Filed pursuant to Rule 424(b)(3)
Registration No. 333-256548
PROSPECTUS
NIGHTFOOD HOLDINGS, INC.
51,200,000 Shares of Common Stock
This prospectus relates to the offer and sale by the persons named
in this prospectus, whom we call Selling Shareholders, of up
to:
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22,575,000
shares of our common stock, $0.001 par value per share, that may be
sold by certain of the Selling Shareholders upon the conversion of
our outstanding 4,515 shares of Series B Preferred Stock, which we
refer to as the B Preferred; |
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22,575,000
shares of common stock that may be sold by certain of the Selling
Shareholders upon the exercise in full for cash by such Selling
Shareholders of common stock purchase warrants expiring April 16,
2026, which are issuable upon conversion of the B Preferred;
and |
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6,050,000
shares of our common stock that may be sold by a Selling
Shareholder upon the exercise in full for cash by such Selling
Shareholder of common stock purchase warrants expiring between
February 1, 2026 and April 18, 2026. . |
Each share of B Preferred is convertible at the option of the
holder into 5,000 shares of our common stock and 5,000 common stock
purchase warrants expiring April 16, 2026 at an exercise price of
$0.30 per share. All of the shares of common stock which may be
issued upon conversion of the B Preferred and the common stock
purchase warrants are referred to as the Shares.
The Selling Shareholders may sell their Shares at prevailing market
or privately negotiated prices, including in one or more
transactions that may take place by ordinary broker’s transactions,
privately negotiated transactions or through sales to one or more
dealers for resale.
We will not realize any proceeds from sales by the Selling
Shareholders. However, we will receive aggregate proceeds of up to
$7,901,000 from the exercise of the warrants if the warrants are
exercised in full for cash. We intend to use those proceeds, if
any, for working capital and general corporate purposes.
All costs incurred in the registration of the Shares are being
borne by the Company.
Our common stock trades on the OTCQB market under the symbol NGTF.
On June 11, 2021, the closing price for our common stock was
$0.265.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
These securities involve a high degree of risk. See “RISK FACTORS”
contained in this prospectus beginning on page 3.
Prospectus dated June 14, 2021
TABLE
OF CONTENTS
ABOUT THIS PROSPECTUS
Unless the context otherwise requires, all references in this
prospectus to “we”, “us” “the Company” or “Nightfood” or similar
terms refer to Nightfood Holdings, Inc., a Nevada corporation, and
its consolidated subsidiaries.
We and the Selling Shareholders have not authorized anyone to
provide you with information or to make any representations other
than those contained in this prospectus. We and the Selling
Shareholders take no responsibility for, and provide no assurance
as to the reliability of, any other information that others may
give you. This prospectus is an offer to sell only the shares
offered hereby, and only under circumstances and in jurisdictions
where it is lawful to do so. You should assume that the information
appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial
condition, results of operations and prospects may have changed
since that date.
For investors outside the United States: we, the Selling
Shareholders have not done anything that would permit this offering
or possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other than
in the United States. Persons outside the United States who come
into possession of this prospectus must inform themselves about and
observe any restrictions relating to, the offering of the shares of
common stock and the distribution of this prospectus outside the
United States.
TRADEMARKS
This prospectus contains references to our trademarks, trade names
and service marks. Solely for convenience, trademarks, trade names
and service marks referred to in this prospectus may appear without
the ® or ™ symbols, but
such references are not intended to indicate, in any way, that we
will not assert, to the fullest extent under applicable law, our
rights or the rights of the applicable licensor to these
trademarks, trade names and service marks. Other trademarks, trade
names and service marks appearing in this prospectus (or documents
we have incorporated by reference) are the property of their
respective holders. We do not intend our use or display of other
companies’ trade names, trademarks or service marks to imply a
relationship with, or endorsement or sponsorship of us by, any
other companies.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this prospectus 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. In some
cases, you can identify forward-looking statements by terms such as
“may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,”
“intend,” “target,” “project,” “contemplate,” “believe,”
“estimate,” “predict,” “potential,” “would” or “continue” or the
negative of these terms or other similar expressions. All
statements other than statements of historical facts contained in
this prospectus, including statements regarding our future results
of operations and financial position, business strategy,
prospective products, research and development costs, future
revenue, timing and likelihood of success, plans and objectives of
management for future operations, future results of anticipated
products and prospects, plans and objectives of management are
forward-looking statements. The forward-looking statements included
herein are based on current expectations that involve numerous
risks and uncertainties. Our plans and objectives are based, in
part, on assumptions involving judgments with respect to, among
other things, future economic, competitive and market conditions,
technological developments related to business support services and
outsourced business processes, and future business decisions, all
of which are difficult or impossible to predict accurately and many
of which are beyond our control.
Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this prospectus
will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included
herein particularly in view of the current state of our operations,
the inclusion of such information should not be regarded as a
statement by us or any other person that our objectives and plans
will be achieved. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking
statements include, but are not limited to, the factors set forth
herein under the headings “Business,” “Risk Factors” and elsewhere
in this prospectus.
The events and circumstances reflected in our forward-looking
statements may not be achieved or occur and actual results could
differ materially from those projected in the forward-looking
statements. Moreover, we operate in an evolving environment. New
risk factors and uncertainties may emerge from time to time, and it
is not possible for management to predict all risk factors and
uncertainties. Except as required by applicable law, we do not plan
to publicly update or revise any forward-looking statements
contained herein, whether as a result of any new information,
future events, changed circumstances or otherwise.
CAUTIONARY NOTE REGARDING INDUSTRY DATA
Unless otherwise indicated, information contained in this
prospectus concerning our company, our business, the services we
provide and intend to provide, our industry and our general
expectations concerning our industry are based on management
estimates. Such estimates are derived from publicly available
information released by third party sources, as well as data from
our internal research, and reflect assumptions made by us based on
such data and our knowledge of the industry, which we believe to be
reasonable.
PROSPECTUS
SUMMARY
This summary highlights some information from this prospectus,
and it may not contain all the information important to making an
investment decision. A potential investor should read the following
summary together with the more detailed information regarding the
Company and the common stock being sold in this offering, including
“Risk Factors” and the financial statements and related notes,
included elsewhere in this prospectus.
The Company
We are in the business of manufacturing, marketing and distributing
snacks specially formulated and promoted for evening consumption.
Nightfood has developed a better-for-you, sleep-friendly line of
ice creams which management believes will be the focus of our
future development and growth. A large number of Americans snack at
night, and the most common options tend to be high in sugar, fat,
sodium, and calories; such snacks are generally understood to be
unhealthy, can impair sleep quality and also impair health in
general. We believe that our products are unique in the food
industry and that there is a substantial market for nighttime
specific snacks that are formulated with better sleep in mind.
Recent Developments
On April 19, 2021, we filed an Amended Certificate of Designation
to authorize 5,000 shares of our newly designated Series B
Preferred Stock. Each share of B Preferred has a liquidation
preference of $1,000 and has no voting rights except as to matters
pertaining to the rights and privileges of the B Preferred. Each
share of B Preferred is convertible at the option of the holder
thereof into 5,000 shares of our common stock (one share for each
$0.20 of liquidation preference), and 5,000 common stock purchase
warrants expiring April 16, 2026 at an exercise price of $0.30 per
share. Commencing June 30, 2021 and for so long as 2,000 shares of
B Preferred are outstanding, the holders of the B Preferred, voting
as a class, shall be entitled to elect one member of our board of
directors.
Upon the filing of the Certificate of Designation on April 19,
2021, we closed on the sale of 3,000 shares of B Preferred to 18
accredited investors for gross proceeds of $3,000,000 in an
offering exempt from registration under Rule 506(b) under the
Securities Act of 1933, as amended. In addition, Eagle Equities,
LLC, the sole holder of our variable rate convertible promissory
notes, accepted as full settlement of approximately $2,663,214 in
principal and interest: (i) 1,500 shares of B Preferred; (ii)
$1,300,000 in cash from the proceeds of the offering; and (iii)
1,200,000 shares of our common stock. As a result of this
settlement, we no longer have any variable rate convertible notes,
or any other convertible notes of any kind, outstanding.
Corporate Information
Our corporate address is 520 White Plains Road – Suite 500,
Tarrytown, New York 10591 and our telephone number is 888-888-6444.
We maintain a web site at www.nightfood.com, along with many
additional web properties. Any information that may appear on our
web sites does not constitute a part of this prospectus.
The Offering
The following is a brief summary of some of the terms of the
offering and is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this prospectus. For a
more complete description of the terms of our common stock, see
“Description of Securities to be Registered – Common Stock” on page
14.
Common Stock offered by the Selling Shareholders
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51,200,000
shares of common stock, consisting of (i) 22,575,000 shares of
common stock that may be sold by certain of the Selling
Shareholders upon the conversion of outstanding B Preferred; (ii)
22,575,000 shares of common stock that may be sold by certain of
the Selling Shareholders upon the exercise in full for cash by such
Selling Shareholders of common stock purchase warrants expiring
April 16, 2026, which are issuable upon conversion of the B
Preferred, and which have an exercise period of five years and an
exercise price per share of $0.30; and (iii) 6,050,000 shares of
common stock that may be sold by a Selling Shareholder named herein
upon the exercise in full for cash by such Selling Shareholder of
common stock purchase warrants expiring between February 1, 2026
and April 18, 2026, and which have an exercise period of five years
and an exercise price per share of $0.01 (with respect to 1,600,000
warrants), $0.20 (with respect to 2,225,000 warrants) and $0.30
(with respect to 2,225,000 warrants). |
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Selling
Stockholders |
All
of the shares of common stock are being offered by the Selling
Shareholders. See “Selling Shareholders” on page 15 of this
prospectus for more information on the Selling
Shareholders. |
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Common
stock to be outstanding after the offering |
Up to
131,116,159 shares of common stock, based on our issued and
outstanding shares of common stock as of June 11, 2021, and
assuming full conversion of the B Preferred and full exercise of
the warrants underlying the B Preferred and the other warrants held
by the Selling Shareholders referred to herein, for cash. This does
not assume the exercise of any other options or warrants that may
be outstanding. |
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Use
of Proceeds |
We
will not receive any proceeds from the sale of common stock by the
Selling Shareholders participating in this offering. The Selling
Shareholders will receive all of the net proceeds from the sale of
their respective shares of common stock in this offering. However,
we will receive a total of approximately $7.9 million if all the
warrants are exercised in full for cash, which will be added to our
working capital. See “Use of Proceeds” on page 10 of this
prospectus for more information. |
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Risk
Factors |
See
“Risk Factors” on page 3 of this prospectus for a discussion of
factors you should carefully consider before deciding to invest in
our common stock. |
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Plan
of Distribution |
The Selling Shareholders, or their pledgees, donees, transferees,
distributees, beneficiaries or other successors-in-interest, may
offer or sell the shares of common stock from time to time through
public or private transactions at prevailing market prices, at
prices related to prevailing market prices or at privately
negotiated prices. The Selling Shareholders may also resell the
shares of common stock to or through underwriters, broker-dealers
or agents, who may receive compensation in the form of discounts,
concessions or commissions.
See “Plan of Distribution” beginning on page 12 of this prospectus
for additional information on the methods of sale that may be used
by the Selling Shareholders.
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Trading
Symbol |
OTCQB:
NGTF |
RISK FACTORS
A purchase of any of our securities involves a high degree of
risk. Investors should consider carefully the following information
about these risks, together with the other information contained in
this prospectus before the purchase of any of our Shares. If any of
the following risks actually occur, the business, financial
condition or results of operations of the Company would likely
suffer, the market price of the common stock would likely decline,
and investors could lose all or a portion of their investment. The
Company has listed the following risk factors which it believes to
be those material to an investment decision in this
offering.
Risks Related to Our Financial Condition
We have had limited operations and require substantial
additional funds to execute our business plan. We have had
limited operations and have not yet established significant
traction in the marketplace. We generated revenues of $241,673 and
$270,919, for the year ended June 30, 2020 and the nine months
ended March 31, 2021, respectively. Our future viability is
dependent on our ability to substantially increase our sales
revenues. Furthermore, unless we are able to continue to leverage
our status as a public company into effective fundraising to fund
our capital requirements, we will not be able to execute on our
business plan and purchasers of our stock will be likely to lose
their investment. Over the next 6-12 months, we believe we will
require approximately $1,500,000 - $2,500,000 in debt or equity
financing to affect further planned expansion of our operations and
roll out our ice cream products. We can give no assurance that we
will be able to raise the required funds.
Our independent registered public accounting firm have expressed
doubt about our ability to continue as a going concern. We
received a report on our financial statements for the years ended
June 30, 2020 and June 30, 2019 from our independent registered
public accounting firm that includes an explanatory paragraph and a
footnote stating that there is substantial doubt about our ability
to continue as a going concern due to its losses and negative net
worth. Inclusion of a “going concern qualification” in the report
of our independent accountants may have a negative impact on our
ability to obtain financing and may adversely impact our stock
price in any market that may develop.
We cannot predict when we will achieve profitability. We
have not been profitable and cannot predict when we will achieve
profitability, if ever. We have experienced net losses since our
inception. Our inability to become profitable may force us to
curtail or temporarily discontinue our day-to-day operations.
Furthermore, there can be no assurance that profitability, if
achieved, can be sustained on an ongoing basis. As of March 31,
2021, we had an accumulated deficit of $21,084,364.
Risks Related to Our Business
We remain uncertain of our proposed products’ market
acceptance. Although management believes that snacks designed
for evening consumption is a viable niche market with a potential
for attractive returns for investors, this belief is largely based
on preliminary sales and marketing data, industry awards, industry
research, observation of industry trends, feedback from industry
experts, and consumer feedback. If management is wrong in its
belief and there is an insufficient market for our products, it is
likely we will fail and investors will lose their investment.
Reduction in future demand for our products would adversely
affect our business. Demand for our ice cream and other future
products depends in part on our ability to anticipate and
effectively respond to shifts in consumer trends and preferences,
including the types of products our consumers want and how they
browse for, purchase and consume them. Consumer preferences
continuously evolve due to a variety of factors, including: changes
in consumer demographics, consumption patterns and channel
preferences; pricing; product quality; concerns or perceptions
regarding packaging and its environmental impact; and concerns or
perceptions regarding the nutrition profile and health effects of,
or location of origin of, ingredients or substances in our
products. Concerns with any of the foregoing could lead consumers
to reduce or publicly boycott the purchase or consumption of our
existing products or other products we may develop in the future.
Consumer preferences are also influenced by perception of our brand
image or the brand images of our products, the success of our
advertising and marketing campaigns, our ability to engage with our
consumers in the manner they prefer, including through the use of
digital media, and the perception of our use, and the use of social
media. Any inability on our part to anticipate or react to changes
in consumer preferences and trends can lead to reduced demand for
our products, lead to inventory write-offs or erode our competitive
and financial position, thereby adversely affecting our business.
In addition, our business operations are subject to disruption by
natural disasters or other events beyond our control that could
negatively impact product availability and decrease demand for our
products.
Damage to our reputation or brand image can adversely affect our
business. We expect that creating and maintaining a positive
reputation is critical to selling our products. Our reputation or
brand image could be adversely impacted by a variety of factors,
including: any failure by us or our contract manufacturer and other
business partners to maintain high ethical, social, business and
environmental practices; any failure to address health concerns
about our products or particular ingredients in our products; our
research and development efforts; any product quality or safety
issues, including the recall of any of our products; any failure to
comply with laws and regulations; consumer perception of our
advertising campaigns, sponsorship arrangements, marketing programs
and use of social media; or any failure to effectively respond to
negative or inaccurate comments about us on social media or
otherwise regarding any of the foregoing. Damage to our reputation
or brand image could decrease demand for our products, thereby
adversely affecting our business.
Issues or concerns with respect to product quality and safety
can adversely affect our business. Product quality or safety
issues, whether as a result of failure to comply with food safety
laws or otherwise, could in the future reduce consumer confidence
and demand for our products, cause production and delivery
disruptions, require product recalls and result in increased costs
(including payment of fines and/or judgments) and damage our
reputation, all of which can adversely affect our business. Failure
to maintain adequate oversight over product quality or safety can
result in product recalls, litigation, government investigations or
inquiries or civil or criminal proceedings, all of which may result
in fines, penalties, damages or criminal liability. Our business
can also be adversely affected if consumers lose confidence in
product quality, safety and integrity generally, even if such loss
of confidence is unrelated to our products.
Disruption of our supply chain may adversely affect our
business. Some of the raw materials and supplies used in the
production of our products may from time to time be sourced from
countries experiencing civil unrest, political instability or
unfavorable economic conditions. Additionally, some raw materials
and supplies, including packaging materials, are available only
from a limited number of suppliers or from a sole supplier or are
in short supply. There can be no assurance that we will be able to
maintain favorable arrangements and relationships with suppliers.
We do not have any contingency plans to prevent disruptions that
may arise from shortages or discontinuation of any raw materials
and other supplies that we use in the manufacture, production and
distribution of our products. The raw materials and other supplies
that our contractors use for the manufacturing, production and
distribution of our products are subject to price volatility and
fluctuations in availability caused by many factors. If price
changes result in unexpected or significant increases in the costs
of any raw materials or other supplies, we may be unwilling or
unable to increase our product prices or unable to effectively
hedge against price increases to offset these increased costs
without suffering reduced volume, revenue, margins and operating
results.
Our reliance on third-party service providers can have an
adverse effect on our business. We rely on third-party service
providers for most areas of our business, including manufacturing,
transportation, cold storage, and finance and accounting functions.
Failure by these third parties to meet their contractual,
regulatory and other obligations to us, or our failure to
adequately monitor their performance, could result in additional
costs to correct errors made by such service providers. Depending
on the function involved, such errors can also lead to business
disruption, systems performance degradation, processing
inefficiencies or other systems disruptions, the loss of or damage
to intellectual property or sensitive data through security
breaches or otherwise, incorrect or adverse effects on financial
reporting, litigation or remediation costs, damage to our
reputation, all of which can adversely affect our business. For
example, should the refrigeration system fail at our third-party
cold storage facility, we could suffer the loss of some, or all, of
our inventory. Should our contract manufacturer go out of business
or suffer major equipment failure, we may lose the ability to
produce sufficient quantities of our products for a period of time
before establishing production with a new copacker. Any number of
similar failures on behalf of our service providers could prove
damaging to our ongoing operations and our ability to fulfill
demand.
Our ability to hire additional personnel is important to the
continued growth of our business. Our continued success depends
upon our ability to attract and retain a group of motivated
marketing and business support professionals. Our growth may be
limited if we cannot recruit and retain a sufficient number of
people. We cannot guarantee that we will be able to hire and retain
a sufficient number of qualified personnel.
Although we currently do not have any employees, we expect that as
and if we continue to grow, we will commence hiring full and
part-time employees, all of whom will need to be highly skilled and
diverse. We expect that any such employees would also be highly
sought after by our competitors and other companies and our ability
to compete would effectively depend on our ability to attract,
retain, develop and motivate highly skilled personnel for all areas
of our organization. Any unplanned turnover or unsuccessful
implementation of our succession plans to backfill current
leadership positions, including our president and Chief Executive
Officer, or failure to attract, develop and maintain a highly
skilled and diverse workforce, including with key capabilities such
as e-commerce and digital marketing and data analytic skills, would
likely deplete our institutional knowledge base, erode any
competitive advantage we may have or result in increased costs due
to increased competition for employees, higher employee turnover or
increased employee benefit costs. Any of the foregoing can
adversely affect our business.
We face substantial competition. Competition in all aspects
of the functional food industry is intense. We compete against both
large conglomerates with substantial resources and smaller
companies, including new companies that might be formed with
resources similar to our own. Accordingly, it is both concentrated
and dispersed and we face challenges from numerous competitors as
we seek to establish our brand and gain customer loyalty. The
success of these efforts is, by its nature, uncertain.
Additionally, competitors may seek to duplicate the perceived
benefits of our products in ways that do not infringe on any
proprietary rights that we can protect. As a result we could find
that our entire marketing plan and business model is undercut or
made irrelevant by actions of other companies under which we have
no control. We cannot promise that we can accomplish our marketing
goals and as a result may experience negative impact upon our
operating results.
The full impact of COVID-19 on our business remains unknown.
Reports indicate that consumer behavior has shifted as a result of
COVID and the resulting impact on the economy. Some of these
reported changes include fewer supermarket visits, consumer
reliance on legacy brands in lieu of trying new branded offerings,
and increases in at-home snacking. Additionally, customary
marketing tactics such as in-store displays and product sampling
are either impaired or impermissible, which could have a material
adverse effect on the introduction of our products in new retail
establishments. To date, we have experienced only minor issues
regarding supply chain and logistics. Our order processing function
has been largely normal to date, and our manufacturers have assured
us that their operations are continuing with no or minor
interruptions. However, any future changes as a result of COVID-19
could have a material adverse effect on our results of operations
and financial condition.
Additionally, 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.
Our success depends to a large extent upon the continued service
of key managerial personnel and our ability to attract and retain
qualified personnel. We are highly dependent on the ability and
experience of Sean Folkson, our president and CEO. We have a
consulting agreement with Mr. Folkson; however, the loss of Mr.
Folkson would present a significant setback for us and could impede
the implementation of our business plan. There is no assurance that
we will be successful in acquiring and retaining qualified
personnel to execute our current plan of operations.
Risks Relating to our Securities and Structure
The ability of our sole executive officer and director to
control our business will limit minority shareholders’ ability to
influence corporate affairs. As of the date of this prospectus,
Mr. Folkson beneficially owned 16,776,644 shares of our common
stock. In addition to his beneficial ownership of the common stock,
Mr. Folkson beneficially owns 1,000 shares of our Series A
Preferred Stock, which votes with the common stock and has an
aggregate of 100,000,000 votes. Accordingly, Mr. Folkson controls
the majority of the voting power in the Company. Because of his
stock ownership, Mr. Folkson is in a position to continue to elect
our board of directors, decide all matters requiring stockholder
approval and determine our policies. Mr. Folkson’s interests may
differ from the interests of other shareholders with respect to the
issuance of shares, business transactions with or sales to other
companies, selection of officers and directors and other business
decisions. Other shareholders have no way of overriding decisions
made by Mr. Folkson as an officer or a director through their
ownership of our common stock. This level of control may also have
an adverse impact on the market value of our shares because he may
institute or undertake transactions, policies or programs that
result in losses, may not take any steps to increase our visibility
in the financial community and/ or may sell sufficient numbers of
shares to significantly decrease our price per share.
