U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended: September 30, 2020
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to____________
Commission File Number: 000-55406
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 whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
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. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12(b)-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each
class |
|
Trading Symbol(s) |
|
Name of each exchange on which
registered |
| Nightfood Holdings, Inc Common Stock |
|
NGTF |
|
OTCQB |
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date. At
November 20, 2020, the registrant had outstanding 66,741,706
shares of common
stock.
Table of Contents
Nightfood Holdings, Inc.
Financial Statements
For the three months ended September 30, 2020 and 2019
Item 1. Financial
Statements
Nightfood Holdings,
Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
|
September
30, |
|
|
June 30, |
|
| |
|
2020 |
|
|
2020 |
|
| |
|
(Unaudited) |
|
|
|
|
| ASSETS |
|
|
|
|
|
|
| Current
assets: |
|
|
|
|
|
|
| Cash |
|
$ |
8,360 |
|
|
$ |
197,622 |
|
| Accounts
receivable – net |
|
|
65,053 |
|
|
|
61,013 |
|
| Inventories |
|
|
213,384 |
|
|
|
275,605 |
|
| Other
current assets |
|
|
272,032 |
|
|
|
398,085 |
|
| Total
current assets |
|
|
558,829 |
|
|
|
932,325 |
|
| |
|
|
|
|
|
|
|
|
| Total
assets |
|
$ |
558,829 |
|
|
$ |
932,325 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
1,147,502 |
|
|
$ |
1,286,149 |
|
| Accrued
expense-related party |
|
|
9,974 |
|
|
|
9,974 |
|
| Accrued
expense |
|
|
56,923 |
|
|
|
- |
|
| Accrued
interest |
|
|
214,402 |
|
|
|
192,625 |
|
| Short
term borrowings – line of credit |
|
|
2,794 |
|
|
|
3,897 |
|
| Convertible
notes payable – net of discount |
|
|
2,348,239 |
|
|
|
2,330,189 |
|
| Fair
value of derivative liabilities |
|
|
1,357,245 |
|
|
|
1,590,638 |
|
| Total
current liabilities |
|
$ |
5,137,079 |
|
|
|
5,413,472 |
|
| |
|
|
|
|
|
|
|
|
| Commitments
and contingencies |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’
deficit: |
|
|
|
|
|
|
|
|
| Preferred
stock, ($0.001 par value, 1,000,000 shares authorized, and 1,000
issued and outstanding as of September 30, 2020 and 1,000
outstanding as of June 30, 2020, respectively) |
|
|
1 |
|
|
|
1 |
|
| Common
stock, ($0.001 par value, 200,000,000 shares authorized, and
65,085,597 issued and outstanding as of September 30, 2020 and
61,796,680 outstanding as of June 30, 2020,
respectively) |
|
|
65,086 |
|
|
|
61,797 |
|
| Additional
paid in capital |
|
|
13,931,609 |
|
|
|
13,088,177 |
|
| Accumulated
deficit |
|
|
(18,574,946 |
) |
|
|
(17,631,122 |
) |
| Total
stockholders’ deficit |
|
|
(4,578,250 |
) |
|
|
(4,481,147 |
) |
| Total
Liabilities and Stockholders’ Deficit |
|
$ |
558,829 |
|
|
$ |
932,325 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings,
Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
| |
|
For the
three months
ended
September 30,
2020 |
|
|
For the
three months
ended
September 30,
2019 |
|
|
Revenues |
|
$ |
126,983 |
|
|
$ |
46,497 |
|
| |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
| Cost of product
sold |
|
|
229,696 |
|
|
|
146,500 |
|
| Selling, general and
administrative |
|
|
433,330 |
|
|
|
28,107 |
|
| Amortization of intangibles |
|
|
- |
|
|
|
166,667 |
|
| Total operating
expenses |
|
|
663,026 |
|
|
|
341,274 |
|
| |
|
|
|
|
|
|
|
|
| Loss from
operations |
|
|
(536,043 |
) |
|
|
(294,777 |
) |
| |
|
|
|
|
|
|
|
|
| Interest expense –
bank debt |
|
|
337 |
|
|
|
- |
|
| Interest expense –
shareholder |
|
|
83,955 |
|
|
|
26,598 |
|
| Loss on
extinguishment of debt upon notes conversion |
|
|
188,397 |
|
|
|
- |
|
| Change in derivative
liability |
|
|
(207,524 |
) |
|
|
(190,062 |
) |
| Interest expense –
other |
|
|
322,739 |
|
|
|
382,267 |
|
| Other
expense- non cash |
|
|
19,877 |
|
|
|
- |
|
| Total other
expense |
|
|
407,781 |
|
|
|
218,803 |
|
| |
|
|
|
|
|
|
|
|
|
Provision for income tax |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(943,824 |
) |
|
$ |
(513,580 |
) |
| |
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted
average shares of capital outstanding – basic and diluted |
|
|
63,442,930 |
|
|
|
54,482,700 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings,
Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ DEFICIT
For the three months ended September 30, 2020 and
2019
| |
|
Common Stock |
|
|
Preferred Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
| |
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
|
Balance, June 30, 2019 |
|
|
53,773,856 |
|
|
$ |
53,774 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
10,692,679 |
|
|
$ |
(13,219,059 |
) |
|
$ |
(2,472,605 |
) |
|
Common stock issued for services |
|
|
122,762 |
|
|
|
123 |
|
|
|
- |
|
|
|
- |
|
|
|
49,274 |
|
|
|
- |
|
|
|
49,397 |
|
|
Common stock issued for interest |
|
|
110,404 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
26,487 |
|
|
|
- |
|
|
|
26,597 |
|
|
Issuance of common stock for debt conversion |
|
|
1,409,349 |
|
|
|
1,409 |
|
|
|
|
|
|
|
|
|
|
|
335,591 |
|
|
|
- |
|
|
|
337,000 |
|
|
Derivative liability reclassed upon debt conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
213,739 |
|
|
|
- |
|
|
|
213,739 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(513,580 |
) |
|
|
(513,580 |
) |
|
Balance, Three Months ended September 30, 2019 |
|
|
55,416,371 |
|
|
$ |
55,416 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
11,317,770 |
|
|
$ |
(13,732,639 |
) |
|
$ |
(2,359,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020 |
|
|
61,796,680 |
|
|
$ |
61,797 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
13,088,177 |
|
|
$ |
(17,631,122 |
) |
|
$ |
(4,481,147 |
) |
|
Common stock issued for interest |
|
|
312,938 |
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
36,165 |
|
|
|
- |
|
|
|
36,478 |
|
|
Issuance of common stock for debt conversion |
|
|
2,975,979 |
|
|
|
2,976 |
|
|
|
|
|
|
|
|
|
|
|
344,024 |
|
|
|
- |
|
|
|
347,000 |
|
| Issuance
of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,711 |
|
|
|
|
|
|
|
65,711 |
|
|
Loss on fair value of shares issued upon debt conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
397,532 |
|
|
|
- |
|
|
|
397,532 |
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943,824 |
) |
|
|
(943,824 |
) |
| |
|
|
65,085,597 |
|
|
$ |
65,086 |
|
|
$ |
1,000 |
|
|
$ |
1 |
|
|
$ |
13,931,609 |
|
|
|
(18,574,946 |
) |
|
$ |
(4,578,250 |
) |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings,
Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
| |
|
For
the
three months
ended
September 30,
2020 |
|
|
For
the
three months
ended
September 30,
2019 |
|
| CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
| Net
loss |
|
$ |
(943,824 |
) |
|
$ |
(513,580 |
) |
| Adjustments
to reconcile net loss to net cash used in operations
activities: |
|
|
|
|
|
|
|
|
| Warrants
issued for services |
|
|
65,711 |
|
|
|
- |
|
| Stock
issued for services |
|
|
- |
|
|
|
49,397 |
|
| Stock
issued for interest |
|
|
- |
|
|
|
26,598 |
|
| Amortization
of debt discount |
|
|
322,739 |
|
|
|
382,267 |
|
| Deferred
financing fees and financing cost |
|
|
45,577 |
|
|
|
- |
|
| Change
in derivative liability |
|
|
(207,524) |
|
|
|
(190,062 |
) |
| Loss on extinguishment of debt
upon notes conversion |
|
|
188,397 |
|
|
|
- |
|
| Amortization
of intangible assets |
|
|
- |
|
|
|
166,667 |
|
| Change
in operating assets and liabilities |
|
|
|
|
|
|
|
|
| Change
in accounts receivable |
|
|
(4,040 |
) |
|
|
(135,967 |
) |
| Change
in inventory |
|
|
62,221 |
|
|
|
(30,583 |
) |
| Change
in other current assets |
|
|
126,053 |
|
|
|
(520,000 |
) |
| Change
in accounts payable |
|
|
(81,725 |
) |
|
|
804,181 |
|
| Change
in accrued expenses |
|
|
58,256 |
|
|
|
(12,001 |
) |
| Net
cash used in operating activities |
|
|
(368,159 |
) |
|
|
26,916 |
|
| |
|
|
|
|
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Cash
paid for purchase of intangible assets |
|
|
- |
|
|
|
(1,000,000 |
) |
| Net
cash used in investing activities |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Proceeds
from the issuance of debt-net |
|
|
180,000 |
|
|
|
1,050,000 |
|
| Borrowings
on line of credit |
|
|
(1,103 |
) |
|
|
- |
|
| Net
cash provided by financing activities |
|
|
178,897 |
|
|
|
1,050,000 |
|
| |
|
|
|
|
|
|
|
|
| NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(189,262 |
) |
|
|
76,916 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents, beginning of period |
|
|
197,622 |
|
|
|
30,142 |
|
| Cash
and cash equivalents, end of period |
