U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: March 31, 2021
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 May 17, 2021, the registrant had outstanding
79,916,159 shares of common stock.
EXPLANATORY NOTE
The Company is filing this Amendment No. 1 (“Form 10-Q/A”) to the
Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2021, which was filed with the SEC on May 18, 2021 (the
“Original Filing”), to correct some inadvertent omissions and
typographical errors in the Original Filing.
The following sections in the Original Filing are affected by such
corrections:
Part I, Item 1 - Financial Statements-Notes to Unaudited Condensed
Consolidated Financial Statements-Notes 11 and 12.
In addition, pursuant to the rules of the SEC, Part II, Item 6 of
the Original Filing has been amended to include the currently-dated
certifications from our principal executive officer and principal
financial officer, as required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002. The certifications of the principal
executive officer and principal financial officer are included in
this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2.
For the convenience of the reader, this Form 10-Q/A sets forth the
information in the Original Filing in its entirety, as such
information is modified and superseded where necessary to reflect
the corrections.
Except as described above, no other changes have been made to the
Original Filing. This Form 10-Q/A speaks as of the date of the
Original Filing and does not reflect events that may have occurred
after the date of the Original Filing, or modify or update any
disclosures that may have been affected by subsequent events.
Table of Contents
Nightfood Holdings, Inc.
Financial Statements
For the three and nine months ended March 31, 2021 and
2020
Item 1. Financial
Statements
Nightfood Holdings, Inc.
CONDENSED CONSOLIDATED
BALANCE SHEETS
| |
|
March
31, |
|
|
June
30, |
|
| |
|
2021 |
|
|
2020 |
|
| ASSETS |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
| Cash |
|
$ |
73,181 |
|
|
$ |
197,622 |
|
| Accounts receivable (net of allowance
of $0 and $0, respectively) |
|
|
44,033 |
|
|
|
61,013 |
|
| Inventory |
|
|
344,914 |
|
|
|
275,605 |
|
| Other current
asset |
|
|
251,752 |
|
|
|
398,085 |
|
| Total
current assets |
|
|
713,880 |
|
|
|
932,325 |
|
| |
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
723,880 |
|
|
$ |
932,325 |
|
| |
|
|
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
1,393,256 |
|
|
$ |
1,286,149 |
|
| Accrued expense - related party |
|
|
9,974 |
|
|
|
9,974
|
|
| Fair value of derivative liabilities |
|
|
1,312,177 |
|
|
|
1,590,638 |
|
| Convertible notes payable - net of
discounts |
|
|
2,077,852 |
|
|
|
2,330,189 |
|
| Accrued expenses |
|
|
72,044 |
|
|
|
- |
|
|
Accrued interest
|
|
|
209,161
|
|
|
|
192,625
|
|
| Short-term borrowings- line of
credit |
|
|
589 |
|
|
|
3,897 |
|
| Total current
liabilities |
|
|
5,075,053 |
|
|
|
5,413,472 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and contingencies |
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’
deficit: |
|
|
|
|
|
|
|
|
Preferred stock, ($0.001 par value, 100,000,000 shares authorized,
and 1,000 issued and outstanding as of
March 31, 2021 and 1,000 outstanding as of June 30, 2020,
respectively) |
|
|
1 |
|
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
| Common
stock, without par value, 200,000,000 shares authorized, and
78,685,171 issued and outstanding as of March 31, 2021 and
61,796,680 outstanding as of June 30, 2020,
respectively |
|
|
78,685 |
|
|
|
61,797 |
|
| Additional paid in capital |
|
|
16,683,505
|
|
|
|
13,088,177 |
|
| Accumulated
deficit |
|
|
(21,084,364 |
) |
|
|
(17,631,122 |
) |
| Total
stockholders’ deficit |
|
|
(4,342,173 |
) |
|
|
(4,481,147 |
) |
| Total Liabilities
and Stockholders’ Deficit |
|
$ |
713,880 |
|
|
$ |
932,325 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
For
the |
|
|
For
the |
|
|
For
the |
|
|
For
the |
|
| |
|
three
months |
|
|
three
months |
|
|
nine
months |
|
|
nine
months |
|
| |
|
period ended |
|
|
period ended |
|
|
period ended |
|
|
period ended |
|
| |
|
March 31,
2021 |
|
|
March 31,
2020 |
|
|
March 31,
2021 |
|
|
March 31,
2020 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
|
96,726 |
|
|
|
119,475 |
|
|
|
270,919 |
|
|
|
227,257 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of product sold |
|
|
102,922 |
|
|
|
157,265 |
|
|
|
443,083 |
|
|
|
352,240 |
|
| Advertising & promotional |
|
|
64,158 |
|
|
|
470,820 |
|
|
|
316,483 |
|
|
|
673,814 |
|
| Amortization of intangibles |
|
|
- |
|
|
|
166,667 |
|
|
|
- |
|
|
|
500,000 |
|
| Selling, general and
administrative |
|
|
103,462 |
|
|
|
92,423 |
|
|
|
311,920 |
|
|
|
295,107 |
|
| Professional
Fees |
|
|
217,025 |
|
|
|
99,727 |
|
|
|
578,535 |
|
|
|
366,725 |
|
| Total operating expenses |
|
|
487,567 |
|
|
|
986,902 |
|
|
|
1,650,021 |
|
|
|
2,187,886 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(391,240 |
) |
|
|
(867,427 |
) |
|
|
(1,389,501 |
) |
|
|
(1,960,629 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense - bank debt |
|
|
337 |
|
|
|
- |
|
|
|
1,012 |
|
|
|
- |
|
| Interest expense - shareholder |
|
|
72,110 |
|
|
|
40,616 |
|
|
|
267,640 |
|
|
|
82,952 |
|
| Gain on extinguishment of debt |
|
|
(57,035 |
) |
|
|
- |
|
|
|
(54,819 |
) |
|
|
- |
|
| Change in derivative liability |
|
|
1,152,119 |
|
|
|
(256,468 |
) |
|
|
832,480 |
|
|
|
(612,093 |
) |
| Interest expense - amortization
BCF |
|
|
210,430 |
|
|
|
439,507 |
|
|
|
787,217 |
|
|
|
1,270,943 |
|
| Other expense -
non cash |
|
|
170,514 |
|
|
|
445 |
|
|
|
204,391 |
|
|
|
39,618 |
|
| Total interest expense |
|
|
1,548,474 |
|
|
|
224,100 |
|
|
|
2,074,040 |
|
|
|
781,420 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Provision for
income tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
loss |
|
|
(1,939,714 |
) |
|
|
(1,091,527 |
) |
|
|
(3,453,142 |
) |
|
|
(2,742,049 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic
and diluted net loss per common share |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.05 |
) |
|
|
(0.05 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average
shares of capital outstanding - basic |
|
|
74,194,855 |
|
|
|
58,712,745 |
|
|
|
68,091,616 |
|
|
|
56,447,392 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the three and nine months ended March 31, 2021 and
2020
| |
|
Common Stock |
|
|
Preferred Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
| |
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
|
Balance, June 30, 2019 |
|
|
53,773,856 |
|
|
$ |
53,774 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
10,692,679 |
|
|
$ |
(13,219,059 |
) |
|
$ |
(2,472,605 |
) |
| Common
stock issued for services |
|
|
122,762 |
|
|
|
123 |
|
|
|
- |
|
|
|
- |
|
|
|
49,274 |
|
|
|
- |
|
|
|
49,397 |
|
| Common
stock issued for interest |
|
|
110,404 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
26,487 |
|
|
|
- |
|
|
|
26,597 |
|
| Issuance
of common stock for debt conversion |
|
|
1,409,349 |
|
|
|
1,409 |
|
|
|
|
|
|
|
|
|
|
|
335,591 |
|
|
|
- |
|
|
|
337,000 |
|
|
Derivative liability reclassed upon debt conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
213,739 |
|
|
|
- |
|
|
|
213,739 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(513,581 |
) |
|
|
(513,581 |
) |
|
Balance, Three Months as of September 30, 2019 |
|
|
55,416,371 |
|
|
$ |
55,416 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
11,317,770 |
|
|
$ |
(13,732,640 |
) |
|
$ |
(2,359,452 |
) |
| Common
stock issued for services |
|
|
85,000 |
|
|
|
85 |
|
|
|
- |
|
|
|
- |
|
|
|
21,415 |
|
|
|
- |
|
|
|
21,500 |
|
| Common
stock issued for interest |
|
|
107,227 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
15,632 |
|
|
|
- |
|
|
|
15,739 |
|
| Issuance
of common stock for debt conversion |
|
|
1,500,495 |
|
|
|
1500 |
|
|
|
|
|
|
|
|
|
|
|
218,500 |
|
|
|
- |
|
|
|
220,000 |
|
|
Derivative liability reclassed upon debt conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
128,605 |
|
|
|
- |
|
|
|
128,605 |
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,136,941 |
) |
|
|
(1,136,941 |
) |
|
Balance, Three Months as of December 31, 2019 |
|
|
57,109,093 |
|
|
$ |
57,109 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
11,701,922 |
|
|
$ |
(14,869,581 |
) |
|
$ |
(3,110,549 |
) |
| Common
stock issued for interest |
|
|
320,650 |
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
40,615 |
|
|
|
- |
|
|
|
40,936 |
|
| Issuance
of common stock for debt conversion |
|
|
2,760,223 |
|
|
|
2,760 |
|
|
|
|
|
|
|
|
|
|
|
351,240 |
|
|
|
- |
|
|
|
354,000 |
|
|
Derivative liability reclassed upon debt conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
217,050 |
|
|
|
- |
|
|
|
217,050 |
|
| Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,091,527 |
) |
|
|
(1,091,527 |
) |
|
Balance, Three Months as of March 31, 2020 |
|
|
60,189,966 |
|
|
$ |
60,190 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
12,310,827 |
|
|
$ |
(15,961,108 |
) |
|
$ |
(3,590,090 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020 |
|
|
61,796,680 |
|
|
$ |
61,797 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
13,088,177 |
|
|
$ |
(17,631,122 |
) |
|
$ |
(4,481,147 |
) |
| Common
stock issued for interest |
|
|
312,938 |
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
36,165 |
|
|
|
- |
|
|
|
36,478 |
|
| Issuance
of common stock for debt conversion |
|
|
2,975,979 |
|
|
|
2,976 |
|
|
|
|
|
|
|
|
|
|
|
344,024 |
|
|
|
- |
|
|
|
347,000 |
|
| Issuance of
warrants for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,711 |
|
|
|
|
|
|
|
65,711 |
|
| Loss on
fair value of shares issued upon debt conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
397,532 |
|
|
|
- |
|
|
|
397,532 |
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943,823 |
) |
|
|
(943,823 |
) |
| Balance, Three Months as of September
30, 2020 |
|
|
65,085,597 |
|
|
$ |
65,086 |
|
|
$ |
1,000 |
|
|
$ |
1 |
|
|
$ |
13,931,609 |
|
|
|
(18,574,945 |
) |
|
$ |
(4,578,249 |
) |
| Common stock issued for services |
|
|
583,914 |
|
|
|
584 |
|
|
|
|
|
|
|
|
|
|
|
88,089 |
|
|
|
|
|
|
|
88,673 |
|
| Common stock issued for interest |
|
|
336,132 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
24,672 |
|
|
|
- |
|
|
|
25,008 |
|
|
Issuance of common stock for debt conversion |
|
|
2,881,220 |
|
|
|
2,881 |
|
|
|
|
|
|
|
|
|
|
|
212,119 |
|
|
|
- |
|
|
|
215,000 |
|
| Loss on
fair value of shares issued upon debt conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(39,065 |
) |
|
|
- |
|
|
|
(39,065 |
) |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(598,705 |
) |
|
|
(598,705 |
) |
|
Balance, Three Months as of December 31, 2020 |
|
|
68,886,863 |
|
|
$ |
68,887 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
14,217,423 |
|
|
$ |
(19,173,650 |
) |
|
$ |
(4,887,338 |
) |
| Common
stock issued for services |
|
|
255,000 |
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
$ |
43,345 |
|
|
|
|
|
|
|
43,600 |
|
| Common
stock issued for interest |
|
|
1,065,263 |
|
|
|
1,065 |
|
|
|
|
|
|
|
|
|
|
|
92,753 |
|
|
|
|
|
|
|
93,818 |
|
| Issuance
of common stock for debt conversion |
|
|
8,478,045 |
|
|
|
8,478 |
|
|
|
|
|
|
|
|
|
|
|
741,522 |
|
|
|
|
|
|
|
750,000 |
|
| Issuance of
warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,243 |
|
|
|
|
|
|
|
81,243 |
|
| Loss on
fair value of shares issued upon debt conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,507,218 |
|
|
|
|
|
|
|
1,507,218 |
|
|
Net loss |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,910,614 |
) |
|
|