The price of our common stock might fluctuate significantly, and
you could lose all or part of your investment. Volatility in
the market price of our common stock may prevent you from being
able to sell your shares of our common stock at or above the price
you paid for your shares. The trading price of our common stock may
be volatile and subject to wide price fluctuations in response to
various factors, including:
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actual
or anticipated fluctuations in our quarterly financial and
operating results; |
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our
progress toward developing our Products; |
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publication of
research reports about us or our industry or positive or negative
recommendations or withdrawal of research coverage by securities
analysts, if any; |
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perceptions about the
market acceptance of our products and the recognition of our
brand; |
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adverse publicity
about our products or industry in general; |
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overall performance of
the equity markets; |
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introduction of
products, or announcements of significant contracts, licenses or
acquisitions, by us or our competitors; |
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legislative, political
or regulatory developments; |
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additions or
departures of key personnel; |
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threatened or actual
litigation and government investigations; |
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sale
of shares of our common stock by us or members of our management;
and |
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general economic
conditions. |
These and other factors might cause the market price of our common
stock to fluctuate substantially, which may negatively affect the
liquidity of our common stock. In addition, from time to time, the
stock market experiences price and volume fluctuations, some of
which may be significant. This volatility has had a significant
impact on the market price of securities issued by many companies
across many industries. The changes frequently appear to occur
without regard to the operating performance of the affected
companies. Accordingly, the price of our common stock could
fluctuate based upon factors that have little or nothing to do with
our company, and these fluctuations could materially reduce our
share price.
Securities class action litigation has often been instituted
against companies following periods of volatility in the overall
market and in the market price of a company’s securities. This
litigation, if instituted against us, could result in substantial
costs, divert our management’s attention and resources, and harm
our business, operating results and financial condition.
Failure to establish and maintain an effective system of
internal controls could harm our business and could negatively
impact the price of our stock. We must review and update our
internal controls, disclosure controls and procedures, and
corporate governance policies as our company continues to evolve.
In addition, we are required to comply with the internal control
evaluation and certification requirements of Section 404 of the
Sarbanes-Oxley Act and management is required to report annually on
our internal control over financial reporting. Our independent
registered public accounting firm will not be required to formally
attest to the effectiveness of our internal control over financial
reporting pursuant to Section 404 of SOX until the date we are no
longer a “smaller reporting company” as defined by applicable SEC
rules.
Any ineffective internal control regarding our financial reporting
could have an adverse effect on our business and financial results
and the price of our common stock could be negatively affected.
This reporting requirement could also make it more difficult or
more costly for us to obtain certain types of insurance, including
director and officer liability insurance, and we may be forced to
accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. Any system of
internal controls, however well designed and operated, is based in
part on certain assumptions and can provide only reasonable, not
absolute, assurances that the objectives of the system are met. Any
failure or circumvention of the controls and procedures or failure
to comply with regulation concerning control and procedures could
have a material effect on our business, results of operation and
financial condition. Any of these events could result in an adverse
reaction in the financial marketplace due to a loss of investor
confidence in the reliability of our financial statements, which
ultimately could negatively affect the market price of our shares,
increase the volatility of our stock price and adversely affect our
ability to raise additional funding. The effect of these events
could also make it more difficult for us to attract and retain
qualified persons to serve on our board of directors and as
executive officers.
Our management’s evaluation of the effectiveness of our internal
controls over financial reporting as of March 31, 2021 concluded
that our controls were not effective. Management believes there is
a reasonable possibility that these control deficiencies, if
uncorrected, could result in material misstatements in the annual
or interim financial statements that would not be prevented or
detected in a timely manner. Accordingly, we have determined that
these control deficiencies constitute material weaknesses. Although
the Company is taking steps to remediate the material weaknesses,
it currently has limited resources to do so and there can be no
assurance that similar incidents can be prevented in the
future.
We will need to evaluate our existing internal controls over
financial reporting against the criteria set forth in Internal
Control – Integrated Framework (2013) (the “Framework”) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. During the course of our ongoing evaluation of the
internal controls, we may identify other areas requiring
improvement, and may have to design enhanced processes and controls
to address issues identified through this review. Remediating any
deficiencies, significant deficiencies or material weaknesses that
we or our independent registered public accounting firm may
identify may require us to incur significant costs and expend
significant time and management resources. We cannot assure you
that any of the measures we implement to remedy any such
deficiencies will effectively mitigate or remedy such deficiencies.
The existence of one or more material weaknesses could affect the
accuracy and timing of our financial reporting. Investors could
lose confidence in our financial reports, and the value of our
common stock may be harmed, if our internal controls over financial
reporting are found not to be effective by management or by an
independent registered public accounting firm or if we make
disclosure of existing or potential material weaknesses in those
controls.
Even if we conclude that our internal control over financial
reporting provides reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles, because of its inherent limitations,
internal control over financial reporting may not prevent or detect
fraud or misstatements. Failure to implement required new or
improved controls, or difficulties encountered in their
implementation, could harm our operating results or cause us to
fail to meet our future reporting obligations.
Our reporting obligations as a public company will place a
significant strain on our management, operational and financial
resources and systems for the foreseeable future. If we fail to
timely achieve and maintain the adequacy of our internal control
over financial reporting, we may not be able to produce reliable
financial reports or help prevent fraud. Our failure to achieve and
maintain effective internal control over financial reporting could
prevent us from filing our periodic reports on a timely basis which
could result in the loss of investor confidence in the reliability
of our financial statements, harm our business and negatively
impact the trading price of our common stock.
Our trading market may be restricted by virtue of state
securities “Blue Sky” laws to the extent they prohibit trading
absent compliance with individual state laws. These restrictions
may make it difficult or impossible to sell shares in those
states. Although trading activity in our stock has increased
recently, generally there has been a limited public market
for our common stock, and there can be no assurance that an active
and regular public market will develop in the foreseeable future.
Transfer of our common stock may also be restricted under the
securities or securities regulations laws promulgated by various
states and foreign jurisdictions, commonly referred to as “Blue
Sky” laws. Absent compliance with such individual state laws, our
common stock may not be traded in such jurisdictions. Because our
securities have not been registered for resale under the “Blue Sky”
laws of any state, the holders of such shares and persons who
desire to purchase them in any trading market that might develop in
the future, should be aware that there may be significant state
“Blue Sky” law restrictions upon the ability of investors to sell
the securities and of purchasers to purchase the securities. These
restrictions prohibit the secondary trading of our common stock.
Accordingly, investors should consider the secondary market for our
securities to be a limited one.
Recent issuances of convertible preferred stock may have a
negative impact on the trading prices of our common stock. In
April 2021, we sold 4,515 shares of our Series B Convertible
Preferred Stock. Each of these shares of preferred stock is
convertible into 5,000 shares of common stock (an effective per
share price of $0.20) and on conversion the holder will also
receive 5,000 warrants, exercisable at $0.30, to purchase a share
of our common stock. The resale of these shares and shares issued
on any exercise of the warrants can have a negative effect on the
market for our common stock and may cause dilution to our common
stockholders.
Our common stock is subject to the “penny stock” rules of the
SEC, which makes transactions in our stock cumbersome and may
reduce the value of an investment in our stock. The SEC has
adopted regulations which generally define a “penny stock” as an
equity security that has a market price of less than $5.00 per
share, subject to specific exemptions. The SEC’s penny stock rules
require a broker-dealer, before a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks
and the risks in the penny stock market. The broker-dealer must
also provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and the
salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer’s
account. In addition, the penny stock rules generally require that
before a transaction in a penny stock occurs, the broker-dealer
must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser’s
agreement to the transaction. If applicable in the future, these
rules may restrict the ability of brokers-dealers to sell our
common stock and may affect the ability of investors to sell their
shares, until our common stock no longer is considered a penny
stock.
General Risks
The price of our common stock might fluctuate significantly, and
you could lose all or part of your investment. Volatility in
the market price of our common stock may prevent you from being
able to sell your shares of our common stock at or above the price
you paid for your shares. The trading price of our common stock may
be volatile and subject to wide price fluctuations in response to
various factors, including:
|
● |
actual
or anticipated fluctuations in our quarterly financial and
operating results; |
|
● |
our
progress toward developing new or proposed products; |
|
● |
publication of
research reports about us or our industry or positive or negative
recommendations or withdrawal of research coverage by securities
analysts, if any; |
|
● |
perceptions about the
market acceptance of our products and the recognition of our
brand; |
|
● |
adverse publicity
about our products or industry in general; |
|
● |
overall performance of
the equity markets; |
|
● |
introduction of
products, or announcements of significant contracts, licenses or
acquisitions, by us or our competitors; |
|
● |
legislative, political
or regulatory developments; |
|
● |
additions or
departures of key personnel; |
|
● |
threatened or actual
litigation and government investigations; |
|
● |
sale
of shares of our common stock by us or members of our management;
and |
|
● |
general economic
conditions. |
These and other factors might cause the market price of our common
stock to fluctuate substantially, which may negatively affect the
liquidity of our common stock. In addition, from time to time, the
stock market experiences price and volume fluctuations, some of
which may be significant. This volatility has had a significant
impact on the market price of securities issued by many companies
across many industries. The changes frequently appear to occur
without regard to the operating performance of the affected
companies. Accordingly, the price of our common stock could
fluctuate based upon factors that have little or nothing to do with
our company, and these fluctuations could materially reduce our
share price.
Securities class action litigation has often been instituted
against companies following periods of volatility in the overall
market and in the market price of a company’s securities. This
litigation, if instituted against us, could result in substantial
costs, divert our management’s attention and resources, and harm
our business, operating results and financial condition.
The issuance of shares upon exercise of outstanding warrants and
options could cause immediate and substantial dilution to existing
stockholders. The issuance of shares upon exercise of warrants
and options could result in substantial dilution to the interests
of other stockholders.
Future sales of our common stock by our stockholders could
negatively affect our stock price after this offering. Sales of
a substantial number of shares of our common stock in the public
market by our shareholders after this offering, or the perception
that these sales might occur, could depress the market price of our
common stock and could impair our ability to raise capital through
the sale of additional equity securities. All of the shares of
common stock sold in this offering will be freely tradable without
restrictions or further registration under the Securities Act of
1933, as amended, and thus the price of our common stock may
decline.
IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO
RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING
THIS PROSPECTUS, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT THERE
MAY BE OTHER POSSIBLE RISKS THAT COULD BE IMPORTANT.
USE OF
PROCEEDS
All of the shares of common stock being offered under this
prospectus are being sold by or for the account of the Selling
Shareholders. We will not receive any proceeds from the sale of the
Shares. If all the warrants are exercised in full for cash, we will
receive a total of approximately $7.9 million, which will be added
to our working capital.
SELLING
STOCKHOLDERS
This prospectus relates to the registration of 51,200,000 shares of
our common stock, consisting of (i) 22,575,000 shares of common
stock that may be sold by certain of the Selling Shareholders upon
the conversion of outstanding B Preferred; (ii) 22,575,000 shares
of common stock that may be sold by certain of the Selling
Shareholders upon the exercise in full for cash by such Selling
Shareholders of common stock purchase warrants expiring April 16,
2026, which are issuable upon conversion of the B Preferred, and
which have an exercise period of five years and an exercise price
per share of $0.30; and (iii) 6,050,000 shares of common stock that
may be sold by a Selling Shareholder named herein upon the exercise
in full for cash by such Selling Shareholder of common stock
purchase warrants expiring between February 1, 2026 and April 18,
2026, and which have an exercise period of five years and an
exercise price per share of $0.01 (with respect to 1,600,000
warrants), $0.20 (with respect to 2,225,000 warrants) and $0.30
(with respect to 2,225,000 warrants).
Each share of B Preferred and each warrant has certain limited
anti-dilution protection including adjustments to the exercise
price, as provided under the terms of such shares or warrant, for
stock splits, stock dividends and other similar transactions, as
well as other dilutive events, and may be exercised in cashless or
“net exercise” transactions.
The selling stockholders identified in this prospectus may offer
the shares of our common stock at prevailing market prices at the
time of sale, at prices related to the prevailing market price, at
varying prices determined at the time of sale or at negotiated
prices. See “Plan of Distribution” for additional information.
Unless otherwise indicated, we believe, based on information
supplied by the following persons, that the persons named in the
table below have sole voting and investment power with respect to
all shares of common stock that they beneficially own. The
information presented in the columns under the heading “Number of
Shares Beneficially Owned After Offering” assumes the sale of all
of our shares offered by this prospectus. The registration of the
offered shares does not mean that any or all of the selling
stockholders will offer or sell any of these shares.
We have determined beneficial ownership in accordance with the
rules of the SEC, and the information is not necessarily indicative
of beneficial ownership for any other purpose.
Selling Shareholder information for each additional Selling
Shareholder, if any, will be set forth by prospectus supplement to
the extent required prior to the time of any offer or sale of such
Selling Shareholder’s shares pursuant to this prospectus. Any
prospectus supplement may add, update, substitute, or change the
information contained in this prospectus, including the identity of
each Selling Shareholder and the number of shares registered on its
behalf. The inclusion of any shares in this table does not
constitute an admission of beneficial ownership by the persons
named below.
Certain selling stockholders set forth in a table below may be
broker-dealers, or affiliates of broker-dealers. Each broker-dealer
identified below acquired the securities identified in the table as
beneficially owned by it as compensation for placement agent and
financial advisory services provided to the Company, and is
offering the covered securities in its proprietary capacity. No
broker-dealer identified in the selling stockholders table below is
acting as a broker-dealer in connection with this offering.
Additionally, each selling stockholder identified in the table
below as an affiliate of a broker-dealer acquired the securities
identified in the table as beneficially owned by it in the ordinary
course of its business and not as underwriting compensation in this
offering, and at the time such securities were acquired, had no
agreement or understanding, directly or indirectly, with any person
to distribute such securities. Unless otherwise indicated, none of
the selling stockholders have within the past three years had any
position, office or other material relationship with the Company or
any of its predecessors or affiliates.
Name |
|
Number of
Shares Beneficially Owned Prior to Offering (1) |
|
|
Number
of
Shares
Offered by the Selling Stockholder |
|
|
Number of Shares Beneficially Owned After Offering |
|
|
Percentage of Common Stock Beneficially Owned After Offering |
|
Eagle
Equities, LLC (3) |
|
|
15,000,000 |
|
|
|
15,000,000 |
(2) |
|
|
– |
|
|
|
– |
|
District 2
Capital Fund LP (4) |
|
|
7,500,000 |
|
|
|
7,500,000 |
(2) |
|
|
– |
|
|
|
– |
|
Iroquois Capital
Investment Group LLC (5) |
|
|
3,250,000 |
|
|
|
3,250,000 |
(2) |
|
|
– |
|
|
|
– |
|
First Fire Global
Opportunities Fund LLC (6) |
|
|
2,500,000 |
|
|
|
2,500,000 |
(2) |
|
|
– |
|
|
|
– |
|
BHP Capital NY,
Inc. (7) |
|
|
3,666,666 |
|
|
|
2,000,000 |
(2) |
|
|
– |
|
|
|
– |
|
Iroquois Master
Fund Ltd. (5) |
|
|
1,750,000 |
|
|
|
1,750,000 |
(2) |
|
|
– |
|
|
|
– |
|
Spencer Clarke
Holdings LLC (8) |
|
|
7,800,000 |
|
|
|
7,800,000 |
(9) |
|
|
– |
|
|
|
– |
|
EMA Financial,
LLC (10) |
|
|
1,500,000 |
|
|
|
1,500,000 |
(2) |
|
|
– |
|
|
|
– |
|
Colby D. Howe.,
Jr and Lori M. Howe Revocable Trust (11) |
|
|
1,500,000 |
|
|
|
1,500,000 |
(2) |
|
|
– |
|
|
|
– |
|
The Special
Equities Opportunity Fund, LLC (12) |
|
|
1,500,000 |
|
|
|
1,500,000 |
(2) |
|
|
– |
|
|
|
– |
|
David S.
Nagelberg 2003 Revocable Trust (13) |
|
|
1,000,000 |
|
|
|
1,000,000 |
(2) |
|
|
– |
|
|
|
– |
|
Drew Lane Capital
LLC (14) |
|
|
1,000,000 |
|
|
|
1,000,000 |
(2) |
|
|
– |
|
|
|
– |
|
Efrat
Investments, LLC (15) |
|
|
1,000,000 |
|
|
|
1,000,000 |
(2) |
|
|
– |
|
|
|
– |
|
Fredda, LLC
(16) |
|
|
1,000,000 |
|
|
|
1,000,000 |
(2) |
|
|
– |
|
|
|
– |
|
IG Holdings, Inc.
(17) |
|
|
750,000 |
|
|
|
750,000 |
(2) |
|
|
– |
|
|
|
– |
|
Leonite Capital
LLC (18) |
|
|
500,000 |
|
|
|
500,000 |
(2) |
|
|
– |
|
|
|
– |
|
Quick Capital,
LLC (19) |
|
|
500,000 |
|
|
|
500,000 |
(2) |
|
|
– |
|
|
|
– |
|
Gregory
Castaldo |
|
|
500,000 |
|
|
|
500,000 |
(2) |
|
|
– |
|
|
|
– |
|
GS Venture
Partners, LLC (20) |
|
|
500,000 |
|
|
|
500,000 |
(2) |
|
|
– |
|
|
|
– |
|
Frank J.
Hariton |
|
|
330,000 |
|
|
|
150,000 |
(2) |
|
|
180,000 |
|
|
|
* |
|
* |
Less
than 1% |
(1) |
Assumes
the conversion of all of the issued and outstanding shares of B
Preferred into Shares and common stock purchase warrants, and the
exercise in full for cash of the warrants issuable upon such
conversion. |
(2) |
These
values represent ownership of an equal number of shares of common
stock and shares underlying common stock purchase
warrants. |
(3) |
Yanky
Borenstein has sole voting and investment control over these
shares. |
(4) |
Eric
J. Schlanger has sole voting and investment control over these
shares. |
(5) |
Richard
Abbe has sole voting and investment control over these
shares. |
(6) |
Eliezer
Fireman has sole voting and investment control over these
shares. |
(7) |
Bryan
Pantofel has sole voting and investment control over these
shares. |
(8) |
Reid
Drescher has sole voting and investment control over these shares.
Spencer Clarke Holdings LLC is an affiliate of Spencer Clarke LLC,
a registered broker-dealer who acted as placement agent with
respect to the offer and sale of the shares of B Preferred
(“SCLLC”). |
(9) |
Represents:
(a) 875,000 shares of common stock issuable upon conversion of the
Selling Shareholder’s B Preferred; (b) 875,000 shares of common
stock issuable upon the exercise of common stock purchase warrants
issuable upon conversion of the Selling Shareholder’s B Preferred;
(c) 6,050,000 shares of common stock that may be sold by the
Selling Shareholder upon the exercise in full for cash by such
Selling Shareholder of common stock purchase warrants expiring
between February 1, 2026 and April 18, 2026, and which have an
exercise period of five years and an exercise price per share of
$0.01 (with respect to 1,600,000 warrants), $0.20 (with respect to
2,225,000 warrants) and $0.30 (with respect to 2,225,000 warrants)
(the “Placement Warrants”). The Placement Warrants were issued by
the Company as compensation for placement agent services provided
by SCLLC. |
(10) |
Felicia
Preston has sole voting and investment control over these
shares. |
(11) |
Colby
D. Howe Jr. has sole voting and investment control over these
shares. |
(12) |
Jonathan Schechter has
sole voting and investment control over these shares. |
(13) |
David
S. Nagelberg has sole voting and investment control over these
shares. |
(14) |
James
Gertler has sole voting and investment control over these
shares. |
(15) |
Pinny
Rotter has sole voting and investment control over these
shares. |
(16) |
Gary
M. Duboff has sole voting and investment control over these
shares. |
(17) |
Ira
Gaines has sole voting and investment control over these
shares. |
(18) |
Avi
Geller has sole voting and investment control over these
shares. |
(19) |
Eilon
Natan has sole voting and investment control over these
shares. |
(20) |
Gregg
Smith has sole voting and investment control over these
shares. |
PLAN OF
DISTRIBUTION
We are registering the shares of common stock issuable upon
conversion of the shares of B Preferred and upon the exercise of
the warrants underlying conversion of the B Preferred, to permit
the resale of these shares of common stock by the holders from time
to time after the date of this prospectus. We will not receive any
of the proceeds from the sale by the Selling Shareholder of the
shares of common stock, but will receive proceeds from the exercise
of any of the warrants for cash. We will bear all fees and expenses
incident to our obligation to register the shares of common
stock.
Each Selling Shareholder may sell all or a portion of the shares of
common stock held by it and offered hereby from time to time
directly or through one or more underwriters, broker-dealers or
agents. If the shares of common stock are sold through underwriters
or broker-dealers, the Selling Shareholder will be responsible for
underwriting discounts or commissions or agent’s commissions. The
shares of common stock may be sold in one or more transactions at
fixed prices, at prevailing market prices at the time of the sale,
at varying prices determined at the time of sale or at negotiated
prices. These sales may be effected in transactions, which may
involve crosses or block transactions, pursuant to one or more of
the following methods:
|
● |
on any
national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale; |
|
● |
in the
over-the-counter market; |
|
● |
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market; |
|
● |
through the writing or
settlement of options, whether such options are listed on an
options exchange or otherwise; |
|
● |
ordinary brokerage
transactions and transactions in which the broker-dealer solicits
purchasers; |
|
● |
block
trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction; |
|
● |
purchases by a
broker-dealer as principal and resale by the broker-dealer for its
account; |
|
● |
an
exchange distribution in accordance with the rules of the
applicable exchange; |
|
● |
privately negotiated
transactions; |
|
● |
broker-dealers may
agree with a selling security holder to sell a specified number of
such shares at a stipulated price per share; |
|
● |
a
combination of any such methods of sale; and |
|
● |
any
other method permitted pursuant to applicable law. |
Each Selling Shareholder may also sell shares of common stock under
Rule 144 promulgated under the Securities Act of 1933, as amended,
if available, rather than under this prospectus. In addition, each
Selling Shareholder may transfer the shares of common stock by
other means not described in this prospectus. If a Selling
Shareholder effects such transactions by selling shares of common
stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in
the form of discounts, concessions or commissions from the Selling
Shareholder or commissions from purchasers of the shares of common
stock for whom they may act as agent or to whom they may sell as
principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess
of those customary in the types of transactions involved). In
connection with sales of the shares of common stock or otherwise, a
Selling Shareholder may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the
shares of common stock in the course of hedging in positions they
assume. Each Selling Shareholder may also sell shares of common
stock short and deliver shares of common stock covered by this
prospectus to close out short positions and to return borrowed
shares in connection with such short sales. Each Selling
Shareholder may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.
