UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For
the Fiscal year ended June 30, 2020
OR
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from _________ to __________
Commission
File Number 333-193347
NIGHTFOOD HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada |
|
46-3885019 |
|
(State
or Other Jurisdiction of |
|
(I.R.S.
Employer |
|
Incorporation
or Organization) |
|
Identification
No.) |
|
|
|
|
|
520
White Plains Road-Suite 500
Tarrytown,
New York
|
|
10591 |
|
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
888-888-6444
(Registrant’s
telephone number, including area code)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such
files. Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
|
Non-accelerated
filer |
☐ |
Smaller
reporting company |
☐ |
|
|
|
Emerging
growth company |
☒ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| |
|
|
|
|
Securities
registered pursuant to section 12(g) of the Act:
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of December 31, 2019:
$9,690,126.
As of
October 12, 2020, the issuer had 65,044,297 shares of its common
stock issued and outstanding, par value $0.001 per
share.
TABLE
OF CONTENTS
PART
I
Forward-Looking Information
Certain
statements made in this Annual Report involve known and unknown
risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. The forward-looking
statements included herein are based on current expectations that
involve numerous risks and uncertainties. Our plans and objectives
are based, in part, on assumptions involving judgments with respect
to, among other things, future economic, competitive and market
conditions, technological developments related to business support
services and outsourced business processes, and future business
decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control.
Although
we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein particularly in view of
the current state of our operations, the inclusion of such
information should not be regarded as a statement by us or any
other person that our objectives and plans will be achieved.
Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements
include, but are not limited to, the factors set forth herein under
the headings “Business,” and “Risk Factors”.
ITEM 1.
BUSINESS
Nightfood
Holdings, Inc. (“we”, “us” “the Company” or “Nightfood”) is a
Nevada corporation organized on October 16, 2013 to acquire all of
the issued and outstanding shares of Nightfood, Inc., a New York
corporation (“Nightfood”) from its sole shareholder, Sean Folkson.
All of our operations are conducted by our Subsidiaries (Nightfood,
Inc. and MJ Munchies, Inc.)
Nightfood
is in the business of manufacturing, marketing and distributing
snacks specially formulated and promoted for evening consumption. A
large number of Americans snack at night, and the most common
options tend to be high in sugar, fat, sodium, and calories; such
snacks can impair sleep quality and also impair health in general.
Management believes that our products are unique in the food
industry and that there is a substantial market for nighttime
specific snacks that are formulated with better sleep in mind. Our
corporate address is 520 White Plains Road – Suite 500, Tarrytown,
New York 10591 and our telephone number is 888-888-6444. We
maintain a web site at www.Nightfood.com, along with many
additional web properties. Any information that may appear on our
web site should not be deemed to be a part of this
report.
On
January 3, 2018, the Registrant formed a new wholly-owned
subsidiary to capitalize on opportunities in the marijuana and cbd
edibles space. MJ Munchies, Inc. (“Munchies”) was formed as a
Nevada corporation with a capital structure of 10,000 shares of
common stock. Since formation, Munchies has built an intellectual
property portfolio that includes a registered trademark for
“Half-Baked” in the State of California relating to marijuana
edibles, two pending federal trademark applications with the USPTO
for “Half-Baked” relating to packaged snacks, and beverages,
respectively. The Registrant also acquired the HalfBaked.com
domain, and several other related domain names and IP
assets.
Industry Overview
We
are an early-stage company that is seeking to establish a market
within the snack industry by offering a line of snack foods that
are specifically formulated for evening consumption. It is
estimated that American consumers spend over $50 Billion annually
on snacks consumed at night, and this figure continues to grow.
Moreover, industry data indicates that the most popular nighttime
snack choices include products and categories that are
traditionally considered high in calories, and “unhealthy” options,
such as cookies, salty snacks (chips, pretzels, and popcorn), ice
cream, and candy.
Our
Products, Present and Proposed
Nightfood
Holdings runs two distinct operating companies, each serving a
different market segment with different products.
MJ
Munchies, Inc.
MJ
Munchies, Inc. is a Nevada corporation formed in January of 2018 to
exploit legally compliant opportunities in the CBD and marijuana
edibles and related spaces. The Company intends to market some of
these new products under the brand name “Half-Baked”. This
subsidiary was created during the three months ended March 31, 2018
and its operations have a nominal impact on the financial
statements contained herein.
Since
inception, MJ Munchies has applied for U.S. Trademark protection
for a brand of Half-Baked snacks. MJ Munchies also acquired
HalfBaked.com. In April, 2018, MJ Munchies entered into an initial
brand licensing agreement for the Half-Baked mark with a licensed
manufacturer of THC-infused edibles in the State of California
under which, the licensee manufactured and distributed a small
pilot run of Half-Baked branded THC-infused cookies in California.
Management continues to seek a suitable licensing partner for the
intellectual property the Company has secured.
The
Company believes significant opportunities will exist to launch
successful and legally compliant products in this space, and that
such opportunities will continue to grow over time. No assurance
can be given that we will begin actual production of products using
the Half-Baked trademark. Even if production begins, we can neither
assure market acceptance of our products nor that said snacks,
perhaps including THC infused edibles, will not face ongoing legal
challenges.
Nightfood,
Inc.
Nightfood,
Inc. is a snack company focused on manufacturing and distribution
of snacks is formulated to be more appropriate for nighttime
consumption. Nightfood ice cream was formulated by sleep and
nutrition experts to satisfy nighttime cravings in a better,
healthier, more sleep-friendly way.
Nightfood
ice cream was originally manufactured in eight flavors. These are
Full Moon Vanilla, Midnight Chocolate, Cold Brew Decaf, After
Dinner Mint Chip, Milk & Cookie Dough, Cherry Eclipse, Bed and
Breakfast, and Cookies n’ Dreams. Additional flavors have been
developed, both dairy, and non-dairy, for future introduction in
2020 based on retailer and consumer demand.
In
February of 2020, Nightfood secured the endorsement of the American
Pregnancy Association. With ice cream being the most widely
reported pregnancy craving, and with pickles being another food
notorious for pregnancy cravings, the Company manufactured and
launched a ninth flavor, Pickles For Two.
Management
believes consumer demand exists for better nighttime snacking
options, and that a new consumer category consisting of nighttime
specific snacks will emerge in the coming years. This belief is
supported by research from major consumer goods research firms such
as IRI Worldwide, and Mintel, who identified nighttime specific
foods and beverages as one of the “most compelling and category
changing trends” for 2017 and beyond. In recent years, CEO’s and
other executives from major consumer goods conglomerates such as
Nestle, PepsiCo, Mondelez, and Kellogg’s have commented on consumer
nighttime snack habits and the opportunity that exists in solving
this problem for the marketplace.
It is
estimated that over $50 billion is spent annually in the United
States on snacks that are consumed between dinner and bed. Company
Management believes that a significant percentage of that consumer
spend could move from conventional snacks to nighttime specific
snacks in coming years.
Nightfood
has established a Scientific Advisory Board consisting of sleep and
nutrition experts to drive product formulation decisions, and
provide consumer confidence in the brand promise. The first member
of this advisory board was Dr. Michael Grandner, Director of the
Sleep and Health Research Program at the University of Arizona. Dr.
Grandner has been conducting research on the link between nutrition
and sleep for over ten years, and he believes improved nighttime
nutritional choices can improve sleep, resulting in many short and
long-term health benefits. In March of 2018, the Company added Dr.
Michael Breus to their Scientific Advisory Board. Breus, known to
millions as The Sleep Doctor™, is believed to be the Nation’s most
trusted authority on sleep. He regularly appears in the national
media to educate and inform consumers so they can sleep better and
lead happier, healthier, more productive lives. In July, 2018, we
completed our Scientific Advisory Board with the addition of Lauren
Broch, Ph.D, M.S. Dr. Broch is a sleep therapist and former
Director of Education & Training at the Sleep-Wake Disorders
Center at Weill Cornell Medical College. Uniquely, Dr. Broch also
has a master’s degree in human nutrition. This unique combination
allowed her to play an important role in the reformulation of our
nutrition bars, and the development of Nightfood ice cream. These
experts work with Company management to ensure Nightfood products
deliver on their nighttime-appropriate, and sleep-friendly
promises.
Production
To
date, we have utilized contract manufacturers for producing our
products, packaging for our products, and 3rd party logistics for
warehousing and order fulfillment. Our current ice cream co-packer
has confirmed available capacity to manufacture approximately
400,000 pints of Nightfood ice cream monthly. Management has had
initial conversations with other manufacturing facilities to
establish additional production capacity. When it becomes
necessary, we do not anticipate adding additional capacity through
another facility to be a problem.
Marketing
and Distribution
Nightfood
ice cream is currently available in approximately 750 supermarket
locations. These include chains such as Harris Teeter (a division
of Kroger), Shaws and Star Markets (a division of Albertsons),
Jewel-Osco (also a division of Albertsons, Lowes Foods, Rouses
Markets, and Central Market (a division of H-E-B). The product line
has garnered extensive media interest, including coverage from
outlets such as Oprah Magazine, USA Today, The Wall Street Journal,
The Washington Post, The Food Network, The Today Show, Rachael Ray,
and more. Consumers seem very enthusiastic about the prospect of a
sleep-friendly ice cream.
Management
is working with our retail partners on various marketing and
promotional campaigns to drive trial and repeat purchase at the
store level. In addition, marketing initiatives are aimed at both
the mainstream consumer and the pregnancy community. Partnerships
and sponsorships have been secured and executed with Lamaze
International, Ovia Health, the International Childbirth Education
Association, and other influential pregnancy organizations and
individuals.
