UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2021
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to____________
Commission File Number: 000-55406
NIGHTFOOD HOLDINGS,
INC.
(Exact name of registrant as specified in its charter)
Nevada |
|
46-3885019 |
(State
or Other Jurisdiction of |
|
(I.R.S.
Employer |
Incorporation
or Organization) |
|
Identification
No.) |
|
|
|
520 White Plains Road, Suite 500
Tarrytown, New York
|
|
10591 |
(Address
of Principal Executive Offices) |
|
(Zip
Code) |
888-888-6444
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirement
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☐ |
Smaller
reporting company |
☒ |
|
Emerging
growth company |
☐ |
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which
registered |
N/A |
|
N/A |
|
N/A |
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date. At
November 19, 2021, the issuer had outstanding
86,600,178 shares of common stock.
Table of Contents
Nightfood Holdings, Inc.

Financial Statements
For the three months ended September 30, 2021, and 2020
Item 1. Financial Statements
Nightfood Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September 30,
2021 |
|
|
June 30,
2021 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash |
|
$ |
471,705 |
|
|
$ |
1,041,899 |
|
Accounts Receivable
(net of allowance of $0 and $0 respectively |
|
|
77,429 |
|
|
|
109,589 |
|
Inventory |
|
|
491,603 |
|
|
|
387,736 |
|
Other
Current Assets |
|
|
37,485 |
|
|
|
33,480 |
|
Total
Current Assets |
|
|
1,078,222 |
|
|
|
1,572,704 |
|
Total
Assets |
|
$ |
1,078,222 |
|
|
$ |
1,572,704 |
|
LIABILITIES AND
STOCKHOLDERS’ & EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Current
Liabilities |
|
|
|
|
|
|
|
|
Accounts
Payable |
|
$ |
353,696 |
|
|
$ |
459,703 |
|
Accrued expenses-related party |
|
|
-
|
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
$ |
353,696 |
|
|
$ |
462,703 |
|
Stockholders’
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock
($0.001 par value, 1,000,000 shares authorized, and
1,000 issued and outstanding as of September 30, 2021 and
June 30, 2021, respectively) |
|
$ |
1 |
|
|
|
1 |
|
Series B preferred stock
($0.001 par value, 5,000 shares authorized, and 4,227 and
4655 issued and outstanding as of September 30, 2021 and June
30, 2021, respectively) |
|
|
4 |
|
|
|
5 |
|
Common stock ($0.001 par value,
200,000,000 shares authorized, and 85,090,986 issued and
outstanding as of September 30, 2021 and 80,707,459
issued and outstanding as of June 30, 2021, respectively) |
|
|
85,091 |
|
|
|
80,707 |
|
Additional paid in
capital |
|
|
26,959,911 |
|
|
|
26,226,159 |
|
Accumulated
deficit |
|
|
(26,320,481 |
) |
|
|
(25,196,871 |
) |
Total
Stockholders’ Equity |
|
|
724,526 |
|
|
|
1,110,001 |
|
Total
Liabilities & Stockholders’ Equity |
|
$ |
1,078,222 |
|
|
$ |
1,572,704 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
For the
three months
period ended
September 30,2021 |
|
|
For the
three months
period ended
September 30, 2020 |
|
Revenues |
|
$ |
114,453 |
|
|
$ |
126,983 |
|
Operating expenses |
|
|
|
|
|
|
|
|
Cost of products
sold |
|
|
124,874 |
|
|
|
229,696 |
|
Selling, general and administrative |
|
|
823,254 |
|
|
|
433,330 |
|
Total Operating
Expenses |
|
|
948,128 |
|
|
|
663,026 |
|
Loss from
operations |
|
|
(833,675 |
) |
|
|
(536,043 |
) |
Interest expense –
bank debt |
|
|
-
|
|
|
|
337 |
|
Interest expense –
shareholder |
|
|
-
|
|
|
|
83,955 |
|
Loss on
extinguishment of debt upon notes conversion |
|
|
-
|
|
|
|
188,397 |
|
Change in
derivative liability |
|
|
-
|
|
|
|
(207,524 |
) |
Interest expense –
other |
|
|
-
|
|
|
|
322,739 |
|
Other
expense- non cash |
|
|
-
|
|
|
|
19,877 |
|
Total other
expense |
|
|
|
|
|
|
407,781 |
|
Provision for income tax |
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(833,675 |
) |
|
$ |
(943,824 |
) |
|
|
|
|
|
|