|
$ |
8,360 |
|
|
$ |
107,058 |
|
| |
|
|
|
|
|
|
|
|
| Supplemental
Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
| Cash
Paid For: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
337
|
|
|
$ |
|
|
| Income
taxes |
|
$ |
- |
|
|
$ |
- |
|
| Summary
of Non-Cash Investing and Financing Information: |
|
|
|
|
|
|
|
|
| Initial
derivative liability and debt discount accounted |
|
$ |
126,029 |
|
|
$ |
845,903 |
|
| Derivative liability reclassed to
loss on extinguishment of debt upon notes conversion |
|
$ |
189,257 |
|
|
$ |
- |
|
| Stock
issued for conversion of debt |
|
$ |
347,000 |
|
|
$ |
337,000 |
|
| Stock
Issued for Interest |
|
$ |
36,478 |
|
|
$ |
26,597 |
|
| True-up
adjustment in debt discount and derivative liability |
|
$ |
37,360 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings,
Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
| 1. |
Description of
Business |
|
Nightfood Holdings, Inc. (the “Company”) is a
Nevada Corporation organized October 16, 2013 to acquire all of the
issued and outstanding shares of Nightfood, Inc., a New York
Corporation from its sole shareholder, Sean Folkson. All
of its operations are conducted by its two subsidiaries: Nightfood,
Inc. (“Nightfood”) and MJ Munchies, Inc. (“Munchies”). Nightfood’s
business model is to manufacture and distribute snack products
specifically formulated for nighttime snacking to help consumers
satisfy nighttime cravings in a better, healthier, more sleep
friendly way. Management believes Nightfood is the first
brand to achieve mainstream distribution of snacks focused on
better sleep, and expects the category of “sleep-friendly” snacking
to become an important segment of the total snacking market in
coming years. Munchies has acquired a portfolio of intellectual
property around the brand name Half-Baked, and intends to license
said IP to operators in the cannabis edibles space and other
related spaces. |
| |
|
|
|
| |
|
● |
The Company’s fiscal year end is June
30. |
| |
|
|
|
| |
|
● |
The
Company currently maintains its corporate address in Tarrytown, New
York. |
| 2. |
Summary of
Significant Accounting Policies |
● |
Management is responsible for the fair
presentation of the Company’s financial statements, prepared in
accordance with U.S. generally accepted accounting principles
(GAAP). |
| |
Interim
Financial Statements |
|
These unaudited condensed consolidated financial statements for the
three (3) months ended September 30, 2020 and 2019, respectively,
reflect all adjustments including normal recurring adjustments,
which, in the opinion of management, are necessary to present
fairly the financial position, results of operations and cash flows
for the periods presented in accordance with the accounting
principles generally accepted in the United States of America.
These interim unaudited condensed consolidated financial statements
should be read in conjunction with the Company’s consolidated
financial statements and notes thereto for the years ended June 30,
2020 and 2019, respectively, which are included in the Company’s
June 30, 2020 Annual Report on Form 10-K filed with the United
States Securities and Exchange Commission on October 13, 2020. The
Company assumes that the users of the interim financial information
herein have read, or have access to, the audited consolidated
financial statements for the preceding period, and that the
adequacy of additional disclosure needed for a fair presentation
may be determined in that context. The results of operations for
the three (3) months ended September 30, 2020 are not necessarily
indicative of results for the entire year ending June 30, 2021.
We made certain reclassifications to prior period amounts to
conform with the current year’s presentation. These
reclassifications did not have a material effect on our condensed
consolidated statement of financial position, results of operations
or cash flows.
|
| |
Use of
Estimates |
● |
The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Estimates are used in the determination of depreciation
and amortization, the valuation for non-cash issuances of common
stock, and the website, income taxes and contingencies, valuing
convertible notes for BCF and derivative liability, among
others. |
| |
Cash and
Cash Equivalents |
● |
The Company classifies as cash and cash
equivalents amounts on deposit in the banks and cash temporarily in
various instruments with original maturities of three months or
less at the time of purchase. |
| |
|
|
|
| |
Fair Value of Financial
Instruments |
● |
Statement of financial accounting standard FASB
Topic 820, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values of
financial instruments. The carrying amounts reported in the
statements of financial position for assets and liabilities
qualifying as financial instruments are a reasonable estimate of
fair value. |
| |
|
|
|
| |
Inventories |
● |
Inventories consisting of packaged food items and
supplies are stated at the lower of cost (FIFO) or net realizable
value, including provisions for spoilage commensurate with known or
estimated exposures which are recorded as a charge to cost of sales
during the period spoilage is incurred. The Company has no minimum
purchase commitments with its vendors. |
| |
Advertising
Costs |
● |
Advertising costs are expensed when
incurred and are included in advertising and promotional expense in
the accompanying statements of operations. Although not
traditionally thought of by many as “advertising costs”, the
Company includes expenses related to graphic design work, package
design, website design, domain names, and product samples in the
category of “advertising costs”. The Company reported advertising
costs of $185,289 and $198,270 for the three months ended September
30, 2020 and 2019, respectively Further, as discussed on footnote
3, due to the reclassification $396,250 expenses was reversed and
set off with the advertising costs incurred during
2019.
|
| |
|
|
|
| |
Income Taxes |
● |
The
Company has not generated any taxable income, and, therefore, no
provision for income taxes has been provided. |
| |
|
|
|
| |
|
● |
Deferred income taxes are reported for timing
differences between items of income or expense reported in the
financial statements and those reported for income tax purposes in
accordance with FASB Topic 740, “Accounting for Income Taxes”,
which requires the use of the asset/liability method of accounting
for income taxes. Deferred income taxes and tax benefits are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and
for tax loss and credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The Company provides for
deferred taxes for the estimated future tax effects attributable to
temporary differences and carry-forwards when realization is more
likely than not. |
| |
|
|
|
| |
|
● |
A
valuation allowance has been recorded to fully offset the deferred
tax asset even though the Company believes it is more likely than
not that the assets will be utilized. |
| |
|
|
|
| |
|
● |
The
Company’s effective tax rate differs from the statutory rates
associated with taxing jurisdictions because of permanent and
temporary timing differences as well as a valuation
allowance. |
| |
|
|
|
| |
Revenue
Recognition |
● |
The
Company generates its revenue by selling its nighttime snack
products wholesale to retailers and wholesalers. |
| |
|
● |
All sources of revenue are recorded pursuant to
FASB Topic 606 Revenue Recognition, to depict the transfer of
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services. This includes a five-step
framework that requires an entity to: (i) identify the contract(s)
with a customer, (ii) identify the performance obligations in the
contract, (iii) determine the transaction price, (iv) allocate the
transaction price to the performance obligations in the contract,
and (v) recognize revenue when the entity satisfies a performance
obligation. In addition, this revenue generation requires
disclosure of the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with
customers. |
| |
|
|
|
| |
|
● |
The
Company offers sales incentives through various programs,
consisting primarily of advertising related credits. The Company
records 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 September 30, 2020 and June 30, 2020, the
Company did not have any uninsured cash deposits. |
| |
Beneficial Conversion Feature |
● |
For conventional convertible debt where the rate of conversion is
below market value, the Company records any “beneficial conversion
feature” (“BCF”) intrinsic value as additional paid in capital and
related debt discount.