Competition
The
nutritional/snack food business is highly competitive and includes
such participants as large companies like Mondelez, Nestle S.A. and
Quaker Oats and more specialized companies such as Cliff Bar, Quest
Nutrition and many smaller companies. Many of these competitors
have well established names and products. Nestle recently announced
an interest in the nighttime snacking space with the introduction
of a candy-type product called GoodNight. We will initially compete
based upon the unique nature of our product. However, other
companies, including those with greater name recognition than us
and greater resources may seek to introduce products that directly
compete with our products. Management believes that if a competitor
sought to develop a competing product, it could do so and begin to
establish retail distribution in 12-24 months. Based on the current
acquisition climate in the consumer goods space, Management
believes that successful growth of the Nightfood ice cream line
would likely bring acquisition offers from potential competitors
before it would actually bring competition on the shelf from those
same potential competitors.
Intellectual
Property Rights
We
own the registered trademark “Nightfood®” for the
nutrition bar/snack/meal replacement category, and the ice cream
category. We believe these marks will prove important and valuable
to our business as we continue to pioneer the development of a new
category of snacks that support relaxation with a sleep-friendly
nutritional profile, specific to consumption at night, between
dinner and bedtime. Additionally, we own the domain Nightfood.com
as well as many other relevant domains such as
late-night-snack.com, nighttimesnack.com, and
nighttimesnacking.com, as well as Nightfood.us, Nightfood.net,
TryNightfood.com, GetNightfood.com, NiteFood.com, TryNightfood.com,
BuyNightfood.com, NightSnacking.com, and Night-Food.com. We also
own the toll-free number 888-888-NIGHT. We rely on proprietary
information as to our formulas and have non-disclosure agreements
with our suppliers.
Personnel
Nightfood
has no employees. Our CEO, Sean Folkson, COO Jenny Mitchell, and
other key team members have consulting agreements with the Company.
Through vendor and consultant relationships, Nightfood has dozens
of personnel contributing to our operations and efforts on a
regular basis. Should we be successful in executing our business
plan, we anticipate potentially hiring employees at some point to
assist with various company functions. However, we also expect to
continue to strategically outsource significantly to accomplish
work that might otherwise be done by employees in a more
traditional company.
Customers
Our
customers consist primarily of supermarkets and entities that
distribute ice cream products to supermarkets and other retail
outlets. In FY 2020, we had one customer that accounted for
approximately 41% of our Gross Sales. Eight other customers each
accounted for between 3.7% and 9.7% of our Gross Sales. In FY 2019,
two customers made up over 10% of Gross Sales.
DEVELOPMENT
PLANS
Nightfood
has nine ice cream flavors already in ongoing production, and an
additional ten products have been developed or in late stages of
development, these include additional flavors of Nightfood
dairy-based ice cream as well as several flavors of non-dairy
oat-based ice cream. In addition, Management believes the market
exists for nighttime, sleep-friendly snacks in other formats in
addition to ice cream pints. In addition to introduction of
additional pint products, including such possibilities as non-dairy
and keto-friendly versions of Nightfood pints, future expansion
could also include frozen novelties, other popular nighttime snack
formats, as well as sleep-friendly beverages Management has done
preliminary research on CBD infused ice cream. Current FDA
guidelines do not currently permit CBD to be used as an additive in
food. While some companies are manufacturing and distributing food
products with CBD, industry reports indicate that major retailers
have been avoiding those products due to current FDA
regulations.
ITEM 1A. RISK
FACTORS
You
should carefully consider the following factors in evaluating our
business, operations and financial condition. The occurrence of any
the following risks could have a material adverse effect on our
business, financial condition and results of operations.
Risks
Related to Our Business
We
have had limited operations and require substantial additional
funds to execute our business plan. We have had limited
operations and have not yet established significant traction in the
marketplace. We generated Gross Sales of $879,842, and Net Revenue
of $241,673 in the year ended June 30, 2020, and Gross Sales of
$363,565 and Net Revenues of $352,172 in the year ended June 30,
2019. Unless we are able to continue to leverage our status as a
public company into effective fundraising to fund our capital
requirements, we will not be able to execute on our business plan
and purchasers of our stock will be likely to lose their
investment.
Our
independent registered public accounting firm have expressed doubt
about our ability to continue as a going concern. We received a
report on our financial statements for the years ended June 30,
2020 and June 30, 2019 from our independent registered public
accounting firm that includes an explanatory paragraph and a
footnote stating that there is substantial doubt about our ability
to continue as a going concern due to its losses and negative net
worth. Inclusion of a “going concern qualification” in the report
of our independent accountants may have a negative impact on our
ability to obtain financing and may adversely impact our stock
price in any market that may develop.
We
remain uncertain of our proposed products’ market acceptance.
Although management firmly believes that snacks designed for
evening consumption is a viable niche market with a potential for
attractive returns for investors, this belief is largely based on
preliminary sales and marketing data, industry awards, industry
research, and consumer feedback. If management is wrong in its
belief and there is an insufficient market for our products, it is
likely we will fail and investors will lose their
investment.
Our
ability to hire additional personnel is important to the continued
growth of our business. Our continued success depends upon our
ability to attract and retain a group of motivated marketing and
business support professionals. Our growth may be limited if we
cannot recruit and retain a sufficient number of people. We cannot
guarantee that we will be able to hire and retain a sufficient
number of qualified personnel.
We
may face substantial competition. Competition in all aspects of
the functional food industry is intense. We will compete against
both large conglomerates with substantial resources and smaller
companies, including new companies that might be formed with
resources similar to our own. Competitors may seek to duplicate the
perceived benefits of our products in ways that do not infringe on
any proprietary rights that we can protect. As a result we could
find that our entire marketing plan and business model is undercut
or made irrelevant by actions of other companies under which we
have no control. We cannot promise that we can accomplish our
marketing goals and as a result may experience negative impact upon
our operating results.
Our
success depends to a large extent upon the continued service of key
managerial personnel and our ability to attract and retain
qualified personnel. Specifically, we are highly dependent on
the ability and experience of our key team member, Sean Folkson,
our president and CEO. We have a consulting agreement with Mr.
Folkson. The loss of Mr. Folkson would present a significant
setback for us and could impede the implementation of our business
plan. There is no assurance that we will be successful in acquiring
and retaining qualified personnel to execute our current plan of
operations.
The
ability of our officer to control our business will limit minority
shareholders’ ability to influence corporate affairs. As of the
date of this report, our president, Sean Folkson, owned 16,753,568
shares (directly and through trusts, including 2,680,000 million
shares owned by a trust controlled by Mr. Folkson’s wife. (Mr.
Folkson disclaims beneficial ownership of these shares). 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. Accordingly, Mr. Folkson controls the majority of the voting
power in the Company. Because of his stock ownership, Mr. Folkson
will be in a position to continue to elect our board of directors,
decide all matters requiring stockholder approval and determine our
policies. The interests of our president may differ from the
interests of other shareholders with respect to the issuance of
shares, business transactions with or sales to other companies,
selection of officers and directors and other business decisions.
The minority shareholders would have no way of overriding decisions
made by our president. This level of control may also have an
adverse impact on the market value of our shares because he may
institute or undertake transactions, policies or programs that
result in losses, may not take any steps to increase our visibility
in the financial community and/ or may sell sufficient numbers of
shares to significantly decrease our price per share.
If
we do not receive additional financing, we will not be able to
execute our planned expansion. Over the next 6-12 months,
we believe we will require approximately $1,500,000 - $2,500,000 in
debt or equity financing to affect a planned expansion of our
operations and roll out Nightfood ice cream. Management believes
that it will be able to raise the required funds, however this may
not prove to be the case. As of June 30, 2020, we had $2,935,400 in
outstanding convertible promissory notes. See ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION – Liquidity.
The
full impact of Coronavirus (COVID) remains unknown. Reports
indicate that consumer behavior has shifted as a result of COVID
and the resulting impact on the economy. Some of these reported
changes include fewer supermarket visits, consumer reliance on
legacy brands in lieu of trying new branded offerings, and
increases in at-home snacking.
To
date, we have experienced minor issues regarding supply chain and
logistics. Order processing function has been perfectly normal to
date, and our manufacturers have assured us that their operations
are mostly “business as usual” as of the time of this
filing.
We
may be exposed to potential risks resulting from new requirements
under Section 404 of the Sarbanes-Oxley Act of 2002. Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required
to include in our annual report our assessment of the effectiveness
of our internal control over financial reporting as of the end of
our fiscal year. Management has assessed our internal controls over
financial reporting and has identified several areas that require
improvement, which are being addressed.
We
do not have a sufficient number of employees and consultants to
segregate responsibilities and are presently unable to afford
increasing our staff or engaging outside consultants or
professionals to overcome our lack of employees, and this may
impair our ability to effectively comply with Section 404 of the
Sarbanes-Oxley Act. We currently do not have any employees and
rely on our CEO, Sean Folkson to perform all executive functions.
Accordingly, we cannot segregate duties to provide sufficient
review of our financial activity. During the course of our testing
of our financial procedures, we may identify other deficiencies
that we may not be able to remediate in time to meet the deadline
imposed by the Sarbanes-Oxley Act for compliance with the
requirements of Section 404. In addition, if we fail to achieve and
maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not
be able to ensure that we can conclude on an ongoing basis that we
have effective internal controls over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act. Moreover,
effective internal controls, particularly those related to revenue
recognition, are necessary for us to produce reliable financial
reports and are important to help prevent financial fraud. If we
cannot provide reliable financial reports or prevent fraud, our
business and operating results could be harmed, investors could
lose confidence in our reported financial information, and the
trading price of our common stock could drop significantly. Our
officers’ lack of experience in accounting and financial matters
may make our efforts to comply more difficult and cause us to hire
consultants to assist him cutting into our resources.