(1,939,714 |
) |
|
Balance, Three Months as of March 31, 2021 |
|
|
78,685,171 |
|
|
$ |
78,685 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
$ |
16,663,105 |
|
|
$ |
(21,084,264 |
) |
|
$ |
(4,342,473 |
) |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
For
the nine months ending |
|
|
For
the nine months ending |
|
| |
|
March 31,
2021 |
|
|
March 31,
2020 |
|
| CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
| Net loss |
|
$ |
(3,453,142 |
) |
|
$ |
(2,742,049 |
) |
| |
|
|
|
|
|
|
|
|
| Adjustments to reconcile net loss to
net cash used for operations: |
|
|
|
|
|
|
|
|
| Stock issued for services |
|
|
132,273 |
|
|
|
70,897 |
|
| Amortization of intangible assets |
|
|
- |
|
|
|
500,000 |
|
| |
|
|
|
|
|
|
|
|
| Warrants for services |
|
|
126,555 |
|
|
|
- |
|
| Deferred financing fees |
|
|
102,800
|
|
|
|
39,493 |
|
| Change in derivative liability |
|
|
887,301
|
|
|
|
(612,093 |
) |
| Gain on extinguishment of debt upon
notes conversion |
|
|
(54,819 |
) |
|
|
- |
|
| Stock issued for interest |
|
|
204,391 |
|
|
|
82,952 |
|
| Amortization of debt discount |
|
|
787,217
|
|
|
|
1,270,943 |
|
| Impairment
expense related to intangible assets |
|
|
- |
|
|
|
500,000 |
|
| (Increase) decrease in accounts
receivable |
|
|
16,980 |
|
|
|
(5,838 |
) |
| (Increase) decrease in inventory |
|
|
(69,309 |
) |
|
|
120,560 |
|
| (Increase) in other current
assets |
|
|
146,333 |
|
|
|
(579,746 |
) |
| Increase in accounts payable |
|
|
107,107 |
|
|
|
50,173 |
|
| Increase
(decrease) in accrued expenses |
|
|
243,881
|
|
|
|
(24,000 |
) |
| Net cash used
by operating activities |
|
|
(841,133 |
) |
|
|
(1,328,708 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Cash paid for
intangible assets |
|
|
- |
|
|
|
(333,333 |
) |
| Net cash used
by investing activities |
|
|
- |
|
|
|
(333,333 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Proceeds from the sale of stock |
|
|
- |
|
|
|
- |
|
| Proceeds from the issuance of
convertible debt - net |
|
|
720,000
|
|
|
|
1,737,000 |
|
| |
|
|
|
|
|
|
|
|
| Borrowings under line of credit |
|
|
- |
|
|
|
5,000 |
|
| Repayment to Shareholders |
|
|
- |
|
|
|
- |
|
| Repayment of convertible debt |
|
|
- |
|
|
|
- |
|
| Repayment of related party
advance |
|
|
- |
|
|
|
- |
|
| Repayment of
Short-term debt |
|
|
(3,308 |
) |
|
|
- |
|
| Net cash
provided by financing activities |
|
|
716,692
|
|
|
|
1,742,000 |
|
| |
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
(124,442 |
) |
|
|
79,959 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
197,622 |
|
|
|
30,142 |
|
|
Cash and cash equivalents, end of period |
|
$ |
73,180 |
|
|
$ |
110,101 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
248,940 |
|
|
$ |
- |
|
|
Income taxes |
|
$ |
- |
|
|
$ |
- |
|
|
Summary of Non-Cash Investing and Financing Information: |
|
$ |
- |
|
|
$ |
- |
|
|
Initial derivative liability and debt discount |
|
$ |
512,993 |
|
|
$ |
1,463,278 |
|
|
Intangible assets acquired and adjusted in accounts payable
balance |
|
$ |
- |
|
|
$ |
666,667 |
|
|
Stock issued for debt conversion |
|
$ |
1,314,298 |
|
|
$ |
911,000 |
|
|
Stock issued for interest |
|
$ |
153,334 |
|
|
$ |
82,952 |
|
|
Derivative liability reclassed to loss on extinguishment of debt
upon notes conversion |
|
$ |
1,716,114 |
|
|
$ |
- |
|
|
True-up adjustment in debt discount and derivative liability |
|
$ |
37,360 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
1. |
Description of Business |
Nightfood Holdings, Inc. (the “Company”) is a Nevada Corporation
organized October 16, 2013 to acquire all of the issued and
outstanding shares of Nightfood, Inc., a New York Corporation from
its sole shareholder, Sean Folkson. All of its
operations are conducted by its two subsidiaries: Nightfood, Inc.
(“Nightfood”) and MJ Munchies, Inc. (“Munchies”). Nightfood’s
business model is to manufacture and distribute snack products
specifically formulated for nighttime snacking to help consumers
satisfy nighttime cravings in a better, healthier, more sleep
friendly way. Management believes Nightfood is the first brand
to achieve mainstream distribution of snacks focused on better
sleep, and expects the category of “sleep-friendly” snacking to
become an important segment of the total snacking market in coming
years. Munchies has acquired a portfolio of intellectual property
around the brand name Half-Baked, and intends to license said IP to
operators in the cannabis edibles space and other related
spaces.
|
● |
The Company’s fiscal year end is
June 30. |
|
● |
The Company currently maintains its
corporate address in Tarrytown, New York. |
|
2. |
Summary of Significant
Accounting Policies |
|
● |
Management is responsible for the
fair presentation of the Company’s financial statements, prepared
in accordance with U.S. generally accepted accounting principles
(GAAP). |
Interim Financial Statements
These unaudited condensed consolidated financial statements for the
three and nine months ended March 31, 2021 and 2020, respectively,
reflect all adjustments including normal recurring adjustments,
which, in the opinion of management, are necessary to present
fairly the financial position, results of operations and cash flows
for the periods presented in accordance with the accounting
principles generally accepted in the United States of America.
These interim unaudited condensed consolidated financial statements
should be read in conjunction with the Company’s consolidated
financial statements and notes thereto for the years ended June 30,
2020 and 2019, respectively, which are included in the Company’s
June 30, 2020 Annual Report on Form 10-K filed with the United
States Securities and Exchange Commission on October 13, 2020. The
Company assumes that the users of the interim financial information
herein have read, or have access to, the audited consolidated
financial statements for the preceding period, and that the
adequacy of additional disclosure needed for a fair presentation
may be determined in that context. The results of operations for
the three and nine months ended March 31, 2021 are not necessarily
indicative of results for the entire year ending June 30, 2021.
We made certain reclassifications to prior period amounts to
conform with the current year’s presentation. These
reclassifications did not have a material effect on our condensed
consolidated statement of financial position, results of operations
or cash flows.
Use of Estimates
|
● |
The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. Estimates are used in the determination of
depreciation and amortization, the valuation for non-cash issuances
of common stock, and the website, income taxes and contingencies,
valuing convertible notes for BCF and derivative liability, among
others. |
Cash and Cash Equivalents
|
● |
The Company classifies as cash and
cash equivalents amounts on deposit in the banks and cash
temporarily in various instruments with original maturities of
three months or less at the time of purchase. The Company places
its cash and cash equivalents on deposit with financial
institutions in the United States. The Federal Deposit Insurance
Corporation (“FDIC”) covers $250,000 for substantially all
depository accounts. The Company from time to time may have amounts
on deposit in excess of the insured limits. |
Fair Value of Financial Instruments
|
● |
Statement of financial accounting
standard FASB Topic 820, Disclosures about Fair Value of Financial
Instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in
the statements of financial position for assets and liabilities
qualifying as financial instruments are a reasonable estimate of
fair value. |
Inventories
|
● |
Inventories consisting of packaged
food items and supplies are stated at the lower of cost (FIFO) or
net realizable value, including provisions for spoilage
commensurate with known or estimated exposures which are recorded
as a charge to cost of sales during the period spoilage is
incurred. The Company has no minimum purchase commitments with its
vendors. |
Advertising Costs
|
● |
Advertising costs are expensed when
incurred and are included in advertising and promotional expense in
the accompanying statements of operations. Although not
traditionally thought of by many as “advertising costs”, the
Company includes expenses related to graphic design work, package
design, website design, domain names, and product samples in the
category of “advertising costs”. The Company recorded advertising
costs of $316,483 and $673,814 for the nine months ended March 31,
2021 and 2020, respectively. The Company recorded
advertising costs of $64,158 and $470,820 for the three months
ended March 31, 2021 and 2020, respectively. |
Income Taxes
|
● |
The Company has not generated any
taxable income, and, therefore, no provision for income taxes has
been provided. |
|
● |
Deferred income taxes are reported
for timing differences between items of income or expense reported
in the financial statements and those reported for income tax
purposes in accordance with FASB Topic 740, “Accounting for Income
Taxes”, which requires the use of the asset/liability method of
accounting for income taxes. Deferred income taxes and tax benefits
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and
for tax loss and credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The Company provides for
deferred taxes for the estimated future tax effects attributable to
temporary differences and carry-forwards when realization is more
likely than not. |
|
● |
A valuation allowance has been
recorded to fully offset the deferred tax asset even though the
Company believes it is more likely than not that the assets will be
utilized. |
|
● |
The Company’s effective tax rate
differs from the statutory rates associated with taxing
jurisdictions because of permanent and temporary timing differences
as well as a valuation allowance. |
Revenue Recognition
|
● |
The Company generates its revenue
by selling its nighttime snack products wholesale to retailers and
wholesalers. |
|
● |
All sources of revenue are recorded
pursuant to FASB Topic 606 Revenue Recognition, to depict the
transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. This includes a
five-step framework that requires an entity to: (i) identify the
contract(s) with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price,
(iv) allocate the transaction price to the performance obligations
in the contract, and (v) recognize revenue when the entity
satisfies a performance obligation. In addition, this revenue
generation requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with
customers. |
|
● |
The Company offers sales incentives
through various programs, consisting primarily of advertising
related credits. The Company records certain advertising related
credits with customers as a reduction to revenue as no identifiable
benefit is received in exchange for credits claimed by the
customer. |
|
● |
The Company revenue from contracts
with customers provides that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or
services. |
The Company incurs costs associated with product distribution, such
as freight and handling costs. The Company has elected to treat
these costs as fulfillment activities and recognizes these costs at
the same time that it recognizes the underlying product revenue. As
this policy election is in line with the Company’s previous
accounting practices, the treatment of shipping and handling
activities under FASB Topic 606 did not have any impact on the
Company’s results of operations, financial condition and/or
financial statement disclosures.