When the Company records a BCF, the relative fair value of the BCF
is recorded as a debt discount against the face amount of the
respective debt instrument. The discount is amortized over the life
of the debt. If a conversion of the underlying debt occurs, a
proportionate share of the unamortized amounts is immediately
expensed.
|
| |
|
|
|
| |
Debt Issue Costs |
● |
The
Company may pay debt issue costs in connection with raising funds
through the issuance of debt whether convertible or not or with
other consideration. These costs are recorded as debt discounts and
are amortized over the life of the debt to the statement of
operations as amortization of debt discount. |
| |
|
|
|
| |
Original Issue
Discount |
● |
If
debt is issued with an original issue discount, the original issue
discount is recorded to debt discount, reducing the face amount of
the note and is amortized over the life of the debt to the
statement of operations as amortization of debt discount. If a
conversion of the underlying debt occurs, a proportionate share of
the unamortized amounts is immediately expensed. |
| |
|
|
|
| |
Valuation of Derivative
Instruments |
● |
ASC
815 “Derivatives and Hedging” requires that embedded derivative
instruments be bifurcated and assessed, along with free-standing
derivative instruments such as warrants, on their issuance date and
measured at their fair value for accounting purposes. In
determining the appropriate fair value, the Company uses the
Trinomial Tree option pricing formula. Upon conversion of a note
where the embedded conversion option has been bifurcated and
accounted for as a derivative liability, the Company records the
shares at fair value, relieves all related notes, derivatives and
debt discounts and recognizes a net gain or loss on derivative
liability under the line item “change in derivative
liability”. |
| |
|
|
|
| |
Derivative Financial
Instruments |
● |
The
Company does not use derivative instruments to hedge exposures to
cash flow, market or foreign currency risks. The Company evaluates
all of its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and then is revalued at each
reporting date, with changes in fair value reported in the
consolidated statement of operations. For stock based derivative
financial instruments, Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in
convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Trinomial Tree option-pricing
model. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional
convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial
instruments. |
| |
|
|
|
| |
|
|
Once
determined, derivative liabilities are adjusted to reflect fair
value at the end of each reporting period. Any increase or decrease
in the fair value from inception is made quarterly and appears in
results of operations as a change in fair market value of
derivative liabilities. |
| |
Stock-Based
Compensation |
|
The Company accounts for share-based awards
issued to employees in accordance with FASB ASC 718. Accordingly,
employee share-based payment compensation is measured at the grant
date, based on the fair value of the award, and is recognized as an
expense over the requisite service period. Additionally,
share-based awards to non-employees are expensed over the period in
which the related services are rendered at their fair value. The
Company applies ASC 718, “Equity Based Payments to Non-Employees”,
with respect to options and warrants issued to
non-employees. |
| |
Customer
Concentration |
● |
During
the three months ended September 30, 2020, the Company had one
customer account for approximately 39% of the gross sales. One
other customer accounted for approximately 21% of gross sales, and
two other customers accounted for over 9% of gross
sales. During the three months ended September 30, 2019,
one customer accounted for approximately 34% of the gross sales
while two other customers accounted for over 10% of gross
sales. As the Company continues to grow its distribution
base, it is anticipated that revenue distribution will become less
concentrated. |
| |
|
|
|
| |
Vendor
Concentration |
|
During
the quarter ended June 30, 2020, three vendors accounted for more
than 10% of our operating expenses. During the quarter ended June
30, 2019, two vendors accounted for more than 10% of our operating
expenses. |
| |
|
|
|
| |
Receivables
Concentration |
● |
As of
September 30, 2020, the Company had receivables due from seven
customers, two customers of which each accounted for over 20% of
the outstanding balance. Three of the other five, each accounted
for 10% of the total balance. 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. |
| |
|
|
|
| |
Income/Loss
Per Share |
● |
Net
income/loss per share data for both the three-month periods ending
September 30, 2020 and 2019, are based on net income/loss available
to common shareholders divided by the weighted average of the
number of common shares outstanding. The Company does not present a
diluted Earnings per share as the convertible debt and interest
that is convertible into shares of the Company’s common stock would
not be included in this computation, as the Company is generating a
loss and therefore these shares would be antidilutive. |
| |
|
|
|
| |
Impairment
of Long-lived Assets |
● |
The
Company accounts for long-lived assets in accordance with the
provisions of FASB Topic 360, Accounting for the Impairment of
Long-Lived Assets. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. Fair
values are determined based on quoted market value, discounted cash
flows or internal and external appraisals, as
applicable.
During
the period ended September 30, 2020 and 2019, the Management
determined and impaired $-0- and $-0-, respectively as impairment
on intangible asset
|
|
|
|
|
|
|
| |
Reclassification |
|
The
Company may make certain reclassifications to prior period amounts
to conform with the current year’s presentation. These
reclassifications did not have a material effect on its
consolidated statement of financial position, results of operations
or cash flows. |
| |
|
|
|
| |
Recent
Accounting Pronouncements |
|
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. |
|
3. |
Restatement of Prior Financial
Information |
|
Subsequent to Form 10K for the year
ended June 30, 2019 filing, during the interim reviews 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 was determined that
revenue relating to slotting fees, which were 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 |
) |
| |
|
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 |
) |
|
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 three months ended September
30, 2020, the Company had a net loss of $943,824, negative cash
flow from operations and other expenses related to financing
activities of $368,159 and accumulated deficit of $18,574,946.
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 utilize 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 for one year from
the date the financial statements are issued. The accompanying
financial statements do not include any adjustments to reflect the
possible future effects on recoverability and reclassification of
assets or the amounts and classification of liabilities that may
result from the outcome of this uncertainty. |
|
4. |
Accounts
receivable |
● |
The Company’s accounts receivable
arise primarily from the sale of the Company’s ice cream. On a
periodic basis, the Company evaluates each customer account and
based on the days outstanding of the receivable, history of past
write-offs, collections, and current credit conditions, writes off
accounts it considers uncollectible. With most of our retail and
distribution partners, invoices will typically be due in 30 days.
The Company does not accrue interest on past due accounts and the
Company does not require collateral. Accounts become past due on an
account-by-account basis. Determination that an account is
uncollectible is made after all reasonable collection efforts have
been exhausted. The Company has not provided any accounts
receivable allowances for September 30, 2020 and June 30, 2020,
respectively. |
|
5. |
Inventories |
● |
Inventory consists of the following
at September 30, 2020 and June 30, 2020, |
|
|
|
September 30,
2020 |
|
|
June 30,
2020 |
|
|
Finished goods – ice cream |
|
$ |
141,602 |
|
|
$ |
195,817 |
|
| Raw
material – ingredients |
|
|
24,515 |
|
|
|
26,309 |
|
|
Packaging |
|
|
47,267 |
|
|
|
53,479 |
|
|
TOTAL |
|
$ |
213,384 |
|
|
$ |
275,605 |
|
|
|
|
|
Inventories are stated at the lower
of cost or net realizable value. The Company periodically reviews
the value of items in inventory and provides write-downs or
write-offs of inventory based on its assessment of market
conditions and the products relative shelf life. Write-downs and
write-offs are charged to loss on inventory write down. |
|
6. |
Other current
assets |
● |
Other current assets consist of the
following vendor deposits at September 30, 2020 and June 30,
2020. The majority of this amount relates to deposits
towards distribution and marketing partnerships, |
|
|
|
September 30,
2020 |
|
|
June 30,
2020 |
|
|
Prepaid advertising costs |
|
$ |
263,822 |
|
|
$ |
398,045 |
|
|
Vendor deposits – Other |
|
$ |
8,210 |
|
|
$ |
40 |
|
|
TOTAL |
|
$ |
272,032 |
|
|
$ |
398,085 |
|
Intangible assets consist of the following at September 30, 2020
and June 30, 2020. The amount of the intangible assets represents
fees and expenses in connection with the development and launch of
platforms used to track conversions, optimize ads, and scale online
customer growth through a hybrid distribution model.