Implications
of Being an Emerging Growth Company. As a company with less
than $1.0 billion in revenue during its last fiscal year, we
qualify as an “emerging growth company” as defined in the JOBS Act.
For as long as a company is deemed to be an emerging growth
company, it may take advantage of specified reduced reporting and
other regulatory requirements that are generally unavailable to
other public companies. These provisions include:
| |
● |
a
requirement to have only two years of audited financial statements
and only two years of related Management’s Discussion and Analysis
included in an initial public offering registration
statement; |
| |
● |
an
exemption to provide less than five years of selected financial
data in an initial public offering registration
statement; |
| |
● |
an
exemption from the auditor attestation requirement in the
assessment of the emerging growth company’s internal controls over
financial reporting; |
| |
● |
an
exemption from the adoption of new or revised financial accounting
standards until they would apply to private companies; |
| |
● |
an
exemption from compliance with any new requirements adopted by the
Public Company Accounting Oversight Board requiring mandatory audit
firm rotation or a supplement to the auditor’s report in which the
auditor would be required to provide additional information about
the audit and the financial statements of the issuer;
and |
| |
● |
reduced
disclosure about the emerging growth company’s executive
compensation arrangements. |
An
emerging growth company is also exempt from Section 404(b) of
Sarbanes Oxley which requires that the registered accounting firm
shall, in the same report, attest to and report on the assessment
on the effectiveness of the internal control structure and
procedures for financial reporting. Similarly, as a Smaller
Reporting Company we are exempt from Section 404(b) of the
Sarbanes-Oxley Act and our independent registered public accounting
firm will not be required to formally attest to the effectiveness
of our internal control over financial reporting until such time as
we cease being a Smaller Reporting Company.
As an
emerging growth company, we are exempt from Section 14A (a) and (b)
of the Securities Exchange Act of 1934 which require the
shareholder approval of executive compensation and golden
parachutes.
Section
107 of the JOBS Act provides that an emerging growth company can
take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act for complying with new or
revised accounting standards. In other words, an emerging growth
company can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies.
We have elected to take advantage of the benefits of this extended
transition period. Our financial statements may therefore not be
comparable to those of companies that comply with such new or
revised accounting standards.
We
would cease to be an emerging growth company upon the earliest
of:
| |
● |
In
our fiscal year ended June 30, 2021, |
| |
● |
the
first fiscal year after our annual gross revenues are $1 billion or
more, |
| |
● |
the
date on which we have, during the previous three-year period,
issued more than $1 billion in non-convertible debt securities,
or |
| |
● |
as of
the end of any fiscal year in which the market value of our common
stock held by non-affiliates exceeded $700 million as of the end of
the second quarter of that fiscal year. |
Risks
Related to Our Common Stock
Commencing
August 21, 2015 we began trading under the Symbol NGTF on the OTC
Markets. There had been very little trading activity of our stock
for some time. In April of 2017, the Company listing moved to the
OTCQB, and in August of 2017 an investor awareness campaign was
initiated to communicate news of recent company developments and
milestones to a broader range of stock market investors. On October
23, 2017, we were advised that our stock had been moved from the
OTCQB to the OTCPink marketplace. The Company did not believe the
change in OTC Market tiers had any material positive or negative
impact on Company operations or the stock price. However, in
January, 2019, we determined that it was in the interest of our
shareholders to be on the OTCQB and were reinstated on February 11,
2019. Trading volume has increased significantly in the last
eighteen months, but there can be no assurances that it will be
maintained. Our stock is likely to continue to be subject to
significant price fluctuations.
In
addition, our common stock is unlikely to be followed by any market
analysts, and there may be few institutions acting as market makers
for the common stock. Either of these factors could adversely
affect the liquidity and trading price of our common stock. Until
our common stock is fully distributed and an orderly market
develops in our common stock, if ever, the price at which it trades
is likely to fluctuate significantly. Prices for our common stock
will be determined in the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for shares
of our common stock, developments affecting our business, including
the impact of the factors referred to elsewhere in these Risk
Factors, investor perception, and general economic and market
conditions. No assurances can be given that an orderly or liquid
market will ever develop for the shares of our common stock.
Because of the anticipated low price of the securities, many
brokerage firms may not be willing to effect transactions in these
securities. Any purchasers of our securities should be aware that
any market that develops in our stock will likely be subject to the
penny stock restrictions.”
Our
board of directors is authorized to issue shares of preferred
stock, which may have rights and preferences detrimental to the
rights of the holders of our common shares. We are authorized
to issue up to 1,000,000 shares of preferred stock, $0.001 par
value. On July 11, 2018, we filed a Certificated of Designation for
a class of preferred stock designated Class A Super Voting
Preferred Stock (“A Stock”). There are 10,000 shares of A Stock
designated. Each share of such stock shall vote with the common
stock and have 100,000 votes. A Stock has no conversion, dividend
or liquidation rights. Accordingly, the holders of A Stock will, by
reason of their voting power be able to control the affairs of the
Registrant. The foregoing is only a summary of the certificate of
designation for the A Stock, which has been filed as an exhibit to
our Current Report on Form 8-K filed July 17, 2018. We have issued
1,000 shares of A Stock to Sean Folkson, giving him 100,000,000
votes in all matters requiring a vote of holders of our Common
Stock and effective voting control over our affairs. As of the date
of this report, no further shares of preferred stock have been
issued outside of the initial 1,000 shares issued to Mr. Folkson
and we have no plans at this time to issue further shares or our
preferred stock. Our preferred stock may bear such rights and
preferences, including dividend and liquidation preferences, as the
Board of Directors may fix and determine from time to time. Any
such preferences may operate to the detriment of the rights of the
holders of the common stock being offered hereby.
Our
articles of incorporation provide for indemnification of officers
and directors at our expense and limit their liability that may
result in a major cost to us and hurt the interests of our
shareholders because corporate resources may be expended for the
benefit of officers and/or directors. Our articles of
incorporation and applicable Nevada law provide for the
indemnification of our directors, officers, employees, and agents,
under certain circumstances, against attorney’s fees and other
expenses incurred by them in any litigation to which they become a
party arising from their association with or activities on our
behalf. This indemnification policy could result in substantial
expenditures by us, which we will be unable to recoup.
We
have been advised that, in the opinion of the SEC, indemnification
for liabilities arising under federal securities laws is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against these types of liabilities, other than the
payment by us of expenses incurred or paid by a director, officer
or controlling person in the successful defense of any action, suit
or proceeding, is asserted by a director, officer or controlling
person in connection with the securities being registered, we will
(unless in the opinion of our counsel, the matter has been settled
by controlling precedent) submit to a court of appropriate
jurisdiction, the question whether indemnification by us is against
public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue. The legal process
relating to this matter if it were to occur is likely to be very
costly and may result in us receiving negative publicity, either of
these factors would likely materially reduce the market and price
for our shares, if such a market ever develops.
Any
market that develops in shares of our common stock will be subject
to the penny stock restrictions that are likely to create a lack of
liquidity and make trading difficult or impossible. Until our
shares of common stock qualify for inclusion in the NASDAQ system,
if ever, the trading of our securities, if any, will be in the
over-the-counter market which is commonly referred to as the OTCBB
as maintained by OTCMarkets.com. As a result, an investor may find
it difficult to dispose of, or to obtain accurate quotations as to
the price of our securities.
SEC
Rule 15g-9 (as most recently amended and effective on September 12,
2005) establishes the definition of a “penny stock,” for purposes
relevant to us, as any equity security that has a market price of
less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to a limited number of exceptions. It is
likely that our shares will be considered to be penny stocks for
the immediately foreseeable future. This classification severely
and adversely affects the market liquidity for our common stock.
For any transaction involving a penny stock, unless exempt, the
penny stock rules require that a broker or dealer approve a
person’s account for transactions in penny stocks and the broker or
dealer receive from the investor a written agreement to the
transaction setting forth the identity and quantity of the penny
stock to be purchased.
In
order to approve a person’s account for transactions in penny
stocks, the broker or dealer must obtain financial information and
investment experience and objectives of the person and make a
reasonable determination that the transactions in penny stocks are
suitable for that person and that person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prepared by the SEC relating to
the penny stock market, which, in highlight form, sets
forth:
| |
● |
the
basis on which the broker or dealer made the suitability
determination, and |
| |
● |
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction. |
Disclosure
also has to be made about the risks of investing in penny stock in
both public offerings and in secondary trading and commissions
payable to both the broker-dealer and the registered
representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in
penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny
stocks.
Because
of these regulations, broker-dealers may not wish to engage in the
above-referenced necessary paperwork and disclosures and/or may
encounter difficulties in their attempt to sell shares of our
common stock, which may affect the ability of selling shareholders
or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the
secondary market. These additional sales practice and disclosure
requirements could impede the sale of our securities, if and when
our securities become publicly traded. In addition, the liquidity
for our securities may decrease, with a corresponding decrease in
the price of our securities. Our shares in all probability will be
subject to such penny stock rules for the foreseeable future and
our shareholders will, in all likelihood, find it difficult to sell
their securities. Recently, several brokerage firms and clearing
firms have adopted special “house rules” which make it more
difficult for their customers to hold or trade low priced stock and
these rules may make it difficult for our shareholders to sell
their stock.
We
do not intend to pay dividends on our common stock. We have not
paid any dividends on our common stock to date and there are no
plans for paying dividends on the common stock in the foreseeable
future. We intend to retain earnings, if any, to provide funds for
the implementation of our business plan. We do not intend to
declare or pay any dividends in the foreseeable future. Therefore,
there can be no assurance that holders of our common stock will
receive any additional cash, stock or other dividends on their
shares of our common stock until we have funds which the Board of
Directors determines can be allocated to dividends.