The adoption of ASC 606 did not result in a change to the
accounting for any of the Company’s revenue streams that are within
the scope of the amendments. The Company’s services that fall
within the scope of ASC 606 are recognized as revenue as the
Company satisfies its obligation to the customer.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts
with Customers, which updates revenue recognition guidance relating
to contracts with customers. This standard states that an entity
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This standard is effective
for annual reporting periods, and interim periods therein,
beginning after July 1, 2018. The Company adopted ASU 2014-09 and
its related amendments (collectively known as “ASC 606”) during the
first quarter of fiscal 2019 using the full retrospective
method.
Management reviewed ASC 606-10-32-25 which states “Consideration
payable to a customer includes cash amounts that an entity pays, or
expects to pay, to the customer (or to other parties that purchase
the entity’s goods or services from the customer). Consideration
payable to a customer also includes credit or other items (for
example, a coupon or voucher) that can be applied against amounts
owed to the entity (or to other parties that purchase the entity’s
goods or services from the customer). An entity shall account for
consideration payable to a customer as a reduction of the
transaction price and, therefore, of revenue unless the payment to
the customer is in exchange for a distinct good or service (as
described in paragraphs 606-10-25-18 through 25-22) that the
customer transfers to the entity. If the consideration payable to a
customer includes a variable amount, an entity shall estimate the
transaction price (including assessing whether the estimate of
variable consideration is constrained) in accordance with
paragraphs 606-10-32-5 through 32-13.”
If the consideration payable to a customer is a payment for a
distinct good service, then in accordance with ASC 606-10-32-26,
the entity should account for it the same way that it accounts for
other purchases from suppliers (expense). Further, “if the
amount of consideration payable to the customer exceeds the fair
value of the distinct good or service that the entity receives from
the customer, then the entity shall account for such an excess as a
reduction of the transaction price. If the entity cannot reasonably
estimate the fair value of the good or service received from the
customer, it shall account for all of the consideration payable to
the customer as a reduction of the transaction price.”
Under ASC 606-10-32-27, if the consideration payable to a customer
is accounted for as a reduction of the transaction price, “an
entity shall recognize the reduction of revenue when (or as) the
later of either of the following events occurs:
|
a) |
The entity recognizes revenue
for the transfer of the related goods or services to the
customer. |
|
b) |
The entity pays or promises to
pay the consideration (even if the payment is conditional on a
future event). That promise might be implied by the entity’s
customary business practices.” |
Management reviewed each arrangement to determine if each fee paid
is for a distinct good or service and should be expensed as
incurred or if the Company should recognize the payment as a
reduction of revenue.
The Company recognizes revenue upon shipment based on meeting the
transfer of control criteria. The Company has made a policy
election to treat shipping and handling as costs to fulfill the
contract, and as a result, any fees received from customers are
included in the transaction price allocated to the performance
obligation of providing goods with a corresponding amount accrued
within cost of sales for amounts paid to applicable carriers.
Concentration of Credit Risk
|
● |
Financial instruments that
potentially subject the Company to concentrations of credit risk
consist principally of cash deposits at financial institutions. At
various times during the year, the Company may exceed the federally
insured limits. To mitigate this risk, the Company places its cash
deposits only with high credit quality institutions. Management
believes the risk of loss is minimal. At March 31, 2021 and June
30, 2020, the Company did not have any uninsured cash
deposits. |
Beneficial Conversion Feature
|
● |
For conventional convertible debt
where the rate of conversion is below market value, the Company
records any “beneficial conversion feature” (“BCF”) intrinsic value
as additional paid in capital and related debt discount. |
When the Company records a BCF, the relative fair value of the BCF
is recorded as a debt discount against the face amount of the
respective debt instrument. The discount is amortized over the life
of the debt. If a conversion of the underlying debt occurs, a
proportionate share of the unamortized amounts is immediately
expensed.
Debt Issue Costs
|
● |
The Company may pay debt issue
costs in connection with raising funds through the issuance of debt
whether convertible or not or with other consideration. These costs
are recorded as debt discounts and are amortized over the life of
the debt to the statement of operations as amortization of debt
discount. |
Original Issue Discount
|
● |
If debt is issued with an original
issue discount, the original issue discount is recorded to debt
discount, reducing the face amount of the note and is amortized
over the life of the debt to the statement of operations as
amortization of debt discount. If a conversion of the underlying
debt occurs, a proportionate share of the unamortized amounts is
immediately expensed. |
Valuation of Derivative Instruments
|
● |
ASC 815 “Derivatives and Hedging”
requires that embedded derivative instruments be bifurcated and
assessed, along with free-standing derivative instruments such as
warrants, on their issuance date and measured at their fair value
for accounting purposes. In determining the appropriate fair value,
the Company uses the Trinomial Tree option pricing formula. Upon
conversion of a note where the embedded conversion option has been
bifurcated and accounted for as a derivative liability, the Company
records the shares at fair value, relieves all related notes,
derivatives and debt discounts and recognizes a net gain or loss on
derivative liability under the line item “change in derivative
liability”. |
Derivative Financial Instruments
|
● |
The Company does not use derivative
instruments to hedge exposures to cash flow, market or foreign
currency risks. The Company evaluates all of its financial
instruments to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives. For
derivative financial instruments that are accounted for as
liabilities, the derivative instrument is initially recorded at its
fair value and then is revalued at each reporting date, with
changes in fair value reported in the consolidated statement of
operations. For stock based derivative financial instruments, Fair
value accounting requires bifurcation of embedded derivative
instruments such as conversion features in convertible debt or
equity instruments, and measurement of their fair value for
accounting purposes. In determining the appropriate fair value, the
Company uses the Trinomial Tree option-pricing model. In assessing
the convertible debt instruments, management determines if the
convertible debt host instrument is conventional convertible debt
and further if there is a beneficial conversion feature requiring
measurement. If the instrument is not considered conventional
convertible debt, the Company will continue its evaluation process
of these instruments as derivative financial instruments. |
Once determined, derivative liabilities are adjusted to reflect
fair value at the end of each reporting period. Any increase or
decrease in the fair value from inception is made quarterly and
appears in results of operations as a change in fair market value
of derivative liabilities.
Stock-Based Compensation
The Company accounts for share-based awards issued to employees in
accordance with FASB ASC 718. Accordingly, employee share-based
payment compensation is measured at the grant date, based on the
fair value of the award, and is recognized as an expense over the
requisite service period. Additionally, share-based
awards to non-employees are expensed over the period in which the
related services are rendered at their fair value. The Company
applies ASC 718, “Equity Based Payments to Non-Employees”, with
respect to options and warrants issued to non-employees.
Customer Concentration
|
● |
During the nine months ended March
31, 2021, the Company had one customer account for approximately
37% of the gross sales. One other customer accounted for
approximately 23% of gross sales, and one other customer accounted
for over 11% of gross sales. During the nine months ended March 31,
2020, one customer accounted for approximately 45% of the gross
sales. |
During the three months ended March 31, 2021, the Company had one
customer account for approximately 44% of the gross sales. During
the three months ended March 31, 2020, one customer accounted for
approximately 36% of the gross sales while three other customers
accounted for over 10% of gross sales.
Vendor Concentration
During the three-month period ended March 31, 2021, no vendors
accounted for more than 14% of our operating expenses. During the
nine-month period ended March 31, 2021, no vendor accounted for
more than 8% of our operating expenses.
During the three-month period ended March 31, 2021, no vendors
accounted for more than 9% of our operating expenses. During the
nine-month period ended March 31, 2020 no vendor accounted for more
than 8%.
Receivables Concentration
|
● |
As of March 31, 2021, the Company
had receivables due from eight customers. Five of which
each accounted for approximately 17-22% of the total balance. As of
June 30, 2020, the Company had receivables due from four customers,
two of whom accounted for over 70% of the outstanding balance. Two
of the four accounted for approximately 30% of the total
balance. |
Income/Loss Per Share
|
● |
Net income/loss per share data for
both the three and nine-month periods ending March 31, 2021 and
2020, are based on net income/loss available to common shareholders
divided by the weighted average of the number of common shares
outstanding. The Company does not present a diluted Earnings per
share as the convertible debt and interest that is convertible into
shares of the Company’s common stock would not be included in this
computation, as the Company is generating a loss and therefore
these shares would be antidilutive. |
Impairment of Long-lived Assets
|
● |
The Company accounts for long-lived
assets in accordance with the provisions of FASB Topic 360,
Accounting for the Impairment of Long-Lived Assets. This statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Fair values are determined based on
quoted market value, discounted cash flows or internal and external
appraisals, as applicable. |
During the period ended March 31, 2021 and 2020, Management
determined and impaired $-0- and $-500,000-, respectively as
impairment on intangible asset
Reclassification
The Company may make certain reclassifications to prior period
amounts to conform with the current year’s presentation. These
reclassifications did not have a material effect on its
consolidated statement of financial position, results of operations
or cash flows.
Recent Accounting Pronouncements
ASU No. 2019-12, Simplifying the Accounting for Income
Taxes
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the
Accounting for Income Taxes. The ASU is intended to enhance and
simplify aspects of the income tax accounting guidance in ASC 740
as part of the FASB's simplification initiative. This guidance is
effective for fiscal years and interim periods within those years
beginning after December 15, 2020 with early adoption permitted.
The Company will adopt this ASU on January 31, 2021 and does not
expect there to be a material impact on our Consolidated Financial
Statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting. This guidance provides
temporary optional expedients and exceptions to the U.S. GAAP
guidance on contract modifications and hedge accounting to ease the
financial reporting burdens of the expected market transition from
the London Interbank Offered Rate (“LIBOR”) and other interbank
offered rates to alternative reference rates, such as the Secured
Overnight Financing Rate. This ASU is applied prospectively and
becomes effective immediately upon the transition from LIBOR. The
Company’s secured credit facility agreement references LIBOR, which
is expected to be discontinued as a result of reference rate
reform. The Company expects to adopt the guidance upon transition
from LIBOR, but does not believe the adoption will have a material
effect on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 to simplify the current
guidance for convertible instruments and the derivatives scope
exception for contracts in an entity’s own equity. Additionally,
the amendments affect the diluted EPS calculation for instruments
that may be settled in cash or shares and for convertible
instruments. The update also provides for expanded disclosure
requirements to increase transparency. For SEC filers, excluding
smaller reporting companies, this update is effective for fiscal
years beginning after December 15, 2021 including interim periods
within those fiscal years. For all other entities, this Update is
effective for fiscal years beginning after December 15, 2023,
including interim periods therein. The Company believes the
adoption of this guidance will not materially impact our financial
statements and related disclosures.