|
|
|
September 30, |
|
|
June 30, |
|
|
|
|
2020 |
|
|
2020 |
|
|
Intangible assets |
|
$ |
- |
|
|
$ |
1,000,000 |
|
|
Amortization of intangible assets |
|
|
- |
|
|
|
(500,000 |
) |
|
Impairment of intangible assets |
|
|
- |
|
|
|
(500,000 |
) |
|
TOTAL |
|
$ |
- |
|
|
$ |
- |
|
During the quarter ending March 31, 2020, the Company determined it
would be unable to generate sufficient traction from these digital
assets. The Company made the decision to stop utilizing the assets
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 is currently included in the
liabilities section of our balance sheet.
|
8. |
Other Current
Liabilities |
● |
Other current liabilities consist of
the following at September 30, 2020 and June 30, 2020, |
|
|
|
September 30,
2020 |
|
|
June 30,
2020 |
|
|
Accrued consulting fees – related party |
|
$ |
9,974 |
|
|
$ |
9,974 |
|
|
Accrued interest |
|
|
214,402 |
|
|
|
192,625 |
|
|
Accrued slotting fees |
|
|
56,923 |
|
|
|
- |
|
|
TOTAL |
|
$ |
281,299 |
|
|
$ |
202,599 |
|
|
9. |
Notes Payable |
● |
Notes Payable consist of the
following at September 30, 2020, |
|
|
|
|
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 September 30, 2020, and June 30, 2020, the debt discount was
$0. |
|
|
|
|
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 trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $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.
This note has been successfully retired via conversion into shares
during the three months ended September 30, 2019. The Company fair
valued the notes as of conversion date and accounted for a gain on
conversion of $25,398 included under line item “change in
derivative liability” and also, reclassed the related $74,472
derivative liability balance into additional paid in capital.
|
|
|
|
|
On February 14, 2019, the Company
entered into a convertible promissory note and a security purchase
agreement dated February 14, 2019, in the amount of $104,000. The
lender was Eagle Equities, LLC. The notes have a maturity of
February 14, 2020 and interest rate of 8% per annum and are
convertible at a price of 70% of the lowest trading price on the
primary trading market on which the Company’s Common Stock is then
listed for the fifteen (15) trading days immediately prior to
conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $104,000 Notes was
calculated using the Black-Scholes pricing model at $90,567, with
the following assumptions: risk-free interest rate of 2.53%,
expected life of 1 year, volatility of 136%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the $104k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note.
As of September 30, 2020, and June 30, 2020, the debt
discount was $0 and $0, respectively. $50,000 of the note has been
successfully retired via conversion into shares during the year
ended June 30, 2020 and $54,000 of the note has been successfully
retired via conversion into shares during the three months ended
September 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” during 2020 fiscal year and accounted for a loss
on conversion of $36,242. |
|
|
|
|
On April 29, 2019, the Company
entered into a convertible promissory note and a security purchase
agreement dated April 29, 2019, in the amount of $208,000. The
lender was Eagle Equities, LLC. The notes have a maturity of April
29, 2020 and interest rate of 8% per annum and are convertible at a
price of 70% of the lowest trading price on the primary trading
market on which the Company’s Common Stock is then listed for the
fifteen (15) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the
remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and
Hedging.” The fair value of the $208,000 Notes was calculated using
the Black-Scholes pricing model at $170,098, with the following
assumptions: risk-free interest rate of 2.42%, expected life of 1
year, volatility of 118%, and expected dividend yield of zero.
Because the fair value of the note did not exceed the net proceeds
from the $208k Notes, no charge was recorded to “Financing cost”
for the excess of the fair value of the note. As of September 30,
2020, and June 30, 2020, the debt discount was $0 and $0,
respectively. $208,000 of the note has been successfully retired
via conversion into shares during the three months ended September
30, 2020. The Company fair valued the notes as of conversion date
and accounted for a loss on conversion of $109,561 included under
line item “Loss on debt extinguishment upon note conversion,
net”. |
|
|
|
|
On June 11, 2019, the Company entered
into a convertible promissory note and a security purchase
agreement dated June 11, 2019, in the amount of $300,000. The
lender was Eagle Equities, LLC. The notes have a maturity of June
11, 2020 and interest rate of 8% per annum and are convertible at a
price of 70% of the lowest trading price on the primary trading
market on which the Company’s Common Stock is then listed for the
fifteen (15) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the
remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and
Hedging.” The fair value of the $300,000 Notes was calculated using
the Black-Scholes pricing model at $240,217, with the following
assumptions: risk-free interest rate of 2.05%, expected life of 1
year, volatility of 16%, and expected dividend yield of zero.
Because the fair value of the note did not exceed the net proceeds
from the $300k Notes, no charge was recorded to “Financing cost”
for the excess of the fair value of the note. As of September
30, 2020 and June 30, 2020, the debt discount was $0 and $46,726,
respectively. The Company fair valued the notes as of conversion
date and accounted for a loss on conversion of $42,595 included
under line item “Loss on debt extinguishment upon note conversion,
net”. |
| |
|
|
|
| |
|
|
On July 5, 2019, the Company entered
into a convertible promissory note and a security purchase
agreement dated July 5, 2019, in the amount of $300,000. The lender
was Eagle Equities, LLC. The notes have a maturity of July 5, 2020
and interest rate of 8% per annum and are convertible at a price of
70% of the lowest trading price on the primary trading market on
which the Company’s Common Stock is then listed for the fifteen
(15) trading days immediately prior to conversion. 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 September 30,
2020 and June 30, 2020, the debt discount was $0 and $2,627,
respectively. |
| |
|
|
|
| |
|
|
On August 8, 2019, the Company
entered into a convertible promissory note and a security purchase
agreement dated August 8, 2019, in the amount of $300,000. The
lender was Eagle Equities, LLC. The notes have a maturity of August
8, 2020 and interest rate of 8% per annum and are convertible at a
price of 70% of the lowest trading price on the primary trading
market on which the Company’s Common Stock is then listed for the
fifteen (15) trading days immediately prior to conversion. 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 September
30, 2020, and June 30, 2020 the debt discount was $0 and $26,452,
respectively. |
|
|
|
|
On August 29, 2019, the Company
entered into a convertible promissory note and a security purchase
agreement dated August 29, 2019, in the amount of $300,000. The
lender was Eagle Equities, LLC. The notes have a maturity of August
29, 2020 and interest rate of 8% per annum and are convertible at a
price of 70% of the lowest trading price on the primary trading
market on which the Company’s Common Stock is then listed for the
fifteen (15) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the
remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and
Hedging.” The fair value of the $300,000 Notes was calculated using
the Black-Scholes pricing model at $234,052, with the following
assumptions: risk-free interest rate of 1.75%, expected life of 1
year, volatility of 113%, and expected dividend yield of zero.