Each Selling Shareholder may pledge or grant a security interest in
some or all of the warrants or shares of common stock owned by it
and, if it defaults in the performance of its secured obligations,
the pledgees or secured parties may offer and sell the shares of
common stock from time to time pursuant to this prospectus or any
amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act amending, if necessary,
the list of Selling Shareholders to include the pledgee, transferee
or other successors in interest as Selling Shareholders under this
prospectus. Each Selling Shareholder also may transfer and donate
the shares of common stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will
be the selling beneficial owners for purposes of this
prospectus.
To the extent required by the Securities Act and the rules and
regulations thereunder, each Selling Shareholder and any
broker-dealer participating in the distribution of the shares of
common stock may be deemed to be “underwriters” within the meaning
of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At
the time a particular offering of the shares of common stock is
made, a prospectus supplement, if required, will be distributed,
which will set forth the aggregate amount of shares of common stock
being offered and the terms of the offering, including the name or
names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the Selling
Shareholders and any discounts, commissions or concessions allowed
or re-allowed or paid to broker-dealers.
Under the securities laws of some states, the shares of common
stock may be sold in such states only through registered or
licensed brokers or dealers. In addition, in some states the shares
of common stock may not be sold unless such shares have been
registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied
with.
There can be no assurance that the Selling Shareholders will sell
any or all of the shares of common stock registered pursuant to the
registration statement, of which this prospectus forms a part.
The Selling Shareholders and any other person participating in such
distribution will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, including, without limitation, to the
extent applicable, Regulation M of the Exchange Act, which may
limit the timing of purchases and sales of any of the shares of
common stock by the Selling Shareholders and any other
participating person. To the extent applicable, Regulation M may
also restrict the ability of any person engaged in the distribution
of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing
may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We will pay all expenses of the registration of the shares of
common stock, estimated to be approximately $45,000 in total,
including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or
“blue sky” laws; provided, however, the Selling Shareholders will
pay all underwriting discounts and selling commissions, if any.
Once sold under the registration statement, of which this
prospectus forms a part, the shares of common stock will be freely
tradable in the hands of persons other than our affiliates.
DESCRIPTION OF
SECURITIES TO BE REGISTERED
The following description of our capital stock is a summary only
and is qualified by reference to our Articles of Incorporation, as
amended, and Bylaws, which are included as Exhibits 3.1 and 3.2,
respectively, to our Annual Report on Form 10-K filed with the SEC
on October 13, 2020.
General
Our authorized capital stock consists of 200,000,000 shares of
common stock, with a par value of $0.001 per share, and 1,000,000
shares of preferred stock, with a par value of $0.001 per share. As
of June 11, 2021, there were 79,916,159 shares of common stock
issued and outstanding, 1,000 shares of Series A Preferred Stock
issued and outstanding, and 4,515 shares of Series B Preferred
Stock issued and outstanding.
Common Stock
The Company’s Certificate of Incorporation, as amended, authorizes
us to issue an aggregate of 200,000,000 shares of Common Stock.
As of the date of this prospectus 79,916,159 shares of our
common stock were issued and outstanding. All outstanding shares of
common stock are of the same class and have equal rights and
attributes. The holders of common stock are entitled to one vote
per share on all matters submitted to a vote of stockholders of the
Company. All stockholders are entitled to share in dividends, if
any, as may be declared from time to time by the Board of Directors
out of funds legally available therefore. In the event of
liquidation, the holders of common stock are entitled to share
ratably in all assets remaining after payment of all liabilities.
Holders of common stock do not have cumulative or preemptive
rights.
Transfer Agent
The transfer agent for our common stock is Clear Trust, LLC, 16540
Pointe Village Drive - Suite 210, Lutz, FL 33558.
Preferred Stock
Shares of preferred stock may be issued from time to time in one or
more series as may be determined by the board of directors. The
voting powers and preferences, the relative rights of each series,
and the qualifications, limitations, and restrictions on such
preferred stock shall be established by the board of directors,
except that no holder of preferred stock shall have preemptive
rights.
Series A Preferred Stock
On July
11, 2018, we filed a Certificated of Designation for a series of
preferred stock designated Class A Super Voting Preferred Stock.
There are 10,000 shares of Series A Preferred Stock designated.
Each share of such stock shall vote with the common stock and have
100,000 votes. Shares of the Series A Preferred Stock have no
conversion, dividend or liquidation rights. Accordingly, holders of
shares of Series A Preferred Stock will, by reason of their voting
power be able to control the affairs of the Company. We have issued
1,000 shares of Series A Preferred Stock to Sean Folkson, our
president and CEO and sole director, giving him effective voting
control over our affairs.
Series B Preferred Stock
On April 19, 2021, we filed an
Amended Certificate of Designation for a series of preferred stock
designated Series B Preferred Stock. There are 5,000 shares of B
Preferred designated. Each share of B Preferred has a liquidation
preference of $1,000 and has no voting rights except as to matters
pertaining to the rights and privileges of the B Preferred. Each
share of B Preferred is convertible at the option of the holder
thereof into (i) 5,000 shares of the Registrant’s common stock (one
share for each $0.20 of liquidation preference) and (ii) 5,000
common stock purchase warrants expiring April 16, 2026 with an
exercise price of $0.30 per share. The number of underlying shares
of common stock and the warrants adjust for stock splits,
reorganizations and the like and the warrants provide for
proportional adjustments in the event of certain dilutive issuances
with certain issuances excluded from any adjustment. Commencing
June 30, 2021 and for so long as 2,000 shares of B Preferred are
outstanding, the holders of the B Preferred, voting as a class,
shall be entitled to elect one member of our board of
directors.
Penny Stock Regulation
Penny stocks generally are equity securities with a price of less
than $5.00 per share other than securities registered on national
securities exchanges or listed on the Nasdaq Stock Market, provided
that current price and volume information with respect to
transactions in such securities are provided by the exchange or
system. The penny stock rules impose additional sales practice
requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with their spouse).
For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of such
securities and have received the purchaser’s written consent to the
transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to the transaction, of a disclosure
schedule prescribed by the SEC relating to the penny stock market.
The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative and
current quotations for the securities. Finally, monthly statements
must be sent disclosing recent price information on the limited
market in penny stocks. Because of these penny stock rules,
broker-dealers may be restricted in their ability to sell the
Company’s common stock. The foregoing required penny stock
restrictions will not apply to the Company’s common stock if such
stock reaches and maintains a market price of $5.00 per share or
greater.
MARKET PRICE OF AND
DIVIDENDS ON COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTCQB Market under the symbol
NGTF.
The following table sets forth the range of high and low quotations
for our common stock for each of the periods indicated as reported
by the OTCMarkets. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
The last reported price was $0.265 on June 11, 2021.
Quarter
Ended |
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
June
30, 2021 (through June 11, 2021) |
|
$ |
0.50 |
|
|
$ |
0.24 |
|
March
31, 2021 |
|
|
0.41 |
|
|
|
0.08 |
|
December
31, 2020 |
|
|
0.15 |
|
|
|
0.08 |
|
September
30, 2020 |
|
|
0.22 |
|
|
|
0.12 |
|
June
30, 2020 |
|
$ |
0.28 |
|
|
$ |
0.17 |
|
March
31, 2020 |
|
|
0.44 |
|
|
|
0.16 |
|
December
31, 2019 |
|
|
0.36 |
|
|
|
0.20 |
|
September
30, 2019 |
|
|
0.42 |
|
|
|
0.25 |
|
June
30, 2019 |
|
$ |
0.36 |
|
|
$ |
0.16 |
|
March
31, 2019 |
|
|
0.92 |
|
|
|
0.17 |
|
December
31, 2018 |
|
|
0.77 |
|
|
|
0.30 |
|
September
30, 2018 |
|
|
0.41 |
|
|
|
0.25 |
|
Holders
The
approximate number of stockholders of record on the date of this
prospectus is 208. The number of stockholders of record does not
include beneficial owners of our common stock, whose shares are
held in the names of various dealers, clearing agencies, banks,
brokers and other fiduciaries.
Shares Eligible for Future Sale
As of the date of this prospectus, there are 79,916,159 shares of
common stock outstanding, of which 16,776,644 shares are
beneficially owned by Mr. Folkson, our sole executive officer and
director. There will be 124,993,871 shares outstanding if all
shares of B Stock are converted into our common stock and warrants
and the warrants are all exercised for cash.
21,173,933 of the shares of common stock held by current
shareholders are considered “restricted securities” subject to the
limitations of Rule 144 under the Securities Act. In general,
securities may be sold pursuant to Rule 144 after being fully paid
and held for more than 6 months. While affiliates of the Company
are subject to certain limits in the amount of restricted
securities, they can sell under Rule 144, there are no such
limitations on sales by persons who are not affiliates of the
Company. In the event non-affiliated holders elect to sell such
shares in the public market, there is likely to be a negative
effect on the market price of the Company’s securities.
Dividend Policy
No dividends have ever been declared by the Board of Directors on
our common stock. Our losses do not currently indicate the ability
to pay any cash dividends, and we do not have the intention of
paying cash dividends on our common stock in the foreseeable
future.
Penny Stock Regulation
Shares of our common stock have been and will likely continue to be
subject to rules adopted the SEC that regulate broker-dealer
practices in connection with transactions in “penny stocks.” Penny
stocks are generally equity securities with a price of less than
$5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ or NYSE system,
provided that current price and volume information with respect to
transactions in those securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from those rules,
deliver a standardized risk disclosure document prepared by the
SEC, which contains the following:
|
● |
a
description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading; |
|
|
|
|
● |
a
description of the broker’s or dealer’s duties to the customer and
of the rights and remedies available to the customer with respect
to violation to such duties or other requirements of securities’
laws; |
|
|
|
|
● |
a
brief, clear, narrative description of a dealer market, including
“bid” and “ask” prices for penny stocks and the significance of the
spread between the “bid” and “ask” price; |
|
|
|
|
● |
a
toll-free telephone number for inquiries on disciplinary
actions; |
|
|
|
|
● |
definitions
of significant terms in the disclosure document or in the conduct
of trading in penny stocks; and |
|
|
|
|
● |
such
other information and is in such form (including language, type,
size and format), as the SEC shall require by rule or
regulation. |
Prior to effecting any transaction in penny stock, the
broker-dealer also must provide the customer the following:
|
● |
the
bid and offer quotations for the penny stock; |
|
|
|
|
● |
the
compensation of the broker-dealer and its salesperson in the
transaction; |
|
|
|
|
● |
the
number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the
market for such stock; and |
|
|
|
|
● |
monthly
account statements showing the market value of each penny stock
held in the customer’s account. |
In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written acknowledgment of the receipt of a
risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a written
suitability statement. These disclosure requirements may have the
effect of reducing the trading activity in the secondary market for
a stock that becomes subject to the penny stock rules. Holders of
shares of our common stock may have difficulty selling those shares
because our common stock will probably be subject to the penny
stock rules.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion and analysis of financial condition and
results of operations is based upon, and should be read in
conjunction with our audited and unaudited financial statements and
related notes thereto included elsewhere in this prospectus
commencing on page F-1.
Overview
We caution you that reliance on any forward-looking statement
involves risks and uncertainties, and that although we believe the
assumptions on which our forward-looking statements are based are
reasonable, any of those assumptions could prove to be inaccurate,
and as a result, the forward-looking statements based on those
assumptions could be incorrect. In light of these and other
uncertainties, you should not conclude that we will necessarily
achieve any plans and objectives or projected financial results
referred to in any of the forward-looking statements. We do not
undertake to release the results of any revisions of these
forward-looking statements to reflect future events or
circumstances. Some of the factors that may cause actual results,
developments and business decisions to differ materially from those
contemplated by such forward-looking statements include the
following:
We are a snack development, marketing and distribution company
relying on our unique products, positioning, and team to develop
and market nutritional/snack foods that are appropriate for evening
snacking.
Management does envision the Nightfood brand ultimately as a
“platform brand”, meaning future offerings would not necessarily
all remain within the ice cream category. Possibilities exist to
expand the product line into additional snack formats that are
popular with consumers at night, including things like cookies,
chips, and other formats. Additionally, future reintroduction of
the Nightfood nutrition bar also remains a possibility.
During calendar 2018, the Company began development of Nightfood
ice cream. Having seen the success in the marketplace of
“better-for-you” ice cream brands such as Halo Top, Enlightened,
and others, Management believes consumers will be receptive to a
line of ice cream that has some similar nutritional benefits to
those newly successful brands, in addition to a sleep-friendly
nutritional profile that is more appropriate for nighttime
consumption.
With our team of sleep experts, and a leading ice cream research
and development laboratory, eight flavors of Nightfood ice cream
were developed and bought to market, with the initial production
run occurring in January 2019. Nightfood is unique among all other
known products in the market in that our ice cream was developed
with better sleep in mind. Knowing millions of Americans eat ice
cream before bed on any given night, Management tasked our team of
sleep and nutrition experts with formulating an ice cream that
would be more appropriate for nighttime consumption, while
delivering better taste and texture than what is currently found in
the other “better-for-you” brands.
Compared to regular ice cream, Nightfood is formulated with less
fat, less sugar, fewer calories, plus certain vitamins, minerals,
and digestive enzymes, recommended by our sleep and nutrition
experts.
In early February of 2019, it was announced that Nightfood had won
the 2019 Product of the Year Award in the ice cream category in a
Kantar innovation survey of over 40,000 consumers. In June of 2019,
it was announced that Nightfood won both the Best New Ice Cream and
Best New Dairy Dessert awards at the World Dairy Innovation
Awards.
Nightfood has secured distribution in divisions of some of the
largest supermarket chains in the country, and has received media
coverage in outlets such as The Today Show, Oprah Magazine, The
Rachael Ray Show, Food Network Magazine, The Wall Street Journal,
USA Today, The Washington Post, Fox Business News, and many more
media outlets.
We believe that over the next several years, a subset of consumers
will shift their night snacking behavior towards snacks that are
formulated to be more “sleep friendly” compared to what is
currently being consumed by much of the population. As research
continues to explore the links between nutrition and sleep, and
consumers continue to seek healthier snacks in general, we expect a
“nighttime nutrition” or “sleep-friendly snacking” category to
emerge within the marketplace.
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.
We believe that elevated interest from global food and beverage
giants continues to bring attention and validation to the
sleep-diet connection. As a pioneer in the space, we view Nightfood
as more than an ice cream company. Rather, we believe the Nightfood
brand can continue to occupy a leadership role in the
“sleep-friendly nutrition” category that we envision will continue
to develop in the future.
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.
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 isolated and identified. Industry data suggested
that supermarket sales increased, with more people spending more
time at home. Anecdotally and statistically, snacking activity was
also up. Furthermore, industry sales data indicated ice cream as
one of the categories experiencing the largest increase during the
first several months after the outbreak.
The offsetting factors included the impact of the virus on the
overall economy. Greater unemployment, recession, and other
possible unforeseen factors could also have an impact. Research
indicates that consumers are less likely to try new, premium-priced
brands during economic recession and stress, returning to value and
legacy brands.
As of the date of this prospectus, it remains uncertain what future
shopping behavior and consumption patterns will emerge. However, we
believe that certain “tried and true” marketing tactics for new
snack food introduction, such as in-store displays and product
sampling, are either impaired or impermissible. So, while overall
night snacking demand may remain up, and consumer need/desire for
better sleep is also stronger, driving consumer trial and adoption
has been more difficult and expensive during these
circumstances.
From both public statements, and recent exploratory meetings
conducted between Nightfood management and certain global food and
beverage conglomerates, it has been affirmed to management that
there is increased strategic interest in the nighttime nutrition
space as a potential high-growth opportunity due to the recent
declines in consumer sleep quality and increases in at-home
nighttime snacking.
We have experienced no material issues with supply chain or
logistics as a result of the pandemic. Order processing function
has been materially normal to date, and our manufacturers have
assured us that their operations are “business as usual” as of the
date of this prospectus.
While the virus temporarily disrupted the category review schedules
and sell-in process for certain supermarket decision-makers during
the spring and early summer of 2020, we believe that most major
accounts are back on schedule and are conducting business as usual
with regard to review cycles. Most retailer meetings are currently
being conducted virtually, and product samples are commonly shipped
to decision-makers rather than personally delivered. While some
retailers have been limiting new item additions due to changes in
consumer shopping behavior, others have confirmed that they view
the increase in at-home entertainment and night snacking as a plus
for Nightfood products.
It is possible that the fallout from the pandemic could make it
more difficult in the future for the Company to access required
growth capital, possibly rendering us unable to meet certain debts
and expenses.
It is impossible to know what the future holds with regard to the
virus, both for our company and in the broader sense. There remain
many uncertainties regarding the current coronavirus pandemic, and
the Company is closely monitoring the impact of the pandemic on all
aspects of its business, including how it will impact its
customers, vendors, and business partners. It is difficult to know
if the pandemic has materially impacted the results of operations,
and we are unable to predict the impact that COVID-19 will have on
our financial position and operating results due to numerous
uncertainties. The Company expects to continue to assess the
evolving impact of the COVID-19 pandemic and intends to make
adjustments accordingly, if necessary.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results
of operations are based upon our financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses.
On an ongoing basis, we evaluate our estimates, including those
related to uncollectible receivables, inventory valuation, deferred
compensation, fair valve of derivative liabilities and
contingencies. We base our estimates on historical performance and
on various other assumptions that we believe to be reasonable under
the circumstances. These estimates allow us to make judgments about
the carrying values of assets and liabilities that are not readily
apparent from other sources.
We believe the following accounting policies are our critical
accounting policies because they are important to the portrayal of
our financial condition and results of operations and they require
critical management judgments and estimates about matters that may
be uncertain. If actual results or events differ materially from
those contemplated by us in making these estimates, our reported
financial condition and results of operations for future periods
could be materially affected.
Results of Operations
Fiscal Year ended June 30, 2020 Compared to Fiscal Year ended
June 30, 2019
Revenue
During the year ended June 30, 2020, the Company sold approximately
260,000 pints of ice cream compared to approximately 63,000 pints
in the prior year, representing volume growth on ice cream pints of
over 300%. For the year ended June 30, 2020, we had net revenues of
$241,673 on gross sales of $878,849 compared to the year ended June
30, 2019 when we had net revenues of $352,172 on gross sales of
$363,565, of which approximately $150,000 was related to sales of
nutrition bars and approximately $205,000 was related to sales of
ice cream. While gross sales increased by 142%, net revenue
decreased 31% year over year. This is due to $637,176 in revenue
reductions resulting from slotting fee arrangements and consumer
promotion activity. Net revenues are reported as gross sales less
slotting fees and other contra-revenue accounts such as those
related to manufacturers coupons, in-store specials (such as 2
pints for $8) and consumer rebate programs.
Slotting fees are fees customarily charged to brands by
supermarkets and distributors to add a new product line into their
product assortment. For the year ended June 30, 2020, approximately
$541,500 of gross sales were cancelled out due to slotting
arrangements with retailers and distributors.
In situations where the Company has agreed to pay slotting and
promotional fees to accounts (such as supermarkets and
distributors), the gross sales to those customers are reduced on
the income statement by these amounts (along with other items, such
as early payment discounts), dollar for dollar, to arrive at a net
revenue number. Accordingly, when these customers order product to
put on their shelves and sell to consumers, that revenue does not
get booked even though the product is moving through the supply
chain.
These dollar for dollar reductions continue, on a
customer-by-customer basis, for any and all sales to each slotting
account until the gross sales to these accounts exceed the total
cost of these expenses, at which time the remaining gross sales
amounts are reported as net revenue.
These slotting fees and other promotional expenses do not appear on
the income statement as an expense. Rather, they are applied
against Gross Sales, resulting in Net Revenue, as shown below. The
netting of Gross Sales against slotting and sales discounts, as
described and shown below, results in the Net Revenue number at the
top of the income statement. This is not a reflection of the amount
of product sold by the Company and shipped to customers, but rather
a function of the way certain sales are accounted for when those
sales are made to customers who are charging slotting fees.
The following tables summarize gross sales for the fiscal years
ended June 30, 2020 and 2019. Net revenues are net of slotting fees
(a onetime fee charged by supermarkets in order to have the product
placed on their shelves) and other items mentioned above.
|
|
Year Ended June 30, |
|
|
|
2020 |
|
|
2019 |
|
Gross sales |
|
$ |
878,849 |
|
|
$ |
363,565 |
|
Less: |
|
|
|
|
|
|
|
|
Slotting
fees |
|
$ |
(541,500 |
) |
|
$ |
- |
|
Sales discounts and other reductions |
|
|
(95,676 |
) |
|
|
(11,373 |
) |
Net
Revenues |
|
$ |
241,673 |
|
|
$ |
352,172 |
|
Operating Expenses
Our operating expenses for the year ended June 30, 2020 were
$2,723,875 compared to $2,263,722 for the year ended June 30, 2019.
Cost of product sold was $472,131, for the year ended June 30, 2020
compared to $190,251 for the year ended June 30, 2019. This
increase of 148% is due to the fact that we sold almost 2.5x as
much product to our supermarkets and distributors in Fiscal 2020
than in Fiscal 2019.