The Company will continue to monitor these emerging issues to
assess any potential future impact on its financial statements.
|
● |
The Company’s financial statements
are prepared using generally accepted accounting principles, which
contemplate the realization of assets and liquidation of
liabilities in the normal course of business. Because the business
is new and has limited operating history and relatively few sales,
no certainty of continuation can be stated. |
|
● |
The accompanying consolidated
financial statements have been prepared assuming the Company will
continue as a going concern. For the nine months ended March 31,
2021, the Company had a net loss of $3,453,142 (comprised of
operating loss of $1,379,102 and other expenses of $2,074,040, most
of which is comprised of changes in derivative liability and
amortization of Beneficial Conversion Features related to
convertible note financing and changes in the share price of the
common stock), negative cash flow from operations of $876,638 and
accumulated deficit of $21,084,264. |
Subsequent to the end of the quarter, the Company completed a
financing round of $4,500,000, consisting of $3,000,000 in cash and
the rollover of $1,500,000 of previously existing convertible debt.
As of the time of this filing, the Company is debt free.
The Company believes it has sufficient cash on hand to operate for
the next several quarters. We do not believe our cash on hand will
be adequate to satisfy our long-term working capital needs. We
believe that our current capitalization structure, combined with
ongoing increases in distribution, revenues, and market
capitalization, will enable us to successfully secure required
financing to continue our growth.
Because the business has limited operating history and sales, no
certainty of continuation can be stated. Management has devoted a
significant amount of time in the raising of capital from
additional debt and equity financing. However, the Company’s
ability to continue as a going concern will again be dependent upon
raising additional funds through debt and equity financing and
generating revenue. There are no assurances the Company will
receive the necessary funding or generate revenue necessary to fund
operations long-term.
The Company cannot give any assurance that it will, in the future,
be able to achieve a level of profitability from the sale of its
products to sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a
going concern for one year from the date the financials are issued.
The accompanying financial statements do not include any
adjustments to reflect the possible future effects on
recoverability and reclassification of assets or the amounts and
classification of liabilities that may result from the outcome of
this uncertainty.
|
● |
The outbreak of the novel
coronavirus (COVID-19), including the measures to reduce its
spread, and the impact on the economy, cannot fully be understood
and identified. Indications to date are that there are somewhat
offsetting factors relating to the impact on our Company. Industry
data shows that supermarket sales remain up, with more people
spending more time at home. Anecdotally and statistically, snacking
activity is also up while consumers are reporting a decrease in
sleep quality and sleep satisfaction. Industry sales data also
showed ice cream as one of the categories experiencing the largest
increase with year over year growth averaging over 30% through a
series of five one-week periods between March 15 and April 12, 2020
according to IRI data. |
The offsetting factors are the impact of the virus on the overall
economy, and the impact that a down economic period can have on
consumer behavior, including trial of new brands. Greater
unemployment, recession, and other possible unforeseen factors are
shown to have an impact. Research indicates that consumers are less
likely to try new brands during economic recession and stress,
returning to the legacy brands they’ve known for decades.
With consumers generally making fewer shopping trips, while buying
more on those occasions and reverting back to more familiar brands,
certain brand-launch marketing tactics, such as in-store displays
and in-store product sampling tables, are either impaired or
impermissible. So, while overall night snacking demand is up, and
consumer need/desire for better sleep is also stronger, driving
consumer trial and adoption has been more difficult and expensive
during these circumstances.
From both public statements, and ongoing exploratory meetings
between Nightfood Management and experts from certain global food
and beverage conglomerates, it has been affirmed to Management that
there is increased strategic interest in the nighttime nutrition
space as a potential high-growth opportunity, partially due to
recent declines in consumer sleep quality and increases in at-home
nighttime snacking.
We have experienced no major issues with supply chain or logistics.
Order processing function has been normal to date, and our
manufacturers have assured us that their operations are “business
as usual” as of the time of this filing.
It is possible that the fallout from the pandemic could make it
more difficult in the future for the Company to access required
growth capital, possibly rendering us unable to meet certain debts
and expenses.
More directly, COVID has impaired Nightfood’s ability to execute
certain in-store and out-of-store marketing initiatives. For
example, since the inception of COVID, the Company was unable to
conduct in-store demonstrations and unable to participate in local
pregnancy, baby expos, and health expos that were originally
intended to be part of our marketing mix.
Additionally, with more consumers shopping online, both for
delivery or at-store pickup, the opportunity for shoppers to learn
about new brands at-shelf has been somewhat diminished. Management
is working to identify opportunities to build awareness and drive
trial under these new circumstances.
It is impossible to know what the future holds with regard to the
virus, both for our company and in the broader sense. There are
many uncertainties regarding the current coronavirus pandemic, and
the Company is closely monitoring the impact of the pandemic on all
aspects of its business, including how it will impact its
customers, vendors, and business partners. It is difficult to know
if the pandemic has materially impacted the results of operations,
and we are unable to predict the impact that COVID-19 will have on
our financial position and operating results due to numerous
uncertainties. The Company expects to continue to assess the
evolving impact of the COVID-19 pandemic and intends to make
adjustments accordingly, if necessary.
|
● |
The Company’s accounts receivable
arise primarily from the sale of the Company’s ice cream. On a
periodic basis, the Company evaluates each customer account and
based on the days outstanding of the receivable, history of past
write-offs, collections, and current credit conditions, writes off
accounts it considers uncollectible. With most of our retail and
distribution partners, invoices will typically be due in 30 days.
The Company does not accrue interest on past due accounts and the
Company does not require collateral. Accounts become past due on an
account-by-account basis. Determination that an account is
uncollectible is made after all reasonable collection efforts have
been exhausted. The Company has not provided any accounts
receivable allowances for March 31, 2021 and June 30, 2020,
respectively. |
|
● |
Inventory consists of the following
at March 31, 2021 and June 30, 2020, |
| |
|
March 31,
2021 |
|
|
June 30,
2020 |
|
| Finished goods – ice
cream |
|
$ |
194,205 |
|
|
$ |
195,817 |
|
| Raw material – ingredients |
|
|
83,416 |
|
|
|
26,309 |
|
| Packaging |
|
|
67,293 |
|
|
|
53,479 |
|
| TOTAL |
|
$ |
344,914 |
|
|
$ |
275,605 |
|
Inventories are stated at the lower of cost or net realizable
value. The Company periodically reviews the value of items in
inventory and provides write-downs or write-offs of inventory based
on its assessment of market conditions and the products relative
shelf life. Write-downs and write-offs are charged to loss on
inventory write down.
|
● |
Other current assets consist of the
following vendor deposits at March 31, 2021 and June 30,
2020. The majority of this amount relates to deposits towards
distribution and marketing partnerships. |
| |
|
March
31,
2021 |
|
|
June 30,
2020 |
|
|
Prepaid
advertising costs |
|
$ |
222,186 |
|
|
$ |
398,045 |
|
|
Vendor
deposits – Other |
|
$ |
29,526 |
|
|
$ |
40 |
|
|
TOTAL |
|
$ |
251,712 |
|
|
$ |
398,085 |
|
Intangible
assets consist of the following at March 31, 2021 and June 30,
2020. The amount of the intangible assets represents fees and
expenses in connection with the development and launch of platforms
used to track conversions, optimize ads, and scale online customer
growth through a hybrid distribution model.
|
|
|
March
31, |
|
|
June 30,
2020 |
|
|
Intangible
assets |
|
$ |
- |
|
|
$ |
1,000,000 |
|
|
Amortization
of intangible assets |
|
|
- |
|
|
|
(500,000 |
) |
|
Impairment
of intangible assets |
|
|
- |
|
|
|
(500,000 |
) |
|
TOTAL |
|
$ |
- |
|
|
$ |
- |
|
During
the quarter ending March 31, 2020, the Company determined it would
be unable to generate sufficient traction from these digital
assets. The Company made the decision to stop utilizing the
assets.
|
8. |
Other Current
Liabilities |
|
● |
Other current liabilities consist
of the following at March 31, 2021 and June 30, 2020, |
| |
|
March 31,
2021 |
|
|
June 30,
2020 |
|
| Accrued consulting fees –
related party |
|
$ |
9,974 |
|
|
$ |
9,974 |
|
| Accrued interest |
|
|
209,161 |
|
|
|
192,625 |
|
| Accrued slotting fees |
|
|
5,564 |
|
|
|
- |
|
| Other
accrued expenses |
|
|
66,480 |
|
|
|
|
|
| TOTAL |
|
$ |
291,179 |
|
|
$ |
202,599 |
|
|
● |
Notes Payable consist of the
following at March 31, 2021, |
On
April 30, 2018, the Company entered into a convertible promissory
note and a security purchase agreement dated April 30, 2018, in the
amount of $225,000. The lender was Eagle Equities, LLC. The notes
have a maturity of April 30, 2019 and interest rate of 8% per
annum and are convertible at a price of 60% of the lowest closing
bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. While this note is technically in
default, our lender has agreed, in writing, to forbear any
additional interest or penalties relating to this default providing
the Company is in compliance with the remaining terms of the note.
The note may be prepaid, but carries a penalty in association with
the remittance amount, as there is an accretion component to
satisfy the note with cash. The convertible note qualifies for
derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $225,000 Notes was calculated
using the Black-Scholes pricing model at $287,174, with the
following assumptions: risk-free interest rate of 2.24%, expected
life of 1 year, volatility of 202%, and expected dividend yield of
zero. Because the fair value of the note exceeded the net proceeds
from the $225k Notes, a charge was recorded to “Financing cost” for
the excess of the fair value of the note, for a net charge of
$62,174. As of March 31, 2021, and June 30, 2020, the debt discount
was $0.
On
February 14, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated February
14, 2019, in the amount of $104,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 14, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $104,000 Notes was calculated using the Black-Scholes
pricing model at $90,567, with the following assumptions: risk-free
interest rate of 2.53%, expected life of 1 year, volatility of
136%, and expected dividend yield of zero. Because the fair value
of the note did not exceed the net proceeds from the $104k Notes,
no charge was recorded to “Financing cost” for the excess of the
fair value of the note. As of March 31, 2021, and June 30,
2020, the debt discount was $0 and $0, respectively. $50,000 of the
note has been successfully retired via conversion into shares
during the year ended June 30, 2020 and $54,000 of the note has
been successfully retired via conversion into shares during the
nine months ended March 31, 2021. The Company fair valued the notes
as of conversion date and accounted for a loss on conversion of
$36,242 included under line item “Loss on debt extinguishment upon
note conversion, net”.
