively.
On March 19, 2020,
the Company secured a $200,000 line of credit with Celtic Bank Corporation. This LOC has a “Flex Credit” component of calculating
interest, which means the interest rate on any draws taken against the LOC is set at the time of said draw. As of the date of this filing,
the Company has made one draw against the credit line for a gross amount of $5,000 (including proceeds and draw fees). As of March 31,
2021 nine payments had been made against this draw of approximately $368 each. Such payments will continue to be automatically deducted
from the corporate checking account until the draw and all fees have been paid in full. The Company may or may not choose to use this
line of credit for additional financing needs.
|
|
Mar
31,
2021
|
|
|
Dec
31,
2020
|
|
Line
of Credit
|
|
$
|
589
|
|
|
$
|
1,692
|
|
Total
borrowings
|
|
|
589
|
|
|
|
1692
|
|
Less:
current portion
|
|
|
589
|
|
|
|
1692
|
|
Long
term debt
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense for the nine months
ended March 31, 2021 and 2020, totaled $1,012 and $675, respectively and interest expense for the three months ended March 31, 2021 and
2020, totaled $337 and $0, respectively.
|
12.
|
Capital Stock
Activity
|
|
●
|
The Company had
and 78,685,171 and 61,796,680
shares of its $0.001 par value common stock issued and outstanding as of March 31, 2021 and
June 30, 2020 respectively.
|
|
●
|
During
the three months ended March 31, 2021 the Company issued 9,543,308 shares in regards to debt
and interest being converted into stock valued at $843,818 Also during these three months
the Company issued 225,000 shares for services valued at $43,600. Further during these nine
months the Company accounted in additional paid in capital the warrants issued for services
valued at $81,243 and loss on fair value of shares upon conversion amounting to $1,507,218.
|
During the nine months ended March
31, 2021 the Company issued 16,049,577 shares in regards to debt and interest being converted into stock valued at $1,467,274 also during
these nine months the Company issued 836,630 shares for services valued at $131,017. Further during these nine months the Company accounted
in additional paid in capital the warrants issued for services valued at $146,954 and loss on fair value of shares upon conversion amounting
to $1,865,685.
The following is a summary of the
Company’s outstanding common stock purchase warrants. Of the 500,000 warrants shown below at an exercise price of $.15, these
warrants were issued as compensation for a four-year advisory agreement. 150,000 warrants vested on July 24, 2018, another 150,000
on July 24, 2019, another 150,000 vested on July 24, 2020, and the remaining 50,000 will vest on July 24, 2021, should advisor complete
the term of his engagement. These warrants were all accounted for in Fiscal 2020.
During the six months ended December
31, 2020 the Company entered into a warrant agreement with one of the Company’s vendors issuing 500,000 warrants at a strike price
of $0.50 having a term of five years. The Company valued these warrants using the Black Scholes model utilizing a 107.93% volatility
and a risk-free rate of 0.29%, respectively.
In exchange for the agreement to lock
up Mr Folkson’s Shares, Folkson received warrants to acquire 400,000 shares of NGTF stock on February 4, 2021, at a strike price
of $.30, and with a term of twelve (12) months from the date of that agreement. The Warrants include a provision for cashless exercise
and will expire if not exercised within the twelve month term. The Company valued these warrants using the Black Scholes model utilizing
a 107.93% volatility and a risk-free rate of 0.50%.
The aggregate intrinsic value of the
warrants as of December 31, 2020 is $-0-.
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercise Price
|
|
|
June
30,
2020
|
|
|
Issued
/ (Exercised)
in 2020
|
|
|
Expired
|
|
|
December
31
2020
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.20
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
80,000
|
|
$
|
0.30
|
|
|
|
100,000
|
|
|
|
400,000
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.40
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
$
|
0.50
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.75
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
1,155,000
|
|
|
|
1,260,000
|
|
|
|
25,000
|
|
|
|
2,039,000
|
|
|
14.
|
Fair Value of
Financial Instruments
|
Cash and Equivalents, Receivables,
Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities.
The carrying amounts of these items
approximated fair value.
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC
Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement)
and the lowest priority to unobservable inputs (level 3 measurements).
Level 1—Valuations
based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations
based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.