Because the fair value of the note did not exceed the net proceeds
from the $300k Notes, no charge was recorded to “Financing cost”
for the excess of the fair value of the note. As of September
30, 2020, and June 30, 2020 the debt discount was $0 and
$37,833. |
|
|
|
|
On September 24, 2019, the Company
entered into a convertible promissory note and a security purchase
agreement dated September 24, 2019, in the amount of $150,000. The
lender was Eagle Equities, LLC. The notes have a maturity of
September 24, 2020 and interest rate of 8% per annum and are
convertible at a price of 70% of the lowest trading price on the
primary trading market on which the Company’s Common Stock is then
listed for the fifteen (15) trading days immediately prior to
conversion. 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 September 30, 2020 and June 30, 2020, the debt discount
was $0 and $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 trading price on the
primary trading market on which the Company’s Common Stock is then
listed for the fifteen (15) trading days immediately prior to
conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $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 September 30, 2020 and June 30, 2020, the debt discount
was $12,354 and $43,074, respectively. |
| |
|
|
|
| |
|
|
On December 31, 2019, the Company
entered into a convertible promissory note and a security purchase
agreement dated December 31, 2019, in the amount of $150,000. The
lender was Eagle Equities, LLC. The notes have a maturity of
December 31, 2020 and interest rate of 8% per annum and are
convertible at a price of 70% of the lowest trading price on the
primary trading market on which the Company’s Common Stock is then
listed for the fifteen (15) trading days immediately prior to
conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $150,000 Notes was
calculated using the Black-Scholes pricing model at $189,172, with
the following assumptions: risk-free interest rate of 1.59%,
expected life of 1 year, volatility of 115%, and expected dividend
yield of zero. Because the fair value of the note exceeded the net
proceeds from the $150k Notes, $39,172 was recorded to “Financing
cost” for the excess of the fair value of the note. As of
September 30, 2020 and June 30, 2020, the debt discount was $37,797
and $75,205, respectively. |
|
|
|
|
On February 6, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated February 6,
2020, in the amount of $200,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 6, 2021 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $200,000 Notes was calculated using the Black-Scholes
pricing model at $156,061, with the following assumptions:
risk-free interest rate of 1.51%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. As
of September 30, 2020 and June 30, 2020, the debt discount was
$54,728 and $94,064, respectively.
On February 26, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated February
26, 2020, in the amount of $187,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 6, 2021 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $187,000 Notes was calculated using the Black-Scholes
pricing model at $150,268, with the following assumptions:
risk-free interest rate of 1.18%, expected life of 1 year,
volatility of 118%, and expected dividend yield of zero. As of
September 30, 2020 and June 30, 2020, the debt discount was $61,342
and $99,218, respectively.
|
| |
|
|
|
| |
|
|
On April 30, 2020, the Company
entered into a convertible promissory note and a security purchase
agreement dated April 30, 2020, in the amount of $205,700. This
note carried an Original Discount of 10% or $18,700 which was
included in interest expense at the time of valuation. The lender
was Eagle Equities, LLC. The notes have a maturity of April 30,
2021 and interest rate of 8% per annum and are convertible at a
price of 78% of the lowest closing bid price on the primary trading
market on which the Company’s Common Stock is then listed for the
twenty (20) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the
remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and
Hedging.” The fair value of the $205,700 Notes was calculated using
the Black-Scholes pricing model at $128,369, with the following
assumptions: risk-free interest rate of 0.16%, expected life of 1
year, volatility of 106%, and expected dividend yield of zero. As
of September 30, 2020 and June 30, 2020, the debt discount was
$74,560 and $106,916, respectively. |
|
|
|
|
On June 23, 2020, the Company entered
into a convertible promissory note and a security purchase
agreement dated June 23, 2020, in the amount of $205,700. This note
carried an Original Discount of 10% or $18,700 which was included
in interest expense at the time of valuation. The lender was Eagle
Equities, LLC. The notes have a maturity of June 23, 2021 and
interest rate of 8% per annum and are convertible at a price of 78%
of the lowest closing bid price on the primary trading market on
which the Company’s Common Stock is then listed for the twenty (20)
trading days immediately prior to conversion. The note may be
prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with
cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $132,236, with the following assumptions:
risk-free interest rate of 0.18%, expected life of 1 year,
volatility of 108%, and expected dividend yield of zero. As of
September 30, 2020 and June 30, 2020, the debt discount was $96,369
and $129,700, respectively. |
| |
|
|
|
| |
|
|
On August 12, 2020, the Company
entered into a convertible promissory note and a security purchase
agreement dated August 12, 2020, in the amount of $205,700. This
note carried an Original Discount of 10% or $18,700 which was
included in interest expense at the time of valuation. The lender
was Eagle Equities, LLC. The notes have a maturity of August 12,
2021 and interest rate of 8% per annum and are convertible at a
price of 78% of the lowest closing bid price on the primary trading
market on which the Company’s Common Stock is then listed for the
twenty (20) trading days immediately prior to conversion. The note
may be prepaid, but carries a penalty in association with the
remittance amount, as there is an accretion component to satisfy
the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and
Hedging.” The fair value of the $205,700 Notes was calculated using
the Black-Scholes pricing model at $126,029, with the following
assumptions: risk-free interest rate of 0.13%, expected life of 1
year, volatility of 101%, and expected dividend yield of zero. As
of September 30, 2020, the debt discount was $109,110. |
Below is a reconciliation of the convertible notes payable as
presented on the Company’s balance sheet as of September 30,
2020:
|
|
|
Principal
($) |
|
|
Debt
Discount ($) |
|
|
Net
Value
($) |
|
|
Balance
at June 30, 2019 |
|
|
1,748,000 |
|
|
|
(630,259 |
) |
|
|
1,117,741 |
|
| Convertible
notes payable issued during fiscal year ended June 30,
2020 |
|
|
2,148,400 |
|
|
|
- |
|
|
|
2,148,400 |
|
| Notes
converted into shares of common stock |
|
|
(961,000 |
) |
|
|
- |
|
|
|
(961,000 |
) |
| Debt
discount associated with new convertible notes |
|
|
- |
|
|
|
(1,684,711 |
) |
|
|
(1,684,711 |
) |
| Amortization
of debt discount |
|
|
- |
|
|
|
1,709,759 |
|
|
|
1,709,759 |
|
| Balance
at June 30, 2020 |
|
|
2,935,400 |
|
|
|
(605,211 |
) |
|
|
2,330,189 |
|
| Convertible
notes payable issued during three months ended September 30,
2020 |
|
|
205,700 |
|
|
|
- |
|
|
|
205,700 |
|
| Notes
converted into shares of common stock |
|
|
(347,000 |
) |
|
|
- |
|
|
|
(347,000 |
) |
| Debt
discount associated with new convertible notes |
|
|
- |
|
|
|
(126,029 |
) |
|
|
(126,029 |
) |
| Amortization
of debt discount |
|
|
- |
|
|
|
322,739 |
|
|
|
322,739 |
|
| True-up
adjustment in debt discount and derivative liability |
|
|
- |
|
|
|
(37,360) |
|
|
|
(37,360) |
|
| Balance
at September 30, 2020 |
|
|
2,794,100 |
|
|
|
(445,861 |
) |
|
|
2,348,239 |
|
|
10. |
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 three month period ended September 30, 2020, the Company
recorded a change in fair value of derivative $207,524. The Company
will measure the fair value of each derivative instrument in future
reporting periods and record the change based on the change in fair
value. |
|
|
|
|
Below is a reconciliation of the
derivative liability as presented on the Company’s balance sheet as
of September 30, 2020: |
|
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, 2019 |
|
|
1,723,883 |
|
| Change
in derivative liability during the period |
|
|
(858,774 |
) |
| Reclassify
derivative liability associated with Notes converted |
|
|
(581,219 |
) |
| Derivative
liability as of June 30, 2020 |
|
$ |
1,590,638 |
|
| Initial
derivative liability accounted for convertible notes payable issued
during the period ended September 30, 2020 |
|
|
126,029 |
|
| True-up
adjustment in debt discount and derivative liability |
|
|
37,360 |
|
| Change
in derivative liability during the period |
|
|
(207,524 |
) |
| Reclassify
derivative liability associated with Notes converted |
|
|
(189,257) |
|
| Balance
at September 30, 2020 |
|
$ |
1,357,245 |
|
|
11. |
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). As of
September 30, 2020, six payments had been made against this draw of
approximately $368 each. Such payments will continue to be
automatically deducted from the corporate checking account until
the draw and all fees have been paid in full. The Company may or
may not choose to use this line of credit for additional financing
needs. |
| |
|
Sept. 30,
2020 |
|
|
June 30,
2020 |
|
|
Line of Credit |
|
$ |
2,794 |
|
|
$ |
3,897 |
|
| Total
borrowings |
|
|
2,794 |
|
|
|
3,897 |
|
|
Less: current portion |
|
|
2,794 |
|
|
|
3,897 |
|
|
Long term debt |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
Interest expense for the three months ended September 30, 2020 and
2019, totaled $337 and $0, respectively. |
|
12. |
Capital Stock
Activity |
● |
The Company had 65,085,597 and
61,796,680 shares of its $0.001 par value common stock issued and
outstanding as of September 30, 2020 and June 30, 2020
respectively. |
| |
|
|
|
| |
|
● |
During the three months ended
September 30, 2020 the Company issued 2,975,979 shares in regards
to debt being converted into stock valued at $347,000, and issued
312,938 shares of common stock valued at $36,478 as part of a loan
agreement and payment of interest as part of the debt
conversion.