On April 29, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated April 29,
2019, in the amount of $208,000. The lender was Eagle Equities,
LLC. The notes have a maturity of April 29, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest
trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $208,000 Notes was calculated using the Black-Scholes
pricing model at $170,098, with the following assumptions:
risk-free interest rate of 2.42%, expected life of 1 year,
volatility of 118%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$208k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of March 31, 2021, and
June 30, 2020, the debt discount was $0 and $0, respectively.
$208,000 of the note has been successfully retired via conversion
into shares during the nine months ended March 31, 2021. The
Company fair valued the notes as of conversion date and accounted
for a loss on conversion of $109,561 included under line item “Loss
on debt extinguishment upon note conversion, net”.
On June 11, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated June 11, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes
have a maturity of June 11, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest trading price
on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior
to conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $300,000 Notes was
calculated using the Black-Scholes pricing model at $240,217, with
the following assumptions: risk-free interest rate of 2.05%,
expected life of 1 year, volatility of 16%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the $300k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note.
As of March 31, 2021 and June 30, 2020, the debt discount was
$0 and $46,726, respectively. This note has been
successfully retired via conversions into shares during the nine
months ended March 31, 2021. The Company fair valued the notes
as of conversion date and accounted for a loss on conversion of
$177,160 included under line item “Loss on debt extinguishment upon
note conversion, net”.
On July 5, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated July 5, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes
have a maturity of July 5, 2020 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest trading
price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately
prior to conversion. While this note is technically in default, our
lender has agreed, in writing, to forbear any additional interest
or penalties relating to this default providing the Company is in
compliance with the remaining terms of the note. The note may be
prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with
cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $300,000 Notes was calculated using the Black-Scholes
pricing model at $239,759, with the following assumptions:
risk-free interest rate of 1.98%, expected life of 1 year,
volatility of 118%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$300k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of March 31, 2021
and June 30, 2020, the debt discount was $0 and $2,627,
respectively. This note has been successfully retired via
conversions into shares during the nine months ended March 31,
2021. The Company fair valued the notes as of conversion date
and accounted for a loss on conversion of $648,036 included under
line item “Loss on debt extinguishment upon note conversion,
net”.
On August 8, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated August 8,
2019, in the amount of $300,000. The lender was Eagle Equities,
LLC. The notes have a maturity of August 8, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. While this note is
technically in default, our lender has agreed, in writing, to
forbear any additional interest or penalties relating to this
default providing the Company is in compliance with the remaining
terms of the note. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $300,000 Notes was
calculated using the Black-Scholes pricing model at $254,082, with
the following assumptions: risk-free interest rate of 1.79%,
expected life of 1 year, volatility of 113%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the $300k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note. As
of March 31, 2021, and June 30, 2020 the debt discount was $0 and
$26,452, respectively. This note has been successfully
retired via conversions into shares during the nine months ended
March 31, 2021. The Company fair valued the notes as of
conversion date and accounted for a loss on conversion of $611,909
included under line item “Loss on debt extinguishment upon note
conversion, net”.
On
August 29, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated August 29, 2019, in
the amount of $300,000. The lender was Eagle Equities, LLC. The
notes have a maturity of August 29, 2020 and interest rate of
8% per annum and are convertible at a price of 70% of the lowest
trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. While this note is technically in
default, our lender has agreed, in writing, to forbear any
additional interest or penalties relating to this default providing
the Company is in compliance with the remaining terms of the note.
The note may be prepaid, but carries a penalty in association with
the remittance amount, as there is an accretion component to
satisfy the note with cash. The convertible note qualifies for
derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $300,000 Notes was calculated
using the Black-Scholes pricing model at $234,052, with the
following assumptions: risk-free interest rate of 1.75%, expected
life of 1 year, volatility of 113%, and expected dividend yield of
zero. Because the fair value of the note did not exceed the net
proceeds from the $300k Notes, no charge was recorded to “Financing
cost” for the excess of the fair value of the note. As of
March 31, 2021, and June 30, 2020 the debt discount was $0 and
$37,833.
On September 24, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated September
24, 2019, in the amount of $150,000. The lender was Eagle Equities,
LLC. The notes have a maturity of September 24, 2020 and
interest rate of 8% per annum and are convertible at a price of 70%
of the lowest trading price on the primary trading market on which
the Company’s Common Stock is then listed for the fifteen (15)
trading days immediately prior to conversion. While this note is
technically in default, our lender has agreed, in writing, to
forbear any additional interest or penalties relating to this
default providing the Company is in compliance with the remaining
terms of the note. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $150,000 Notes was
calculated using the Black-Scholes pricing model at $118,009, with
the following assumptions: risk-free interest rate of 1.78%,
expected life of 1 year, volatility of 113%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the $150k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note.
As of March 31, 2021 and June 30, 2020, the debt discount was
$0 and $27,482. This note has been successfully retired via
conversions into shares during the nine months ended March 31,
2021. The Company fair valued the notes as of conversion date
and accounted for a loss on conversion of $126,735 included under
line item “Loss on debt extinguishment upon note conversion,
net”.
On
November 7, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated November 7, 2019, in
the amount of $150,000. The lender was Eagle Equities, LLC. The
notes have a maturity of November 7, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest
trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. While this note is technically in
default, our lender has agreed, in writing, to forbear any
additional interest or penalties relating to this default providing
the Company is in compliance with the remaining terms of the note.
The note may be prepaid, but carries a penalty in association with
the remittance amount, as there is an accretion component to
satisfy the note with cash. The convertible note qualifies for
derivative accounting and bifurcation under ASC 815, “Derivatives
and Hedging.” The fair value of the $150,000 Notes was calculated
using the Black-Scholes pricing model at $121,875, with the
following assumptions: risk-free interest rate of 1.58%, expected
life of 1 year, volatility of 122%, and expected dividend yield of
zero. Because the fair value of the note did not exceed the net
proceeds from the $150k Notes, no charge was recorded to “Financing
cost” for the excess of the fair value of the note. As of
March 31, 2021 and June 30, 2020, the debt discount was $0 and
$43,074, respectively.
On
December 31, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated December
31, 2019, in the amount of $150,000. The lender was Eagle Equities,
LLC. The notes have a maturity of December 31, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. While this note is
technically in default, our lender has agreed, in writing, to
forbear any additional interest or penalties relating to this
default providing the Company is in compliance with the remaining
terms of the note. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $150,000 Notes was
calculated using the Black-Scholes pricing model at $189,172, with
the following assumptions: risk-free interest rate of 1.59%,
expected life of 1 year, volatility of 115%, and expected dividend
yield of zero. Because the fair value of the note exceeded the net
proceeds from the $150k Notes, $39,172 was recorded to “Financing
cost” for the excess of the fair value of the note. As of
March 31, 2021 and June 30, 2020, the debt discount was $0 and
$75,205, respectively.
On February 6, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated February 6,
2020, in the amount of $200,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 6, 2021 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $200,000 Notes was calculated using the Black-Scholes
pricing model at $156,061, with the following assumptions:
risk-free interest rate of 1.51%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. As
of March 31, 2021 and June 30, 2020, the debt discount was $0 and
$94,064, respectively.
On February 26, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated February
26, 2020, in the amount of $187,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 6, 2021 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $187,000 Notes was calculated using the Black-Scholes
pricing model at $150,268, with the following assumptions:
risk-free interest rate of 1.18%, expected life of 1 year,
volatility of 118%, and expected dividend yield of zero. As of
March 31, 2021 and June 30, 2020, the debt discount was $0 and
$99,218, respectively.
On April 30, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated April 30,
2020, in the amount of $205,700. This note carried an Original
Discount of 10% or $18,700 which was included in interest expense
at the time of valuation. The lender was Eagle Equities, LLC. The
notes have a maturity of April 30, 2021 and interest rate of 8% per
annum and are convertible at a price of 78% of the lowest closing
bid price on the primary trading market on which the Company’s
Common Stock is then listed for the twenty (20) trading days
immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $128,369, with the following assumptions:
risk-free interest rate of 0.16%, expected life of 1 year,
volatility of 106%, and expected dividend yield of zero. As of
March 31, 2021 and June 30, 2020, the debt discount was $10,551 and
$106,916, respectively.
On June 23, 2020, the Company entered into a convertible promissory
note and a security purchase agreement dated June 23, 2020, in the
amount of $205,700. This note carried an Original Discount of 10%
or $18,700 which was included in interest expense at the time of
valuation. The lender was Eagle Equities, LLC. The notes have a
maturity of June 23, 2021 and interest rate of 8% per annum and are
convertible at a price of 78% of the lowest closing bid price on
the primary trading market on which the Company’s Common Stock is
then listed for the twenty (20) trading days immediately prior to
conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $205,700 Notes was
calculated using the Black-Scholes pricing model at $132,236, with
the following assumptions: risk-free interest rate of 0.18%,
expected life of 1 year, volatility of 108%, and expected dividend
yield of zero. As of March 31, 2021 and June 30, 2020, the debt
discount was $30,432 and $129,700, respectively.
On August 12, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated August 12,
2020, in the amount of $205,700. This note carried an Original
Discount of 10% or $18,700 which was included in interest expense
at the time of valuation. The lender was Eagle Equities, LLC. The
notes have a maturity of August 12, 2021 and interest rate of 8%
per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $126,029, with the following assumptions:
risk-free interest rate of 0.13%, expected life of 1 year,
volatility of 101%, and expected dividend yield of zero. As of
March 31, 2021, the debt discount was $46,269.
On October 13, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated October 13,
2020, in the amount of $205,700. This note carried an Original
Discount of 10% or $18,700 which was included in interest expense
at the time of valuation. The lender was Eagle Equities, LLC. The
notes have a maturity of October 13, 2021 and interest rate of 8%
per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $126,471, with the following assumptions:
risk-free interest rate of 0.13%, expected life of 1 year,
volatility of 103.1%, and expected dividend yield of zero. As of
March 31, 2021, the debt discount was $67,913.
On December 21, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated December
21, 2020, in the amount of $205,700. This note carried an Original
Discount of 10% or $18,700 which was included in interest expense
at the time of valuation. The lender was Eagle Equities, LLC. The
notes have a maturity of December 21, 2021 and interest rate of 8%
per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $121,112, with the following assumptions:
risk-free interest rate of 0.09%, expected life of 1 year,
volatility of 93.97%, and expected dividend yield of zero. As of
March 31, 2021, the debt discount was $87,931.
On February 22, 2021, the Company entered into a convertible
promissory note and a security purchase agreement dated December
21, 2020, in the amount of $205,700. This note carried an Original
Discount of 10% or $18,700 which was included in interest expense
at the time of valuation. The lender was Eagle Equities, LLC. The
notes have a maturity of December 21, 2021 and interest rate of 8%
per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $139,381, with the following assumptions:
risk-free interest rate of 0.09%, expected life of 1 year,
volatility of 119,49%, and expected dividend yield of zero. As of
March 31, 2021, the debt discount was $125,252.