If
a market develops for our shares, sales of our shares relying upon
rule 144 may depress prices in that market by a material
amount. 16,753,568 of the outstanding shares of our common
stock are “restricted securities” within the meaning of Rule 144
under the Securities Act of 1933, as amended. As restricted shares,
these shares may be resold only pursuant to an effective
registration statement or under the requirements of Rule 144 or
other applicable exemptions from registration under the Act and as
required under applicable state securities laws. Rule 144 provides
in essence that a person who has held restricted securities for a
prescribed period may, under certain conditions, sell their shares
as a result of revisions to Rule 144 which became effective on or
about February 15, 2008, there is no limit on the amount of
restricted securities that may be sold by a non-affiliate (i.e., a
stockholder who has not been an officer, director or control person
for at least 90 consecutive days) after the restricted securities
have been held by the owner for a period of six months. A sale
under Rule 144 or under any other exemption from the Act, if
available, or pursuant to registration of shares of common stock of
present stockholders, may have a depressive effect upon the price
of the common stock in any market that may develop.
Any
trading market that may develop may be restricted by virtue of
state securities “Blue Sky” laws to the extent they prohibit
trading absent compliance with individual state laws. These
restrictions may make it difficult or impossible to sell shares in
those states. Although trading activity in our stock has increased
recently, generally there is a limited public market for our
common stock, and there can be no assurance that an active and
regular public market will develop in the foreseeable future.
Transfer of our common stock may also be restricted under the
securities or securities regulations laws promulgated by various
states and foreign jurisdictions, commonly referred to as “Blue
Sky” laws. Absent compliance with such individual state laws, our
common stock may not be traded in such jurisdictions. Because our
securities have not been registered for resale under the “Blue Sky”
laws of any state, the holders of such shares and persons who
desire to purchase them in any trading market that might develop in
the future, should be aware that there may be significant state
“Blue Sky” law restrictions upon the ability of investors to sell
the securities and of purchasers to purchase the securities. These
restrictions prohibit the secondary trading of our common stock.
Accordingly, investors should consider the secondary market for our
securities to be a limited one.
Recent
issuances of convertible promissory notes may have a negative
impact on the trading prices of our common stock. Commencing in
March 2017, we have entered into $7,363,103 principal amount of
promissory notes with various lenders since our inception of which
$2,935,400 was outstanding as of June 30, 2020. These notes are
convertible six to twelve months after issuance into free trading
shares of our common stock, with certain limitations, at conversion
prices below the then market price of our common stock. These notes
have been converted on a continual basis for approximately 36
months. It is possible such conversions and that future conversions
of these notes have and can have a negative effect on the market
for our common stock and may cause dilution to our common
stockholders.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Description
of Property
We
currently store our inventory in third party warehouses and
fulfillment centers. We believe that our operating procedures are
adequate for our current needs and that alternative similar or
additional space could be found at similar cost should the need
arise.
ITEM 3. LEGAL
PROCEEDINGS
There
are no current, past, pending or threatened legal proceedings or
administrative actions either by or against the issuer that could
have a material effect on the issuer’s business, financial
condition, or operations.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
PART
II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
MARKET
INFORMATION
Our
common stock is quoted on the OTCQB Market under the symbol
NGTF.
The
following table sets forth the range of high and low bid quotations
for our common stock for each of the periods indicated as reported
by the OTCMarkets. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
The
last reported price was $0.1461 on October 12, 2020.
|
Period
Ending June 30, 2020 |
|
High |
|
|
Low |
|
| September
30, 2019 |
|
$ |
0.59 |
|
|
$ |
0.28 |
|
| December
31, 2019 |
|
|
0.36 |
|
|
|
0.20 |
|
| March
31, 2020 |
|
|
0.44 |
|
|
|
0.16 |
|
| June
30, 2020 |
|
|
0.28 |
|
|
|
0.17 |
|
| |
|
|
|
|
|
|
|
|
| Period
Ending June 30, 2019: |
|
|
|
|
|
|
|
|
| September
30, 2018 |
|
$ |
0.42 |
|
|
$ |
0.25 |
|
| December
31, 2018 |
|
|
0.36 |
|
|
|
0.16 |
|
| March
31, 2019 |
|
|
0.92 |
|
|
|
0.17 |
|
| June
30, 2019 |
|
|
0.77 |
|
|
|
0.30 |
|
HOLDERS
The
approximate number of stockholders of record at June 30, 2020 was
210, and as of October 12, 2020 it was 209. The number of
stockholders of record does not include beneficial owners of our
common stock, whose shares are held in the names of various
dealers, clearing agencies, banks, brokers and other fiduciaries.
The Company ordered a “NOBO list” report in February 2020 from
Broadridge Financial Solutions. The list showed that there were
5,048 unique beneficial owners of NGTF stock as of February,
2020.
DIVIDEND
POLICY
No
dividends have ever been declared by the Board of Directors on our
common stock. Our losses do not currently indicate the ability to
pay any cash dividends, and we do not have the intention of paying
cash dividends on our common stock in the foreseeable
future.
RECENT
SALES OF UNREGISTERED SECURITIES
In
the year ending June 30, 2020, no shares were issued to any
investor for cash. In the year ending June 30, 2019, 84,389 shares
were issued to an investor for $50,000 in caseh (at $.59 per
share). No underwriter participated in the foregoing transactions,
and no underwriting discounts or commissions were paid, nor was any
general solicitation or general advertising conducted. The
securities bear a restrictive legend and stop transfer instructions
are noted on our stock transfer records. These shares were issued
in offerings under Regulation D promulgated under Section 4(2) of
the Securities Act of 1933, as amended. In the year ended
June 30, 2020, the company also compensated vendors and consultants
with 1,385,990 shares in lieu of payment of $308,768, along with
the issuance of 580,666 shares in lieu of interest payments of
$88,762. These issuances were exempt from registration under
section 4(1) of the Securities Act as sales by an issuer not
involving a public offering. During the year ended June 30, 2019,
the company compensated vendors and consultants with 483,808 shares
in lieu of payment of $345,656, along with the issuance of 667,959
shares in lieu of interest payments of $95,805.
During
the year ended June 30, 2020, we issued 6,056,168 shares of common
stock as consideration for the conversion of debt with a fair value
of $961,000 to one investment entity. These issuances were exempt
from registration under Section 4 (1) of the Securities Act of
1933, as amended, as transactions by an issuer not involving any
public offering. During the year ended June 30, 2019, the
Company issued 281,957 shares for certain accounts payable
liabilities valued at $63,850 and issued 400,000 shares of stock
related to Mr. Folkson executing warrants valued at $120,000. These
issuances were exempt from registration under Section 4 (1) of the
Securities Act of 1933, as amended, as transactions by an issuer
not involving any public offering.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS.
As of
June 30, 2020 and 2019, we had no compensation plans under which
our equity securities were authorized for issuance.
PENNY
STOCK REGULATION
Shares
of our common stock have been and will likely continue to be
subject to rules adopted the SEC that regulate broker-dealer
practices in connection with transactions in “penny stocks.” Penny
stocks are generally equity securities with a price of less than
$5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions
in those securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a
standardized risk disclosure document prepared by the SEC, which
contains the following:
| |
● |
a
description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading; |
| |
|
|
| |
● |
a
description of the broker’s or dealer’s duties to the customer and
of the rights and remedies available to the customer with respect
to violation to such duties or other requirements of securities’
laws; |
| |
|
|
| |
● |
a
brief, clear, narrative description of a dealer market, including
“bid” and “ask” prices for penny stocks and the significance of the
spread between the “bid” and “ask” price; |
| |
|
|
| |
● |
a
toll-free telephone number for inquiries on disciplinary
actions; |
| |
|
|
| |
● |
definitions
of significant terms in the disclosure document or in the conduct
of trading in penny stocks; and |
| |
|
|
| |
● |
such
other information and is in such form (including language, type,
size and format), as the SEC shall require by rule or
regulation. |
Prior
to effecting any transaction in penny stock, the broker-dealer also
must provide the customer the following:
| |
● |
the
bid and offer quotations for the penny stock; |
| |
|
|
| |
● |
the
compensation of the broker-dealer and its salesperson in the
transaction; |
| |
|
|
| |
● |
the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and |
| |
|
|
| |
● |
monthly
account statements showing the market value of each penny stock
held in the customer’s account. |
In
addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive
the purchaser’s written acknowledgment of the receipt of a risk
disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability
statement. These disclosure requirements may have the effect of
reducing the trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. Holders of shares of
our common stock may have difficulty selling those shares because
our common stock will probably be subject to the penny stock
rules.
ITEM 6. SELECTED
FINANCIAL DATA
Not
applicable.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The
following discussion and analysis of financial condition and
results of operations is based upon, and should be read in
conjunction with our audited financial statements and related notes
thereto included elsewhere in this report.
OVERVIEW
We
caution you that reliance on any forward-looking statement involves
risks and uncertainties, and that although we believe the
assumptions on which our forward-looking statements are based are
reasonable, any of those assumptions could prove to be inaccurate,
and as a result, the forward-looking statements based on those
assumptions could be incorrect. In light of these and other
uncertainties, you should not conclude that we will necessarily
achieve any plans and objectives or projected financial results
referred to in any of the forward-looking statements. We do not
undertake to release the results of any revisions of these
forward-looking statements to reflect future events or
circumstances. Some of the factors that may cause actual results,
developments and business decisions to differ materially from those
contemplated by such forward-looking statements include the
following:
We
are a snack development, marketing and distribution company relying
on our unique products, positioning, and team to develop and market
nutritional/snack foods that are appropriate for evening
snacking.
Our
first product was the Nightfood nutrition bar, manufactured in two
flavors (Cookies n’ Dreams, and Midnight Chocolate Crunch).