During the three months ended September 30, 2019 the Company issued
122,762 shares of common stock for services valued at $49,397,
issued 1,409,349 shares in regards to debt being converted into
stock valued at $337,000, and issued 110,404 shares of common stock
valued at $26,598 as part of a loan agreement and payment of
interest as part of the debt conversion.
|
|
13. |
Warrants |
|
The following is a summary of the
Company’s outstanding common stock purchase warrants. Of
the 500,000 warrants shown below at an exercise price of $.15,
these warrants were issued as compensation for a four-year advisory
agreement. 150,000 warrants vested on July 24, 2018,
another 150,000 on July 24, 2019, another 150,000 vested on July
24, 2020, and the remaining 50,000 will vest on July 24, 2021,
should advisor complete the term of his engagement. These
warrants were all accounted for in Fiscal 2020. |
| |
|
|
|
| |
|
|
During the three months ended September 30, 2020 the Company
entered into a warrant agreement with one of the Company’s vendors
issuing 500,000 warrants at a strike price of $0.50 having a term
of five years. The Company valued these warrants using the Black
Scholes model utilizing a 107.93% volatility and a risk-free rate
of 0.29%
|
| |
|
|
|
| |
|
|
The aggregate intrinsic value of the
warrants as of September 30, 2020 is $-0-. |
|
|
|
|
Outstanding at |
|
|
|
|
|
|
|
|
Outstanding |
|
|
Exercise Price |
|
|
June 30,
2020 |
|
|
Issued / (Exercised) in 2020 |
|
|
Expired |
|
|
September 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 |
|
| $ |
0.50 |
|
|
|
- |
|
|
|
500,000 |
|
|
|
- |
|
|
|
500,000 |
|
|
$ |
0.75 |
|
|
|
300,000 |
|
|
|
- |
|
|
|
- |
|
|
|
300,000 |
|
|
|
|
|
|
|
1,155,000 |
|
|
|
500,000 |
|
|
|
- |
|
|
|
1,655,000 |
|
|
14. |
Fair Value of Financial
Instruments |
|
Cash and Equivalents, Receivables,
Other Current Assets, Short-Term Debt, Accounts Payable, Accrued
and Other Current Liabilities. |
| |
|
|
|
|
|
|
|
The carrying amounts of these items
approximated fair value. |
| |
|
|
|
| |
|
|
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. To increase the comparability of fair value
measures, Financial Accounting Standards Board (“FASB”) ASC Topic
820-10-35 establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (level 1
measurement) and the lowest priority to unobservable inputs (level
3 measurements). |
| |
|
|
|
| |
|
|
Level 1—Valuations based
on quoted prices for identical assets and liabilities in active
markets. |
| |
|
|
|
| |
|
|
Level 2—Valuations based
on observable inputs other than quoted prices included in Level 1,
such as quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, or other inputs that
are observable or can be corroborated by observable market
data. |
| |
|
|
|
| |
|
|
Level 3—Valuations based
on unobservable inputs reflecting our own assumptions, consistent
with reasonably available assumptions made by other market
participants. These valuations require significant
judgment. |
| |
|
|
|
| |
|
|
The application of the three levels
of the fair value hierarchy under Topic 820-10-35 to our assets and
liabilities are described below: |
| |
|
September 30, 2020 Fair Value Measurements |
|
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair
Value |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Total |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short and long-term debt |
|
$ |
|
|
|
$ |
- |
|
|
$ |
2,794,100 |
|
|
$ |
2,794,100 |
|
|
Total |
|
$ |
|
|
|
$ |
- |
|
|
$ |
2,794,100 |
|
|
$ |
2,794,100 |
|
| |
|
Fiscal 2019 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 2020 Fair Value Measurements |
|
| |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair
Value |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Total |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,357,245 |
|
|
$ |
1,357,245 |
|
|
Total |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,357,245 |
|
|
$ |
1,357,245 |
|
| |
|
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 |
|
Management considers all of its derivative liabilities to be Level
3 liabilities. At September 30, 2020 and June 30, 2020,
respectively the Company had outstanding derivative liabilities,
including those from related parties of $1,357,245 and $1,590,638,
respectively.
|
15. |
Commitments and
Contingencies: |
|
The Company has entered into certain
consulting agreements which carry commitments to pay advisors and
consultants should certain events occur. An agreement is in place
with one Company Advisor that calls for total compensation over the
four year Advisor Agreement of 500,000 warrants with an exercise
price of $.15 of which 450,000 have vested, should the advisor
complete the entire term of the engagement, the remaining 50,000
warrants would vest on July 24, 2021. |
| |
|
|
|
| |
|
|
In April, 2020, the Company
successfully negotiated a Debt Incentive Agreement with one of its
creditors to whom it owed $731,118. This Debt Incentive Agreement
provides for the elimination of the entire debt should the Company
make payments in calendar 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 payment and retire the debt during calendar 2020, The Company
would realize a Gain on Extinguishment of Debt of approximately
$560,000. |
| |
|
|
Additional Consulting agreements call for certain Consultants to
receive cash and stock bonuses for directly assisting the Company
in hitting certain operational milestones, such as national
television publicity, achieving revenues of $500,000 monthly,
$1,000,000 monthly, and $3,000,000 quarterly.
CEO Sean Folkson has a consulting agreement which will reward him
with 1,000,000 warrants at a strike price of $.50 when the Company
records its first quarter with revenues over $1,000,000, an
additional 3,000,000 warrants with a $.50 strike price when the
Company records its first quarter with revenues over $3,000,000,
and an additional 3,000,000 warrants with a $1 strike price when
the Company records its first quarter with revenues over
$5,000,000.
|
| |
|
|
|
|
16. |
Related Party
Transactions |
● |
During the third quarter of Fiscal Year 2015, Mr. Folkson began
accruing a consulting fee of $6,000 per month which the aggregate
of $18,000 is reflected in professional fees for the three month
period ended September 30, 2020 and reflected in the accrued
expenses – related party with a balance of $9,974 and $9,974 at
September 30, 2020 and June 30, 2020, respectively.
On December 8, 2017, Mr. Folkson purchased Warrants, at a cost of
$.15 per Warrant, to acquire up to 80,000 additional shares of NGTF
stock at a strike price of $.20, and with a term of three (3) years
from the date of said agreement. This purchase resulted in a
reduction in the accrued consulting fees due him by $12,000. During
the second quarter 2019 Mr. Folkson purchased 400,000 shares of
stock at a strike price of $0.30 per share, valued at $120,000
which was charged to his accrual. During the three months ended
September 30, 2020, Folkson had been paid $18,000 against his total
accrued balance to date.
|
|
|
|
● |
In addition, the Company made bonuses
available to Folkson upon the Company hitting certain revenue
milestones of $1,000,000 in a quarter, $3,000,000 in a quarter, and
$5,000,000 in a quarter. Achieving those
milestones would earn Folkson warrants with a $.50 and $1 strike
price which would need to be exercised within 90 days of the
respective quarterly or annual filing |
|
17. |
Subsequent Events |
● |
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. |
| |
|
|
|
| |
|
● |
Between the dates of October 1, 2020 and November 20, 2020,
noteholder Eagle Equities converted a total of $133,533 of
principal and interest from outstanding notes to Company stock. The
average conversion price in these transactions was $.079. 1,697,409
shares were issued to the noteholder in these
transactions.
|
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Quarterly Report on Form 10-Q
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. You can identify these statements by the fact that they
do not relate strictly to historical or current facts, and use
words such as “anticipate,” “believe,” “estimate,” “expect,”
“forecast,” “may,” “should,” “plan,” “project,” “will” and other
words of similar meaning. 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 Quarterly
Report on Form 10-Q 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 under the headings “Business” and “Risk
Factors” within our Annual Report on Form 10-K for the fiscal year
ended June 30, 2020, as well as the other information set forth
herein.