Level 3—Valuations
based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
These valuations require significant judgment.
The application of the three levels
of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:
|
|
March,
31, 2021 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,312,178
|
|
|
$
|
1,312,178
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,312,178
|
|
|
$
|
1,312,178
|
|
|
|
June
30, 2020 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,590,638
|
|
|
$
|
1,590,638
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,590,638
|
|
|
$
|
1,590,638
|
|
Management
considers all of its derivative liabilities to be Level 3 liabilities. At March 31, 2021 and June 30, 2020, respectively the Company
had outstanding derivative liabilities, including those from related parties of $1,312,178 and $1,590,638, respectively.
|
15.
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Commitments and
Contingencies:
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The Company has entered
into certain consulting agreements which carry commitments to pay advisors and consultants should certain events occur. An agreement
is in place with one Company Advisor that calls for total compensation over the four year Advisor Agreement of 500,000 warrants with
an exercise price of $.15 of which 450,000 have vested, should the advisor complete the entire term of the engagement, the remaining
50,000 warrants would vest on July 24, 2021. These warrants were all accounted for in Fiscal 2020.
CEO Sean Folkson has a
twelve-month consulting agreement which went into effect on February 4, 2021, which will reward him with bonuses earned of 1,000,000
warrants at a strike price of $.50 when the Company records its first quarter with revenues over $1,000,000, an additional 3,000,000
warrants with a $.50 strike price when the Company records its first quarter with revenues over $3,000,000, and an additional 3,000,000
warrants with a $1 strike price when the Company records its first quarter with revenues over $5,000,000. Folkson will also be awarded
warrants with a strike price of $.50 should the Company exceed $500,000 in non-traditional retail channel revenue during the Term
of the Agreement, and should the company enter into a product development or distribution partnership with a multi-national food &
beverage conglomerate during his Agreement. As of March 31, 2021, those conditions were not met and therefore nothing was accrued related
to this arrangement.
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16.
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Related Party
Transactions
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During the third
quarter of Fiscal Year 2015, Mr. Folkson began accruing a consulting fee of $6,000 per month
which the aggregate of $18,000 is reflected in professional fees for the six month period
ended December 31, 2020 and reflected in the accrued expenses – related party with
a balance of $6,974 and $9,974 at March 31, 2021 and June 30, 2020, respectively.
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On December 8, 2017, Mr.
Folkson purchased Warrants, at a cost of $.15 per Warrant, to acquire up to 80,000 additional shares of NGTF stock at a strike price
of $.20, and with a term of three (3) years from the date of said agreement. This purchase resulted in a reduction in the accrued consulting
fees due him by $12,000. During the second quarter 2019 Mr. Folkson purchased 400,000 shares of stock at a strike price of $0.30 per
share, valued at $120,000 which was charged to his accrual. During the nine months ended March 31, 2021, Folkson had been paid $51,000
against his total accrued balance to date and reflected in the accrued expenses – related party with a balance of $6,974 and $9,974
at March 31, 2021 and June 30, 2020, respectively.
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In addition, the
Company made bonuses available to Folkson upon the Company hitting certain revenue milestones
of $1,000,000 in a quarter, $3,000,000 in a quarter, and $5,000,000 in a quarter. Achieving
those milestones would earn Folkson warrants with a $.50 and $1 strike price which would
need to be exercised within 90 days of the respective quarterly or annual filing. As of March
31, 2021, those conditions were not met and therefore nothing was accrued related to
this arrangement.
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On April 14, 2021,
The Company successfully negotiated and retired a $731,118 payable for $20,000.
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On April 19, 2021,
The Company closed a financing round of $4,500,000. This financing consisted of
$3,000,000 raised in cash, and the rollover of $1,500,000 of pre-existing convertible debt
into equity. This financing allowed the company to successfully retire all convertible
debt from the balance sheet. Over $1,400,000 of cash was infused into the Company
after debt payoff and transaction fees. As part of the settlement of the pre-existing debt, 1,200,000 shares of NGTF common stock were issued to Eagle
Equities.
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On May 4, 2021,
The Company issued 72,288 shares to vendors and consultants for services provided.
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NightFood Holdings, Inc.
51,200,000 Shares of Common Stock