|
|
|
Deemed dividend on
Series B Stock |
|
|
289,935 |
|
|
|
- |
|
Net loss
attributable to common shareholders |
|
$ |
(1,123,610 |
) |
|
$ |
(943,824 |
) |
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares of capital
outstanding – basic and diluted |
|
|
82,394,547 |
|
|
|
63,442,930 |
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT)
For the three months ended September 30, 2021, and
2020
|
|
Common Stock |
|
|
Preferred Stock A |
|
|
Preferred Stock B |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Total
Stockholders’
Equity |
|
|
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Deficit |
|
|
(Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020 |
|
|
61,796,680 |
|
|
$ |
61,797 |
|
|
|
1,000 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
$ |
13,088,177 |
|
|
$ |
(17,631,122 |
) |
|
$ |
(4,481,147 |
) |
Common
stock issued for interest |
|
|
312,938 |
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,165 |
|
|
|
-
|
|
|
|
36,478 |
|
Issuance
of common stock for debt conversion |
|
|
2,975,979 |
|
|
|
2,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344,024 |
|
|
|
-
|
|
|
|
347,000 |
|
Issuance of
warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,711 |
|
|
|
|
|
|
|
65,711 |
|
Loss on
fair value of shares issued upon debt conversion |
|
|
- |
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
397,532 |
|
|
|
-
|
|
|
|
397,532 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943,824 |
) |
|
|
(943,824 |
) |
Balance, three months ended September 30, 2020 |
|
|
65,085,597 |
|
|
$ |
65,086 |
|
|
$ |
1,000 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
$ |
13,931,609 |
|
|
|
(18,574,946 |
) |
|
$ |
(4,578,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
|
80,707,467 |
|
|
|
80,707 |
|
|
|
1,000 |
|
|
|
1 |
|
|
|
4,665 |
|
|
|
5 |
|
|
|
26,226,159 |
|
|
|
(25,196,871 |
) |
|
|
1,110,001 |
|
Common stock issued for services |
|
|
518,519 |
|
|
|
519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,481 |
|
|
|
|
|
|
|
140,000 |
|
Issuance of common stock from for preferred Series B
conversion |
|
|
3,865,000 |
|
|
|
3,865 |
|
|
|
|
|
|
|
|
|
|
|
(773 |
) |
|
|
(1 |
) |
|
|
(3,864 |
) |
|
|
|
|
|
|
(0 |
) |
Preferred B issued from private placement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335 |
|
|
|
0 |
|
|
|
335,000 |
|
|
|
|
|
|
|
335,000 |
|
Preferred B issued from private placement- financing cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,800 |
) |
|
|
|
|
|
|
(26,800 |
) |
Deemed dividends associated with Preferred B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289,935 |
|
|
|
(289,935 |
) |
|
|
-
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(833,675 |
) |
|
|
(833,675 |
) |
Balance, three months ended September 30, 2021 |
|
|
85,090,986 |
|
|
|
85,091 |
|
|
|
1,000 |
|
|
|
1 |
|
|
|
4,227 |
|
|
|
4 |
|
|
$ |
26,959,911 |
|
|
$ |
(26,320,481 |
) |
|
$ |
724,526 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
For the
three months
ended
September 30,
2021 |
|
|
For the
three months
ended
September 30,
2020 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
Net loss |
|
$ |
(833,675 |
) |
|
$ |
(943,824 |
) |
Adjustments to reconcile net loss to
net cash used in operations activities: |
|
|
|
|
|
|
|
|
Warrants issued for services
|
|
|
|
|
|
|
65,711 |
|
Stock issued for services |
|
|
140,000 |
|
|
|
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
322,739 |
|
Deferred financing fees and financing
cost |
|
|
-
|
|
|
|
45,577 |
|
Change in derivative liability
|
|
|
-
|
|
|
|
(207,524 |
) |
Loss on extinguishment of debt upon
notes conversion |
|
|
-
|
|
|
|
188,397 |
|
Change in operating
assets and liabilities |
|
|
|
|
|
|
|
|
Change in accounts receivable
|
|
|
32,160 |
|
|
|
(4,040 |
) |
Change in inventory |
|
|
(103,907 |
) |
|
|
62,221 |
|
Change in other current assets