OVERVIEW
Nightfood Holdings runs two distinct operating companies, each
serving a different market segment with different products.
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. To date, this subsidiary and its
operations have had a nominal impact on the financial statements
contained herein.
Since inception, MJ Munchies has applied for U.S. Trademark
protection the brand name Half-Baked as it relates to certain
categories of snacks. The Company also applied for, and was
granted, trademark protection in the state of California for the
name Half-Baked for snacks containing THC. In addition, The Company
acquired HalfBaked.com, and has secured other intellectual property
in its portfolio. The Company intends to license this IP to
operators in the cannabis edibles space and other related
spaces.
Nightfood, Inc. is a better-for-you snack company focused on
manufacturing and distributing snacks with sleep-friendly
formulations and ingredients. The national roll-out of Nightfood
ice cream, the first Nightfood product with significant mainstream
retail distribution, began in 2019. The Company has since secured
distribution in multiple regional supermarket chains, and divisions
of national supermarket chains, including divisions of Kroger
(Harris Teeter), and divisions of Albertsons (Jewel-Osco, Shaw’s
and Star Market).
Nightfood ice cream won the 2019 Product of the Year award in the
ice cream category in a Kantar survey of over 40,000 consumers. The
brand also won Best New Ice Cream at the 2019 World Dairy
Innovation Awards. In early 2019, the Company proactively secured
trademark protection for the Nightfood brand in several strategic
international markets.
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.
In addition to those high-profile public statements, significant
strategic interest in the nighttime and sleep-friendly nutrition
space has been directly affirmed to Management in recent
exploratory discussions initiated by a certain global food and
beverage conglomerate. Management anticipates that the
multi-national food and beverage companies will necessarily be
drawn to the category Nightfood is pioneering because of the volume
of nighttime snacking that occurs globally, and the importance of
quality sleep to consumers around the world. Growth within the
category that Nightfood is creating can bring competitive risk, but
also the opportunity that comes with being the pioneer of a growing
market segment and the strategic value that the Nightfood brand
could deliver to a global partner with significant resources.
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 meaningful percentage of that
consumer spend will move from conventional snacks over to nighttime
specific, sleep-friendly snacks in coming years.
The Nightfood Scientific Advisory Board is made up of leading sleep
and nutrition experts, who help Nightfood deliver on its 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 prominent 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 added 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. Dr. Broch also has a master’s degree
in human nutrition. This unique combination allowed her to play an
important role in 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.
In February 2020, Nightfood was named the Official Ice Cream of the
American Pregnancy Association. Compared to regular ice cream,
Nightfood is higher in calcium, magnesium, zinc, protein and fiber,
and contains less sugar, fewer calories, and is lower glycemic.
Ease of digestion and the impact of nighttime heartburn were also
considerations that went in to Nightfood’s formulations. Management
believes the designation and recommendation from the American
Pregnancy Association could expose the brand to a large base of new
consumers and drive a volume of new demand that will support an
effective national roll-out of the ice cream line.
DEVELOPMENT PLANS
Nightfood has nine ice cream flavors in ongoing production, and an
additional ten products have been developed or in late stages of
development. Management has also done preliminary research on CBD
infused ice cream, current FDA guidelines do not permit CBD to be
used as an additive in conventional food. While Management has
interest in such a development, it is likely such products will not
be allowed under FDA guidelines for several quarters.
Nightfood is currently available in over 750 supermarket locations,
and Management is expecting a meaningful increase in points of
distribution in early 2021. Management believes that current
marketing initiatives and existing sales velocity trends, along
with securing the designation of being the Official Ice Cream of
the American Pregnancy Association all bode well for securing
additional expansion of the Nightfood brand.
Aggressive supermarket expansion could result in additional
“slotting fees”. Slotting fees are normal and customary in the
consumer goods industry and are fees that certain retailers and
distributors charge to introduce a new product into their available
assortment.
In some cases, slotting fees, also called “new item placement fees”
or “new item placement allowances” can be nominal. In other
situations, slotting fees for certain retail and distribution
partners could run hundreds of thousands of dollars. Slotting fees
are not an auction for shelf (or freezer) space. One brand does not
outbid others to get on shelf. Different retailers have established
different standard slotting, and that is simply the cost of doing
business with those specific partners.
Many large retailers do not charge slotting fees, but most do. The
Management of any emerging brand could choose not to do business
with retailers or distributors who charge slotting fees. Such a
strategy, while possible, would greatly limit the distribution
footprint a brand could establish. Investors should have the
expectation that slotting fees will continue to be a significant
investment over the next one to three fiscal years as the Nightfood
brand moves towards its goal of national distribution.
Management had previously invested in initiatives relating to
distribution and partnerships in the hotel and hospitality
vertical. With COVID-19 and its impact on the travel habits of
consumers, these initiatives have been impaired and put on hold at
this time.
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
There is a significant amount of seasonality in the ice cream
industry, with summer months historically delivering the highest
consumption. As an early-stage and growing brand, it is unknown how
seasonality will impact our brand at this time.
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. Indications to date are that there are
somewhat offsetting factors relating to the impact on our Company.
Industry data shows that supermarket sales remain up, with more
people spending more time at home. Anecdotally and statistically,
snacking activity is also up while consumers are reporting a
decrease in sleep quality and sleep satisfaction. Industry sales
data also 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, partially due to
recent declines in consumer sleep quality and increases in at-home
nighttime snacking.
We have experienced no major issues with supply chain or logistics.
Order processing function has been normal to date, and our
manufacturers have assured us that their operations are “business
as usual” as of the time of this filing.
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.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED
September 30, 2020 and 2019.
For the three months ended September 30, 2020 and 2019 we had Net
Revenues (Net Revenues are defined as Gross Sales, less Slotting
Fees, Sales Discounts, and certain other revenue reductions) of
$126,983 and $46,497 respectively and incurred an operating loss of
$536,043 and $294,777 respectively.
In the three months ended September 30, 2020, the Company recorded
Gross Sales of $319,324, the highest quarterly gross sales in
company history. Accounting standards require exclusion on the
income statement of Gross Sales made to a customer to whom the
Company is paying slotting fees (slotting fees are fees
occasionally charged by retailers and distributors to add a new
product into their product assortment). In those situations, the
Gross Sales number is reduced, dollar for dollar, by the slotting
fees, until the total cost of the slotting is covered. These
slotting fees do not appear on the income statement as an expense.
Rather, Slotting Fees, along with Sales Discounts, 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 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 three months
ended September 30, 2020 and 2019. Product sales are net of
slotting fees (a typically one-time fee charged by supermarkets in
order to have the product placed on their shelves) and sales
discounts.
|
|
|
Three
Months Ended
September 30, |
|
|
|
|
2020 |
|
|
2019 |
|
|
Gross
product sales |
|
$ |
319,324 |
|
|
$ |
210,383 |
|
| Less: |
|
|
|
|
|
|
|
|
| Slotting
fees |
|
$ |
(134,222 |
) |
|
$ |
(160,000 |
) |
| Sales
discounts, promotions, and other reductions |
|
|
(58,119 |
) |
|
|
(3,886 |
) |
| Net
Revenues |
|
$ |
126,983 |
|
|
$ |
46,497 |
|
The Company had an increase in cost of goods sold from $146,500 for
the three months ending September 30, 2019 to $229,696 for the
three months ending September 30, 2020 because we sold
significantly more ice cream to our customers (supermarket chains
and distributors) this quarter than the same quarter last year,
when measured in Gross Sales.
Our income statement shows an increase in “Advertising and
Promotional” from 198,270 for the three months ending September 30,
2019 to $185,289 for the three months ending September 30, 2020.