Our income statement shows a decrease in “Advertising and
Promotional” from $732,297 for the year ending June 30, 2019 to
$403,639 for the year ending June 30, 2020. The Company booked
approximately $194,800 in marketing and distribution partnerships
it determined would benefit operations for 2020 and beyond. Due to
circumstances, including the global coronavirus pandemic, it does
not appear these certain distribution partnerships will be as
beneficial to the Company as envisioned when entered. As a result,
the Company is reporting amortization of intangible assets of
$500,000 and a one-time impairment expense of $500,000 in March of
2020. In April, 2020, the Company successfully negotiated a Debt
Incentive Agreement with a creditor to whom it owed $731,118, most
of which is in conjunction with this impaired asset. This Debt
Incentive Agreement provides for the elimination of the entire debt
should the Company make payments prior to December 1, 2020 totaling
$166,224 in cash, and approximately 4,000 pints of ice cream.
Because this reduction in debt is conditional, the full $731,118 is
currently included in the liabilities section of our balance sheet,
and full expense is reported on our income statement. Should the
Company make the payments and retire the debt successfully prior to
December 1, 2020, the Company would realize a gain on
extinguishment of debt of approximately $560,000 for fiscal
2021.
Selling, general and administrative expenses decreased to $406,072
for the year ending June 30, 2020 compared to $559,996 for the year
ending June 30, 2019. This includes items such as web hosting, web
marketing services, freight, warehousing, shipping, product
liability insurance, travel, and research & development of new
products. Professional fees decreased from $781,178 for the year
ending June 30, 2019 to $683,706 for the year ending June 30, 2020.
This includes legal fees, marketing consulting, and accounting and
auditor fees.
For the year ended June 30, 2020, interest expense was $441,422
compared to the year ended June 30, 2019 when we reported interest
expense of $179,028. For the year ended June 30, 2020, we recorded
a loss on debt extinguishment upon note conversion of $395,781
compared to the year ended June 30, 2019 when we recorded a loss on
debt extinguishment upon note conversion of $0. For the year ended
June 30, 2020, we recorded a change in fair value of derivative
liability of ($858,774) compared to the year ended June 30, 2019
when recorded a change in fair value of derivative liability of
712,627. For the year ended June 30, 2020, we recorded an
amortization of beneficial conversion feature of $1,709,759
compared to the year ended June 30, 2019 when recorded an
amortization of beneficial conversion feature of $1,794,359. A
significant portion of these losses recorded in both years stems
from the accounting treatment applied to financing
activities.
Net Loss
For the year ended June 30, 2020, we had a net loss of $4,412,063
compared to the year ended June 30, 2019 when we had a net loss of
$4,598,343. A significant portion of the losses recorded in both
years stems from the accounting treatment applied to financing
activities. Operating losses for the year ended June 30, 2020 were
$2,723,875 and $1,911,550 for the year ended June 30, 2019.
Customers
Our customers consist primarily of supermarkets and entities that
distribute ice cream products to supermarkets and other retail
outlets. In fiscal year 2020, we had one customer that accounted
for approximately 41% of our gross sales. Eight other customers
each accounted for between 3.7% and 9.7% of our gross sales. In
fiscal year 2019, two customers made up over 10% of gross
sales.
Vendors
During the year ended June 30, 2020 one vendor accounted for more
than 10% of our operating expenses. During the year ended June 30,
2019, two vendors accounted for more than 10% of our operating
expenses.
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 of $96,726 and
$119,475, respectively, and incurred an operating loss of $391,240
and $867,427, respectively.
The following tables summarize gross sales for the three months
ended December 31, 2020 and 2019. Product sales are net of slotting
fees and sales discounts.
|
|
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 products
did not begin appearing on shelves in some of those stores until
May 2020 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 2021, 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 three 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.
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 of $270,919 and
$227,257, respectively, and incurred an operating loss of
$1,379,102 and $1,960,629, respectively.
The following tables summarize gross sales for the nine months
ended March 31, 2021 and 2020. Product sales are net of slotting
fees and sales discounts.
|
|
Nine Months Ended
March 31, |
|
|
|
2021 |
|
|
2020 |
|
Gross product sales |
|
$ |
643,359 |
|
|
$ |
666,438 |
|
Less: |
|
|
|
|
|
|
|
|
Slotting fees |
|
$ |
(190295 |
) |
|
$ |
(428,650 |
) |
Sales
discounts, promotions, and other reductions |
|
|
(182,145 |
) |
|
|
(10,532 |
) |
Net
Revenues |
|
$ |
270,919 |
|
|
$ |
227,257 |
|
While gross sales decreased slightly from the same period 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 products did not begin appearing on shelves in some of
those stores until May 2020 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 2021, delivery was requested for
early April 2021. 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.
Customers
During the nine months ended March 31, 2021, the Company had one
customer account for approximately 31% of 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
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 $1,389,501 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. As of March 31, 2021, we had cash on hand of $73,181,
receivables of $44,033 and inventory value of $344,914.
From
our inception in January 2010 through March 31, 2021, we have
generated an accumulated deficit of approximately $21,084,364. It
is expected we would incur additional operating losses during the
course of fiscal 2021 and possibly thereafter. We plan to continue
to pay or satisfy existing obligation and commitments and finance
our operations, as we have in the past, primarily through the sale
of our securities and other forms of external financing until such
time that we are able to generate sufficient funds from the sale of
our products to finance our operations, of which we can give no
assurance.
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 date of this prospectus, 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 is dependent upon raising
additional funds through debt and equity financing and generating
revenue. There are no assurances the Company will receive the
necessary funding or generate revenue necessary to fund
operations.
Even if the Company is successful in raising additional funds, the
Company cannot give any assurance that it will, in the future, be
able to achieve a level of profitability from the sale of its
products to sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include
any adjustments to reflect the possible future effects on
recoverability and reclassification of assets or the amounts and
classification of liabilities that may result from the outcome of
this uncertainty.
The Company has limited available cash resources and we do not
believe our cash on hand will be adequate to satisfy our ongoing
working capital needs as we continue to expand distribution. The
Company is continuing to raise capital through private placement of
our common stock, debt, and the use of convertible debt to finance
the Company’s operations, of which it can give no assurance of
success. However, we believe that our current capitalization
structure, combined with the continued expansion of operations,
will enable us to achieve successful financings to continue our
growth.
Net Cash Used in Operating Activities
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 which is related to
non-cash items associated with to the ongoing capitalization of the
Company during the reporting periods.
Net Cash Used in Investing Activities
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.
Net Cash Provided by Financing Activities
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.
Off-Balance Sheet Transactions
We currently have no off-balance sheet arrangements that have or
are reasonably likely to have a current or future material effect
on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
BUSINESS
Overview
We are in the business of manufacturing, marketing and distributing
snacks specially formulated and promoted for evening consumption.
Nightfood has developed a better-for-you, sleep-friendly line of
ice creams which management believes will be the focus of our
future development and growth. A large number of Americans snack at
night, and the most common options tend to be high in sugar, fat,
sodium, and calories; such snacks are generally understood to be
unhealthy, can impair sleep quality and also impair health in
general. We believe that our products are unique in the food
industry and that there is a substantial market for nighttime
specific snacks that are formulated with better sleep in mind.
Recent Developments
On April 19, 2021, we filed an Amended Certificate of Designation
to authorize 5,000 shares of our newly designated Series B
Preferred Stock. Each share of B Preferred has a liquidation
preference of $1,000 and has no voting rights except as to matters
pertaining to the rights and privileges of the B Preferred. Each
share of B Preferred is convertible at the option of the holder
thereof into 5,000 shares of our common stock (one share for each
$0.20 of liquidation preference), and 5,000 common stock purchase
warrants expiring April 16, 2026 at an exercise price of $0.30 per
share. Commencing June 30, 2021 and for so long as 2,000 shares of
B Preferred are outstanding, the holders of the B Preferred, voting
as a class, shall be entitled to elect one member of our board of
directors.
Upon the filing of the Certificate of Designation on April 19,
2021, we closed on the sale of 3,000 shares of B Preferred to 18
accredited investors for gross proceeds of $3,000,000 in an
offering exempt from registration under Rule 506(b) under the
Securities Act of 1933, as amended. In addition, Eagle Equities,
LLC, the sole holder of our variable rate convertible promissory
notes, accepted as full settlement of approximately $2,663,214 in
principal and interest: (i) 1,500 shares of B Preferred; (ii)
$1,300,000 in cash from the proceeds of the offering; and (iii)
1,200,000 shares of our common stock. As a result of this
settlement, we no longer have any variable rate convertible notes,
or any other convertible notes of any kind, outstanding.
Corporate Information
Our corporate address is 520 White Plains Road – Suite 500,
Tarrytown, New York 10591 and our telephone number is 888-888-6444.
We maintain a web site at www.nightfood.com, along with many
additional web properties. Any information that may appear on our
web sites does not constitute a part of this prospectus.
Industry Overview
We are an early-stage company that is seeking to establish a market
within the snack industry by offering a line of snack foods that
are specifically formulated for evening consumption. It is
estimated that American consumers spend over $50 billion annually
on snacks consumed at night, and this figure continues to grow.
Moreover, industry data indicates that the most popular nighttime
snack choices include products and categories that are
traditionally considered high in calories, and “unhealthy” options,
such as cookies, salty snacks (chips, pretzels, and popcorn), ice
cream, and candy.
Our Products, Present and Proposed
Nightfood Holdings runs two distinct operating companies, each
serving a different market segment with different products.
Nightfood, Inc.
Nightfood, Inc. is a snack company focused on manufacturing and
distribution of snacks is formulated to be more appropriate for
nighttime consumption. Nightfood ice cream was formulated by sleep
and nutrition experts to satisfy nighttime cravings in a better,
healthier, more sleep-friendly way.
Nightfood ice cream was originally manufactured in eight flavors.
These are Full Moon Vanilla, Midnight Chocolate, Cold Brew Decaf,
After Dinner Mint Chip, Milk & Cookie Dough, Cherry Eclipse,
Bed and Breakfast, and Cookies n’ Dreams. Additional flavors have
been developed, both dairy, and non-dairy, for future introduction
based on retailer and consumer demand.
In February of 2020, Nightfood secured the endorsement of the
American Pregnancy Association. With ice cream being the most
widely reported pregnancy craving, and with pickles being another
food notorious for pregnancy cravings, the Company manufactured and
launched a ninth flavor, Pickles For Two.
Management believes consumer demand exists for better nighttime
snacking options, and that a new consumer category consisting of
nighttime specific snacks will emerge in the coming years. This
belief is supported by research from major consumer goods research
firms such as IRI Worldwide, and Mintel, who identified nighttime
specific foods and beverages as one of the “most compelling and
category changing trends” for 2017 and beyond.
In 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.
We believe that elevated interest from global food and beverage
giants continues to bring attention and validation to the
sleep-diet connection. As a pioneer in the space, we view Nightfood
as more than an ice cream company. Rather, we believe the Nightfood
brand can continue to occupy a leadership role in the
“sleep-friendly nutrition” category that we envision will continue
to develop in the future.
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 approximately 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.
While we continue to iterate on products, distribution, and
marketing, we believe that nighttime nutrition is a billion dollar
category in the making. We further believe that the Nightfood brand
can be the pioneer and the leading brand in the night snacking
category.
Nightfood maintains a Scientific Advisory Board consisting of sleep
and nutrition experts to drive product formulation decisions, and
provide consumer confidence in the brand promise. The first member
of this advisory board was Dr. Michael Grandner, Director of the
Sleep and Health Research Program at the University of Arizona. Dr.
Grandner has been conducting research on the link between nutrition
and sleep for over ten years, and he believes improved nighttime
nutritional choices can improve sleep, resulting in many short and
long-term health benefits. In March of 2018, the Company added Dr.
Michael Breus to their Scientific Advisory Board. Breus, known to
millions as The Sleep Doctor™, is believed to be the Nation’s most
trusted authority on sleep. He regularly appears in the national
media to educate and inform consumers so they can sleep better and
lead happier, healthier, more productive lives. In July, 2018, we
completed our Scientific Advisory Board with the addition of Lauren
Broch, Ph.D, M.S. Dr. Broch is a sleep therapist and former
Director of Education & Training at the Sleep-Wake Disorders
Center at Weill Cornell Medical College. Uniquely, Dr. Broch also
has a master’s degree in human nutrition. This unique combination
allowed her to play an important role in the reformulation of our
nutrition bars, and the development of Nightfood ice cream. These
experts work with Company management to ensure Nightfood products
deliver on their nighttime-appropriate, and sleep-friendly
promises.
MJ Munchies, Inc.
MJ Munchies, Inc. is a Nevada corporation formed by us in January
2018 to exploit legally compliant opportunities in the CBD and
marijuana edibles and related spaces. Since formation, MJ Munchies
has built an intellectual property portfolio that includes a
registered trademark for “Half-Baked” in the State of California
relating to marijuana edibles, two pending federal trademark
applications with the USPTO for “Half-Baked” relating to packaged
snacks and beverages, respectively. We also acquired the
HalfBaked.com domain, and several other related domain names and IP
assets. This subsidiary and its operations have a nominal impact on
our financial statements.
Since inception, MJ Munchies has applied for U.S. Trademark
protection for a brand of Half-Baked snacks. MJ Munchies also
acquired HalfBaked.com. In April, 2018, MJ Munchies entered into an
initial brand licensing agreement for the Half-Baked mark with a
licensed manufacturer of THC-infused edibles in the State of
California under which the licensee manufactured and distributed a
small pilot run of Half-Baked branded THC-infused cookies in
California. Management may continue to seek a suitable licensing
partner for the intellectual property the Company has secured.
While the Company believes significant opportunities will exist to
launch successful and legally compliant products in this space, and
that such opportunities will continue to grow over time, at this
time the Company is concentrating on its Nightfood product line and
no assurance can be given that we will ever begin actual production
of products using the Half-Baked trademark. Even if production
begins, we can neither assure market acceptance of our products nor
that said snacks will not face ongoing legal challenges.
Production
To date, we have utilized contract manufacturers for producing our
products, packaging for our products, and third-party logistics for
warehousing and order fulfillment. Our current ice cream co-packer
has confirmed available capacity to manufacture approximately
400,000 pints of Nightfood ice cream monthly. Management has had
initial conversations with other manufacturing facilities to
establish additional production capacity. When it becomes
necessary, we do not anticipate adding additional production
capacity through another facility to be a problem.
Marketing and Distribution
Nightfood ice cream is currently available in over 1,800
supermarket locations. These include chains such as Walmart, Harris
Teeter (a division of Kroger), Shaws and Star Markets (a division
of Albertsons), Jewel-Osco (also a division of Albertsons, Lowes
Foods, Rouses Markets, and Central Market (a division of H-E-B).
The product line has garnered extensive media interest, including
coverage from outlets such as Oprah Magazine, USA Today, The Wall
Street Journal, The Washington Post, The Food Network, The Today
Show, Rachael Ray, and more. We believe that consumers seem very
enthusiastic about the prospect of a sleep-friendly ice cream.
We are working with our retail partners on various marketing and
promotional campaigns to drive trial and repeat purchase at the
store level. In addition, marketing initiatives are aimed at both
the mainstream consumer and the pregnancy community. Since
receiving the endorsement as the Official Ice Cream of the American
Pregnancy Association, partnerships and sponsorships have been
secured and executed with Lamaze International, Ovia Health, the
International Childbirth Education Association, and other
influential pregnancy organizations and individuals.
Competition
The nutritional/snack food business is highly competitive and
includes such participants as large companies like Mondelez, Nestle
S.A. and Quaker Oats and more specialized companies such as Cliff
Bar, Quest Nutrition and many smaller companies. Many of these
competitors have well established names and products. We will
initially compete based upon the unique nature of our product.
However, other companies, including those with greater name
recognition than us and greater resources may seek to introduce
products that directly compete with our products. Management
believes that if a competitor sought to develop a competing
product, it could do so and begin to establish retail distribution
in 12-24 months. Based on the current acquisition climate in the
consumer goods space, Management believes that successful growth of
the Nightfood ice cream line would likely bring acquisition offers
from potential competitors before it would actually bring
competition on the shelf from those same potential competitors.
Intellectual Property Rights
We own the registered trademark “Nightfood®” for the
nutrition bar/snack/meal replacement category, and the ice cream
category. We believe these marks will prove important and valuable
to our business as we continue to pioneer the development of a new
category of snacks that support relaxation with a sleep-friendly
nutritional profile, specific to consumption at night, between
dinner and bedtime. Additionally, we own the domain Nightfood.com
as well as many other relevant domains such as
late-night-snack.com, nighttimesnack.com, and
nighttimesnacking.com, as well as Nightfood.us, Nightfood.net,
TryNightfood.com, GetNightfood.com, NiteFood.com, TryNightfood.com,
BuyNightfood.com, NightSnacking.com, and Night-Food.com. We also
own the toll-free number 888-888-NIGHT. We rely on proprietary
information as to our formulas and have non-disclosure agreements
with our suppliers.
Personnel
Nightfood has no employees. Our CEO, Sean Folkson, and other key
team members have consulting agreements with the Company. Through
vendor and consultant relationships, Nightfood has dozens of
personnel contributing to our operations and efforts on a regular
basis. Should we be successful in further executing our business
plan, we anticipate potentially hiring employees at some point to
assist with various company functions. However, we also expect to
continue to strategically outsource significantly to accomplish
work that might otherwise be done by employees in a more
traditional company. We do not at this time employ specific human
capital measures or objectives to focus on in managing our
business.
Customers
Our customers consist primarily of supermarkets and entities that
distribute ice cream products to supermarkets and other retail
outlets. In fiscal year 2020, we had one customer that accounted
for approximately 41% of our gross sales. Eight other customers
each accounted for between 3.7% and 9.7% of our gross sales. In
fiscal year 2019, two customers made up over 10% of gross
sales.
Development Plans
While 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, we are
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. We 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. We have also 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.
Properties
We do not own or lease any real estate. Our consultants, including
Sean Folkson, our president, CEO and sole director, work out of
their respective residence or other places of business, as the case
may be, in the U.S. and around the world. We are also a member of a
network of workspaces that our management uses on an as-needed
basis. We believe that these facilities are adequate for our
current and short-term needs, but would consider long-term leased
office space as and when we commence hiring full-time
employees.
Legal Proceedings
From time to time, we may become involved in various lawsuits and
legal proceedings, which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an
adverse result in these or other matters may arise from time to
time that may harm business.
We are not currently a party in any legal proceeding or
governmental regulatory proceeding nor are we currently aware of
any pending or potential legal proceeding or governmental
regulatory proceeding proposed to be initiated against us that
would have a material adverse effect on us or our business.
MANAGEMENT
Our sole executive officer and director is as follows:
Name |
|
Age |
|
Position(s) |
Sean
Folkson |
|
52 |
|
President,
Chief Executive Officer and Director |
Sean Folkson was elected president, CEO and a director upon
formation of the Company in 2013. Mr. Folkson has also been CEO and
President of our subsidiary Nightfood, Inc. since its formation in
January 2010. From 2004 to 2009, he served as president of
Specialty Equipment Direct, Inc. which is an online marketer of
flooring maintenance equipment which he founded. In 1998, he
founded AffiliatePros.com, Inc., a company engaged in assisting its
clients with internet marketing which operated through 2008. Mr.
Folkson received a B.A. in Business Administration with a
concentration in marketing from the University at Albany in
1991.
Term of Office
Our director currently has a term which will end at our next annual
meeting of the stockholders or until successors are elected and
qualify, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors.
Family Relationships
No family relationships exist among our officers, directors and
consultants.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive
officers has been convicted in a criminal proceeding, excluding
traffic violations or similar misdemeanors, or has been a party to
any judicial or administrative proceeding during the past ten years
that resulted in a judgment, decree, or final order enjoining the
person from future violations of, or prohibiting activities subject
to, federal or state securities laws, or a finding of any violation
of federal or state securities laws, except for matters that were
dismissed without sanction or settlement. Each of our executive
officers and directors has informed us that he has not been
involved in any of the events specified in clauses (1) through (8)
of Regulation S-K, Item 401(f). Except as set forth in our
discussion below in “Certain Relationships and Related
Transactions, and Director Independence – Transactions with Related
Persons,” none of our directors or executive officers has been
involved in any transactions with us or any of our directors,
executive officers, affiliates, or associates that are required to
be disclosed pursuant to the rules and regulations of the
Securities and Exchange Commission.
Code of Ethics
We have determined that due to our early stage of development and
our small size, the present adoption of a code of ethics is not
appropriate. If we grow we will adopt a suitable code of
ethics.
Additional Director
The Certificate of Designation for the Series B Preferred provides
that commencing June 30, 2021 and for so long as at least 2,000
shares of Series B Preferred are outstanding, the holders of the B
Preferred will be entitled to elect one person to our board of
directors. As of the date of this prospectus, the designee of the
Series B Preferred has not been identified.
Corporate Governance
Committees
Our board of directors currently only has one member and
consequently does not currently have a compensation committee or
nominating and corporate governance committee. If our board of
directors were to significantly increase in size, we will consider
the appropriateness of committees.
Audit Committee and Financial Expert
Presently, the board of directors acts as the audit committee. The
board of directors does not have an audit committee financial
expert. The board of directors has not yet recruited an audit
committee financial expert to join the board of directors because
we have only recently commenced a significant level of financial
operations.
Director Independence
Our sole director is not deemed independent because he is our
largest shareholder, CEO and sole full-time contracted worker.
EXECUTIVE
COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cash annual
remuneration of our CEO and director during our past two fiscal
years:
Name and Principal
Position
|
|
Year (1) |
|
|
Salary |
|
|
Bonus |
|
|
Stock
Awards |
|
|
Option
Awards |
|
|
Non-Equity
Incentive
Plan
Compensation |
|
|
Nonqualified
Deferred
Compensation
Earnings |
|
|
All Other
Compensation |
|
|
Total |
|
Sean Folkson |
|
2020 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
96,000 |
(2) |
|
$ |
96,000 |
|
President and
CEO |
|
2019 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
117,824 |
(2) |
|
$ |
117,824 |
|
|
(1) |
Represents the Company’s fiscal year ended June 30. |
|
(2) |
As total compensation for all services provided, Mr. Folkson
earns a consulting fee of $6,000 monthly, which began accruing on
January 1, 2015. Prior to that, Mr. Folkson had worked for the
Company for several years without taking any fees or salary. No
payments of the accruing consulting fees were made to Mr. Folkson
until November 28, 2017. To pay off the accumulated accrued balance
over time, the Company proceeded to make payments to Mr. Folkson to
pay down some of the accrued fees. Accordingly, during Fiscal 2019,
Mr. Folkson was paid $117,824 in cash toward the balance of
consulting fees owed to him while simultaneously accruing new
consulting fees of $72,000. As a net result, the balance owed to
Folkson decreased by $45,284 during that year. During Fiscal 2020,
Mr. Folkson was paid $96,000 in cash toward the balance of
consulting fees owed to him. A $9,974 balance remained owed to Mr.