|
|
|
(965 |
) |
|
|
126,053 |
|
Change in accounts payable
|
|
|
(106,007 |
) |
|
|
(81,725 |
) |
Change in
accrued expenses |
|
|
(6,000 |
) |
|
|
58,256 |
|
Net cash used in operating
activities |
|
|
(878,394 |
) |
|
|
(368,159 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from the sale of preferred
stock B - net |
|
|
308,200 |
|
|
|
|
|
Proceeds from the issuance of
debt-net |
|
|
-
|
|
|
|
180,000 |
|
Borrowings on
line of credit |
|
|
-
|
|
|
|
(1,103 |
) |
Net cash provided by financing
activities |
|
$ |
308,200 |
|
|
$ |
178,897 |
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN
CASH AND CASH EQUIVALENTS |
|
$ |
(570,194 |
) |
|
$ |
(189,262 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning of period |
|
$ |
1,041,899 |
|
|
$ |
197,622 |
|
Cash and cash
equivalents, end of period |
|
$ |
471,705 |
|
|
$ |
8,360 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash Paid For: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
-
|
|
|
$ |
337 |
|
Summary of Non-Cash
Investing and Financing Information: |
|
|
|
|
|
|
|
|
Initial derivative liability and debt
discount accounted |
|
$ |
-
|
|
|
$ |
126,029 |
|
Derivative liability reclassed to loss
on extinguishment of debt upon notes conversion |
|
$ |
-
|
|
|
$ |
189,257 |
|
Stock issued for conversion of
debt |
|
$ |
-
|
|
|
$ |
347,000 |
|
Stock Issued for Interest |
|
$ |
-
|
|
|
$ |
36,478 |
|
True-up adjustment in debt discount
and derivative liability |
|
$ |
-
|
|
|
$ |
37,360 |
|
Common stock issued for preferred
stock conversion |
|
$ |
3,865 |
|
|
$ |
-
|
|
Deemed dividend associated with
Preferred Stock B |
|
$ |
289,935 |
|
|
$ |
-
|
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1.
Description of Business
Nightfood Holdings, Inc. (“we”, “us” “the Company” or “Nightfood”)
is a Nevada corporation organized on October 16, 2013 to acquire
all of the issued and outstanding shares of Nightfood, Inc., a New
York corporation from its sole shareholder, Sean Folkson. All of
our operations are conducted by our Subsidiaries (Nightfood, Inc.
and MJ Munchies, Inc.)
Our corporate address is 520 White Plains Road – Suite 500,
Tarrytown, New York 10591 and our telephone number is 888-888-6444.
We maintain a web site at www.nightfood.com, along with many
additional web properties. Any information that may appear on our
web site should not be deemed to be a part of this
report.
The Company’s fiscal year end is June 30.
2.
Summary of Significant Accounting Policies
Management is responsible for the fair presentation of the
Company’s financial statements, prepared in accordance with U.S.
generally accepted accounting principles (GAAP).
Interim Financial Statements
These unaudited condensed consolidated financial statements for the
three months ended September 30, 2021, and 2020, respectively,
reflect all adjustments including normal recurring adjustments,
which, in the opinion of management, are necessary to present
fairly the financial position, results of operations and cash flows
for the periods presented in accordance with the accounting
principles generally accepted in the United States of America.
These interim unaudited condensed consolidated financial statements
should be read in conjunction with the Company’s consolidated
financial statements and notes thereto for the fiscal years ended
June 30, 2021, and 2020, respectively, which are included in the
Company’s Annual Report on Form 10-K for the fiscal year ended June
30, 2021 filed with the United States Securities and Exchange
Commission on October 13, 2021. The Company assumes that the users
of the interim financial information herein have read, or have
access to, the audited consolidated financial statements for the
preceding period, and that the adequacy of additional disclosure
needed for a fair presentation may be determined in that context.