Below
is a reconciliation of the convertible notes payable as presented
on the Company’s balance sheet as of March 31, 2021:
| |
|
Principal
($) |
|
|
Debt
Discount
($) |
|
|
Net
Value
($) |
|
| Balance at June 30, 2019 |
|
|
1,748,000 |
|
|
|
(630,259 |
) |
|
|
1,117,741 |
|
| Convertible notes payable issued
during fiscal year ended June 30, 2020 |
|
|
2,148,400 |
|
|
|
- |
|
|
|
2,148,400 |
|
| Notes converted into shares of common
stock |
|
|
(961,000 |
) |
|
|
- |
|
|
|
(961,000 |
) |
| Debt discount associated with new
convertible notes |
|
|
- |
|
|
|
(1,684,711 |
) |
|
|
(1,684,711 |
) |
| Amortization of debt discount |
|
|
- |
|
|
|
1,709,759 |
|
|
|
1,709,759 |
|
| Balance at June 30, 2020 |
|
|
2,935,400 |
|
|
|
(605,211 |
) |
|
|
2,330,189 |
|
| Convertible notes payable issued during nine months ended March
31, 2021 |
|
|
822,800 |
|
|
|
- |
|
|
|
822,800 |
|
| Notes converted into shares of common
stock |
|
|
(1,312,000 |
) |
|
|
- |
|
|
|
(1,312,000 |
) |
| Debt discount associated with new
convertible notes |
|
|
- |
|
|
|
(512,993 |
) |
|
|
(512,993 |
) |
| Amortization of debt discount |
|
|
- |
|
|
|
787,216 |
|
|
|
787,216 |
|
| True-up adjustment in debt discount
and derivative liability |
|
|
- |
|
|
|
(37,360 |
) |
|
|
(37,360 |
) |
| Balance at March 31, 2021 |
|
|
2,446,200 |
|
|
|
(368,348 |
) |
|
|
2,077,852 |
|
Amortization
expense for the nine months ended March 31, 2021 and 2020, totaled
$787,216 and $1,270,943, respectively and Amortization expense for
the three months ended March 31, 2021 and 2020, totaled $210,429
and $439,507 respectively.
As of March 31, 2021 and June 30, 2020, the unamortized portion of
debt discount was $368,348 and $605,211, respectively.
Interest expense for the nine months ended March 31, 2021 and 2020,
totaled $267,640 and $82,952, respectively and interest expense for
the three months ended March 31, 2021 and 2020, totaled $72,110 and
$40,616, respectively.
As of
March 31, 2021 and June 30, 2020, the accrued interest related to
convertible notes was $209,161 and $192,625,
respectively.
Due to the variable conversion price associated with some of these
convertible promissory notes disclosed in Note 8 above, the Company
has determined that the conversion feature is considered a
derivative liability for instruments which are convertible and have
not yet been settled. The accounting treatment of derivative
financial instruments requires that the Company record the fair
value of the derivatives on the date they are deemed to be
derivative liabilities.
During the nine month period ended March 31, 2021, the Company
recorded a change in fair value of derivative $887,301. The Company
will measure the fair value of each derivative instrument in future
reporting periods and record the change based on the change in fair
value.
Below
is a reconciliation of the derivative liability as presented on the
Company’s balance sheet as of March 31, 2021:
| |
|
|
|
|
Derivative liability as of June 30, 2020 |
|
$ |
1,590,638 |
|
|
Initial derivative liability accounted for convertible notes
payable issued during the period ended March 31, 2021 |
|
|
512,993 |
|
|
True-up adjustment in debt discount and derivative liability |
|
|
37,360 |
|
|
Change in derivative liability during the period |
|
|
887,301 |
|
|
Reclassify derivative liability associated with Notes converted
into loss on debt conversion account |
|
|
(1,716,114 |
) |
| Balance at March
31, 2021 |
|
|
1,312,178 |
|
Change in derivative liability for the nine months ended March 31,
20210 and 2020, totaled $887,301 and $(612,093), respectively and
change in derivative liability for the three months ended March 31,
2021 and 2020, totaled $1,096,709 and $(256,468),
respectively.
As of
March 31, 2021 and June 30, 2020, the derivative liability related
to convertible notes was $ 1,312,178 and $1,590,638,
respectively.
On March 19, 2020, the Company secured a $200,000 line of credit
with Celtic Bank Corporation. This LOC has a “Flex Credit”
component of calculating interest, which means the interest rate on
any draws taken against the LOC is set at the time of said draw. As
of the date of this filing, the Company has made one draw against
the credit line for a gross amount of $5,000 (including proceeds
and draw fees). As of March 31, 2021 nine payments had been made
against this draw of approximately $368 each. Such payments will
continue to be automatically deducted from the corporate checking
account until the draw and all fees have been paid in full. The
Company may or may not choose to use this line of credit for
additional financing needs.
| |
|
Mar
31,
2021 |
|
|
Dec
31,
2020 |
|
|
Line
of Credit |
|
$ |
589 |
|
|
$ |
1,692 |
|
|
Total
borrowings |
|
|
589 |
|
|
|
1692 |
|
|
Less:
current portion |
|
|
589 |
|
|
|
1692 |
|
|
Long
term debt |
|
$ |
- |
|
|
$ |
- |
|
Interest expense for the nine months ended March 31, 2021 and 2020,
totaled $1,012 and $675, respectively and interest expense for the
three months ended March 31, 2021 and 2020, totaled $337 and $0,
respectively.
|
12. |
Capital Stock Activity |
|
● |
The Company had and 78,685,171 and
61,796,680
shares of its $0.001 par value common stock issued and outstanding
as of March 31, 2021 and June 30, 2020 respectively. |
|
● |
During
the three months ended March 31, 2021 the Company issued 9,543,308
shares in regards to debt and interest being converted into stock
valued at $843,818 Also during these three months the Company
issued 225,000 shares for services valued at $43,600. Further
during these nine months the Company accounted in additional paid
in capital the warrants issued for services valued at $81,243 and
loss on fair value of shares upon conversion amounting to
$1,507,218. |
During the nine months ended March 31, 2021 the Company issued
16,049,577 shares in regards to debt and interest being converted
into stock valued at $1,467,274 also during these nine months the
Company issued 836,630 shares for services valued at $131,017.
Further during these nine months the Company accounted in
additional paid in capital the warrants issued for services valued
at $146,954 and loss on fair value of shares upon conversion
amounting to $1,865,685.
The following is a summary of the Company’s outstanding common
stock purchase warrants. Of the 500,000 warrants shown below
at an exercise price of $.15, these warrants were issued as
compensation for a four-year advisory agreement. 150,000
warrants vested on July 24, 2018, another 150,000 on July 24, 2019,
another 150,000 vested on July 24, 2020, and the remaining 50,000
will vest on July 24, 2021, should advisor complete the term of his
engagement. These warrants were all accounted for in Fiscal
2020.
During the six months ended December 31, 2020 the Company entered
into a warrant agreement with one of the Company’s vendors issuing
500,000 warrants at a strike price of $0.50 having a term of five
years. The Company valued these warrants using the Black Scholes
model utilizing a 107.93% volatility and a risk-free rate of 0.29%,
respectively.
In exchange for the agreement to lock up Mr Folkson’s Shares,
Folkson received warrants to acquire 400,000 shares of NGTF stock
on February 4, 2021, at a strike price of $.30, and with a term of
twelve (12) months from the date of that agreement. The Warrants
include a provision for cashless exercise and will expire if not
exercised within the twelve month term. The Company valued these
warrants using the Black Scholes model utilizing a 107.93%
volatility and a risk-free rate of 0.50%.
The aggregate intrinsic value of the warrants as of December 31,
2020 is $-0-.
|
|
|
|
Outstanding
at |
|
|
|
|
|
|
|
|
Outstanding |
|
|
Exercise Price |
|
|
June
30,
2020 |
|
|
Issued
/ (Exercised)
in 2020 |
|
|
Expired |
|
|
December
31
2020 |
|
|
$ |
0.15 |
|
|
|
500,000 |
|
|
|
- |
|
|
|
- |
|
|
|
500,000 |
|
| $ |
0.20 |
|
|
|
105,000 |
|
|
|
- |
|
|
|
25,000 |
|
|
|
80,000 |
|
| $ |
0.30 |
|
|
|
100,000 |
|
|
|
400,000 |
|
|
|
- |
|
|
|
500,000 |
|
| $ |
0.40 |
|
|
|
150,000 |
|
|
|
- |
|
|
|
- |
|
|
|
150,000 |
|
| $ |
0.50 |
|
|
|
- |
|
|
|
500,000 |
|
|
|
- |
|
|
|
500,000 |
|
|
$ |
0.75 |
|
|
|
300,000 |
|
|
|
- |
|
|
|
- |
|
|
|
300,000 |
|
|
|
|
|
|
|
1,155,000 |
|
|
|
1,260,000 |
|
|
|
25,000 |
|
|
|
2,039,000 |
|
|
14. |
Fair Value of Financial
Instruments |
Cash and Equivalents, Receivables, Other Current Assets, Short-Term
Debt, Accounts Payable, Accrued and Other Current Liabilities.
The carrying amounts of these items approximated fair value.
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase
the comparability of fair value measures, Financial Accounting
Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair
value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurement) and the
lowest priority to unobservable inputs (level 3 measurements).
Level 1—Valuations based on quoted prices for identical
assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other
than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets, quoted prices for
identical or similar assets and liabilities in markets that are not
active, or other inputs that are observable or can be corroborated
by observable market data.
Level 3—Valuations based on unobservable inputs
reflecting our own assumptions, consistent with reasonably
available assumptions made by other market participants. These
valuations require significant judgment.
The application of the three levels of the fair value hierarchy
under Topic 820-10-35 to our assets and liabilities are described
below:
|
|
|
March,
31, 2021 Fair Value Measurements |
|
|
|
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
|
Total
Fair
Value |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Total |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,312,178 |
|
|
$ |
1,312,178 |
|
|
Total |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,312,178 |
|
|
$ |
1,312,178 |
|
|
|
|
June
30, 2020 Fair Value Measurements |
|
|
|
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
|
Total
Fair
Value |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Total |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,590,638 |
|
|
$ |
1,590,638 |
|
|
Total |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,590,638 |
|
|
$ |
1,590,638 |
|
Management
considers all of its derivative liabilities to be Level 3
liabilities. At March 31, 2021 and June 30, 2020, respectively
the Company had outstanding derivative liabilities, including those
from related parties of $1,312,178 and $1,590,638,
respectively.
|
15. |
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. These warrants were all accounted for in Fiscal
2020.