Folkson as of June 30, 2020. |
The Company has not paid and has no present plan to give any
compensation other than cash and the granting of shares of common
stock. The Company does not have any Stock Option Plan or other
equity compensation plans.
Consulting Agreement
A consulting agreement exists between Mr. Folkson and the Company,
whereby Mr. Folkson receives $6,000 in consulting fees each month,
beginning January, 2015.
In June of 2018, the Company entered into a new consulting
agreement with Mr. Folkson, which included a modified compensation
structure. The new Consulting Agreement contains the identical cash
compensation allowance of $6,000 monthly. In addition, Mr. Folkson
would earn warrants with a strike price of $.50 when the Company
hit certain revenue milestones. A similar agreement was entered
into by the parties with a term starting on July 1, 2019.
In December, 2017, Mr. Folkson elected to purchase 80,000 warrants
to acquire shares of NGTF stock with a strike price of $.20 and a
term of 36 months. To acquire these warrants, Mr. Folkson paid $.15
per warrant, totaling $12,000, treated as a $12,000 reduction to
the amount owed to Mr. Folkson under the consulting agreement.
Termination of Employment
There are no compensatory plans or arrangements, including payments
to be received from the Company, with respect to any person named
in the Summary Compensation Table set forth above that would in any
way result in payments to any such person because of his or her
resignation, retirement or other termination of such person’s
employment with us.
Outstanding Equity Awards
Stock Options
No grants of stock options or stock appreciation rights were made
during the year ended June 30, 2020. We have no stock options
outstanding.
Long Term Incentive Plans
There are no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers.
We do not have any material bonus or profit sharing plans pursuant
to which cash or non-cash compensation is or may be paid to our
directors or executive officers.
Director Compensation
Mr. Folkson, the sole director of the Company, receives
compensation for his services to the Company as set forth above
under “-Summary Compensation Table.”
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
information in the following table sets forth the beneficial
ownership of our shares of common stock as of the date of this
prospectus by: (i) our officers and directors; (ii) all officers
and directors as a group; (iii) each shareholder (other than the
Selling Shareholders whose ownership is listed elsewhere in this
prospectus ) who beneficially
owns more than 5% of any class of our voting securities, including
those shares subject to outstanding options.
Beneficial ownership is determined in accordance with the rules of
the SEC, and generally includes voting power and/or investment
power with respect to the securities held. Shares of common stock
subject to warrants currently exercisable or which may become
exercisable within 60 days of June 11, 2021 are deemed outstanding
and beneficially owned by the person holding such warrants for
purposes of computing the number of shares and percentage
beneficially owned by such person, but are not deemed outstanding
for purposes of computing the percentage beneficially owned by any
other person. Except as indicated in the footnotes to this table,
the persons or entities named have sole voting and investment power
with respect to all shares of our common stock shown as
beneficially owned by them.
The following table provides for percentage ownership based on
79,916,159 shares are outstanding as of June 11, 2021. Unless
otherwise indicated, the address of each beneficial holder of our
Common Stock is our corporate address.
Name and address of owner |
|
Amount owned |
|
|
Percent of class |
|
|
|
|
|
|
|
|
5% or Greater Shareholder: |
|
|
|
|
|
|
Eagle Equities, LLC
(1) |
|
|
(2 |
) |
|
|
9.99 |
% |
|
|
|
|
|
|
|
|
|
Executive Officers
and Directors: |
|
|
|
|
|
|
|
|
Sean Folkson (3) |
|
|
17,153,568 |
|
|
|
21.36 |
% |
|
|
|
|
|
|
|
|
|
All officers and directors as a group
(1 person) |
|
|
17,153,568 |
|
|
|
21.36 |
% |
|
(1) |
The
address of Eagle Equities, LLC is 390 Whalley Drive, New Haven, CT
06511. Yanky Borenstein has sole voting and investment control over
these shares. |
|
(2) |
Eagle Equities, LLC beneficially owns 1,500 shares of B
Preferred, which convert into 7,500,000 shares of our common stock
plus warrants to purchase an additional 7,500,000 shares of our
common stock; provided, however, in no event (a) shall such shares
of B Preferred be converted if it would result in the holder
beneficially owning, along with all other shares of common stock
beneficially held by the holder, in excess of 9.99% of the
outstanding shares of common stock of the Company and (b) shall the
warrants underlying the B Preferred be exercised if it would result
in the holder beneficially owning, along with all other shares of
common stock beneficially held by the holder, in excess of 4.99%
(or 9.99% upon election by the holder) of the outstanding shares of
common stock of the Company. |
|
(3) |
Includes (a) 5,360,000 shares held by family trusts, and (b)
warrants to purchase 400,000 shares of our common stock. Mr.
Folkson also owns 10,000 shares of our Series A Preferred Stock,
which votes with the common stock and has an aggregate of
100,000,000 votes, giving Mr. Folkson effective voting control in
all matters involving the vote of the common stock. |
Changes in Control
Our management is not aware of any arrangements which may result in
“changes in control” as that term is defined by the provisions of
Item 403(c) of Regulation S-K.
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
We consider “related party transactions” to be transactions between
our Company and (i) a director, officer, director nominee or
beneficial owner of greater than five percent of our stock; (ii)
the spouse, parents, children, siblings or in-laws of any person
named in (i); or (iii) an entity in which one of our directors or
officers is also a director or officer or has a material financial
interest. Our Board of Directors is vested with the responsibility
of evaluating and approving any potential related party
transaction. We do not have any formal policies or procedures for
related party transactions.
Sean Folkson, our founder, President and CEO, and sole director,
had advanced an aggregate of $134,517 to us to fund our operations
over a period of years. This debt has since been converted to
equity as outlined below.
The Company did not receive any funds from Mr. Folkson, the
Company’s Chief Executive Officer and related party, during the
fiscal years ended 2020 and 2019, respectively.
Effective May 6, 2015, the Company entered into a consulting
agreement with Sean Folkson. The agreement was retroactive to
January 1, 2015. In exchange for services provided to the Company
by Mr. Folkson, the Company agreed to pay him $6,000 monthly. This
compensation expense started accruing on January 1, 2015, and
accrued on a monthly basis through June 2020.
In June of 2018, and again in June of 2019, the Company entered
into updated consulting agreements with Mr. Folkson, which included
a modified compensation structure. Each new Consulting Agreement
contained the identical cash compensation allowance of $6,000
monthly. In addition, Mr. Folkson would earn warrants with a strike
price of $.50 or $1 when the Company hit certain revenue
milestones. All warrants earned under Mr. 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 Form 10-Q or Form 10-K on which such revenues are
reported.
In December, 2017, Mr. Folkson elected to purchase 80,000 warrants
with a strike price of $.20 and a term of 36 months. To acquire
these warrants, Mr. Folkson paid $.15 per warrant, totaling
$12,000, treated as a $12,000 reduction to the amounts owed to Mr.
Folkson by the Company. In November, 2018, Mr. Folkson exercised an
existing warrant and received 400,000 shares of our common stock in
exchange for a $120,000 reduction in the amount of accrued
consulting fees he was owed. This activity resulted in a decrease
in related party accruals of $164,000.
On January 20, 2021, we entered into an Agreement For Shareholder
Lock-Up And Acquisition Of Warrants with Sean Folkson, pursuant to
which Mr. Folkson agreed to not transfer, sell, or otherwise
dispose of any shares of his stock of the Company until February 4,
2022. In return, the Company issued to Mr. Folkson 400,000 warrants
with a strike price of $.30 per share, which expire on February 4,
2022.
Other than the above transactions, there have been no related party
transactions, or any other transactions or relationships required
to be disclosed pursuant to Item 404 Regulation S-K. The Company is
currently not a subsidiary of any company.
LEGAL MATTERS
The validity of the shares of common stock covered by this
prospectus will be passed upon by Ruskin Moscou Faltischek, PC,
Uniondale, NY.
EXPERTS
The consolidated financial statements of the Company for the fiscal
years ended June 30, 2020 and 2019 appearing in this prospectus
have been audited by RBSM LLP, an independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as an expert in accounting and
auditing.
DISCLOSURE OF
COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Under Nevada Law and our Bylaws, we may indemnify an officer or
director who is made a party to any proceeding, including a
lawsuit, because of his position, if he acted in good faith and in
a manner he reasonably believed to be in our best interest. We may
advance expenses incurred in defending a proceeding. To the extent
that the officer or director is successful on the merits in a
proceeding as to which he is to be indemnified, we must indemnify
him against all expenses incurred, including attorney’s fees. With
respect to a derivative action, indemnity may be made only for
expenses actually and reasonably incurred in defending the
proceeding, and if the officer or director is judged liable, only
by a court order. The indemnification is intended to be to the
fullest extent permitted by the laws of the State of Nevada.
The Securities and Exchange Commission’s position on
indemnification of officers, directors and control persons under
the Securities Act by the Company is as follows:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the rules of the
Securities and Exchange Commission, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
WHERE YOU CAN FIND
MORE INFORMATION
We are subject to the informational requirements of the Exchange
Act, and file annual and current reports, proxy statements and
other information with the Commission. These reports, proxy
statements and other information filed by NightFood Holdings, Inc.
can be read and copied at the Commission’s Public Reference Room at
100 F Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. We will provide to the
record holders of our securities a copy of our annual reports
containing audited financial statements and such periodic and
quarterly reports free of charge upon request. The Commission also
maintains a website that contains reports, proxy statements,
information statements and other information located at
http://www.sec.gov. This prospectus does not contain all the
information required to be in the registration statement (including
the exhibits), which we have filed with the Commission under the
Securities Act and to which reference is made in this
prospectus.
TABLE OF
CONTENTS
Nightfood
Holdings, Inc.
Consolidated
Financial Statements
For
the years ended June 30, 2020 and 2019

Report of
Independent Registered Public Accounting Firm
The Stockholders and the Board of Directors of
Nightfood Holdings, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Nightfood Holdings, Inc. and Subsidiaries (collectively, the
“Company”) as of June 30, 2020 and 2019, and the related
consolidated statements of operations, changes in stockholders’
deficit and cash flows for each of the two years in the period
ended June 30, 2020, and the related notes (collectively referred
to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in
all material respects, the financial position of the Company at
June 30, 2020 and 2019, and the results of its operations and its
cash flows for each of the two years in the period ended June 30,
2020, in conformity with U.S. generally accepted accounting
principles.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 3 to the consolidated financial
statements, the Company has suffered recurring losses from
operations, will require additional capital to fund its current
operating plan, and has an accumulated deficit that raise
substantial doubt exists about the Company’s ability to continue as
a going concern. Management’s plans regarding these matters are
also described in Note 3. The consolidated financial statements do
not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome
of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
We have served as the Company’s auditor since 2014.
New York, NY
October 13, 2020
Nightfood Holdings,
Inc.
CONSOLIDATED
BALANCE SHEETS
|
|
June
30, |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash |
|
$ |
197,622 |
|
|
$ |
30,142 |
|
Accounts
receivable (net of allowance of $0 and $0,
respectively) |
|
|
61,013 |
|
|
|
45,086 |
|
Inventories |
|
|
275,605 |
|
|
|
406,439 |
|
Other
current assets |
|
|
398,085 |
|
|
|
1,000 |
|
Total
current assets |
|
|
932,325 |
|
|
|
482,667 |
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
932,325 |
|
|
$ |
482,667 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
1,286,149 |
|
|
$ |
496,809 |
|
Accrued
expense-related party |
|
|
9,974 |
|
|
|
33,974 |
|
Accrued
interest |
|
|
192,625 |
|
|
|
- |
|
Convertible
notes payable-net of debt discounts and unamortized beneficial
conversion feature |
|
|
2,330,189 |
|
|
|
1,117,741 |
|
Fair
value of derivative liabilities |
|
|
1,590,638 |
|
|
|
1,306,748 |
|
Short-term
borrowings- line of credit |
|
|
3,897 |
|
|
|
- |
|
Total
current liabilities |
|
|
5,413,472 |
|
|
|
2,955,272 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Stockholders’
deficit: |
|
|
|
|
|
|
|
|
Preferred
stock, ($0.001 par value, 1,000,000 shares authorized, and
1,000 issued and outstanding as of June 30, 2020 and
2019, respectively) |
|
|
1 |
|
|
|
1 |
|
Common
stock, ($0.001 par value, 200,000,000 shares authorized, and
61,796,680 issued and outstanding as of June 30, 2020
and 53,773,856 issued and outstanding as of June 30, 2019,
respectively) |
|
|
61,797 |
|
|
|
53,774 |
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital |
|
|
13,088,177 |
|
|
|
10,692,679 |
|
Accumulated
deficit |
|
|
(17,631,122 |
) |
|
|
(13,219,059 |
) |
Total
stockholders’ deficit |
|
|
(4,481,147 |
) |
|
|
(2,472,605 |
) |
Total
Liabilities and Stockholders’ Deficit |
|
$ |
932,325 |
|
|
$ |
482,667 |
|
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood Holdings,
Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the |
|
|
For
the |
|
|
|
Year |
|
|
Year |
|
|
|
Ended |
|
|
Ended |
|
|
|
June
30,
2020 |
|
|
June
30,
2019 |
|
|
|
|
|
|
|
|
Revenues,
net of slotting and promotion |
|
$ |
241,673 |
|
|
$ |
352,172 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
Cost
of product sold |
|
|
472,131 |
|
|
|
190,251 |
|
Amortization
of intangible assets |
|
|
500,000 |
|
|
|
- |
|
Impairment
of intangible assets |
|
|
500,000 |
|
|
|
|
|
Advertising
and promotional |
|
|
403,639 |
|
|
|
732,297 |
|
Selling,
general and administrative |
|
|
406,072 |
|
|
|
559,996 |
|
Professional
Fees |
|
|
683,706 |
|
|
|
781,178 |
|
Total
operating expenses |
|
|
2,965,548 |
|
|
|
2,263,722 |
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(2,723,875 |
) |
|
|
(1,911,550 |
) |
|
|
|
|
|
|
|
|
|
Other
expenses |
|
|
|
|
|
|
|
|
Interest
expense – bank debt |
|
|
463 |
|
|
|
- |
|
Interest
expense – shareholder |
|
|
281,387 |
|
|
|
95,805 |
|
Interest
expense – other |
|
|
159,572 |
|
|
|
83,223 |
|
Loss
on debt extinguishment upon note conversion, net |
|
|
395,781 |
|
|
|
- |
|
Change
in fair value of derivative liability |
|
|
(858,774 |
) |
|
|
712,627 |
|
Amortization
of Beneficial Conversion Feature |
|
|
1,709,759 |
|
|
|
1,794,359 |
|
Other
Expense |
|
|
- |
|
|
|
779 |
|
Total
other expenses |
|
|
1,688,188 |
|
|
|
2,686,793 |
|
|
|
|
|
|
|
|
|
|
Provision
for income tax |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(4,412,063 |
) |
|
$ |
(4,598,343 |
) |
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share |
|
$ |
(0.08 |
) |
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average shares of capital outstanding – basic and
diluted |
|
|
57,443,347 |
|
|
|
47,827,114 |
|
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood
Holdings, Inc.
STATEMENTS OF
CHANGES IN STOCKHOLDERS’ DEFICIT
Years
ended June 30, 2020 and 2019
|
|
Common
Stock |
|
|
Preferred
Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
|
|
Shares |
|
|
Par
Value |
|
|
Shares |
|
|
Par
Value |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balance,
July 1, 2018 |
|
|
42,608,329 |
|
|
|
42,608 |
|
|
|
- |
|
|
|
- |
|
|
|
5,919,152 |
|
|
|
(8,620,714 |
) |
|
|
(2,658,954 |
) |
Common
stock issued for services |
|
|
483,808 |
|
|
|
484 |
|
|
|
1,000 |
|
|
|
1 |
|
|
|
345,172 |
|
|
|
- |
|
|
|
345,657 |
|
Common
stock issued for interest |
|
|
667,959 |
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
95,137 |
|
|
|
- |
|
|
|
95,805 |
|
Common
stock issued for cash |
|
|
84,389 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
49,916 |
|
|
|
- |
|
|
|
50,000 |
|
Common
stock issued for accounts payable |
|
|
281,957 |
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
63,568 |
|
|
|
|
|
|
|
63,850 |
|
Issuance
of warrants |
|
|
400,000 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
164,426 |
|
|
|
- |
|
|
|
164,826 |
|
Issuance
of common stock for debt |
|
|
9,247,414 |
|
|
|
9,248 |
|
|
|
|
|
|
|
|
|
|
|
1,318,705 |
|
|
|
- |
|
|
|
1,327,953 |
|
Loss
on fair value of shares issued upon note conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
2,736,601 |
|
|
|
- |
|
|
|
2,736,601 |
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,598,343 |
) |
|
|
(4,598,343 |
) |
Balance,
June 30, 2019 |
|
|
53,773,856 |
|
|
$ |
53,774 |
|
|
|
1,000 |
|
|
|
1 |
|
|
$ |
10,692,677 |
|
|
$ |
(13,219,059 |
) |
|
$ |
(2,472,605 |
) |
Common
stock issued for services |
|
|
1,385,990 |
|
|
|
1,386 |
|
|
|
|
|
|
|
|
|
|
|
307,382 |
|
|
|
- |
|
|
|
308,768 |
|
Common
stock issued for interest |
|
|
580,666 |
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
88,181 |
|
|
|
- |
|
|
|
88,762 |
|
Issuance
of common stock for debt |
|
|
6,056,168 |
|
|
|
6,056 |
|
|
|
|
|
|
|
|
|
|
|
954,944 |
|
|
|
- |
|
|
|
961,000 |
|
Issuance
of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,990 |
|
|
|
|
|
|
|
67,990 |
|
Loss
on fair value of shares issued upon notes conversion |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
977,000 |
|
|
|
- |
|
|
|
977,000 |
|
Net
loss |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(4,412,063 |
) |
|
|
(4,412,063 |
) |
Balance,
June 30, 2020 |
|
|
61,796,680 |
|
|
|
61,797 |
|
|
|
1,000 |
|
|
|
1 |
|
|
|
13,088,177 |
|
|
|
(17,631,122 |
) |
|
|
(4,481,147 |
) |
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood Holdings,
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
The
Year
Ended
June 30,
2020 |
|
|
For
The
Year
Ended
June 30,
2019 |
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net
loss |
|
$ |
(4,412,063 |
) |
|
$ |
(4,598,343 |
) |
Adjustments
to reconcile net loss to net cash used in operations
activities: |
|
|
|
|
|
|
|
|
Stock
issued for services |
|
|
308,768 |
|
|
|
345,656 |
|
Amortization
of debt discount and deferred financing fees |
|
|
1,709,759 |
|
|
|
1,794,359 |
|
Amortization
of intangible assets |
|
|
500,000 |
|
|
|
- |
|
Deferred
financing fees and financing costs |
|
|
159,572 |
|
|
|
- |
|
Warrants
issued for services |
|
|
67,990 |
|
|
|
44,826 |
|
Loss
on debt extinguishment upon note conversion, net |
|
|
395,781 |
|
|
|
- |
|
Change
in derivative liability |
|
|
(858,774 |
) |
|
|
795,699 |
|
Stock
issued for interest |
|
|
88,762 |
|
|
|
95,805 |
|
Impairment
expense |
|
|
500,000 |
|
|
|
- |
|
Change
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(15,927 |
) |
|
|
(45,086 |
|
Inventories |
|
|
130,834 |
|
|
|
(303,230 |
) |
Other
current assets |
|
|
(397,085 |
) |
|
|
2,210 |
|
Accounts
payable |
|
|
122,673 |
|
|
|
344,878 |
|
Accrued
expenses |
|
|
168,626 |
|
|
|
(44,001 |
) |
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities |
|
|
(1,531,084 |
) |
|
|
(1,567,227 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash
paid for purchase of intangible asset |
|
|
(333,333 |
) |
|
|
- |
|
Net
cash provided by investing activities |
|
|
(333,333 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds
from the sale of common stock |
|
|
- |
|
|
|
50,000 |
|
Proceeds
from the issuance of debt-net |
|
|
2,028,000 |
|
|
|
1,602,005 |
|
Repayment
of convertible debt |
|
|
- |
|
|
|
(102,076 |
) |
Repayment
of short-term debt |
|
|
3,897 |
|
|
|
(1,000 |
) |
Net
cash provided by financing activities |
|
|
2,031,897 |
|
|
|
1,548,929 |
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
167,480 |
|
|
|
18,298 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year |
|
|
30,142 |
|
|
|
48,440 |
|
Cash
and cash equivalents, end of year |
|
$ |
197,622 |
|
|
$ |
30,142 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash
Paid For: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
- |
|
|
$ |
- |
|
Income
taxes |
|
$ |
- |
|
|
$ |
- |
|
Summary
of Non-Cash Investing and Financing Information: |
|
|
|
|
|
|
|
|
Initial
derivative liability and Debt discount due to beneficial conversion
feature on notes issued |
|
$ |
1,684,711 |
|
|
$ |
1,482,314 |
|
Stock
issued for conversion of debt |
|
$ |
961,000 |
|
|
$ |
1,327,953 |
|
Derivative
liability reclassed to loss on extinguishment of debt upon notes
conversion |
|
$ |
581,219 |
|
|
$ |
|
|
Intangible
assets acquired and adjusted in accounts payable
balance |
|
$ |
666,667 |
|
|
$ |
- |
|
Stock
issued for interest |
|
$ |
88,762 |
|
|
$ |
95,805 |
|
The
accompanying notes are an integral part of these consolidated
financial statements
Nightfood Holdings,
Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. |
Description
of
Business |
Nightfood
Holdings, Inc. (the “Company”) is a Nevada Corporation organized
October 16, 2013 to acquire all of the issued and outstanding
shares of Nightfood, Inc., a New York Corporation from its sole
shareholder, Sean Folkson. All of its operations are
conducted by its two subsidiaries: Nightfood, Inc. (“Nightfood”)
and MJ Munchies, Inc.( “Munchies”). Nightfood’s
business model is to manufacture and distribute ice cream
specifically formulated for nighttime snacking to help consumers
satisfy nighttime cravings in a better, healthier, more sleep
friendly way. Munchies has acquired a portfolio of
intellectual property around the brand name Half-Baked, and is
seeking to license such property to operating partners in the CBD
and marijuana space. |
|
|
● |
The
Company’s fiscal year end is June 30. |
|
|
|
|
|
|
● |
The
Company currently maintains its corporate address in Tarrytown, New
York. |
|
|
|
|
2. |
Summary
of
Significant
Accounting Policies |
● |
Management
is responsible for the fair presentation of the Company’s financial
statements, prepared in accordance with U.S. generally accepted
accounting principles (GAAP).