Management chose to discontinue manufacturing and distribution of
Nightfood nutrition bars in the 2nd half of calendar
2019 to ensure additional resources available for the ice cream
rollout, which Management believes offers a larger and more
compelling market opportunity.
Management
does envision the Nightfood brand ultimately as a “platform brand”,
meaning future offerings would not necessarily all remain within
the ice cream category. Possibilities exist to expand the product
line into additional snack formats that are popular with consumers
at night, including things like cookies, chips, and other formats.
Additionally, future reintroduction of the Nightfood nutrition bar
also remains a possibility.
During
calendar 2018, the Company began development of Nightfood ice
cream. Having seen the success in the marketplace of
“better-for-you” ice cream brands such as Halo Top, Enlightened,
and others, Management believes consumers will be receptive to a
line of ice cream that has some similar nutritional benefits to
those newly successful brands, in addition to a sleep-friendly
nutritional profile that is more appropriate for nighttime
consumption.
With
our team of sleep experts, and a leading ice cream research and
development team, eight flavors of Nightfood ice cream were
developed and bought to market, with the initial production run
occurring in January 2019. Nightfood is unique among all other
known products in the market in that our ice cream was developed
with better sleep in mind. Knowing millions of Americans eat ice
cream before bed on any given night, Management tasked our team of
sleep and nutrition experts with formulating an ice cream that
would be more appropriate for nighttime consumption, while
delivering better taste and texture than what is currently found in
the other “better-for-you” brands.
Compared
to regular ice cream, Nightfood is formulated with less fat, less
sugar, fewer calories, plus certain minerals, digestive enzymes,
and amino acids recommended by our sleep experts.
In
early February of 2019, it was announced that Nightfood had won the
2019 Product of the Year Award in the ice cream category in a
Kantar innovation survey of over 40,000 consumers. In June of 2019,
it was announced that Nightfood won both the Best New Ice Cream and
Best New Dairy Dessert awards at the World Dairy Innovation
Awards.
Nightfood
has secured distribution in divisions of some of the largest
supermarket chains in the country, and has received media coverage
in outlets such as The Today Show, Oprah Magazine, The Rachael Ray
Show, Food Network Magazine, The Wall Street Journal, USA Today,
The Washington Post, Fox Business News, and many more media
outlets.
We
believe that over the next several years, a subset of consumers
will shift their night snacking behavior towards snacks that are
formulated to be more “sleep friendly” compared to what is
currently being consumed by much of the population. As research
continues to explore the links between nutrition and sleep, and
consumers continue to seek healthier snacks in general, we expect a
“nighttime nutrition” or “sleep-friendly snacking” category to
emerge within the marketplace.
American
consumers spend over $50 Billion annually on snacks consumed at
night, and this figure continues to grow. A majority of adults are
trying to eat foods and snacks that they understand will prevent or
manage health problems and 37% of consumers are willing to pay more
for foods with perceived health benefits. Moreover, industry data
indicates that the most popular nighttime snack choices include
products and categories that are traditionally considered high in
calories, and “unhealthy” options, such as cookies, salty snacks
(chips, pretzels, and popcorn), ice cream, and candy.
In
addition to consumer research giants Mintel and IRI supporting the
idea that night-specific snacks represented an opportunity for
growth and innovation within the snack space, major consumer goods
companies such as Nestle have also recently indicated they believe
there’s an emerging consumer need for snacks specifically for
consumption before bed, and Pepsi announced in September of 2020
that they intend to launch a new nighttime relaxation beverage
called Driftwell.
Management
believes interest in the space from global food and beverage
companies such as Nestle and PepsiCo represents early validation
for the category concept. While Management continues to iterate on
products, distribution, and marketing, the team steadfastly
believes that nighttime nutrition is a billion dollar category in
the making. Management believes the Nightfood brand can be the
pioneer and the leading brand in the night snacking
category.
DEVELOPMENT
PLANS
With
Nightfood ice cream currently available in divisions of some of the
largest supermarket chains in the United States, Management is
working to simultaneously secure additional distribution
opportunities, while also nurturing revenue growth and consumer
growth in our existing points of distribution.
During
the course of calendar 2019, additional distribution relationships
were established with regional ice cream distributors and
non-traditional retailers, with varying degrees of success.
Management will continue to work within the industry to identify
opportunities to grow the Nightfood brand. In the future, outlets
such as hotels, college campus bookstores, and other
non-traditional outlets could develop into relevant elements of our
distribution mix as the brand continues to grow awareness and
distribution infrastructure.
INFLATION
Inflation
can be expected to have an impact on our operating costs. A
prolonged period of inflation could cause a general economic
downturn and negatively impact our results. However, the effect of
inflation has been minimal over the past three years.
SEASONALITY
We do
not believe that our business will be seasonal to any material
degree.
CORONAVIRUS
(COVID-19)
The
outbreak of the novel coronavirus (COVID-19), including the
measures to reduce its spread, and the impact on the economy,
cannot fully be predicted. Early indications 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. And, industry sales data also shows
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. Greater unemployment, recession, and other possible
unforeseen factors could also have an impact. Research indicates
that consumers are less likely to try new brands during economic
recession and stress, returning to value and legacy
brands.
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 product sampling, 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 recent exploratory meetings conducted
between Nightfood Management and 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 due to recent declines in
consumer sleep quality and increases in at-home nighttime
snacking.
We
have experienced no issues with supply chain or logistics. Order
processing function has been perfectly normal to date, and our
manufacturers have assured us that their operations are “business
as usual” as of the time of this filing.
While
the virus temporarily disrupted the category review schedules and
sell-in process for certain supermarket decision-makers during the
spring and early summer, most major accounts seem to be back on
schedule and are conducting business as usual with regard to review
cycles. Meetings are now conducted virtually, and product samples
are shipped to decision-makers. While some retailers told us they
were limiting new item additions due to changes in consumer
shopping behavior, others have confirmed that they view the
increase in at-home entertainment and night snacking as a plus for
Nightfood products.
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.
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.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses.
On an ongoing basis, we evaluate our estimates, including those
related to uncollectible receivables, inventory valuation, deferred
compensation, fair valve of derivative liabilities and
contingencies. We base our estimates on historical performance and
on various other assumptions that we believe to be reasonable under
the circumstances. These estimates allow us to make judgments about
the carrying values of assets and liabilities that are not readily
apparent from other sources.
We
believe the following accounting policies are our critical
accounting policies because they are important to the portrayal of
our financial condition and results of operations and they require
critical management judgments and estimates about matters that may
be uncertain. If actual results or events differ materially from
those contemplated by us in making these estimates, our reported
financial condition and results of operations for future periods
could be materially affected.
RESULTS
OF OPERATIONS
Fiscal
Year ended June 30, 2020 Compared to Fiscal Year ended June 30,
2019
Revenue
During
the year ended June 30, 2020, the Company sold approximately
260,000 pints of ice cream compared to approximately 63,000 pints
in the prior year, representing volume growth on ice cream pints of
over 300%.For the year ended June 30, 2020, we had Net Revenues of
$241,673 on Gross Sales of $878,849 compared to the year ended June
30, 2019 when we had Net Revenues of $352,172 on Gross Sales of
$363,565, of which approximately $150,000 was related to sales of
nutrition bars and approximately $205,000 was related to sales of
ice cream. While Gross Sales increased by 142%, Net Revenue
decreased 31% year over year. This is due to $637,176 in revenue
reductions resulting from slotting fee arrangements and consumer
promotion activity. Net Revenues are reported as Gross Sales less
Slotting Fees and other contra-revenue accounts such as those
related to manufacturers coupons, in-store specials (such as 2
pints for $8), consumer rebate programs, and more.
Slotting
fees are fees customarily charged to brands by supermarkets and
distributors to add a new product line into their product
assortment. For the year ended June 30, 2020, approximately
$541,500 of Gross Sales were cancelled out due to slotting
arrangements with retailers and distributors.
In
situations where the Company has agreed to pay slotting and
promotional fees to accounts (supermarkets, distributors, etc…),
the Gross Sales to those customers are reduced on the income
statement by these amounts (along with other items, such as early
payment discounts), dollar for dollar, to arrive at a Net Revenue
number. So, when these customers order product to put on their
shelves and sell to consumers, that revenue does not get booked
even though the product is moving through the supply
chain.
These
dollar for dollar reductions continue, on a customer-by-customer
basis, for any and all sales to each slotting account until the
Gross Sales to these accounts exceed the total cost of these
expenses, at which time the remaining Gross Sales amounts are
reported as Net Revenue.
These
slotting fees and other promotional expenses do not appear on the
income statement as an expense. Rather, they are applied against
Gross Sales, resulting in Net Revenue, as shown below. The netting
of Gross Sales against slotting and sales discounts, as described
and shown below, results in the Net Revenue number at the top of
the income statement. This is not a reflection of the amount of
product sold by the Company and shipped to customers, but rather a
function of the way certain sales are accounted for when those
sales are made to customers who are charging slotting
fees.
The
following tables summarize Gross Sales for the years ended June 30,
2020 and 2019. Net Revenues are net of slotting fees (a onetime fee
charged by supermarkets in order to have the product placed on
their shelves) and other items mentioned above.
| |
|
Year
Ended June 30, |
|
| |
|
2020 |
|
|
2019 |
|
| Gross
sales |
|
$ |
878,849 |
|
|
$ |
363,565 |
|
| Less: |
|
|
|
|
|
|
|
|
| Slotting
fees |
|
$ |
(541,500 |
) |
|
$ |
- |
|
|
Sales
discounts and other reductions |
|
|
(95,676 |
) |
|
|
(11,373 |
) |
|
Net
Revenues |
|
$ |
241,673 |
|
|
$ |
352,172 |
|
Operating
Expenses
Our operating expenses for the year ended June 30, 2020 were
$2,723,875 compared to $2,263,722 for the year ended June 30, 2019.