The results of operations for the three months ended September 30,
2021 are not necessarily indicative of results for the entire year
ending June 30, 2022.
|
● |
We
made certain reclassifications to prior period amounts to conform
with the current year’s presentation. These reclassifications did
not have a material effect on our condensed consolidated statement
of financial position, results of operations or cash
flows. |
Use of Estimates
|
● |
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates
are used in the determination of depreciation and amortization, the
valuation for non-cash issuances of common stock, and the website,
income taxes and contingencies, valuing convertible preferred stock
for a “beneficial conversion feature” (“BCF”) and warrants among
others. |
Cash and Cash Equivalents
|
● |
The
Company classifies as cash and cash equivalents amounts on deposit
in the banks and cash temporarily in various instruments with
original maturities of three months or less at the time of
purchase. The Company places its cash and cash equivalents on
deposit with financial institutions in the United States. The
Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for
substantially all depository accounts. The Company from time to
time may have amounts on deposit in excess of the insured
limits. |
Fair Value of Financial Instruments
|
● |
Statement
of financial accounting standard FASB Topic 820, Disclosures about
Fair Value of Financial Instruments, requires that the Company
disclose estimated fair values of financial instruments. The
carrying amounts reported in the statements of financial position
for assets and liabilities qualifying as financial instruments are
a reasonable estimate of fair value. |
Inventories
|
● |
Inventories
consisting of packaged food items and supplies are stated at the
lower of cost (FIFO) or net realizable value, including provisions
for spoilage commensurate with known or estimated exposures which
are recorded as a charge to cost of sales during the period
spoilage is incurred. The Company has no minimum purchase
commitments with its vendors. |
Advertising Costs
|
● |
Advertising
costs are expensed when incurred and are included in advertising
and promotional expense in the accompanying statements of
operations. Although not traditionally thought of by many as
“advertising costs”, the Company includes expenses related to
graphic design work, package design, website design, domain names,
and product samples in the category of “advertising costs”. The
Company recorded advertising costs of $305,016 and $146,492 for the
three months ended September 30, 2021 and 2020,
respectively. |
Income Taxes
|
● |
The
Company has not generated any taxable income, and, therefore, no
provision for income taxes has been provided. Deferred income
taxes are reported for timing differences between items of income
or expense reported in the financial statements and those reported
for income tax purposes in accordance with FASB Topic 740,
“Accounting for Income Taxes”, which requires the use of the
asset/liability method of accounting for income taxes. Deferred
income taxes and tax benefits are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases, and for tax loss and credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The Company provides for deferred taxes for
the estimated future tax effects attributable to temporary
differences and carry-forwards when realization is more likely than
not. |
|
● |
A
valuation allowance has been recorded to fully offset the deferred
tax asset even though the Company believes it is more likely than
not that the assets will be utilized |
|
● |
The
Company’s effective tax rate differs from the statutory rates
associated with taxing jurisdictions because of permanent and
temporary timing differences as well as a valuation
allowance. |
Revenue Recognition
|
● |
The
Company generates its revenue by selling its nighttime snack
products wholesale to retailers and wholesalers. All sources of
revenue are recorded pursuant to FASB Topic 606 Revenue
Recognition, to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or
services. This includes a five-step framework that requires an
entity to: (i) identify the contract(s) with a customer, (ii)
identify the performance obligations in the contract, (iii)
determine the transaction price, (iv) allocate the transaction
price to the performance obligations in the contract, and (v)
recognize revenue when the entity satisfies a performance
obligation. In addition, this revenue generation requires
disclosure of the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with
customers. |
|
● |
The
Company revenue from contracts with customers provides that an
entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. |
|
● |
The
Company incurs costs associated with product distribution, such as
freight and handling costs. The Company has elected to treat these
costs as fulfillment activities and recognizes these costs at the
same time that it recognizes the underlying product revenue. As
this policy election is in line with the Company’s previous
accounting practices, the treatment of shipping and handling
activities under FASB Topic 606 did not have any impact on the
Company’s results of operations, financial condition and/or
financial statement disclosures. |
|
● |
The
adoption of ASC 606 did not result in a change to the accounting
for any of the Company’s revenue streams that are within the scope