The
consolidated financial statements include the accounts of Nightfood
Holdings, Inc. and its wholly owned subsidiaries, NightFood, Inc.
and MJ Munchies, Inc. The Company consolidates all majority-owned
and controlled subsidiaries in accordance with applicable
standards. All material intercompany accounts and balances have
been eliminated in consolidation.
|
|
|
|
|
|
Use
of Estimates |
● |
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates
are used in the determination of beneficial conversion features,
derivative liabilities, depreciation and amortization, the
valuation for non-cash issuances of common stock, and the website,
income taxes and contingencies, among others. |
|
|
|
|
|
Beneficial
Conversion Feature |
● |
For
conventional convertible debt where the rate of conversion is below
market value, the Company records any “beneficial conversion
feature” (“BCF”) intrinsic value as additional paid in capital and
related debt discount.
When
the Company records a BCF, the relative fair value of the BCF is
recorded as a debt discount against the face amount of the
respective debt instrument. The discount is amortized over the life
of the debt. If a conversion of the underlying debt occurs, a
proportionate share of the unamortized amounts is immediately
expensed.
|
|
|
|
|
|
Debt
Issue Costs |
● |
The
Company may pay debt issue costs in connection with raising funds
through the issuance of debt whether convertible or not or with
other consideration. These costs are recorded as debt discounts and
are amortized over the life of the debt to the statement of
operations as amortization of debt discount. |
|
|
|
|
|
Original
Issue Discount |
● |
If
debt is issued with an original issue discount, the original issue
discount is recorded to debt discount, reducing the face amount of
the note and is amortized over the life of the debt to the
statement of operations as amortization of debt discount. If a
conversion of the underlying debt occurs, a proportionate share of
the unamortized amounts is immediately expensed. |
|
|
|
|
|
Valuation
of Derivative Instruments |
● |
ASC
815 “Derivatives and Hedging” requires that embedded derivative
instruments be bifurcated and assessed, along with free-standing
derivative instruments such as warrants, on their issuance date and
measured at their fair value for accounting purposes. In
determining the appropriate fair value, the Company uses the
Black-Scholes option pricing formula. Upon conversion of a note
where the embedded conversion option has been bifurcated and
accounted for as a derivative liability, the Company records the
shares at fair value, relieves all related notes, derivatives and
debt discounts and recognizes a net gain or loss on debt
extinguishment. |
|
Reclassification |
● |
The
Company may make certain reclassifications to prior period amounts
to conform with the current year’s presentation. These
reclassifications did not have a material effect on its
consolidated statement of financial position, results of operations
or cash flows. |
|
|
|
|
|
Recent
Accounting Pronouncements |
|
The Company reviews all of the Financial Accounting Standard
Board’s updates periodically to ensure the Company’s compliance of
its accounting policies and disclosure requirements to the
Codification Topics.
In May 2014, the Financial Accounting Standards Board (FASB) issued
ASU 2014-09, Revenue from Contracts with Customers, to establish
ASC Topic 606, (ASC 606). ASU 2014-09 supersedes the revenue
recognition requirements in ASC Topic 605, Revenue Recognition and
most industry-specific guidance throughout the Industry Topics of
the Codification. The core principle of the guidance is that an
entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. The guidance includes a
five-step framework that requires an entity to: (i) identify the
contract(s) with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price,
(iv) allocate the transaction price to the performance obligations
in the contract, and (v) recognize revenue when the entity
satisfies a performance obligation. In addition, the standard
requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with
customers.
The standard became effective for us beginning on July 1, 2018 and
did not have a material impact on our financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments
– Overall (Subtopic 825-10) – Recognition and Measurement of
Financial Assets and Financial Liabilities, which requires all
investments in equity securities with readily determinable fair
value to be measured at fair value with changes in the fair value
recognized through net income (other than those accounted for under
the equity method of accounting or those that result in
consolidation of the investee). ASU 2016-01 is intended to enhance
the reporting model for financial instruments to provide users of
financial statements with more decision-useful information and
removes the requirement to disclose the methods and significant
assumptions used to estimate the fair value for financial
instruments measured at amortized cost on the balance sheet. For
public companies, the new standard is effective for annual periods
beginning after December 15, 2017, including interim periods within
the fiscal year. For all other entities, including emerging growth
companies, ASU 2016-01 is effective for annual periods beginning
after December 15, 2018, and interim periods within annual periods
beginning after December 15, 2019. The Company evaluated the impact
on the financial statements and implemented the provisions of ASU
2016-01 for the annual financial statements for the year ended June
30, 2020. This new standard did not have a material impact on
our financial statements or related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842) and subsequently amended the guidance relating largely to
transition considerations under the standard in January 2017, to
increase transparency and comparability among organizations by
requiring the recognition of right-of-use (“ROU”) assets and lease
liabilities on the balance sheet. Most prominent among the changes
in the standard is the recognition of ROU assets and lease
liabilities by lessees for those leases classified as operating
leases under current U.S. GAAP. Under the standard, disclosures are
required to meet the objective of enabling users of financial
statements to assess the amount, timing, and uncertainty of cash
flows arising from leases. We will be required to recognize and
measure leases existing at, or entered into after, the beginning of
the earliest comparative period presented using a modified
retrospective approach, with certain practical expedients
available.
The standard became effective for us beginning July 1, 2019. We
have reviewed this and have determined that there is no material
impact on our financial statements.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per
Share, Distinguishing Liabilities from Equity and Derivatives and
Hedging, which changes the accounting and earnings per share
for certain instruments with down round features. The amendments in
this ASU should be applied using a cumulative-effect adjustment as
of the beginning of the fiscal year or retrospective adjustment to
each period presented and is effective for annual periods beginning
after December 15, 2018, and interim periods within those
periods. We adopted this guidance effective July 1, 2019.
The adoption of this
guidance did not materially impact our financial statements and
related disclosures.
In February 2018, the Financial Accounting Standards Board (“FASB”)
issued ASC Update No 2018-02 (Topic 220) Income Statement –
Reporting Comprehensive Income: Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income. This ASC
update allows for a reclassification into retained earnings of the
stranded tax effects in accumulated other comprehensive income
(“AOCI”) resulting from the enactment of the Tax Cuts and Jobs Act
(“TCJA”). The updated guidance is effective for interim and annual
periods beginning after December 15, 2018. We adopted this
guidance effective July 1, 2019. The adoption of this guidance did
not materially impact our financial statements and related
disclosures.
|
|
|
|
In
June 2018, the FASB issued ASU 2018-07, Compensation - Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, to expand the scope of Topic 718 to include
share-based payment transactions for acquiring goods and services
from nonemployees and supersedes the guidance in Subtopic 505-50,
Equity - Equity-Based Payments to Non-Employees. Under ASU 2018-07,
equity-classified nonemployee share-based payment awards are
measured at the grant date fair value on the grant date The
probability of satisfying performance conditions must be considered
for equity-classified nonemployee share-based payment awards with
such conditions. ASU 2018-07 is effective for fiscal years
beginning after December 15, 2018, with early adoption permitted.
We adopted this guidance effective July 1, 2019. The adoption of this guidance did
not materially impact our financial statements and related
disclosures.
In
July 2018, the FASB issued ASU 2018-09 to provide clarification and
correction of errors to the Codification. The amendments in this
update cover multiple Accounting Standards Updates. Some topics in
the update may require transition guidance with effective dates for
annual periods beginning after December 15, 2018. We adopted this
guidance effective July 1, 2019. The adoption of this guidance did
not materially impact our financial statements and related
disclosures.
The
Company will continue to monitor these emerging issues to assess
any potential future impact on its financial statements.
|
|
|
|
|
|
Derivative
Financial Instruments |
● |
The
Company does not use derivative instruments to hedge exposures to
cash flow, market or foreign currency risks. The Company evaluates
all of its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and then is revalued at each
reporting date, with changes in fair value reported in the
consolidated statement of operations. For stock based derivative
financial instruments, Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in
convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Black-Scholes option-pricing
model. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional
convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial
instruments.
Once
determined, derivative liabilities are adjusted to reflect fair
value at the end of each reporting period. Any increase or decrease
in the fair value from inception is made quarterly and appears in
results of operations as a change in fair market value of
derivative liabilities.
|
|
|
|
|
|
Cash
and Cash Equivalents |
● |
The
Company classifies as cash and cash equivalents amounts on deposit
in the banks and cash temporarily in various instruments with
original maturities of three months or less at the time of
purchase. |
|
|
|
|
|
Fair
Value of Financial Instruments |
● |
Statement
of financial accounting standard FASB Topic 820, Disclosures about
Fair Value of Financial Instruments, requires that the Company
disclose estimated fair values of financial instruments. The
carrying amounts reported in the statements of financial position
for assets and liabilities qualifying as financial instruments are
a reasonable estimate of fair value. |
|
|
|
|
|
Inventories |
● |
Inventories
consisting of packaged food items and supplies are stated at the
lower of cost (FIFO) or net realizable value, including provisions
for spoilage commensurate with known or estimated exposures which
are recorded as a charge to cost of sales during the period
spoilage is incurred. |
|
|
|
|
|
Advertising
Costs |
● |
Advertising
costs are expensed when incurred and are included in advertising
and promotional expense in the accompanying statements of
operations. Included in this category are expenses related to
public relations, investor relations, new package design, website
design, design of promotional materials, cost of trade shows, cost
of products given away as promotional samples, and paid
advertising. The Company recorded advertising costs of
$403,639 and $732,297 for the years ended June 30, 2020 and 2019,
respectively. |
|
Income
Taxes |
● |
The
Company has not generated any taxable income, and, therefore, no
provision for income taxes has been provided. |
|
|
|
|
|
|
● |
Deferred
income taxes are reported for timing differences between items of
income or expense reported in the financial statements and those
reported for income tax purposes in accordance with FASB Topic 740,
“Accounting for Income Taxes”, which requires the use of the
asset/liability method of accounting for income taxes. Deferred
income taxes and tax benefits are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases, and for tax loss and credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The Company provides for deferred taxes for
the estimated future tax effects attributable to temporary
differences and carry-forwards when realization is more likely than
not. |
|
|
● |
A
valuation allowance has been recorded to fully offset the deferred
tax asset even though the Company believes it is more likely than
not that the assets will be utilized. |
|
|
|
|
|
|
● |
The
Company’s effective tax rate differs from the statutory rates
associated with taxing jurisdictions because of permanent and
temporary timing differences as well as a valuation
allowance. |
|
Revenue
Recognition |
● |
The
Company generates its revenue by selling its nighttime snack
products wholesale and direct to consumer. |
|
|
● |
All
sources of revenue are recorded pursuant to FASB Topic 606 Revenue
Recognition, to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or
services. This includes a five-step framework that requires an
entity to: (i) identify the contract(s) with a customer, (ii)
identify the performance obligations in the contract, (iii)
determine the transaction price, (iv) allocate the transaction
price to the performance obligations in the contract, and (v)
recognize revenue when the entity satisfies a performance
obligation. In addition, this revenue generation requires
disclosure of the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with
customers. |
|
|
|
|
|
|
● |
The
Company offers sales incentives through various programs,
consisting primarily of advertising related credits. The Company
records advertising related credits with customers as a reduction
to revenue as no identifiable benefit is received in exchange for
credits claimed by the customer. |
|
|
|
|
|
|
● |
The
Company revenue from contracts with customers provides that an
entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services.
The
Company incurs costs associated with product distribution, such as
freight and handling costs. The Company has elected to treat these
costs as fulfillment activities and recognizes these costs at the
same time that it recognizes the underlying product revenue. As
this policy election is in line with the Company’s previous
accounting practices, the treatment of shipping and handling
activities under FASB Topic 606 did not have any impact on the
Company’s results of operations, financial condition and/or
financial statement disclosures.
The
adoption of ASC 606 did not result in a change to the accounting
for any of the Company’s revenue streams that are within the scope
of the amendments. The Company’s services that fall within the
scope of ASC 606 are recognized as revenue as the Company satisfies
its obligation to the customer.
|
|
|
|
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers, which updates revenue recognition guidance relating to
contracts with customers. This standard states that an entity
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This standard is effective
for annual reporting periods, and interim periods therein,
beginning after July 1, 2018. The Company adopted ASU 2014-09 and
its related amendments (collectively known as “ASC 606”) during the
first quarter of fiscal 2019 using the full retrospective
method. |
|
|
|
Management
reviewed ASC 606-10-32-25 which states “Consideration payable to
a customer includes cash amounts that an entity pays, or expects to
pay, to the customer (or to other parties that purchase the
entity’s goods or services from the customer). Consideration
payable to a customer also includes credit or other items (for
example, a coupon or voucher) that can be applied against amounts
owed to the entity (or to other parties that purchase the entity’s
goods or services from the customer). An entity shall account for
consideration payable to a customer as a reduction of the
transaction price and, therefore, of revenue unless the payment to
the customer is in exchange for a distinct good or service (as
described in paragraphs 606-10-25-18 through 25-22) that the
customer transfers to the entity. If the consideration payable to a
customer includes a variable amount, an entity shall estimate the
transaction price (including assessing whether the estimate of
variable consideration is constrained) in accordance with
paragraphs 606-10-32-5 through 32-13.” |
|
|
|
If
the consideration payable to a customer is a payment for a distinct
good service, then in accordance with ASC 606-10-32-26, the entity
should account for it the same way that it accounts for other
purchases from suppliers (expense). Further, “if the amount of
consideration payable to the customer exceeds the fair value of the
distinct good or service that the entity receives from the
customer, then the entity shall account for such an excess as a
reduction of the transaction price. If the entity cannot reasonably
estimate the fair value of the good or service received from the
customer, it shall account for all of the consideration payable to
the customer as a reduction of the transaction
price.” |
|
|
|
Under
ASC 606-10-32-27, if the consideration payable to a customer is
accounted for as a reduction of the transaction price, “an
entity shall recognize the reduction of revenue when (or as) the
later of either of the following events occurs: |
|
|
|
|
|
|
|
a) |
The
entity recognizes revenue for the transfer of the related goods or
services to the customer. |
|
|
|
b) |
The
entity pays or promises to pay the consideration (even if the
payment is conditional on a future event). That promise might be
implied by the entity’s customary business
practices.” |
|
|
|
|
|
|
|
|
Management
reviewed each arrangement to determine if each fee paid is for a
distinct good or service and should be expensed as incurred or if
the Company should recognize the payment as a reduction of
revenue. |
|
|
|
|
|
|
|
|
|
The
Company recognizes revenue upon shipment based on meeting the
transfer of control criteria. The Company has made a policy
election to treat shipping and handling as costs to fulfill the
contract, and as a result, any fees received from customers are
included in the transaction price allocated to the performance
obligation of providing goods with a corresponding amount accrued
within cost of sales for amounts paid to applicable
carriers. |
|
Concentration
of Credit Risk |
● |
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash deposits at financial
institutions. At various times during the year, the
Company may exceed the federally insured limits. To
mitigate this risk, the Company places its cash deposits only with
high credit quality institutions. Management believes
the risk of loss is minimal. At June 30, 2020 and 2019
the Company did not have any uninsured cash deposits. |
|
|
|
|
|
|
|
|
|
Receivables
Concentration |
● |
As of
June 30, 2020, the Company had receivables due from seven
customers, two of whom accounted for over 20% of the outstanding
balance. Four of the other five accounted for over 10% of the total
balance. As of June 30, 2019, the Company had receivables due from
six customers, three of whom accounted for over 20% of the
outstanding balance.
|
|
|
|
|
|
Beneficial
Conversion Feature |
● |
For
conventional convertible debt where the rate of conversion is below
market value, the Company records any “beneficial conversion
feature” (“BCF”) intrinsic value as additional paid in capital and
related debt discount.
When
the Company records a BCF, the relative fair value of the BCF is
recorded as a debt discount against the face amount of the
respective debt instrument. The discount is amortized over the life
of the debt. If a conversion of the underlying debt occurs, a
proportionate share of the unamortized amounts is immediately
expensed.
|
|
Debt
Issue Costs |
● |
The
Company may pay debt issue costs in connection with raising funds
through the issuance of debt whether convertible or not or with
other consideration. These costs are recorded as debt discounts and
are amortized over the life of the debt to the statement of
operations as amortization of debt discount. |
|
|
|
|
|
Original
Issue Discount |
● |
If
debt is issued with an original issue discount, the original issue
discount is recorded to debt discount, reducing the face amount of
the note and is amortized over the life of the debt to the
statement of operations as amortization of debt discount. If a
conversion of the underlying debt occurs, a proportionate share of
the unamortized amounts is immediately expensed. |
|
|
|
|
|
Valuation
of Derivative Instruments |
● |
ASC
815 “Derivatives and Hedging” requires that embedded derivative
instruments be bifurcated and assessed, along with free-standing
derivative instruments such as warrants, on their issuance date and
measured at their fair value for accounting purposes. In
determining the appropriate fair value, the Company uses the
Black-Scholes option pricing formula. Upon conversion of a note
where the embedded conversion option has been bifurcated and
accounted for as a derivative liability, the Company records the
shares at fair value, relieves all related notes, derivatives and
debt discounts and recognizes a net gain or loss on debt
extinguishment. |
|
Income
Per Share |
● |
Net
income per share data for both the years ending June 30, 2020 and
2019, is based on net income available to common shareholders
divided by the weighted average of the number of common shares
outstanding.
|
|
|
|
|
|
Impairment
of Long-lived Assets |
● |
The
Company accounts for long-lived assets in accordance with the
provisions of FASB Topic 360, Accounting for the Impairment of
Long-Lived Assets. This statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. Fair
values are determined based on quoted market value, discounted cash
flows or internal and external appraisals, as
applicable.
During
the years ended June 30, 2020 and 2019, the Management determined
and impaired $500,000 and $-0-, respectively as impairment on
intangible asset
|
|
|
|
|
|
|
|
ASC
350-50-05-01 states “ on accounting for costs incurred to
develop a website, including whether to capitalize or expense the
following types of costs: |
|
|
|
|
|
|
|
a) |
Costs
incurred in the planning stage |
|
|
|
b) |
Costs
incurred in the website application and infrastructure development
stage |
|
|
|
c) |
Costs
incurred to develop graphics |
|
|
|
d) |
Costs
incurred to develop content |
|
|
|
e) |
Costs
incurred in the operating stage.” |
|
|
|
|
|
|
|
ASC
350-50-25-6 states “Costs incurred to purchase software tools,
or costs incurred during the application development stage for
internally developed tools, shall be capitalized unless they are
used in research and development and meet either of the following
conditions: |
|
|
|
|
|
|
|
a) |
They
do not have any alternative future uses. |
|
|
|
b) |
They
are internally developed and represent a pilot project or are being
used in a specific research and development project (see paragraph
350-40-15-7).” |
|
|
|
|
|
|
|
Further,
at ASC 350-50-25-7, “Costs to obtain and register an Internet
domain shall be capitalized under Section
350-30-25.” |
|
|
|
|
|
|
|
During
the years ended June 30, 2020 and 2019, the Management determined
and capitalized $1,000,000 and $-0-, respectively, under ASC 350-50
and accounted as an intangible asset and amortized the costs over
the life of the relationship. |
|
|
|
|
|
Derivative
Financial Instruments |
● |
The
Company does not use derivative instruments to hedge exposures to
cash flow, market or foreign currency risks. The Company evaluates
all of its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and then is revalued at each
reporting date, with changes in fair value reported in the
consolidated statement of operations. For stock based derivative
financial instruments, fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in
convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Black-Scholes option-pricing
model. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional
convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial
instruments.