Cost of product sold was $472,131, for the year ended June 30, 2020
compared to $190,251 for the year ended June 30, 2019. This
increase of 148% is due to the fact that we sold almost 2.5x as
much product to our supermarkets and distributors in Fiscal 2020
than in Fiscal 2019.
Our
income statement shows a decrease in “Advertising and Promotional”
from $732,297 for the year ending June 30, 2019 to $403,639 for the
year ending June 30, 2020. The Company booked approximately
$194,800 in marketing and distribution partnerships it determined
would benefit operations for 2020 and beyond. Due to circumstances,
including the global coronavirus pandemic, it does not appear these
certain distribution partnerships will be as beneficial to the
Company as envisioned when entered. As a result, the Company is
reporting amortization of intangible assets of $500,000 and a
one-time impairment expense of $500,000 in March of 2020. In April,
2020, the Company successfully negotiated a Debt Incentive
Agreement with a creditor to whom it owed $731,118, most of which
is in conjunction with this impaired asset. This Debt Incentive
Agreement provides for the elimination of the entire debt should
the Company make payments prior to December 1, 2020 totaling
$166,224 in cash, and approximately 4,000 pints of ice cream.
Because this reduction in debt is conditional, the full $731,118 is
currently included in the liabilities section of our balance sheet,
and full expense is reported on our income statement. Should the
Company make the payments and retire the debt successfully prior to
December 1, 2020, the Company would realize a Gain on
Extinguishment of Debt of approximately $560,000 for fiscal
2021.
Selling,
general and administrative expenses decreased to $406,072 for the
year ending June 30, 2020 compared to $559,996 for the year ending
June 30, 2019. This includes items such as web hosting, web
marketing services, freight, warehousing, shipping, product
liability insurance, travel, and research & development of new
products. Professional fees decreased from $781,178 for the year
ending June 30, 2019 to $683,706 for the year ending June 30, 2020.
This includes legal fees, marketing consulting, and accounting and
auditor fees.
For
the year ended June 30, 2020, interest expense was $441,422
compared to the year ended June 30, 2019 when we reported interest
expense of $179,028. For the year ended June 30, 2020, we recorded
a loss on debt extinguishment upon note conversion of $395,781
compared to the year ended June 30, 2019 when we recorded a loss on
debt extinguishment upon note conversion of $0. For the year ended
June 30, 2020, we recorded a change in fair value of derivative
liability of ($858,774) compared to the year ended June 30, 2019
when recorded a change in fair value of derivative liability of
712,627. For the year ended June 30, 2020, we recorded an
amortization of beneficial conversion feature of $1,709,759
compared to the year ended June 30, 2019 when recorded an
amortization of beneficial conversion feature of $1,794,359. A
significant portion of these losses recorded in both years stems
from the accounting treatment applied to financing
activities.
Net
Loss
For
the year ended June 30, 2020, we had a net loss of $4,412,063
compared to the year ended June 30, 2019 when we had a net loss of
$4,598,343. A significant portion of the losses recorded in both
years stems from the accounting treatment applied to financing
activities. Operating losses for the year ended June 30, 2020 were
$2,723,875 and $1,911,550 for the year ended June 30,
2019.
Customers
Our
customers consist primarily of supermarkets and entities that
distribute ice cream products to supermarkets and other retail
outlets. In FY 2020, we had one customer that accounted for
approximately 41% of our Gross Sales. Eight other customers each
accounted for between 3.7% and 9.7% of our Gross Sales. In FY 2019,
two customers made up over 10% of Gross Sales.
Vendors
During
the year ended June 30, 2020 one vendor accounted for more than 10%
of our operating expenses. During the year ended June 30, 2019, two
vendors accounted for more than 10% of our operating
expenses.
LIQUIDITY
AND CAPITAL RESOURCES
As of
June 30, 2020, we had cash on hand of $197,622, accounts receivable
of $61,013, and inventory value of $275,605. As of June 30, 2019,
we had cash on hand of $30,142, accounts receivable of $45,086, and
inventory value of $406,439. The increase in accounts receivable is
due to an increase in overall sales activity relating to the
expanded sales and distribution of Nightfood ice cream. The
decrease in inventory is due to production scheduling and inventory
management. The Company has run multiple production runs subsequent
to June 30, 2020 and prior to the date of this filing to continue
to meet customer demand, and has additional production planned on
an ongoing basis to continue to replenish inventory as existing
product is used to fulfill customer orders.
During
the year ended June 30, 2019, we raised $50,000 through the private
sale of our common stock. During the year period ended June 30,
2020, there were no private sales of common stock
recorded.
As of
June 30, 2020, we had accounts payable of $1,286,149 compared to
$496,809 on June 30, 2019. This increase is due primarily to
certain marketing partnerships, slotting fees, and inventory
production. In April, 2020, the Company successfully negotiated a
Debt Incentive Agreement with a creditor to whom it owed $731,118.
This Debt Incentive Agreement provides for the elimination of the
entire debt should the Company make payments prior to December 1,
2020 totaling $166,224 in cash, and approximately 4,000 pints of
ice cream. Because this reduction in debt is conditional, the full
$731.118 is currently included in the liabilities section of our
balance sheet. Should the Company make the payments and retire the
debt during calendar 2020, the Company would realize a Gain on
Extinguishment of Debt of approximately $560,000 for Fiscal
2021.
GOING
CONCERN
Since
our inception, we have sustained operating losses. During the year
ended June 30, 2020, we incurred a net loss of $4,412,063 and had a
total stockholders’ deficit of $4,481,147.
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 as we continue to expand distribution. The Company is
continuing to raise capital through private placement of our common
stock, debt, and the use of convertible debt to finance the
Company’s operations, of which it can give no assurance of success.
However, we believe that our current capitalization structure,
combined with the continued expansion of operations, will enable us
to achieve successful financings to continue our growth.
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.
During
the year ended June 30, 2020, net cash used in operating activities
totaled $1,531,084 compared to $1,567,227 for the year ended June
30, 2019
During
the year ended June 30, 2020 and, there was an outflow of $333,333
as part of investing activities. During the year ended 2019
respectively, there was not any net cash provided or expended
relating to investing activities.
During the
year ended June 30, 2020, net cash aggregating $2,031,897 was
provided by financing activities, which represents $2,028,000 from
the issuance of convertible debt and $3,897 in new short-term debt
related to a new line of credit the Company secured in March during
the initial phases of the COVID lockdowns.
For
the year ended June 30, 2019, net cash aggregating $1,548,928 was
provided by financing activities, which represents net proceeds of
$50,000 from private sales of our common stock including issuance
of warrants, $1,602,005 from the issuance of convertible debt
($102,077 of which was used to repay older debt), and required
principal payments of $1,000 of our bank loan.
From
our inception in January 2010 through June 30, 2020, we have
generated an accumulated deficit of approximately $17,631,122.
Assuming we raise additional funds and continue operations, it is
expected we would incur additional operating losses during the
course of fiscal 2021 and possibly thereafter. We plan to continue
to pay or satisfy existing obligation and commitments and finance
our operations, as we have in the past, primarily through the sale
of our securities and other forms of external financing until such
time that we are able to generate sufficient funds from the sale of
our products to finance our operations, of which we can give no
assurance.
Funds
on hand are not sufficient to fund our operations and we intend to
rely on debt and the sale of stock in private placements to
increase liquidity and, we anticipate deriving additional revenue
from product sales in fiscal 2021, but we cannot at this time
quantify the amount. If we are unable to raise cash through the
sale of our stock, we may be required to severely restrict our
operations.
During
Fiscal Year 2020, the Company entered into convertible promissory
notes with one lender with principal totaling $2,148,400. We
consider our relationship with this lender to be excellent. They
have been providing financing for operations for over thirty-six
months, and have had conversion rights for over thirty-six months
as well through acquisition of older debt. The lender has an
understanding of our capital needs for future operations, although
no assurances can be given that they will continue to provide the
necessary capital needed for national distribution.
Effective
May 6, 2015, the Company entered into a consulting agreement with
Sean Folkson. The agreement was retroactive to January 1st, 2015.
In exchange for services provided to the Company by Folkson, the
Company agreed to pay Folkson $6,000 monthly. This compensation
expense started accruing on January 1, 2015, and accrued on a
monthly basis through June of 2020.
In
June of 2018, and again in June of 2019, the Company entered into
updated consulting agreements with Folkson, which included a
modified compensation structure. Each new Consulting Agreement
contained the identical cash compensation allowance of $6,000
monthly. In addition, Folkson would earn Warrants with a strike
price of $.50 or $1 when the Company hit certain revenue
milestones. All Warrants earned under Folkson’s current agreement
would convert into restricted shares, shall carry a cashless
provision, and must be exercised within 90 days of the filing of
the 10Q or 10K on which such revenues are reported.
In
December, 2017, Folkson elected to purchase 80,000 warrants to
acquire shares of NGTF stock with a strike price of $.20 and a term
of 36 months. To acquire these warrants Folkson paid $.15 per
warrant, totaling $12,000, treated as a $12,000 reduction to the
amount owed to Folkson. In November, 2018, Folkson exercised an
existing warrant option and received 400,000 shares of our common
stock in exchange for a $120,000 reduction in the amount of accrued
consulting fees he was owed. This activity resulted in a decrease
in related party accruals of $164,000.
OFF-BALANCE
SHEET TRANSACTIONS
We
currently have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on
our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures
or capital resources.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements required by Item 8 are presented in the
following order:
TABLE
OF CONTENTS
Nightfood
Holdings, Inc.