of the amendments. The Company’s services that fall within the
scope of ASC 606 are recognized as revenue as the Company satisfies
its obligation to the customer. |
|
● |
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with
Customers, which updates revenue recognition guidance relating to
contracts with customers. This standard states that an entity
should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. This standard is effective
for annual reporting periods, and interim periods therein,
beginning after July 1, 2018. The Company adopted ASU 2014-09 and
its related amendments (collectively known as “ASC 606”) during the
first quarter of fiscal 2019 using the full retrospective
method. |
|
● |
Management
reviewed ASC 606-10-32-25 which states “Consideration payable to
a customer includes cash amounts that an entity pays, or expects to
pay, to the customer (or to other parties that purchase the
entity’s goods or services from the customer). Consideration
payable to a customer also includes credit or other items (for
example, a coupon or voucher) that can be applied against amounts
owed to the entity (or to other parties that purchase the entity’s
goods or services from the customer). An entity shall account for
consideration payable to a customer as a reduction of the
transaction price and, therefore, of revenue unless the payment to
the customer is in exchange for a distinct good or service (as
described in paragraphs 606-10-25-18 through 25-22) that the
customer transfers to the entity. If the consideration payable to a
customer includes a variable amount, an entity shall estimate the
transaction price (including assessing whether the estimate of
variable consideration is constrained) in accordance with
paragraphs 606-10-32-5 through 32-13.” |
|
● |
If
the consideration payable to a customer is a payment for a distinct
good service, then in accordance with ASC 606-10-32-26, the entity
should account for it the same way that it accounts for other
purchases from suppliers (expense). Further, “if the amount of
consideration payable to the customer exceeds the fair value of the
distinct good or service that the entity receives from the
customer, then the entity shall account for such an excess as a
reduction of the transaction price. If the entity cannot reasonably
estimate the fair value of the good or service received from the
customer, it shall account for all of the consideration payable to
the customer as a reduction of the transaction
price.” |
|
● |
Under
ASC 606-10-32-27, if the consideration payable to a customer is
accounted for as a reduction of the transaction price, “an
entity shall recognize the reduction of revenue when (or as) the
later of either of the following events occurs: |
|
a) |
The
entity recognizes revenue for the transfer of the related goods or
services to the customer. |
|
b) |
The
entity pays or promises to pay the consideration (even if the
payment is conditional on a future event). That promise might be
implied by the entity’s customary business
practices.” |
|
● |
Management
reviewed each arrangement to determine if each fee paid is for a
distinct good or service and should be expensed as incurred or if
the Company should recognize the payment as a reduction of
revenue. |
|
● |
The
Company recognizes revenue upon shipment based on meeting the
transfer of control criteria. The Company has made a policy
election to treat shipping and handling as costs to fulfill the
contract, and as a result, any fees received from customers are
included in the transaction price allocated to the performance
obligation of providing goods with a corresponding amount accrued
within cost of sales for amounts paid to applicable
carriers. |
Concentration of Credit Risk
|
● |
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash deposits at financial
institutions. At various times during the year, the Company may
exceed the federally insured limits. To mitigate this risk, the
Company places its cash deposits only with high credit quality
institutions. Management believes the risk of loss is minimal. At
September 30, 2021 and June 30, 2021, the Company did not have any
uninsured cash deposits. |
Beneficial Conversion Feature
|
● |
For
conventional convertible debt where the rate of conversion is below
market value, the Company records any “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. |
Beneficial Conversion Feature – Series B Preferred Stock (deemed
dividend):
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) (the “Conversion Shares”) and (ii) 5,000
common stock purchase warrants, expiring April 16, 2026 (the
“Warrants”). The Warrants have an initial exercise price of $0.30
per share.
Based on the guidance in ASC 470-20-20, the Company determined that
a beneficial conversion feature existed, as the effective
conversion price for the Series B Preferred Stock at issuance was
less than the fair value of the common stock which the preferred
shares are convertible into. A beneficial conversion feature based
on the relative fair value on the date of issuances for the Series
B Preferred Stock and warrants was $289,935 and $-0- during the
three months ended September 30, 2021 and 2020, respectively.
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. |
Equity Issuance Costs
The Company accounts for costs related to the issuance of equity as
a charge to Paid in Capital and records
the equity transaction net of issuance costs.