Once
determined, derivative liabilities are adjusted to reflect fair
value at the end of each reporting period. Any increase or decrease
in the fair value from inception is made quarterly and appears in
results of operations as a change in fair market value of
derivative liabilities.
|
|
Restatement
of Prior Financial Information |
|
Subsequent
to Form 10K for the year ended June 30, 2019 filing, during the
interims review and based on such reviews, the following
determinations were made by the Company: |
|
|
|
|
|
|
|
Error
in Accounting for Slotting and Set-up Fees |
|
|
|
|
|
|
|
During
our review, we determined that the accounting treatment for the
recognition of slotting fees and other fees paid or payable by the
Company to certain strategic partners was incorrect. Specifically,
it has been determined that revenue relating to the slotting fee,
which was originally capitalized and amortized into expense over an
18-month period should instead be treated as a reduction in revenue
at the later of recognition of revenue for the transfer of the
Nightfood product or when the Company pays or promised to pay the
slotting fee. In addition, certain fees related to platforms to
launch our products and advertising efforts should have been
capitalized and recorded as an intangible asset. The Company
previously recorded a portion of this fee as an intangible asset –
placement fee and expensed the remaining amount as advertising
expense in the Period Ended December 31, 2019. |
|
|
|
|
|
|
|
In
accordance with the guidance provided by the SEC’s Staff Accounting
Bulletin 99, Materiality (“SAB 99”) and Staff Accounting
Bulletin 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements (“SAB 108”), the Company has determined
that the impact of adjustments relating to the corrections of this
accounting error are not material to previously issued annual
audited and unaudited financial statements. Accordingly, these
changes are disclosed herein and will be disclosed
prospectively. |
|
|
As
of June 30, 2019 (A) |
|
|
|
Previously
Reported |
|
|
Adjustments |
|
|
As
Corrected |
|
Consolidated
Balance Sheet |
|
|
|
|
|
|
|
|
|
Current
assets |
|
$ |
482,667 |
|
|
$ |
487,500 |
|
|
$ |
970,167 |
|
Current
liabilities |
|
$ |
2,955,272 |
|
|
$ |
223,333 |
|
|
$ |
3,178,605 |
|
Working
capital (deficit) |
|
$ |
(2,472,605 |
) |
|
$ |
264,167 |
|
|
$ |
(2,208,438 |
) |
Total
assets |
|
$ |
482,667 |
|
|
$ |
487,500 |
|
|
$ |
970,167 |
|
Total
liabilities |
|
$ |
2,955,272 |
|
|
$ |
223,333 |
|
|
$ |
3,178,605 |
|
Total
stockholders’ deficit |
|
$ |
(2,472,605 |
) |
|
$ |
264,167 |
|
|
$ |
(2,208,438 |
) |
|
(A) |
The
balance sheet impact of the errors was corrected in the quarter
ended September 30, 2019. |
|
|
As of
September 30, 2019 |
|
|
|
Previously
Reported |
|
|
Adjustments |
|
|
As
Corrected |
|
Consolidated
Balance Sheet |
|
|
|
|
|
|
|
|
|
Current
assets |
|
$ |
858,216 |
|
|
$ |
387,917 |
|
|
$ |
1,246,133 |
|
Current
liabilities |
|
$ |
3,287,252 |
|
|
$ |
1,151,666 |
|
|
$ |
4,438,918 |
|
Working
capital (deficit) |
|
$ |
(2,429,036 |
) |
|
$ |
(763,749 |
) |
|
$ |
(3,192,785 |
) |
Total
assets |
|
$ |
858,216 |
|
|
$ |
1,221,250 |
|
|
$ |
2,079,466 |
|
Total
liabilities |
|
$ |
3,287,252 |
|
|
$ |
1,151,666 |
|
|
$ |
4,438,918 |
|
Total
stockholders’ deficit |
|
$ |
(2,429,036 |
) |
|
$ |
69,584 |
|
|
$ |
(2,359,452 |
) |
|
|
As of
December 31, 2019 |
|
|
|
Previously
Reported |
|
|
Adjustments |
|
|
As
Corrected |
|
Consolidate
Balance Sheet |
|
|
|
|
|
|
|
|
|
Current
assets |
|
$ |
577,944 |
|
|
$ |
408,294 |
|
|
$ |
986,238 |
|
Current
liabilities |
|
$ |
4,514,446 |
|
|
$ |
249,007 |
|
|
$ |
4,763,453 |
|
Working
capital (deficit) |
|
$ |
(3,936,502 |
) |
|
$ |
159,287 |
|
|
$ |
(3,777,215 |
) |
Total
assets |
|
$ |
1,550,298 |
|
|
$ |
102,607 |
|
|
$ |
1,652,905 |
|
Total
liabilities |
|
$ |
4,514,446 |
|
|
$ |
249,007 |
|
|
$ |
4,763,453 |
|
Total
stockholders’ deficit |
|
$ |
(2,964,148 |
) |
|
$ |
(146,400 |
) |
|
$ |
(3,110,548 |
) |
|
|
For
the Year Ended June 30, 2019 (A) |
|
|
|
Previously
Reported |
|
|
Adjustments |
|
|
As
Corrected |
|
Consolidated
Statements of Operations |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
352,172 |
|
|
$ |
- |
|
|
$ |
352,172 |
|
Operating
expenses |
|
$ |
2,263,722 |
|
|
$ |
(264,167 |
) |
|
$ |
1,999,555 |
|
Loss
from operations |
|
$ |
(1,911,550 |
) |
|
$ |
264,167 |
|
|
$ |
(1,647,383 |
) |
Other
income (expenses) |
|
$ |
2,686,793 |
|
|
$ |
- |
|
|
$ |
2,686,793 |
|
Net
income (loss) |
|
$ |
(4,598,343 |
) |
|
$ |
264,167 |
|
|
$ |
(4,334,176 |
) |
Basic
& diluted EPS |
|
$ |
(0.09 |
) |
|
$ |
- |
|
|
$ |
(0.09 |
) |
|
(A) |
The
income statement impact of the errors was corrected in the quarter
ended September 30, 2019. |
|
|
For
the Three Months Ended
September
30, 2019
|
|
|
|
Previously
Reported |
|
|
Adjustments |
|
|
As
Corrected |
|
Consolidated
Statements of Operations |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
206,497 |
|
|
$ |
(160,000 |
) |
|
$ |
46,497 |
|
Operating
expenses |
|
$ |
570,858 |
|
|
$ |
(229,584 |
) |
|
$ |
341,274 |
|
Loss
from operations |
|
$ |
(364,361 |
) |
|
$ |
69,584 |
|
|
$ |
(294,777 |
) |
Other
income (expenses) |
|
$ |
218,803 |
|
|
$ |
- |
|
|
$ |
218,803 |
|
Net
income (loss) |
|
$ |
(583,164 |
) |
|
$ |
69,584 |
|
|
$ |
(513,580 |
) |
Basic
& diluted EPS |
|
$ |
(0.01 |
) |
|
$ |
- |
|
|
$ |
(0.01 |
) |
|
|
For
the Six Months Ended
December
31, 2019
|
|
|
|
Previously
Reported |
|
|
Adjustments |
|
|
As
Corrected |
|
Consolidated
Statements of Operations |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
379,488 |
|
|
$ |
(271,706 |
) |
|
$ |
107,782 |
|
Operating
expenses |
|
$ |
1,326,290 |
|
|
$ |
(125,306 |
) |
|
$ |
1,200,984 |
|
Loss
from operations |
|
$ |
(946,802 |
) |
|
$ |
(146,400 |
) |
|
$ |
(1,093,202 |
) |
Other
income (expenses) |
|
$ |
557,320 |
|
|
$ |
- |
|
|
$ |
557,320 |
|
Net
income (loss) |
|
$ |
(1,504,122 |
) |
|
$ |
(146,400 |
) |
|
$ |
(1,650,522 |
) |
Basic
& diluted EPS |
|
$ |
(0.02 |
) |
|
$ |
- |
|
|
$ |
(0.02 |
) |
|
|
For
the Three Months Ended
December
31, 2019
|
|
|
|
Previously
Reported |
|
|
Adjustments |
|
|
As
Corrected |
|
Consolidated
Statements of Operations |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
172,991 |
|
|
$ |
(111,706 |
) |
|
$ |
61,285 |
|
Operating
expenses |
|
$ |
755,432 |
|
|
$ |
104,278 |
|
|
$ |
859,710 |
|
Loss
from operations |
|
$ |
(582,441 |
) |
|
$ |
(215,984 |
) |
|
$ |
(798,425 |
) |
Other
income (expenses) |
|
$ |
338,517 |
|
|
$ |
- |
|
|
$ |
338,517 |
|
Net
income (loss) |
|
$ |
(920,958 |
) |
|
$ |
(215,984 |
) |
|
$ |
(1,136,942 |
) |
Basic
& diluted EPS |
|
$ |
(0.02 |
) |
|
$ |
- |
|
|
$ |
(0.02 |
) |
3. |
Going
Concern |
● |
The
Company’s financial statements are prepared using generally
accepted accounting principles, which contemplate the realization
of assets and liquidation of liabilities in the normal course of
business. Because the business is new and has limited
operating history and relatively few sales, no certainty of
continuation can be stated. |
|
|
● |
The
accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. For the year
ended June 30, 2020, the Company had a net loss of $4,412,063,
negative cash flow from operations of $1,531,084 and accumulated
deficit of $17,631,122. Management is taking steps to raise
additional funds to address its operating and financial cash
requirements to continue operations in the next twelve months.
Management has devoted a significant amount of time in the raising
of capital from additional debt and equity financing. However, the
Company’s ability to continue as a going concern is dependent upon
raising additional funds through debt and equity financing and
generating revenue. There are no assurances the Company will
receive the necessary funding or generate revenue necessary to fund
operations.
|
|
|
|
The
Company has limited available cash resources and we do not believe
our cash on hand will be adequate to satisfy our ongoing working
capital needs. The Company is continuing to raise capital through
private placement of our common stock and through the use of
convertible notes to finance the Company’s operations, of which it
can give no assurance of success. However, the Company has a strong
ongoing relationship with Eagle Equities and we expect to be able
to continue to finance our operations as we have over the previous
several quarters, although no assurance can be guaranteed. We
believe that our current capitalization structure, combined with
ongoing increases in revenues, will enable us to successfully
secure required financing to continue our growth. In the short
term, the Company plans to continue to take advantage of
convertible notes as a financing vehicle, as it allows for today’s
operating capital to be either repaid, or converted to equity at
future valuations. |
|
|
|
|
|
|
|
Because
the business is new and has limited operating history and sales, no
certainty of continuation can be stated. Management has devoted a
significant amount of time in the raising of capital from
additional debt and equity financing. However, the Company’s
ability to continue as a going concern is dependent upon raising
additional funds through debt and equity financing and generating
revenue. There are no assurances the Company will receive the
necessary funding or generate revenue necessary to fund
operations. |
|
|
|
|
|
|
|
Even
if the Company is successful in raising additional funds, the
Company cannot give any assurance that it will, in the future, be
able to achieve a level of profitability from the sale of its
products to sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include
any adjustments to reflect the possible future effects on
recoverability and reclassification of assets or the amounts and
classification of liabilities that may result from the outcome of
this uncertainty.
Further,
we are subject to the continued impact of COVID-19, as further
discussed below. See footnote 18.
|
4. |
Accounts
receivable |
● |
The
Company’s accounts receivable arise primarily from the sale of the
Company’s snack products. On a periodic basis, the Company
evaluates each customer account and based on the days outstanding
of the receivable, history of past write-offs, collections, and
current credit conditions, writes off accounts it considers
uncollectible. With most of our retail and distribution partners,
invoices will typically be due in 30 days or less. The Company does
not accrue interest on past due accounts and the Company does not
require collateral. Accounts become past due on an
account-by-account basis. Determination that an account is
uncollectible is made after all reasonable collection efforts have
been exhausted. The Company has not provided any sales allowances
for June 30, 2020 and 2019, respectively. |
|
|
|
|
5. |
Customer
Concentrations |
● |
During
the year ended June 30, 2020, one customer accounted for greater
than 10% of gross sales. As of June 30, 2020, the Company had
receivables due from seven customers, two of whom accounted for
over 20% of the outstanding balance. Four of the other five
accounted for over 10% of the total balance. As of June 30, 2019,
the Company had receivables due from six customers, three of whom
accounted for over 20% of the outstanding balance. |
6. |
Inventories |
● |
Inventories
consists of the following at June 30, 2020 and 2019. |
|
|
2020 |
|
|
2019 |
|
Finished
Goods-bars |
|
$ |
- |
|
|
$ |
30,800 |
|
Finished
Goods-ice cream |
|
|
195,817 |
|
|
|
346,229 |
|
Raw
materials - ingredients |
|
|
26,309 |
|
|
|
25,477 |
|
Packaging |
|
|
53,479 |
|
|
|
3,933 |
|
TOTAL |
|
$ |
275,605 |
|
|
$ |
406,439 |
|
|
|
|
Inventories
are stated at the lower of cost (FIFO) or net realizable value. The
Company periodically reviews the value of items in inventory and
provides write-downs or write-offs of inventory based on its
assessment of market conditions and the products relative shelf
life. Write-downs and write-offs are charged to loss on inventory
write down.
|
7. |
Other
current assets |
● |
Other
current assets consist of the following vendor deposits at June 30,
2020 and 2019. The majority of this amount relates to deposits
towards distribution and marketing partnerships i.e. slotting
fees. |
|
|
June
30,
2020 |
|
|
June 30,
2019 |
|
Prepaid
advertising costs |
|
$ |
398,045 |
|
|
$ |
- |
|
Vendor
deposits – Other |
|
$ |
40 |
|
|
$ |
1,000 |
|
TOTAL |
|
$ |
398,085 |
|
|
$ |
1,000 |
|
Intangible
assets consist of the following at June 30, 2020 and 2019. The
amount of the intangible assets represents fees and expenses in
connection with the development and launch of platforms used to
track conversions, optimize ads, and scale online customer growth
through a hybrid distribution model.
|
|
June
30, |
|
|
June 30, |
|
|
|
2020 |
|
|
2019 |
|
Intangible
assets |
|
$ |
1,000,000 |
|
|
$ |
- |
|
Amortization
of intangible assets |
|
|
(500,000 |
) |
|
|
- |
|
Impairment
of intangible assets |
|
|
(500,000 |
) |
|
|
|
|
TOTAL |
|
$ |
- |
|
|
$ |
- |
|
During
the quarter ending March 31, 2020, the Company determined it would
be unable to generate sufficient traction from these digital
assets. The Company made the decision to stop utilizing the
assets and began conversations with the creditor about eliminating
the remaining debt associated with the assets which was
successfully negotiated in April 2020. As of the time of this
filing, the balance sheet remains unchanged, as this successful
renegotiation is conditional upon payment being completed prior to
December 1, 2020, which would result in the elimination of $731,118
in total debt should payment be made totaling $166,224 in cash and
approximately 4,000 pints of Nightfood ice cream. Should the
Company make said payments and retire the debt prior to December 1,
2020, the Company would realize a Gain on Extinguishment of Debt of
approximately $560,000. Because this reduction in debt is
conditional, the full $731,118.33 is currently included in the
liabilities section of our balance sheet.
9. |
Other
Current Liabilities |
● |
Other
current liabilities consist of the following at June 30, 2020 and
2019. |
|
|
2020 |
|
|
2019 |
|
Accrued
consulting fees – related party |
|
$ |
9,974 |
|
|
$ |
33,974 |
|
Accrued
interest |
|
|
192,625 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
202,599 |
|
|
$ |
33,974 |
|
10. |
Convertible
Notes Payable |
● |
Convertible
Notes Payable consist of the following at June 30, 2020 and
2019. |
|
|
|
On
April 30, 2018, the Company entered into a convertible promissory
note and a security purchase agreement dated April 30, 2018, in the
amount of $225,000. The lender was Eagle Equities, LLC. The notes
have a maturity of April 30, 2019 and interest rate of 8% per annum
and are convertible at a price of 60% of the lowest closing bid
price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately
prior to conversion. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $225,000 Notes was
calculated using the Black-Scholes pricing model at $287,174, with
the following assumptions: risk-free interest rate of 2.24%,
expected life of 1 year, volatility of 202%, and expected dividend
yield of zero. Because the fair value of the note exceeded the net
proceeds from the $225k Notes, a charge was recorded to “Financing
cost” for the excess of the fair value of the note, for a net
charge of $62,174. As of June 30, 2020 and 2019, the debt discount
was $0.
On
June 5, 2018, the Company received cash in conjunction with a
convertible promissory note and Securities Purchase Agreement dated
June 5, 2018. The note was in the amount of in the amount of
$210,000. The lender was Eagle Equities, LLC. The notes have a
maturity of June 6, 2019 and interest rate of 8% per annum and are
convertible at a price of 60% of the lowest closing bid price on
the primary trading market on which the Company’s Common Stock is
then listed for the fifteen (15) trading days immediately prior to
conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $210,000 Notes was
calculated using the Black-Scholes pricing model at $265,498, with
the following assumptions: risk-free interest rate of 2.09%,
expected life of 1 year, volatility of 200%, and expected dividend
yield of zero. Because the fair value of the note exceeded the net
proceeds from the $210k Notes, a charge was recorded to “Financing
cost” for the excess of the fair value of the note, for a net
charge of $55,498. As of June 30, 2020, and 2019, the debt discount
was $0. This note has been successfully retired via conversions
into shares during the year ended June 30, 2020. The Company fair
valued the notes as of conversion date and accounted for a loss on
conversion of $180,755 included under line item “Loss on debt
extinguishment upon note conversion, net”.
On
July 2, 2018, the Company entered into a convertible promissory
note and a security purchase agreement dated July 12, 2018, in the
amount of $207,000. The lender was Eagle Equities, LLC. The notes
have a maturity of July 12, 2019 and interest rate of 8% per annum
and are convertible at a price of 60% of the lowest closing bid
price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately
prior to conversion. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $207,000 Notes was
calculated using the Black-Scholes pricing model at $257,842, with
the following assumptions: risk-free interest rate of 2.59%,
expected life of 1 year, volatility of 183%, and expected dividend
yield of zero. Because the fair value of the note exceeded the net
proceeds from the $207k Notes, a charge was recorded to “Financing
cost” for the excess of the fair value of the note, for a net
charge of $50,842. As of June 30, 2020, and 2019, the debt discount
was $0 and $1,134, respectively.
|
|
|
|
This
note has been successfully retired via conversions into shares
during the year ended June 30, 2020. The Company fair valued the
notes as of conversion date and accounted for a loss on conversion
of $73,760 included under line item “Loss on debt extinguishment
upon note conversion, net”. |
|
|
|
|
|
|
|
On
November 16, 2018, the Company entered into a convertible
promissory note and a security purchase agreement dated November
16, 2018, in the amount of $130,000. The lender was Eagle Equities,
LLC. The notes have a maturity of November 16, 2019 and interest
rate of 8% per annum and are convertible at a price of 65% of the
lowest closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $130,000 Notes was calculated using the Black-Scholes
pricing model at $131,898, with the following assumptions:
risk-free interest rate of 2.71%, expected life of 1 year,
volatility of 150%, and expected dividend yield of zero. Because
the fair value of the note exceeded the net proceeds from the $130k
Notes, a charge was recorded to “Financing cost” for the excess of
the fair value of the note, for a net charge of $1,898. As of June
30, 2020, and 2019, the debt discount was $0 and $48,795,
respectively.
|
|
|
|
|
|
|
|
This
note has been successfully retired via conversions into shares
during the year ended June 30, 2020. The Company fair valued the
notes as of conversion date and accounted for a loss on conversion
of $19,845 included under line item “Loss on debt extinguishment
upon note conversion, net”. |
|
|
|
|
|
|
|
On
December 18, 2018, the Company entered into a convertible
promissory note and a security purchase agreement dated December
18, 2018, in the amount of $130,000. The lender was Eagle Equities,
LLC. The notes have a maturity of December 18, 2019 and interest
rate of 8% per annum and are convertible at a price of 65% of the
lowest closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $130,000 Notes was calculated using the Black-Scholes
pricing model at $128,976, with the following assumptions:
risk-free interest rate of 2.64%, expected life of 1 year,
volatility of 144%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$130k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2020, and
2019, the debt discount was $0 and $60,425,
respectively.
|
|
|
|
|
|
|
|
This
note has been successfully retired via conversions into shares
during the year ended June 30, 2020. The Company fair valued the
notes as of conversion date and accounted for a loss on conversion
of $36,927 included under line item “Loss on debt extinguishment
upon note conversion, net”. |
|
|
|
On
January 28, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated January 28, 2019, in
the amount of $234,000. The lender was Eagle Equities, LLC. The
notes have a maturity of January 28, 2020 and interest rate of 8%
per annum and are convertible at a price of 65% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $234,000 Notes was calculated using the Black-Scholes
pricing model at $226,452, with the following assumptions:
risk-free interest rate of 2.60%, expected life of 1 year,
volatility of 135%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$234k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2020, and
2019, the debt discount was $0 and $131,528,
respectively.
|
|
|
|
|
|
|
|
This
note has been successfully retired via conversions into shares
during the year ended June 30, 2020. The Company fair valued the
notes as of conversion date and accounted for a loss on conversion
of $80,394 included under line item “Loss on debt extinguishment
upon note conversion, net”. |
|
|
|
|
|
|
|
On
February 14, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated February
14, 2019, in the amount of $104,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 14, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $104,000 Notes was calculated using the Black-Scholes
pricing model at $90,567, with the following assumptions: risk-free
interest rate of 2.53%, expected life of 1 year, volatility of
136%, and expected dividend yield of zero. Because the fair value
of the note did not exceed the net proceeds from the $104k Notes,
no charge was recorded to “Financing cost” for the excess of the
fair value of the note. As of June 30, 2020, and 2019, the debt
discount was $0 and $56,821, respectively. $50,000 of the note has
been successfully retired via conversion into shares during the
year ended June 30, 2020. The Company fair valued the notes as of
conversion date and accounted for a loss on conversion of $4,098
included under line item “Loss on debt extinguishment upon note
conversion, net”.