This increase is due to the way certain marketing expenses were
accounted for. Further, as discussed
on above footnote 3, due to the reclassification $396,250 expenses
was reversed and set off with the advertising costs incurred during
2019. The Company invested approximately $396,047 in
marketing and distribution partnerships it determined would benefit
operations for 2020 and beyond. Due to circumstances, including the
global COVID-19 coronavirus pandemic, it does not appear these
distribution partnerships will be as beneficial to the Company as
envisioned when entered. 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 in calendar
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
Selling, general, and administrative expenses increased from
$101,834 for the three months ending September 30, 2019 to $118,167
for the three months ending September 30, 2020. This category
includes expenses such as web hosting, web services, freight,
warehousing, shipping, product liability insurance, investor
relations and research & development of new products.
Professional fees increased from $124,234 for the three months
ending September 30, 2019 to $168,668 for the three months ending
September 30, 2020. $65,700 of the professional fees in the current
quarter are the result of accounting for 500,000 warrants issued to
a Company consultant with a strike price of $.50.
For the three months ended September 30, 2019 we experienced an
increase in Loss on extinguishment of debt upon notes conversion of
$188,397 compared to $0 in the three months ended September 30,
2020. For the three months ended September 30, 2019 compared to the
three months ended September 30, 2020, we also experienced changes
in derivative liabilities from ($190,062) to ($207,524)
and total interest expense from $218,803 to $407,783, of which
$382,267 and $322,739 respectively were entries directly related to
the amortization of debt discounts and deferred financing fees
related to loss on extinguishment of debt. For the three
months ended September 30, 2020, the Company recorded “other
expenses” of $19,877 compared to $0 for the three months ended
September 30, 2019. This was interest expenses related to
loss on extinguishment of debt.
Customers
During the three months ended September 30, 2020, the Company had
one customer account for approximately 39% of the gross sales. One
other customer accounted for approximately 21% of gross sales, and
two other customers accounted for over 9% of gross sales. During
the three months ended September 30, 2019, one customer accounted
for approximately 34% of the gross sales while two other customers
accounted for over 10% of gross sales. As the Company
continues to grow its distribution base, it is anticipated that
revenue distribution will become less concentrated.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, we had cash on hand of $8,360,
receivables of $65,053 and inventory value of $213,384.
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 fund our projected growth over the next several quarters.
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, as well as exploring other capitalization
strategies.
Because the business has limited operating history and sales, no
certainty of continuation can be stated. Management has devoted a
significant amount of time in the raising of capital from
additional debt and equity financing. However, the Company’s
ability to continue as a going concern 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.
Since our inception, we have sustained operating losses. During the
three months ended September 30, 2020, we incurred a net loss of
$943,824 compared to $513,580 for the three months ended September
30, 2019. Much of this loss is largely a function of the way
certain financing activities are recorded, and does not represent
actual operating losses.
During the three months ended September 30, 2020, net cash used in
operating activities was $368,159 compared to net cash provided of
$26,916 for the three months ended September 30, 2019. Much of what
shows as “net cash used in operating activities” is related to
non-cash items associated with to the ongoing capitalization of the
Company during the reporting period.
During the three months ended September 30, 2020, net cash of $0
was used in investing activities, compared to $1,000,000 for the
three months ended September 30, 2019.
During the three months ended September 30, 2020, net cash
aggregating $178,897 was provided by financing activities, compared
to $1,050,000 for the three months ended September 30, 2019.
From our inception in January 2010 through September 30, 2020, we
have generated an accumulated deficit of approximately $18,574,946,
compared to $17,631,122 from inception through June 30, 2020.
Assuming we raise additional funds and continue operations, we
expect to incur additional operating losses during the next two to
three quarters 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.
We intend to rely on the sale of stock in private placements, and
the issuance of new debt, to fund our operations. If we are unable
to raise cash through the sale of our stock, we may be required to
severely restrict our operations. The Company has received several
tranches of capital from a friendly institutional investor, who has
been our primary source of capital for the last 30 months. We
expect this investor to continue to fund ongoing operations
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 2018.
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, such as when the Company records its first quarter with
revenue greater than $1,000,000. 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.
On October 12, 2018, Folkson opted to purchase 400,000 shares of
common stock at $.30 per share, by exercising warrants. To make
this purchase, Folkson used $120,000 in accrued Nightfood
consulting fees.
On February 4, 2019, the Company entered into a “Lock-Up” Agreement
with Folkson whereby Folkson agreed to not transfer, sell, or
otherwise dispose of any shares of his NGTF stock during the next
twelve months. As part of this agreement, Folkson received warrants
to acquire 400,000 shares of NGTF common stock at an exercise price
of $.30 per share. All warrants in this agreement carried a twelve
month term and a cashless provision, and were to expire if not
exercised within the twelve month term. Folkson did not have rights
to transfer, sell, or otherwise dispose of these warrants at any
time, as there were no transfer rights provided for in the
Agreement. The warrants that were part of the February 2019 Lock Up
Agreement expired unexercised, as the share price was below $.30 at
the end of the Agreement.
On January 20, 2020, Folkson and the Company entered into a new
Lock-Up Agreement which went into effect on February 4, 2020 and is
in place for twelve months, with identical financial terms to the
February 4, 2019 Agreement.
The foregoing accounts for the entirety of compensation earned by
Folkson since inception.
On February 6, 2019, the Registrant entered into a “Leak-Out”
Agreement with Peter Leighton, former affiliate and owner of
4,000,000 shares, which will restrict Leighton’s ability to sell,
transfer, or otherwise dispose of his shares above a certain,
mutually agreed-upon monthly threshold.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results
of operations is based on our unaudited condensed consolidated
financial statements, which have been prepared in accordance with
U.S. generally accepted accounting principles. The preparation of
these unaudited condensed consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent liabilities. On an on-going basis,
we evaluate past judgments and our estimates, including those
related to allowance for doubtful accounts, allowance for inventory
write-downs and write offs, deferred income taxes, provision for
contractual obligations and our ability to continue as a going
concern. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Note 2 to the consolidated financial statements, presented in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2020,
describe the significant accounting estimates and policies used in
preparation of our consolidated financial statements. There were no
significant changes in our critical accounting estimates during the
three months ended September 30, 2020.
OFF BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No report required.
ITEM 4. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) are designed to ensure that
information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
Disclosure and control procedures are also designed to ensure that
such information is accumulated and communicated to management,
including the chief executive officer and chief financial officer,
to allow timely decisions regarding required disclosures.
We carried out an evaluation, under the supervision and with the
participation of management, including our principal executive
officer and principal financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures
as of September 30, 2020. In designing and evaluating the
disclosure controls and procedures, management recognizes that
there are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their
desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, management is
required to apply its reasonable judgment. Based on the evaluation
described above, our principal executive officer and principal
financial officer concluded that our disclosure controls and
procedures were not effective as of the end of the period covered
by this report because we did not document our Sarbanes-Oxley Act
Section 404 internal controls and procedures.
As funds become available to us, we expect to implement additional
measures to improve disclosure controls and procedures such as
implementing and documenting our internal controls procedures.
Changes in internal controls over financial reporting
There was no change in our internal controls over financial
reporting that occurred during the period covered by this report,
which has materially affected, or is reasonably likely to
materially affect, our internal controls over financial
reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The Company’s management,
including its Principal Executive Officer and its Principal
Financial Officer, do not expect that the Company’s disclosure
controls will prevent or detect all errors and all fraud. Further,
the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion
of two or more people, or by management override of the controls.
The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls
may become inadequate because of changes in conditions or
deterioration in the degree of compliance with associated policies
or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
PART II – OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS.
We are not engaged in any litigation at the present time, and
management is unaware of any claims or complaints that could result
in future litigation. Management will seek to minimize disputes
with its customers but recognizes the inevitability of legal action
in today’s business environment as an unfortunate price of
conducting business.
ITEM 1A. RISK
FACTORS.
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY
DISCLOSURES.
Not applicable.
ITEM 5. OTHER
INFORMATION.
None.
ITEM 6. EXHIBITS.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
Nightfood Holdings,
Inc. |
|
|
|
|
|
Dated: November 20, 2020 |
By: |
/s/ Sean Folkson |
|
|
|
Sean Folkson,
Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer) |
10
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