Original Issue Discount
|
● |
If
debt is issued with an original issue discount, the original issue
discount is recorded to debt discount, reducing the face amount of
the note and is amortized over the life of the debt to the
statement of operations as amortization of debt discount. If a
conversion of the underlying debt occurs, a proportionate share of
the unamortized amounts is immediately expensed. |
Valuation of Derivative Instruments
|
● |
ASC
815 “Derivatives and Hedging” requires that embedded derivative
instruments be bifurcated and assessed, along with free-standing
derivative instruments such as warrants, on their issuance date and
measured at their fair value for accounting purposes. In
determining the appropriate fair value, the Company uses the
Trinomial Tree option pricing formula. Upon conversion of a note
where the embedded conversion option has been bifurcated and
accounted for as a derivative liability, the Company records the
shares at fair value, relieves all related notes, derivatives and
debt discounts and recognizes a net gain or loss on derivative
liability under the line item “change in derivative
liability”. |
Derivative Financial Instruments
|
● |
The
Company does not use derivative instruments to hedge exposures to
cash flow, market or foreign currency risks. The Company evaluates
all of its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and then is revalued at each
reporting date, with changes in fair value reported in the
consolidated statement of operations. For stock based derivative
financial instruments, Fair value accounting requires bifurcation
of embedded derivative instruments such as conversion features in
convertible debt or equity instruments, and measurement of their
fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Trinomial Tree option-pricing
model. In assessing the convertible debt instruments, management
determines if the convertible debt host instrument is conventional
convertible debt and further if there is a beneficial conversion
feature requiring measurement. If the instrument is not considered
conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial
instruments. |
|
● |
Once
determined, derivative liabilities are adjusted to reflect fair
value at the end of each reporting period. Any increase or decrease
in the fair value from inception is made quarterly and appears in
results of operations as a change in fair market value of
derivative liabilities. |
Stock-Based Compensation
|
● |
The
Company accounts for share-based awards issued to employees in
accordance with FASB ASC 718. Accordingly, employee share-based
payment compensation is measured at the grant date, based on the
fair value of the award, and is recognized as an expense over the
requisite service period. Additionally, share-based
awards to non-employees are expensed over the period in which the
related services are rendered at their fair value. The Company
applies ASC 718, “Equity Based Payments to Non-Employees”, with
respect to options and warrants issued to
non-employees. |
Customer Concentration
|
● |
During
the three months ended September 30, 2021, the Company had five
customers each account for exceeding 10% of the gross sales. During
the three months ended September 30, 2020, one customer accounted
for approximately 39% of the gross sales |
Vendor Concentration
|
● |
During
the three-month period ended September 30, 2021, one vendor
accounted for more than 10% of our operating
expenses.
During the
three-month period ended September 30, 2020, three vendors
accounted for more than 10% of our operating
expenses. |
Receivables Concentration
|
● |
As of
September 30, 2021, the Company had receivables due from eight
customers. Four of which each accounted for
approximately over 13% of the total balance. As of June 30, 2021,
the Company had receivables due from five customers, one of whom
accounted for over 73% of the outstanding. One of the remaining
four accounted for 11.5% of the outstanding balance. |
Income/Loss Per Share
|
● |
Net income/loss per share data for the three
-month period ending September 30, 2021, is based on net
income/loss available to common shareholders (net loss for the
period ended September 30, 2020) divided by the weighted average of
the number of common shares outstanding. The Company does not
present a diluted Earnings per share as the convertible debt and
interest that is convertible into shares of the Company’s common
stock would not be included in this computation, as the Company is
generating a loss and therefore these shares would be
antidilutive. Each share of the Company’s Class B Preferred
Stock is convertible into 5,000 shares of common stock, and 5,000
warrants, each warrant with an exercise price of $.30. Should
all the 4,227 remaining unconverted shares of B Stock convert, that
would result in an additional 21,135,000 shares issued and
outstanding. |
Reclassification
|
● |
The
Company may make certain reclassifications to prior period amounts
to conform with the current year’s presentation. These
reclassifications did not have a material effect on its
consolidated statement of financial position, results of operations
or cash flows. |
Recent Accounting Pronouncements
|
● |
ASU No. 2019-12, Simplifying the Accounting for Income
Taxes |
|
● |
In
December 2019, the FASB issued ASU No. 2019-12, Simplifying the
Accounting for Income Taxes. The ASU is intended to enhance and
simplify aspects of the income tax accounting guidance in ASC 740
as part of the FASB’s simplification initiative. This guidance is
effective for fiscal years and interim periods within those years
beginning after December 15, 2020 with early adoption permitted.