Consolidated
Financial Statements
For
the years ended June 30, 2020 and 2019
Report of Independent
Registered Public Accounting Firm
The Stockholders and the Board of Directors of
Nightfood Holdings, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Nightfood Holdings, Inc. and Subsidiaries (collectively, the
“Company”) as of June 30, 2020 and 2019, and the related
consolidated statements of operations, changes in stockholders’
deficit and cash flows for each of the two years in the period
ended June 30, 2020, and the related notes (collectively referred
to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in
all material respects, the financial position of the Company at
June 30, 2020 and 2019, and the results of its operations and its
cash flows for each of the two years in the period ended June 30,
2020, in conformity with U.S. generally accepted accounting
principles.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 3 to the consolidated financial
statements, the Company has suffered recurring losses from
operations, will require additional capital to fund its current
operating plan, and has an accumulated deficit that raise
substantial doubt exists about the Company’s ability to continue as
a going concern. Management’s plans regarding these matters are
also described in Note 3. The consolidated financial statements do
not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome
of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
We have served as the Company’s auditor since 2014.
New York, NY
October 13, 2020
Nightfood Holdings,
Inc.
CONSOLIDATED
BALANCE SHEETS
| |
|
June
30, |
|
|
June
30, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
| ASSETS |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
| Cash |
|
$ |
197,622 |
|
|
$ |
30,142 |
|
| Accounts
receivable (net of allowance of $0 and $0,
respectively) |
|
|
61,013 |
|
|
|
45,086 |
|
| Inventories |
|
|
275,605 |
|
|
|
406,439 |
|
|
Other
current assets |
|
|
398,085 |
|
|
|
1,000 |
|
|
Total
current assets |
|
|
932,325 |
|
|
|
482,667 |
|
| |
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
932,325 |
|
|
$ |
482,667 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
1,286,149 |
|
|
$ |
496,809 |
|
| Accrued
expense-related party |
|
|
9,974 |
|
|
|
33,974 |
|
| Accrued
interest |
|
|
192,625 |
|
|
|
- |
|
| Convertible
notes payable-net of debt discounts and unamortized beneficial
conversion feature |
|
|
2,330,189 |
|
|
|
1,117,741 |
|
| Fair
value of derivative liabilities |
|
|
1,590,638 |
|
|
|
1,306,748 |
|
|
Short-term
borrowings- line of credit |
|
|
3,897 |
|
|
|
- |
|
|
Total
current liabilities |
|
|
5,413,472 |
|
|
|
2,955,272 |
|
| |
|
|
|
|
|
|
|
|
| Commitments
and contingencies |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’
deficit: |
|
|
|
|
|
|
|
|
|
Preferred
stock, ($0.001 par value, 1,000,000 shares authorized, and
1,000 issued and outstanding as of June 30, 2020 and
2019, respectively) |
|
|
1 |
|
|
|
1 |
|
|
Common
stock, ($0.001 par value, 200,000,000 shares authorized, and
61,796,680 issued and outstanding as of June 30, 2020
and 53,773,856 issued and outstanding as of June 30, 2019,
respectively) |
|
|
61,797 |
|
|
|
53,774 |
|
|
|
|
|
|
|
|
|
|
|
| Additional
paid in capital |
|
|
13,088,177 |
|
|
|
10,692,679 |
|
|
Accumulated
deficit |
|
|
(17,631,122 |
) |
|
|
(13,219,059 |
) |
|
Total
stockholders’ deficit |
|
|
(4,481,147 |
) |
|
|
(2,472,605 |
) |
|
Total
Liabilities and Stockholders’ Deficit |
|
$ |
932,325 |
|
|
$ |
482,667 |
|
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood Holdings,
Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
For
the |
|
|
For
the |
|
| |
|
Year |
|
|
Year |
|
| |
|
Ended |
|
|
Ended |
|
| |
|
June
30,
2020 |
|
|
June
30,
2019 |
|
| |
|
|
|
|
|
|
|
Revenues,
net of slotting and promotion |
|
$ |
241,673 |
|
|
$ |
352,172 |
|
| |
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
| Cost
of product sold |
|
|
472,131 |
|
|
|
190,251 |
|
| Amortization
of intangible assets |
|
|
500,000 |
|
|
|
- |
|
| Impairment
of intangible assets |
|
|
500,000 |
|
|
|
|
|
| Advertising
and promotional |
|
|
403,639 |
|
|
|
732,297 |
|
| Selling,
general and administrative |
|
|
406,072 |
|
|
|
559,996 |
|
|
Professional
Fees |
|
|
683,706 |
|
|
|
781,178 |
|
|
Total
operating expenses |
|
|
2,965,548 |
|
|
|
2,263,722 |
|
| |
|
|
|
|
|
|
|
|
| Loss
from operations |
|
|
(2,723,875 |
) |
|
|
(1,911,550 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
expenses |
|
|
|
|
|
|
|
|
| Interest
expense – bank debt |
|
|
463 |
|
|
|
- |
|
| Interest
expense – shareholder |
|
|
281,387 |
|
|
|
95,805 |
|
| Interest
expense – other |
|
|
159,572 |
|
|
|
83,223 |
|
| Loss
on debt extinguishment upon note conversion, net |
|
|
395,781 |
|
|
|
- |
|
| Change
in fair value of derivative liability |
|
|
(858,774 |
) |
|
|
712,627 |
|
| Amortization
of Beneficial Conversion Feature |
|
|
1,709,759 |
|
|
|
1,794,359 |
|
|
Other
Expense |
|
|
- |
|
|
|
779 |
|
|
Total
other expenses |
|
|
1,688,188 |
|
|
|
2,686,793 |
|
| |
|
|
|
|
|
|
|
|
|
Provision
for income tax |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(4,412,063 |
) |
|
$ |
(4,598,343 |
) |
| |
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share |
|
$ |
(0.08 |
) |
|
$ |
(0.09 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted
average shares of capital outstanding – basic and
diluted |
|
|
57,443,347 |
|
|
|
47,827,114 |
|
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood
Holdings, Inc.
STATEMENTS OF CHANGES
IN STOCKHOLDERS’ DEFICIT
Years
ended June 30, 2020 and 2019
| |
|
Common
Stock |
|
|
Preferred
Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
| |
|
Shares |
|
|
Par
Value |
|
|
Shares |
|
|
Par
Value |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
|
Balance,
July 1, 2018 |
|
|
42,608,329 |
|
|
|
42,608 |
|
|
|
- |
|
|
|
- |
|
|
|
5,919,152 |
|
|
|
(8,620,714 |
) |
|
|
(2,658,954 |
) |
|
Common
stock issued for services |
|
|
483,808 |
|
|
|
484 |
|
|
|
1,000 |
|
|
|
1 |
|
|
|
345,172 |
|
|
|
- |
|
|
|
345,657 |
|
|
Common
stock issued for interest |
|
|
667,959 |
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
95,137 |
|
|
|
- |
|
|
|
95,805 |
|
|
Common
stock issued for cash |
|
|
84,389 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
49,916 |
|
|
|
- |
|
|
|
50,000 |
|
|
Common
stock issued for accounts payable |
|
|
281,957 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
63,568 |
|
|
|
|
|
|
|
63,850 |
|
| Issuance
of warrants |
|
|
400,000 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
164,426 |
|
|
|
- |
|
|
|
164,826 |
|
|
Issuance
of common stock for debt |
|
|
9,247,414 |
|
|
|
9,248 |
|
|
|
|
|
|
|
|
|
|
|
1,318,705 |
|
|
|
- |
|
|
|
1,327,953 |
|
|
Loss
on fair value of shares issued upon note conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
2,736,601 |
|
|
|
- |
|
|
|
2,736,601 |
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,598,343 |
) |
|
|
(4,598,343 |
) |
|
Balance,
June 30, 2019 |
|
|
53,773,856 |
|
|
$ |
53,774 |
|
|
|
1,000 |
|
|
|
1 |
|
|
$ |
10,692,677 |
|
|
$ |
(13,219,059 |
) |
|
$ |
(2,472,605 |
) |
|
Common
stock issued for services |
|
|
1,385,990 |
|
|
|
1,386 |
|
|
|
|
|
|
|
|
|
|
|
307,382 |
|
|
|
- |
|
|
|
308,768 |
|
|
Common
stock issued for interest |
|
|
580,666 |
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
88,181 |
|
|
|
- |
|
|
|
88,762 |
|
|
Issuance
of common stock for debt |
|
|
6,056,168 |
|
|
|
6,056 |
|
|
|
|
|
|
|
|
|
|
|
954,944 |
|
|
|
- |
|
|
|
961,000 |
|
| Issuance
of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,990 |
|
|
|
|
|
|
|
67,990 |
|
|
Loss
on fair value of shares issued upon notes conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
977,000 |
|
|
|
- |
|
|
|
977,000 |
|
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(4,412,063 |
) |
|
|
(4,412,063 |
) |
|
Balance,
June 30, 2020 |
|
|
61,796,680 |
|
|
|
61,797 |
|
|
|
1,000 |
|
|
|
1 |
|
|
|
13,088,177 |
|
|
|
(17,631,122 |
) |
|
|
(4,481,147 |
) |
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood Holdings,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
For
The
Year
Ended
June 30,
2020 |
|
|
For
The
Year
Ended
June 30,
2019 |
|
| CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
| Net
loss |
|
$ |
(4,412,063 |
) |
|
$ |
(4,598,343 |
) |
| Adjustments
to reconcile net loss to net cash used in operations
activities: |
|
|
|
|
|
|
|
|
| Stock
issued for services |
|
|
308,768 |
|
|
|
345,656 |
|
| Amortization
of debt discount and deferred financing fees |
|
|
1,709,759 |
|
|
|
1,794,359 |
|
| Amortization
of intangible assets |
|
|
500,000 |
|
|
|
- |
|
| Deferred
financing fees and financing costs |
|
|
159,572 |
|
|
|
- |
|
| Warrants
issued for services |
|
|
67,990 |
|
|
|
44,826 |
|
| Loss
on debt extinguishment upon note conversion, net |
|
|
395,781 |
|
|
|
- |
|
| Change
in derivative liability |
|
|
(858,774 |
) |
|
|
795,699 |
|
| Stock
issued for interest |
|
|
88,762 |
|
|
|
95,805 |
|
| Impairment
expense |
|
|
500,000 |
|
|
|
- |
|
| Change
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
receivable |
|
|
(15,927 |
) |
|
|
(45,086 |
|
| Inventories |
|
|
130,834 |
|
|
|
(303,230 |
) |
| Other
current assets |
|
|
(397,085 |
) |
|
|
2,210 |
|
| Accounts
payable |
|
|
122,673 |
|
|
|
344,878 |
|
| Accrued
expenses |
|
|
168,626 |
|
|
|
(44,001 |
) |
| |
|
|
|
|
|
|
|
|
| Net
cash used in operating activities |
|
|
(1,531,084 |
) |
|
|
(1,567,227 |
) |
| |
|
|
|
|
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Cash
paid for purchase of intangible asset |
|
|
(333,333 |
) |
|
|
- |
|
| Net
cash provided by investing activities |
|
|
(333,333 |
) |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Proceeds
from the sale of common stock |
|
|
- |
|
|
|
50,000 |
|
| Proceeds
from the issuance of debt-net |
|
|
2,028,000 |
|
|
|
1,602,005 |
|
| Repayment
of convertible debt |
|
|
- |
|
|
|
(102,076 |
) |
| Repayment
of short-term debt |
|
|
3,897 |
|
|
|
(1,000 |
) |
| Net
cash provided by financing activities |