CEO Sean Folkson has a twelve-month consulting agreement which went
into effect on February 4, 2021, which will reward him with bonuses
earned of 1,000,000 warrants at a strike price of $.50 when the
Company records its first quarter with revenues over $1,000,000, an
additional 3,000,000 warrants with a $.50 strike price when the
Company records its first quarter with revenues over $3,000,000,
and an additional 3,000,000 warrants with a $1 strike price when
the Company records its first quarter with revenues over
$5,000,000. Folkson will also be awarded warrants with a strike
price of $.50 should the Company exceed $500,000 in
non-traditional retail channel revenue during the Term of the
Agreement, and should the company enter into a product development
or distribution partnership with a multi-national food &
beverage conglomerate during his Agreement. As of March 31, 2021,
those conditions were not met and therefore nothing was accrued
related to this arrangement.
|
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 six month period ended December 31, 2020
and reflected in the accrued expenses – related party with a
balance of $6,974 and $9,974 at March 31, 2021 and June 30, 2020,
respectively. |
On December 8, 2017, Mr. Folkson purchased Warrants, at a cost of
$.15 per Warrant, to acquire up to 80,000 additional shares of NGTF
stock at a strike price of $.20, and with a term of three (3) years
from the date of said agreement. This purchase resulted in a
reduction in the accrued consulting fees due him by $12,000. During
the second quarter 2019 Mr. Folkson purchased 400,000 shares of
stock at a strike price of $0.30 per share, valued at $120,000
which was charged to his accrual. During the nine months ended
March 31, 2021, Folkson had been paid $51,000 against his total
accrued balance to date and reflected in the accrued expenses –
related party with a balance of $6,974 and $9,974 at March 31, 2021
and June 30, 2020, respectively.
|
● |
In addition, the Company made
bonuses available to Folkson upon the Company hitting certain
revenue milestones of $1,000,000 in a quarter, $3,000,000 in a
quarter, and $5,000,000 in a quarter. Achieving those milestones
would earn Folkson warrants with a $.50 and $1 strike price which
would need to be exercised within 90 days of the respective
quarterly or annual filing. As of March 31, 2021, those conditions
were not met and therefore nothing was accrued related to this
arrangement. |
|
● |
On April 14, 2021, The Company
successfully negotiated and retired a $731,118 payable for
$20,000. |
|
● |
On April 19, 2021, The Company
closed a financing round of $4,500,000. This financing
consisted of $3,000,000 raised in cash, and the rollover of
$1,500,000 of pre-existing convertible debt into
equity. This financing allowed the company to
successfully retire all convertible debt from the balance
sheet. Over $1,400,000 of cash was infused into the
Company after debt payoff and transaction fees. As part of the
settlement of the pre-existing debt, 1,200,000 shares of NGTF
common stock were issued to Eagle Equities. |
|
● |
On May 4, 2021, The Company issued
72,288 shares to vendors and consultants for services
provided. |
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.
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), as well as over 1,000 Walmart stores from coast
to coast.
The brand is now in its second or third year in distribution in
most of these chains, an accomplishment not easily achieved as a
start-up in the ice cream space. During our time on-shelf, we’ve
seen several better-known and better-funded brands get delisted
from these same retailers. We believe the unique attributes of our
product line, combined with the anticipation by certain supermarket
category managers that there is a boom coming in the world of
“sleep-friendly” nutrition has allowed us to retain these
placements without being charged additional slotting (except in
situations where the retailer has introduced new flavors, which is
normal and customary).
Management views this as a significant accomplishment as we
continue to work to grow our customer base, our revenues, and
strategically add new distribution partners. We were able to
successfully redesign and launch our new packaging design into
approximately 1,800 stores in the last two months. While it’s too
early to report definitive directional results with the new design,
Management has received definitive reports from our global hotel
brand partner that Nightfood sales have increased since it began
testing the new Nightfood package design in select grab-and-go
lobby shops.
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.
We believe that over the next several years, a subset of consumers
will shift their night snacking behavior towards snacks that are
formulated to be more “sleep friendly” compared to what is
currently being consumed by much of the population. As research
continues to explore the links between nutrition and sleep, and
consumers continue to seek healthier snacks in general, we expect a
“nighttime nutrition” or “sleep-friendly snacking” category to
emerge within the marketplace.
This belief has been corroborated over the last several months as
two of the world’s largest food and beverage companies begin to
address the nutrition-sleep connection.
In September 2020, Pepsi announced the launch of Driftwell, a
beverage formulated with magnesium to help consumers relax and
unwind before bed. And in March, 2021, Unilever, the world’s
largest ice cream manufacturer, announced it had partnered with
Microba Life Sciences to conduct a year-long research project on
how diet can improve sleep.
Elevated interest from global food and beverage giants continues to
bring attention and validation to the sleep-diet connection. As the
pioneer in the space, Founder Sean Folkson views Nightfood as more
than an ice cream company. Rather, he believes the Nightfood brand
can continue to occupy a leadership role in the “sleep-friendly
nutrition” category that he envisions rapidly developing over the
next 1-2 years.
American consumers spend over $50 Billion annually on snacks
consumed at night, and this figure continues to grow. A majority of
adults are trying to eat foods and snacks that they understand will
prevent or manage health problems and 37% of consumers are willing
to pay more for foods with perceived health benefits. Moreover,
industry data indicates that the most popular nighttime snack
choices include products and categories that are traditionally
considered high in calories, and “unhealthy” options, such as
cookies, salty snacks (chips, pretzels, and popcorn), ice cream,
and candy.
Management believes interest in the space from global food and
beverage companies such as Nestle, Unilever, and PepsiCo represents
early validation for the category concept. While Management
continues to iterate on products, distribution, and marketing, the
team steadfastly believes that nighttime nutrition is a billion
dollar category in the making. Management believes the Nightfood
brand can be the pioneer and the leading brand in the night
snacking category. Management anticipates that the multi-national
food and beverage companies will necessarily be drawn to the
category Nightfood is pioneering because of these facts:
|
|
● |
Over 80% of American adults snack
regularly after dinner |
| |
|
|
|
|
● |
Over 40% of all snacking occurs
between dinner and bed |
| |
|
|
|
|
● |
Every week in the United States,
hundreds of millions of nighttime snacks are consumed, resulting in
over $1 Billion dollars in consumer spend |
| |
|
|
|
|
● |
More than half of consumers seek out
snacks with functional benefits beyond hunger satisfaction and
taste |
| |
|
|
|
|
● |
80% of consumers worldwide report
wanting to improve their sleep quality |
| |
|
|
|
|
● |
The most popular nighttime snack
choices in the United States are cookies, chips, candy, and ice
cream. These are all understood to be both unhealthy and generally
disruptive to sleep quality. |
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.
Company Management believes that a meaningful percentage of this
$50 billion in 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.
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.
DEVELOPMENT PLANS
Nightfood ice cream pints are currently available in divisions of
some of the largest supermarket chains in the United States,
including Walmart, Kroger, Albertsons, and H-E-B. Current
distribution totals approximately 1,800 grocers across the United
States. Management is working to simultaneously secure additional
distribution opportunities, while also nurturing revenue growth and
consumer growth in our existing points of distribution.
Since inception, additional distribution relationships were
established with regional ice cream distributors and
non-traditional retailers, with varying degrees of success.
Management will continue to work within the industry to identify
opportunities to grow the Nightfood brand. In the future, outlets
such as hotels, college campus bookstores, and other
non-traditional outlets could develop into relevant elements of our
distribution mix as the brand continues to grow awareness and
distribution infrastructure.
Nightfood has nine ice cream flavors already in ongoing production,
and an additional ten products have been developed or in late
stages of development, these include additional flavors of
Nightfood dairy-based ice cream as well as several flavors of
non-dairy oat-based ice cream.
In addition to introduction of additional pint products, including
such possibilities as non-dairy and keto-friendly versions of
Nightfood pints, future expansion could also include frozen
novelties, other popular nighttime snack formats, as well as
sleep-friendly beverages Management has done preliminary research
on CBD infused ice cream. Current FDA guidelines do not currently
permit CBD to be used as an additive in food. While some companies
are manufacturing and distributing food products with CBD, industry
reports indicate that major retailers have been avoiding those
products due to current FDA regulations.
Management believes opportunities will exist to expand into other
snack food formats that are popular with nighttime snackers.
Possibilities include chips, candy, cookies, popcorn, and
more.
Aggressive supermarket expansion could result in additional
“slotting fees” either in 2021 or beyond. 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.
Certain large retailers do not charge slotting fees, but most do.
The Management of any emerging food or beverage brand could choose
not to do business with retailers or distributors who charge
slotting fees. Such a strategy, while possible, could greatly slow
or restrict the distribution footprint a brand could establish.
Through the first three quarters of Fiscal 2021, slotting
commitments have resulted in revenue reductions totaling $190,295.
As of the time of this filing, over 80% of the way through our
Fiscal 2021, Management projects slotting fees for the current
Fiscal Year will deliver a total revenue reduction of less than
$250,000. By comparison, slotting fees with in Fiscal 2020 resulted
in total revenue reductions of $541,500. This significant decrease
in slotting expense should not be viewed as an indication of a
trend. Rather, it is simply a function of past slotting
arrangements having been paid down and paid off, along with minimal
new slotting fees incurred during the current fiscal year.
Investors should have the expectation that Nightfood, like any
growing food or beverage brand, will continue to incur slotting
fees as we continue toward our goal of national distribution.
In addition to traditional retail such as supermarkets and big-box
retailers, Management also believes significant opportunities exist
in the hotel and hospitality vertical where ice cream is one of the
top-selling categories in hotel lobby shops. With travelers wanting
better sleep, Management believes hotels that sell ice cream would
benefit by making Nightfood’s sleep-friendly ice cream part of
their offering assortment. Before COVID, Management had been
pursuing initiatives in the hotel space. While those were put on
hold for most of calendar 2020, hotels have now reemerged as an
important point of focus for the distribution of Nightfood
products.
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, and winter months delivering the lowest
consumption.
As an early-stage and growing brand, the full impact of seasonality
on our ice cream might not be fully understood for several
additional annual cycles, but early indications point to the
existence of a material seasonality impact across the ice cream
industry through grocery channels. Over time, should the Company
successfully expand into more distribution verticals and into
additional snack formats, it is possible that the impacts of
seasonality could lessen.
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 understood and identified. Indications to date are
that there are somewhat offsetting factors relating to the impact
on our Company. Industry data shows that supermarket sales remain
up, with more people spending more time at home. Anecdotally and
statistically, snacking activity is also up while consumers are
reporting a decrease in sleep quality and sleep satisfaction.
Industry sales data also showed ice cream as one of the categories
experiencing the largest increase with year over year growth
averaging over 30% through a series of five one-week periods
between March 15 and April 12, 2020 according to IRI
data.
The offsetting factors are the impact of the virus on the overall
economy, and the impact that a down economic period can have on
consumer behavior, including trial of new brands. Greater
unemployment, recession, and other possible unforeseen factors are
shown to have an impact. Research indicates that consumers are less
likely to try new brands during economic recession and stress,
returning to the legacy brands they’ve known for decades.
With consumers generally making fewer shopping trips, while buying
more on those occasions and reverting back to more familiar brands,
certain brand-launch marketing tactics, such as in-store displays
and in-store product sampling tables, are either impaired or
impermissible. So, while overall night snacking demand is up, and
consumer need/desire for better sleep is also stronger, driving
consumer trial and adoption has been more difficult and expensive
during these circumstances.
From both public statements, and ongoing exploratory meetings
between Nightfood Management and experts from certain global food
and beverage conglomerates, it has been affirmed to Management that
there is increased strategic interest in the nighttime nutrition
space as a potential high-growth opportunity, partially due to
recent declines in consumer sleep quality and increases in at-home
nighttime snacking.
We have experienced no major issues with supply chain or logistics.
Order processing function has been normal to date, and our
manufacturers have assured us that their operations are “business
as usual” as of the time of this filing.
It is possible that the fallout from the pandemic could make it
more difficult in the future for the Company to access required
growth capital, possibly rendering us unable to meet certain debts
and expenses.