The Company has adopted this ASU and there is no material impact on
our Consolidated Financial Statements. |
|
● |
In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform
(Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting. This guidance provides temporary
optional expedients and exceptions to the U.S. GAAP guidance on
contract modifications and hedge accounting to ease the financial
reporting burdens of the expected market transition from the London
Interbank Offered Rate (“LIBOR”) and other interbank offered rates
to alternative reference rates, such as the Secured Overnight
Financing Rate. This ASU is applied prospectively and becomes
effective immediately upon the transition from LIBOR. The Company
has analyzed the guidance and the Company has no contract or
hedging relationships that will be affected by this guidance. The
adoption of this guidance will have no impact on its consolidated
financial statements. |
|
● |
In
August 2020, the FASB issued ASU 2020-06 to simplify the current
guidance for convertible instruments and the derivatives scope
exception for contracts in an entity’s own equity. Additionally,
the amendments affect the diluted EPS calculation for instruments
that may be settled in cash or shares and for convertible
instruments. The update also provides for expanded disclosure
requirements to increase transparency. For SEC filers, excluding
smaller reporting companies, this update is effective for fiscal
years beginning after December 15, 2021 including interim periods
within those fiscal years. The adoption of this guidance does not
materially impact our financial statements and related
disclosures. |
|
● |
The
Company will continue to monitor these emerging issues to assess
any potential future impact on its financial
statements. |
3.
Going Concern
|
● |
The
Company’s financial statements are prepared using generally
accepted accounting principles, which contemplate the realization
of assets and liquidation of liabilities in the normal course of
business. Because the business is new and has limited operating
history and relatively few sales, no certainty of continuation can
be stated. |
|
● |
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as
a going concern. For the three months ended September 30, 2021, the
Company had an operating and net loss of $833,675 and negative cash
flow from operations of $878,394 and an accumulated deficit of
$26,320,481. |
|
● |
The
Company believes it has sufficient cash on hand to operate until
the first quarter of calendar 2022 at which time it will require
additional funds for operating capital and the planned hotel
rollout of its products in early 2022. We do not believe our
cash on hand will be adequate to satisfy our long-term working
capital needs. We believe that our current capitalization
structure, combined with ongoing increases in distribution,
revenues, and market capitalization, will enable us to successfully
secure required financing to continue our growth. |
|
● |
Because
the business has limited operating history and sales, no certainty
of continuation can be stated. Management has devoted a significant
amount of time in the raising of capital from additional debt and
equity financing. However, the Company’s ability to continue as a
going concern will again be dependent upon raising additional funds
through debt and equity financing and generating revenue. There are
no assurances the Company will receive the necessary funding or
generate revenue necessary to fund operations
long-term. |
|
● |
The
Company cannot give any assurance that it will, in the future, be
able to achieve a level of profitability from the sale of its
products to sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a
going concern for one year from the date the financials are issued.
The accompanying financial statements do not include any
adjustments to reflect the possible future effects on
recoverability and reclassification of assets or the amounts and
classification of liabilities that may result from the outcome of
this uncertainty. |
|
● |
The
outbreak of the novel coronavirus (COVID-19), including the
measures to reduce its spread, and the impact on the economy,
cannot fully be understood and identified. Indications to date are
that there are somewhat offsetting factors relating to the impact
on our Company. Industry data shows that supermarket sales remain
up, with more people spending more time at home. Anecdotally and
statistically, snacking activity is also up while consumers are
reporting a decrease in sleep quality and sleep
satisfaction. |
|
● |
The
offsetting factors are the impact of the virus on the overall
economy, and the impact that a down economic period can have on
consumer behavior, including trial of new brands. Greater
unemployment, recession, and other possible unforeseen factors are
shown to have an impact. Research indicates that consumers are less
likely to try new brands during economic recession and stress,
returning to the legacy brands they’ve known for
decades. |
|
● |
With
consumers generally making fewer shopping trips, while buying more
on those occasions and reverting back to more familiar brands,
certain brand-launch marketing tactics, such as in-store displays
and in-store product sampling tables, are either impaired or
impermissible. So, while overall night snacking demand is up, and
consumer need/desire for better sleep is also stronger, driving
consumer trial and adoption has been more difficult and expensive
during these circumstances. |
|
● |
From
both public statements, and conversations between Nightfood
Management and current and former executives from certain global
food and beverage conglomerates, it has been affirmed to Management
that there is increased strategic interest in the nighttime
nutrition space as a potential high-growth opportunity, partially
due to recent declines in consumer sleep quality and increases in
at-home nighttime snacking. |
|
● |
We
have experienced no major issues with supply chain or logistics.