|
|
2,031,897 |
|
|
|
1,548,929 |
|
| |
|
|
|
|
|
|
|
|
| NET
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
167,480 |
|
|
|
18,298 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents, beginning of year |
|
|
30,142 |
|
|
|
48,440 |
|
| Cash
and cash equivalents, end of year |
|
$ |
197,622 |
|
|
$ |
30,142 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
| Cash
Paid For: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
- |
|
|
$ |
- |
|
| Income
taxes |
|
$ |
- |
|
|
$ |
- |
|
| Summary
of Non-Cash Investing and Financing Information: |
|
|
|
|
|
|
|
|
| Initial
derivative liability and Debt discount due to beneficial conversion
feature on notes issued |
|
$ |
1,684,711 |
|
|
$ |
1,482,314 |
|
| Stock
issued for conversion of debt |
|
$ |
961,000 |
|
|
$ |
1,327,953 |
|
| Derivative
liability reclassed to loss on extinguishment of debt upon notes
conversion |
|
$ |
581,219 |
|
|
$ |
|
|
| Intangible
assets acquired and adjusted in accounts payable
balance |
|
$ |
666,667 |
|
|
$ |
- |
|
| Stock
issued for interest |
|
$ |
88,762 |
|
|
$ |
95,805 |
|
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood Holdings,
Inc.
NOTES
TO 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 ice cream
specifically formulated for nighttime snacking to help consumers
satisfy nighttime cravings in a better, healthier, more sleep
friendly way. Munchies has acquired a portfolio of
intellectual property around the brand name Half-Baked, and is
seeking to license such property to operating partners in the CBD
and marijuana space. |
| |
|
● |
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).
The
consolidated financial statements include the accounts of Nightfood
Holdings, Inc. and its wholly owned subsidiaries, NightFood, Inc.
and MJ Munchies, Inc. The Company consolidates all majority-owned
and controlled subsidiaries in accordance with applicable
standards. All material intercompany accounts and balances have
been eliminated in consolidation.
|
| |
|
|
|
| |
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 beneficial conversion features,
derivative liabilities, depreciation and amortization, the
valuation for non-cash issuances of common stock, and the website,
income taxes and contingencies, among others. |
| |
|
|
|
| |
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
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. |
| |
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 |
|
The Company reviews all of the Financial Accounting Standard
Board’s updates periodically to ensure the Company’s compliance of
its accounting policies and disclosure requirements to the
Codification Topics.
In May 2014, the Financial Accounting Standards Board (FASB) issued
ASU 2014-09, Revenue from Contracts with Customers, to establish
ASC Topic 606, (ASC 606). ASU 2014-09 supersedes the revenue
recognition requirements in ASC Topic 605, Revenue Recognition and
most industry-specific guidance throughout the Industry Topics of
the Codification. The core principle of the guidance is 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 guidance 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, the standard
requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with
customers.
The standard became effective for us beginning on July 1, 2018 and
did not have a material impact on our financial statements.
In January 2016, the FASB issued ASU 2016-01,Financial Instruments
– Overall (Subtopic 825-10) – Recognition and Measurement of
Financial Assets and Financial Liabilities, which requires all
investments in equity securities with readily determinable fair
value to be measured at fair value with changes in the fair value
recognized through net income (other than those accounted for under
the equity method of accounting or those that result in
consolidation of the investee). ASU 2016-01 is intended to enhance
the reporting model for financial instruments to provide users of
financial statements with more decision-useful information and
removes the requirement to disclose the methods and significant
assumptions used to estimate the fair value for financial
instruments measured at amortized cost on the balance sheet. For
public companies, the new standard is effective for annual periods
beginning after December 15, 2017, including interim periods within
the fiscal year. For all other entities, including emerging growth
companies, ASU 2016-01 is effective for annual periods beginning
after December 15, 2018, and interim periods within annual periods
beginning after December 15, 2019. The Company evaluated the impact
on the financial statements and implemented the provisions of ASU
2016-01 for the annual financial statements for the year ended June
30, 2020. This new standard did not have a material impact on
our financial statements or related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842) and subsequently amended the guidance relating largely to
transition considerations under the standard in January 2017, to
increase transparency and comparability among organizations by
requiring the recognition of right-of-use (“ROU”) assets and lease
liabilities on the balance sheet. Most prominent among the changes
in the standard is the recognition of ROU assets and lease
liabilities by lessees for those leases classified as operating
leases under current U.S. GAAP. Under the standard, disclosures are
required to meet the objective of enabling users of financial
statements to assess the amount, timing, and uncertainty of cash
flows arising from leases. We will be required to recognize and
measure leases existing at, or entered into after, the beginning of
the earliest comparative period presented using a modified
retrospective approach, with certain practical expedients
available.
The standard became effective for us beginning July 1, 2019. We
have reviewed this and have determined that there is no material
impact on our financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per
Share, Distinguishing Liabilities from Equity and Derivatives and
Hedging, which changes the accounting and earnings per share
for certain instruments with down round features. The amendments in
this ASU should be applied using a cumulative-effect adjustment as
of the beginning of the fiscal year or retrospective adjustment to
each period presented and is effective for annual periods beginning
after December 15, 2018, and interim periods within those
periods. We adopted this guidance effective July 1, 2019.
The adoption of this
guidance did not materially impact our financial statements and
related disclosures.
In February 2018, the Financial Accounting Standards Board (“FASB”)
issued ASC Update No 2018-02 (Topic 220) Income Statement –
Reporting Comprehensive Income: Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income. This ASC
update allows for a reclassification into retained earnings of the
stranded tax effects in accumulated other comprehensive income
(“AOCI”) resulting from the enactment of the Tax Cuts and Jobs Act
(“TCJA”). The updated guidance is effective for interim and annual
periods beginning after December 15, 2018. We adopted this
guidance effective July 1, 2019. The adoption of this guidance did
not materially impact our financial statements and related
disclosures.
|
| |
|
|
In
June 2018, the FASB issued ASU 2018-07, Compensation - Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, to expand the scope of Topic 718 to include
share-based payment transactions for acquiring goods and services
from nonemployees and supersedes the guidance in Subtopic 505-50,
Equity - Equity-Based Payments to Non-Employees. Under ASU 2018-07,
equity-classified nonemployee share-based payment awards are
measured at the grant date fair value on the grant date The
probability of satisfying performance conditions must be considered
for equity-classified nonemployee share-based payment awards with
such conditions. ASU 2018-07 is effective for fiscal years
beginning after December 15, 2018, with early adoption permitted.
We adopted this guidance effective July 1, 2019. The adoption of this guidance did
not materially impact our financial statements and related
disclosures.
In
July 2018, the FASB issued ASU 2018-09 to provide clarification and
correction of errors to the Codification. The amendments in this
update cover multiple Accounting Standards Updates. Some topics in
the update may require transition guidance with effective dates for
annual periods beginning after December 15, 2018. We adopted this
guidance effective July 1, 2019. The adoption of this guidance did
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.
|
| |
|
|
|
| |
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.
|
| |
|
|
|
| |
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. |
| |
|
|
|
| |
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. |
| |
|
|
|
| |
Advertising
Costs |
● |
Advertising
costs are expensed when incurred and are included in advertising
and promotional expense in the accompanying statements of
operations. Included in this category are expenses related to
public relations, investor relations, new package design, website
design, design of promotional materials, cost of trade shows, cost
of products given away as promotional samples, and paid
advertising. The Company recorded advertising costs of
$403,639 and $732,297 for the years ended June 30, 2020 and 2019,
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 and direct to consumer. |
| |
|
● |
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 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 June 30, 2020 and 2019
the Company did not have any uninsured cash deposits. |
| |
|
|
|
| |
|
|
|
| |
Receivables
Concentration |
● |
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.
|
| |
|
|
|
| |
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
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. |
ITEM 9. CHANGES AND
DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND
PROCEDURES