More directly, COVID has impaired Nightfood’s ability to execute
certain in-store and out-of-store marketing initiatives. For
example, since the inception of COVID, the Company was unable to
conduct in-store demonstrations and unable to participate in local
pregnancy, baby expos, and health expos that were originally
intended to be part of our marketing mix.
Additionally, with more consumers shopping online, both for
delivery or at-store pickup, the opportunity for shoppers to learn
about new brands at-shelf has been somewhat diminished. Management
is working to identify opportunities to build awareness and drive
trial under these new circumstances.
It is impossible to know what the future holds with regard to the
virus, both for our company and in the broader sense. There are
many uncertainties regarding the current coronavirus pandemic, and
the Company is closely monitoring the impact of the pandemic on all
aspects of its business, including how it will impact its
customers, vendors, and business partners. It is difficult to know
if the pandemic has materially impacted the results of operations,
and we are unable to predict the impact that COVID-19 will have on
our financial position and operating results due to numerous
uncertainties. The Company expects to continue to assess the
evolving impact of the COVID-19 pandemic and intends to make
adjustments accordingly, if necessary.
RESULTS OF OPERATIONS FOR THE THREE MONTHS PERIOD ENDED
March 31, 2021 and 2020.
For the three months ended March 31, 2021 and 2020 we had Gross
Sales of $181,172 and $281,284 and Net Revenues (Net Revenues are
defined as Gross Sales, less Slotting Fees, Sales Discounts, and
certain other revenue reductions) of $96,726 and $119,475
respectively and incurred an operating loss of $391,240 and
$867,427 respectively. 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.
|
|
|
Three Months Ended
March 31, |
|
|
|
|
2021 |
|
|
2020 |
|
|
Gross product sales |
|
$ |
181,172 |
|
|
$ |
281,284 |
|
| Less: |
|
|
|
|
|
|
|
|
|
Slotting fees |
|
$ |
(4,435 |
) |
|
$ |
(156,944 |
) |
|
Sales discounts, promotions, and other reductions |
|
|
(80,011 |
) |
|
|
(4,865 |
) |
|
Net Revenues |
|
$ |
96,725 |
|
|
$ |
119,475 |
|
The decrease in Gross Sales, is largely due to the fact that during
the three months ended March 31, 2020, we recognized sales from the
onboarding and pipeline fill of two major supermarket accounts
(Jewel-Osco and Shaw’s/Star Market). Although Nightfood did not
begin appearing on shelves in some of those stores until May due to
the pandemic, product was ordered, shipped, and delivered in
February and March of 2020 to those accounts.
During the three months ended March 31, 2021, no major new accounts
were onboarded. Walmart, our largest account, started carrying
Nightfood in April 2021. While the initial purchase orders were
received from Walmart in March, delivery was requested for early
April. We book revenue not when product is shipped from our
facility, but when it is received by the customer. As a result,
zero Walmart revenue was recognized or reported for the quarter
ending March 31, 2021. That revenue will be recognized in the
quarter ending June 30, 2021.
For the three months ended March 31, 2021 and 2020, Cost of Product
Sold decreased to $102,922 from $157,265. This is the result of
lower gross sales as a result of no new account onboarding during
the three months ended March 31, 2021, which brings about lower
broker fees, less freight, and other expenses related directly to
the generation of sales.
The decrease in operating losses is largely the result of lower
spend on slotting fees, advertising and promotion, and other
marketing expenses as well as a charge of $166,667 in the three
months ended March 31, 2020 for amortization of intangible assets.
These decreases are reflected in the decrease of total operating
expenses from $986,902 in the three months ended March 31, 2020 to
$487,567 in the 3 months ended March 31, 2021.
For the three months ended March 31, 2021 compared to the three
months ended March 31, 2020, we also experienced a change in
derivative liabilities to $1,152,119 from ($256,468). This is
largely the result of a significant increase in our stock price
during the period, and shows up as an expense on our income
statement. For the three months ended March 31, 2021 compared to
the three months ended March 31, 2020 total other
expense, which includes the calculation for change in derivative
liability, increased to $1,548,474 from $224,100. Again, this is
not an actual cash expense that needs to be paid, but rather a
“paper expense” that is driven largely by the increase in stock
price.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED
March 31, 2021 and 2020.
For the nine months ended March 31, 2021 and 2020 we had Gross
Sales of $643,359 and $666,438 and Net Revenues (Net Revenues are
defined as Gross Sales, less Slotting Fees, Sales Discounts, and
certain other revenue reductions) of $270,919 and $227,257
respectively and incurred an operating loss of $1,379,102 and
$1,960,629 respectively.
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.
|
|
|
Nine Months Ended
March 31, |
|
|
|
|
2021 |
|
|
2020 |
|
|
Gross product sales |
|
$ |
643,359 |
|
|
$ |
666,438 |
|
| Less: |
|
|
|
|
|
|
|
|
| Slotting fees |
|
$ |
(190,295 |
) |
|
$ |
(428,650 |
) |
|
Sales discounts, promotions, and
other reductions |
|
|
(182,145 |
) |
|
|
(10,532 |
) |
|
Net Revenues |
|
$ |
270,919 |
|
|
$ |
227,257 |
|
While gross sales decreased slightly from last year, that decrease
came along with a significant decrease in slotting fees, operating
expenses, and operating losses.
The decrease in Gross Sales, is largely due to the fact that during
the nine months ended March 31, 2020, we recognized sales from the
onboarding and pipeline fill of two major supermarket accounts
(Albertson’s divisions Jewel-Osco and Shaw’s/Star Market). Although
Nightfood did not begin appearing on shelves in some of those
stores until May due to the pandemic, product was ordered, shipped,
and delivered in February and March of 2020 to those accounts.
During the nine months ended March 31, 2021, no major new accounts
were onboarded. Walmart, our largest account, started carrying
Nightfood in April 2021. While the initial purchase orders were
received from Walmart in March, delivery was requested for early
April. We book revenue not when product is shipped from our
facility, but when it is received by the customer. As a result,
zero Walmart revenue was recognized or reported for the quarter
ending March 31, 2021. That revenue will be recognized in the
quarter ending June 30, 2021.
Slotting fees for the nine months ended March 31, 2021 were
$190,295 compared to the nine months ended March 31, 2020 when they
were $428,650. Total operating expenses for the nine months ended
March 31, 2021 were $1,660,420 compared to the nine months ended
March 31, 2020 when they were $2,187,886. This decrease is due
largely to a one-time impairment charge as an amortization of an
intangible asset. Operating losses for the nine months ended March
31, 2021 were $1,389,501 compared to the nine months ended March
31, 2020 when they were $1,960,629.
For the nine months ended March 31, 2021 compared to the nine
months ended March 31, 2020, we also experienced a change in
derivative liabilities of $887,301 from ($612,093). This is largely
the result of a significant increase in our stock price during the
period and shows up as an expense on our income statement. For the
nine months ended March 31, 2021 compared to the nine months ended
March 31, 2020 total other expense, which includes the calculation
for change in derivative liability, increased to $2,092,741 from
$781,420. Again, this is not an actual cash expense that needs to
be paid, but rather a “paper expense” that is driven largely by the
increase in stock price.
Customers
During the nine months ended March 31, 2021, the Company had one
customer account for approximately 31% of the gross sales. One
other customer accounted for approximately 27% of gross sales, and
one other customer accounted for over 12% of gross sales. During
the nine months ended March 31, 2020, one customer accounted for
approximately 45% of the gross sales.
During the three months ended March 31, 2021, the Company had one
customer account for approximately 44% of the gross sales. During
the three months ended March 31, 2020, one customer accounted for
approximately 36% of the gross sales while three other customers
accounted for over 10% of gross sales.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2021, we had cash on hand of $73,181, receivables
of $44,033 and inventory value of $344,914.
Subsequent to the end of the quarter, the Company completed a
financing round of $4,500,000, consisting of $3,000,000 in cash and
the rollover of $1,500,000 of previously existing convertible debt.
As of the time of this filing, the Company is debt free.
The Company believes it has sufficient cash on hand to operate for
the next several quarters. We do not believe our cash on hand will
be adequate to satisfy our long-term working capital needs. We
believe that our current capitalization structure, combined with
ongoing increases in distribution, revenues, and market
capitalization, will enable us to successfully secure required
financing to continue our growth.
Because the business has limited operating history and sales, no
certainty of continuation can be stated. Management has devoted a
significant amount of time in the raising of capital from
additional debt and equity financing. However, the Company’s
ability to continue as a going concern will again be dependent upon
raising additional funds through debt and equity financing and
generating revenue. There are no assurances the Company will
receive the necessary funding or generate revenue necessary to fund
operations long-term.
The Company cannot give any assurance that it will, in the future,
be able to achieve a level of profitability from the sale of its
products to sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a
going concern. 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
nine months ended March 31, 2021, we incurred a net loss of
$3,453,142 (comprised of operating loss of $1,379,102 and other
expenses of $2,074,040, most of which is comprised of changes in
derivative liability and amortization of Beneficial Conversion
Features related to convertible note financing and changes in the
share price of the common stock) compared to $2,742,049 (comprised
of operating loss of $1,960,629 and other expenses of $781,420,
most of which is comprised of changes in derivative liability and
amortization of Beneficial Conversion Features related to
convertible note financing and changes in the share price of the
common stock) for the nine months ended March 31, 2020. Much of
these losses is largely a function of the way certain financing
activities are recorded, and does not represent actual operating
losses.
During the nine months ended March 31, 2021, net cash used in
operating activities was $841,133 compared to $1,328,708 for the
nine months ended March 31, 2020. 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 nine months ended March 31, 2021, net cash of $0 was
used in investing activities, compared to $333,333 for the nine
months ended March 31, 2020.
During the nine months ended March 31, 2021, net cash aggregating
$716,692 was provided by financing activities, compared to
$1,742,000 for the nine months ended March 31, 2020.
From our inception in January 2010 through March 31, 2021, we have
generated an accumulated deficit of approximately $21,113,364,
compared to $17,631,122 from inception through June 30, 2020. This
is not debt and this is not an amount that needs to be paid out at
any point in the future. Many large and successful companies have
large accumulated deficits, such as Tesla and Starbucks. In our
case, it is a function of losses sustained over time, along with
the costs associated with raising operating capital.
Assuming we raise additional funds and continue operations, we
expect to incur additional operating losses during the next two to
six 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.
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. The Agreement from June of 2019 ran through the end of
December of 2020, at which time a new Agreement was executed
between the parties. All terms were identical with the exception
that additional milestones were added by which Folkson would earn
$.50 warrants. These included a milestone of $500,000 in net
revenue during calendar 2021 from nontraditional retail channels
(such as hotels and college campuses), and a warrant bonus should
Folkson successfully negotiation a product development or
distribution partnership with a multi-national food &
beverage conglomerate during the Term of the Agreement.
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.
On January 21, 2021, 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
nine months ended March 31, 2021.
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 March 31, 2021. 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.
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Nightfood Holdings,
Inc. |
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Dated: May 19, 2021 |
By: |
/s/ Sean Folkson |
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Sean Folkson,
Chief Executive Officer
(Principal Executive, Financial
and
Accounting Officer) |
Nightfood (QB) (USOTC:NGTF)
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