|
|
|
|
|
|
|
|
On
April 29, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated April 29, 2019, in the
amount of $208,000. The lender was Eagle Equities, LLC. The notes
have a maturity of April 29, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest closing bid
price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately
prior to conversion. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $208,000 Notes was
calculated using the Black-Scholes pricing model at $170,098, with
the following assumptions: risk-free interest rate of 2.42%,
expected life of 1 year, volatility of 118%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the 208k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note. As
of June 30, 2020, and 2019, the debt discount was $0 and $141,204,
respectively
|
|
|
|
On
June 11, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated June 11, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes
have a maturity of June 11, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest closing bid
price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately
prior to conversion. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $300,000 Notes was
calculated using the Black-Scholes pricing model at $240,217, with
the following assumptions: risk-free interest rate of 2.05%,
expected life of 1 year, volatility of 16%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the $300k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note. As
of June 30, 2020, and 2019, the debt discount was $0 and $227,713,
respectively. |
|
|
|
|
|
|
|
On
July 5, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated July 5, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes
have a maturity of July 5, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest closing bid
price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately
prior to conversion. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $300,000 Notes was
calculated using the Black-Scholes pricing model at $239,759, with
the following assumptions: risk-free interest rate of 1.98%,
expected life of 1 year, volatility of 118%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the 300k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note. As
of June 30, 2020, the debt discount was $2,627. |
|
|
|
|
|
|
|
On
August 8, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated August 8, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes
have a maturity of August 8, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest closing bid
price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately
prior to conversion. The note may be prepaid, but carries a penalty
in association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $300,000 Notes was
calculated using the Black-Scholes pricing model at $254,082, with
the following assumptions: risk-free interest rate of 1.79%,
expected life of 1 year, volatility of 113%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the $300k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note. As
of June 30, 2020, the debt discount was $26,452. |
|
|
|
|
|
|
|
On
August 29, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated August 29, 2019, in
the amount of $300,000. The lender was Eagle Equities, LLC. The
notes have a maturity of August 29, 2020 and interest rate of 8%
per annum and are convertible at a price of 70% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $300,000 Notes was calculated using the Black-Scholes
pricing model at $234,052, with the following assumptions:
risk-free interest rate of 1.75%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$300,000 Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2020, the debt
discount was $37,833. |
|
|
|
|
|
|
|
On
September 24, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated September
24, 2019, in the amount of $150,000. The lender was Eagle Equities,
LLC. The notes have a maturity of September 24, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $118,009, with the following assumptions:
risk-free interest rate of 1.78%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$150k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2020, the debt
discount was $27,482. |
|
|
|
On
November 7, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated November 7, 2019, in
the amount of $150,000. The lender was Eagle Equities, LLC. The
notes have a maturity of November 7, 2020 and interest rate of 8%
per annum and are convertible at a price of 70% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $121,875, with the following assumptions:
risk-free interest rate of 1.58%, expected life of 1 year,
volatility of 122%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$150k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2020, the debt
discount was $43,074. |
|
|
|
|
|
|
|
On
December 31, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated December
31, 2019, in the amount of $150,000. The lender was Eagle Equities,
LLC. The notes have a maturity of December 31, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $189,172, with the following assumptions:
risk-free interest rate of 1.59%, expected life of 1 year,
volatility of 115%, and expected dividend yield of zero. Because
the fair value of the note exceed the net proceeds from the $150k
Notes, $39,172 was recorded to “Financing cost” for the excess of
the fair value of the note. As of June 30, 2020, the debt discount
was $75,205. |
|
|
|
|
|
|
|
On
February 6, 2020, the Company entered into a convertible promissory
note and a security purchase agreement dated February 6, 2020, in
the amount of $200,000. The lender was Eagle Equities, LLC. The
notes have a maturity of February 6, 2021 and interest rate of 8%
per annum and are convertible at a price of 70% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $200,000 Notes was calculated using the Black-Scholes
pricing model at $156,061, with the following assumptions:
risk-free interest rate of 1.51%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. As of June
30, 2020, the debt discount was $94,064. |
|
|
|
|
|
|
|
On
February 26, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated February
26, 2020, in the amount of $187,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 6, 2021 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $187,000 Notes was calculated using the Black-Scholes
pricing model at $150,268, with the following assumptions:
risk-free interest rate of 1.18%, expected life of 1 year,
volatility of 118%, and expected dividend yield of zero. As of June
30, 2020, the debt discount was $99,218. |
|
|
|
On
April 30, 2020, the Company entered into a convertible promissory
note and a security purchase agreement dated April 30, 2020, in the
amount of $205,700. This note carried an Original Discount of 10%
or $18,700 which was included in interest expense at the time of
valuation. The lender was Eagle Equities, LLC. The notes have a
maturity of April 30, 2021 and interest rate of 8% per annum and
are convertible at a price of 78% of the lowest closing bid price
on the primary trading market on which the Company’s Common Stock
is then listed for the twenty (20) trading days immediately prior
to conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $205,700 Notes was
calculated using the Black-Scholes pricing model at $128,369, with
the following assumptions: risk-free interest rate of 0.16%,
expected life of 1 year, volatility of 106%, and expected dividend
yield of zero. As of June 30, 2020, the debt discount was
$106,916. |
|
|
|
|
|
|
|
On
June 23, 2020, the Company entered into a convertible promissory
note and a security purchase agreement dated June 23, 2020, in the
amount of $205,700. This note carried an Original Discount of 10%
or $18,700 which was included in interest expense at the time of
valuation. The lender was Eagle Equities, LLC. The notes have a
maturity of June 23, 2021 and interest rate of 8% per annum and are
convertible at a price of 78% of the lowest closing bid price on
the primary trading market on which the Company’s Common Stock is
then listed for the twenty (20) trading days immediately prior to
conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $205,700 Notes was
calculated using the Black-Scholes pricing model at $132,236, with
the following assumptions: risk-free interest rate of 0.18%,
expected life of 1 year, volatility of 108%, and expected dividend
yield of zero. As of June 30, 2020, the debt discount was
$129,700. |
|
|
|
Below
is a reconciliation of the convertible notes payable as presented
on the Company’s balance sheet as of June 30, 2020: |
|
|
Principal
($) |
|
|
Debt
Discount ($) |
|
|
Net
Value
($) |
|
Balance
at June 30, 2018 |
|
|
1,576,024 |
|
|
|
(942,154 |
) |
|
|
633,870 |
|
Convertible
notes payable issued during fiscal year ended June 30,
2019 |
|
|
1,602,005 |
|
|
|
- |
|
|
|
1,602,005 |
|
Note
paid |
|
|
(102,076 |
) |
|
|
- |
|
|
|
(102,076 |
) |
Notes
converted into shares of common stock |
|
|
(1,327,953 |
) |
|
|
- |
|
|
|
(1,327,953 |
) |
Debt
discount associated with new convertible notes |
|
|
- |
|
|
|
(1,482,314 |
) |
|
|
(1,482,314 |
) |
Amortization
of debt discount |
|
|
- |
|
|
|
1,794,209 |
|
|
|
1,794,209 |
|
Balance
at June 30, 2019 |
|
|
1,748,000 |
|
|
|
(630,259 |
) |
|
|
1,117,741 |
|
Convertible
notes payable issued during fiscal year ended June 30,
2020 |
|
|
2,148,400 |
|
|
|
- |
|
|
|
2,148,400 |
|
Notes
converted into shares of common stock |
|
|
(961,000 |
) |
|
|
- |
|
|
|
(961,000 |
) |
Debt
discount associated with new convertible notes |
|
|
- |
|
|
|
(1,684,711 |
) |
|
|
(1,684,711 |
) |
Amortization
of debt discount |
|
|
- |
|
|
|
1,709,759 |
|
|
|
1,709,759 |
|
Balance
at June 30, 2020 |
|
|
2,935,400 |
|
|
|
(605,211 |
) |
|
|
2,330,189 |
|
11. |
Derivative
Liability |
|
Due
to the variable conversion price associated with some of these
convertible promissory notes disclosed in Note 8 above, the Company
has determined that the conversion feature is considered a
derivative liability for instruments which are convertible and have
not yet been settled. The accounting treatment of derivative
financial instruments requires that the Company record the fair
value of the derivatives on the date they are deemed to be
derivative liabilities. |
|
|
|
During
the year ended June 30, 2020, the Company recorded a gain in fair
value of derivative liability of $858,774. The Company will measure
the fair value of each derivative instrument in future reporting
periods and record a gain or loss based on the change in fair
value. |
|
|
|
|
|
|
|
Below
is a reconciliation of the derivative liability as presented on the
Company’s balance sheet as of June 30, 2020: |
Derivative
liability as of June 30, 2018 |
|
$ |
1,765,187 |
|
Initial
derivative liability accounted for convertible notes payable issued
during the period ended June 30, 2019 |
|
|
1,565,535 |
|
Change
in derivative liability during the period |
|
|
712,627 |
|
Reclassify
derivative liability associated with Notes converted |
|
|
(2,736,601 |
) |
Derivative
liability as of June 30, 2019 |
|
$ |
1,306,748 |
|
Initial
derivative liability accounted for convertible notes payable issued
during the period ended June 30, 2020 |
|
|
1,723,883 |
|
Change
in derivative liability during the period |
|
|
(858,774 |
) |
Reclassify
derivative liability associated with Notes converted |
|
|
(581,219 |
) |
Balance
at June 30, 2020 |
|
$ |
1,590,638 |
|
12. |
Line
of Credit |
|
On
March 19, 2020, the Company secured a $200,000 line of credit with
Celtic Bank Corporation. This LOC has a “Flex Credit” component of
calculating interest, which means the interest rate on any draws
taken against the LOC is set at the time of said draw. As of the
date of this filing, the Company has made one draw against the
credit line for a gross amount of $5,000 (including proceeds and
draw fees). Three payments have been made against this draw of
approximately $368 each. Such payments will continue to be
automatically deducted from the corporate checking account until
the draw and all fees have been paid in full. The Company may or
may not choose to use this line of credit for additional financing
needs. |
|
|
June
30,
2020 |
|
|
June
30,
2019 |
|
Line
of Credit |
|
$ |
3,897 |
|
|
$ |
0 |
|
Total
borrowings |
|
|
3,897 |
|
|
|
0 |
|
Less:
current portion |
|
|
3,897 |
|
|
|
0 |
|
Long
term debt |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
Interest
expense for the years ended June 30, 2020 and 2019, totaled $463
and $0, respectively. |
13. |
Stockholders’
Deficit |
● |
On
October 16, 2013, the Nightfood, Inc. became a wholly-owned
subsidiary of Nightfood Holdings, Inc. Accordingly, the
stockholders’ equity has been revised to reflect the share exchange
on a retroactive basis. |
|
|
● |
The
Company is authorized to issue Two Hundred Million (200,000,000)
shares of $0.001 par value per share Common Stock. Holders of
Common Stock are each entitled to cast one vote for each Share held
of record on all matters presented to shareholders. Cumulative
voting is not allowed; hence, the holders of a majority of the
outstanding Common Stock can elect all directors. Holders of Common
Stock are entitled to receive such dividends as may be declared by
the Board of Directors out of funds legally available therefore
and, in the event of liquidation, to share pro-rata in any
distribution of the Company’s assets after payment of liabilities.
The Board of Directors is not obligated to declare a dividend and
it is not anticipated that dividends will be paid unless and until
the Company is profitable. Holders of Common Stock do not have
pre-emptive rights to subscribe to additional shares if issued by
the Company. There are no conversion, redemption, sinking fund or
similar provisions regarding the Common Stock. All of the
outstanding Shares of Common Stock are fully paid and
non-assessable and all of the Shares of Common Stock offered
thereby will be, upon issuance, fully paid and non-assessable.
Holders of Shares of Common Stock will have full rights to vote on
all matters brought before shareholders for their approval, subject
to preferential rights of holders of any series of Preferred Stock.
Holders of the Common Stock will be entitled to receive dividends,
if and as declared by the Board of Directors, out of funds legally
available, and share pro-rata in any distributions to holders of
Common Stock upon liquidation. The holders of Common Stock will
have no conversion, pre-emptive or other subscription rights. Upon
any liquidation, dissolution or winding-up of the Company, assets,
after the payment of debts and liabilities and any liquidation
preferences of, and unpaid dividends on, any class of preferred
stock then outstanding, will be distributed pro-rata to the holders
of the common stock. The holders of the common stock have no right
to require the Company to redeem or purchase their shares. Holders
of shares of common stock do not have cumulative voting rights,
which means that the holders of more than 50% of the outstanding
shares, voting for the election of directors, can elect all of the
directors to be elected, if they so choose, and, in that event, the
holders of the remaining shares will not be able to elect any of
our directors.
The
Company had 61,796,680 and 53,773,856 shares of its $0.001 par
value common stock issued and outstanding as of June 30, 2020 and
2019 respectively.
|
|
During
the year ended June 30, 2020: |
|
● |
The
Company issued 1,385,990 shares of common stock for services with a
fair value of $308,768 |
|
|
|
|
● |
and
issued 580,666 shares of common stock in consideration of interest
payments with a fair value of $88,762 |
|
|
|
|
● |
and
issued 6,056,168 shares of common stock as consideration for
convertible debt with a fair value of $961,000. |
|
During
the year ended June 30, 2019: |
|
● |
the
Company sold 84,389 shares of common stock for cash proceeds of
$50,000, |
|
|
|
|
● |
and
issued 483,808 shares of common stock for services with a fair
value of $345,656, |
|
|
|
|
● |
and
issued 281,957 shares of common stock for payment of certain
accounts payable liabilities with a fair value of
$63,850, |
|
|
|
|
● |
and
issued 400,000 shares of common stock for the exercise of warrants
valued at $120,000, |
|
|
|
|
● |
and
issued 667,959 shares of common stock in consideration of interest
payments with a fair value of $95,805, |
|
|
|
|
● |
and
issued 9,247,414 shares of common stock as consideration for
convertible debt with a fair value of $1,327,953.
During
the years ended June 30, 2020 and 2019, the Company recorded a Loss
on fair value of shares issued upon notes conversion of $977,000
and $2,736,601, respectively.
|
|
|
Preferred
Stock
On
July 9th 2018 the Company was authorized to issue One
Million (1,000,000) shares of $0.001 par value per share Preferred
Stock. Of the 1,000,000 shares 10,000 shares are designated as
Series A preferred Stock Holders of Common Stock are each entitled
to cast 100,000 votes for each Share held of record on all matters
presented to shareholders.
In
addition to his ownership of the common stock, Mr. Folkson owns
1,000 shares of our Series A Preferred Stock (“A Stock”) which
votes with the common stock and has an aggregate of 100,000,000
votes.
Dividends
|
|
|
|
|
|
● |
The
Company has never declared dividends. |
|
|
● |
The
following is a summary of the Company’s outstanding common stock
purchase warrants. A portion of the 500,000 warrants shown below at
an exercise price of $.15 have not yet vested. These warrants were
issued as compensation for a four-year advisory agreement. 150,000
warrants vested on July 24, 2018, another 150,000 on July 24, 2019,
another would vest 150,000 on July 24, 2020, and the remaining
50,000 on July 24, 2021, should advisor complete the term of his
engagement.
The
aggregate intrinsic value of the warrants as of June 30, 2020 is
$28,025. The aggregate intrinsic value of the warrants as of June
30, 2019 was $318,450.
|
|
|
|
Outstanding
at |
|
|
Issued
/ |
|
|
|
|
|
Outstanding |
|
Exercise Price |
|
|
June
30,
2018 |
|
|
(exercised) in
2019 |
|
|
Expired |
|
|
June
30,
2019 |
|
$ |
0.15 |
|
|
|
500,000 |
|
|
|
|
|
|
|
- |
|
|
|
500,000 |
|
$ |
0.20 |
|
|
|
105,000 |
|
|
|
|
|
|
|
- |
|
|
|
105,000 |
|
$ |
0.30 |
|
|
|
500,000 |
|
|
|
(400,000 |
) |
|
|
- |
|
|
|
100,000 |
|
$ |
0.40 |
|
|
|
- |
|
|
|
150,000 |
|
|
|
- |
|
|
|
150,000 |
|
$ |
0.75 |
|
|
|
300,000 |
|
|
|
- |
|
|
|
- |
|
|
|
300,000 |
|
|
|
|
|
|
1,405,000 |
|
|
|
(250,000 |
) |
|
|
- |
|
|
|
1,155,000 |
|
|
|
|
Outstanding
at |
|
|
Issued
/ |
|
|
|
|
|
Outstanding |
|
Exercise Price |
|
|
June
30,
2019 |
|
|
(exercised) in
2020 |
|
|
Expired |
|
|
June
30,
2020 |
|
$ |
0.15 |
|
|
|
500,000 |
|
|
|
|
|
|
|
- |
|
|
|
500,000 |
|
$ |
0.20 |
|
|
|
105,000 |
|
|
|
|
|
|
|
- |
|
|
|
105,000 |
|
$ |
0.30 |
|
|
|
100,000 |
|
|
|
|
|
|
|
- |
|
|
|
100,000 |
|
$ |
0.40 |
|
|
|
150,000 |
|
|
|
|
|
|
|
- |
|
|
|
150,000 |
|
$ |
0.75 |
|
|
|
300,000 |
|
|
|
- |
|
|
|
- |
|
|
|
300,000 |
|
|
|
|
|
|
1,155,000 |
|
|
|
|
|
|
|
- |
|
|
|
1,155,000 |
|
|
|
Options |
|
|
|
|
|
● |
The
Company has never issued options. |
14. |
Related
Party Transactions |
● |
During
the third quarter 2015, Mr. Folkson began accruing a consulting fee
of $6,000 per month which the aggregate of $72,000 and $72,000 is
reflected in professional fees and presented in the accrued
expenses – related party for 2020 and 2019
respectively. |
|
|
● |
The
original consulting Agreement for Mr. Folkson had a term of one
year, and then converted into a month to month agreement effective
January 1, 2016. A new twelve month consulting agreement was
entered into for Mr. Folkson effective July 1, 2019, which paid
Folkson the same $6,000 monthly consulting fee. In addition, the
Company made bonuses available to Folkson upon the Company hitting
certain revenue milestones of $1,000,000 in a quarter and
$3,000,000 in a quarter. Achieving those milestones would earn
Folkson warrants with a $.50 and $1 strike price which would need
to be exercised within 90 days of the respective quarterly or
annual filing. |
15. |
Income
Tax |
A
reconciliation of the statutory income tax rates and the Company’s
effective tax rate is as follows: |
|
|
June
30, |
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
Statutory
U.S. federal rate |
|
|
(21.00 |
)% |
|
|
(21.00 |
)% |
Effect
of higher U.S. Federal statutory tax rate |
|
|
- |
% |
|
|
- |
% |
State
income taxes (net of federal tax benefit) |
|
|
(7.00 |
)% |
|
|
(7.00 |
)% |
Permanent
differences |
|
|
7.10 |
% |
|
|
6.70 |
% |
Valuation
allowance |
|
|
(20.9 |
)% |
|
|
(21.3 |
)% |
True
up of net operating loss |
|
|
- |
% |
|
|
- |
% |
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
The
tax effects of the temporary differences and carry forwards that
give rise to deferred tax assets consist of the
following: |
|
|
2020 |
|
|
2019 |
|
Deferred
tax assets: |
|
|
|
|
|
|
Net
operating loss carry-forwards |
|
$ |
1,460,670 |
|
|
|
1,155,359 |
|
|
|
|
|
|
|
|
|
|
Valuation
allowance |
|
|
(1,460,670 |
) |
|
|
(1,155,359 |
) |
Net
deferred tax asset |
|
$ |
- |
|
|
$ |
- |
|
|
|
At
June 30, 2020 the Company had estimated U.S. federal net operating
losses of approximately $7,358,518 for income tax purposes.
$2,614,000 will expire between 2031 and 2037 while the balance of
the tax operating loss can be carried forward indefinitely. For
financial reporting purposes, the entire amount of the net deferred
tax assets has been offset by a valuation allowance due to
uncertainty regarding the realization of the assets. The net change
in the total valuation allowance for the year ended June 30, 2020
was an increase of $398,550. The Company follows FASC 740-10-25 P
which requires a company to evaluate whether a tax position taken
by the company will “more likely than not” be sustained upon
examination by the appropriate tax authority. The Company has
analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as
well as all open tax years in these jurisdictions. The Company
believes that its income tax filing positions and deductions would
be sustained on audit and does not anticipate any adjustments that
would result in a material change to its financial position.
Therefore, no reserves for uncertain income tax positions have been
recorded.
|
|
|
The
Company may not be able to utilize the net operating loss
carryforwards for its US income taxes in future periods should it
experience a change in ownership as defined in Section 382 of the
Internal Revenue Code (“IRC”). Under section 382, should the
Company experience a more than 50% change in its ownership over a 3
year period, the Company would be limited based on a formula as
defined in the IRC to the amount per year it could utilize in that
year of the net operating loss carryforwards.
As of
June 30, 2020 the Company had not performed an analysis to
determine if the Company was subject to the provisions of Section
382. The Company is subject to U.S. federal income tax including
state and local jurisdictions. Currently, no federal or state
income tax returns are under examination by the respective taxing
jurisdictions.
The
Company’s accounting policy is to recognize interest and penalties
related to uncertain tax positions in income tax expense. The
Company has not accrued interest for any periods.
The
Company has not filed its federal and state income tax returns for
the fiscal years ended June 30, 2020, 2019, 2018, June 30, 2017 and
2016 respectively, however it believes due to the reported losses
there is no material liability outstanding.
|
16. |
Fair
Value of Financial Instruments |
Cash
and Equivalents, Receivables, Other Current Assets, Short-Term
Debt, Accounts Payable, Accrued and Other Current
Liabilities. |
|
|
|
|
|
The
carrying amounts of these items approximated fair
value. |
|
|
|
|
|
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase
the comparability of fair value measures, Financial Accounting
Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair
value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurement) and the
lowest priority to unobservable inputs (level 3
measurements). |
|
|
|
|
|
Level 1—Valuations
based on quoted prices for identical assets and liabilities in
active markets. |
|
|
|
|
|
Level 2—Valuations
based on observable inputs other than quoted prices included in
Level 1, such as quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market
data. |
|
|
|
|
|
Level 3—Valuations
based on unobservable inputs reflecting our own assumptions,
consistent with reasonably available assumptions made by other
market participants. These valuations require significant
judgment. |
|
|
|
|
|
The
application of the three levels of the fair value hierarchy under
Topic 820-10-35 to our assets and liabilities are described
below: |
|
|
Fiscal
2020 Fair Value Measurements |
|
|
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
|
Total
Fair
Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Total |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
and long-term debt |
|
$ |
|
|
|
$ |
- |
|
|
$ |
2,935,400 |
|
|
$ |
2,935,400 |
|
Total |
|
$ |
|
|
|
$ |
- |
|
|
$ |
2,935,400 |
|
|
$ |
2,935,400 |
|
|
|
Fiscal
2019 Fair Value Measurements |
|
|
|
Level
1 |
|
|
Level
2 |
|
|
Level
3 |
|
|
Total
Fair
Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Total |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short
and long-term debt |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,748,000 |
|
|
$ |
1,748,000 |
|
Total |
|
$ |
|
|
|
$ |
- |
|
|
$ |
1,748,000 |
|
|
$ |
1,748,000 |
|
|
|
Fiscal
2020 Fair Value Measurements |
|
|
|
Level
1 |
|
|