Order processing function has been normal to date, and our
manufacturers have assured us that their operations are “business
as usual” as of the time of this filing. |
|
● |
It is
possible that the fallout from the pandemic could make it more
difficult in the future for the Company to access required growth
capital, possibly rendering us unable to meet certain debts and
expenses. |
|
● |
More
directly, COVID has impaired Nightfood’s ability to execute certain
in-store and out-of-store marketing initiatives. For example, since
the inception of COVID, the Company was unable to conduct in-store
demonstrations and unable to participate in local pregnancy, baby
expos, and health expos that were originally intended to be part of
our marketing mix. |
|
● |
Additionally,
with more consumers shopping online, both for delivery or at-store
pickup, the opportunity for shoppers to learn about new brands
at-shelf has been somewhat diminished. Management is working to
identify opportunities to build awareness and drive trial under
these new circumstances. |
|
● |
It is
impossible to know what the future holds with regard to the virus,
both for our company and in the broader sense. There are many
uncertainties regarding the current coronavirus pandemic, and the
Company is closely monitoring the impact of the pandemic on all
aspects of its business, including how it will impact its
customers, vendors, and business partners. It is difficult to know
if the pandemic has materially impacted the results of operations,
and we are unable to predict the impact that COVID-19 will have on
our financial position and operating results due to numerous
uncertainties. The Company expects to continue to assess the
evolving impact of the COVID-19 pandemic and intends to make
adjustments accordingly, if necessary. |
4.
Accounts receivable
|
● |
The
Company’s accounts receivable arises primarily from the sale of the
Company’s ice cream. On a periodic basis, the Company evaluates
each customer account and based on the days outstanding of the
receivable, history of past write-offs, collections, and current
credit conditions, writes off accounts it considers uncollectible.
With most of our retail and distribution partners, invoices will
typically be due in 30 days. The Company does not accrue interest
on past due accounts and the Company does not require collateral.
Accounts become past due on an account-by-account basis.
Determination that an account is uncollectible is made after all
reasonable collection efforts have been exhausted. The Company has
not provided any accounts receivable allowances for September 30,
2021 and June 30, 2021, respectively. |
5.
Inventories
|
● |
Inventory
consists of the following at September 30, 2021 and June 30,
2021: |
|
|
As
of |
|
|
As
of |
|
|
|
September 30,
2021 |
|
|
June 30,
2021 |
|
Inventory:Finished Goods -
Ice Cream |
|
$ |
412,702 |
|
|
$ |
338,368 |
|
Inventory:Ingredients |
|
$ |
42,792 |
|
|
$ |
14,760 |
|
Inventory:Packaging |
|
$ |
60,512 |
|
|
$ |
59,010 |
|
Inventory:Allowance for Unsaleable Invent |
|
$ |
(24,403 |
) |
|
$ |
(24,402 |
) |
Total Inventory |
|
$ |
491,603 |
|
|
$ |
387,736 |
|
Inventories are stated at the lower of cost or net realizable
value. The Company periodically reviews the value of items in
inventory and provides write-downs or write-offs of inventory based
on its assessment of market conditions and the products relative
shelf life. Write-downs and write-offs are charged to loss on
inventory write down.
6.
Other current assets
|
● |
Other
current assets consist of the following vendor deposits at
September 30, 2021 and June 30, 2021. The majority of this
amount relates to deposits towards packaging
purchases. |
|
|
September 30,
2021 |
|
|
June 30,
2021 |
|
Other Current Assets |
|
|
|
|
|
|
Deposits |
|
$ |
37,485 |
|
|
$ |
33,480 |
|
TOTAL |
|
$ |
37,485 |
|
|
$ |
33,480 |
|
7.
Other Current Liabilities
Other current liabilities consist of the following at September 30,
2021 and June 30, 2021:
|
|
September 30,
2021 |
|
|
June 30,
2021 |
|
Other Current Liabilities |
|
|
|
|
|
|
Accrued Consulting Fees (related party) |
|
$ |
-
|
|
|
$ |
3,000 |
|
TOTAL |
|
$ |
-
|
|
|
$ |
3,000 |
|
8.
Convertible Notes Payable
|
● |
Convertible
Notes Payable consist of the following at June 30, 2021. As of June
30, 2021 all of these notes have been retired. |
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.
This note
has been successfully retired via conversions into shares as of
June 30, 2021.
On February 14, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated February
14, 2019, in the amount of $104,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 14, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $104,000 Notes was calculated using the Black-Scholes
pricing model at $90,567, with the following assumptions: risk-free
interest rate of 2.53%, expected life of 1 year, volatility of
136%, and expected dividend yield of zero. Because the fair value
of the note did not exceed the net proceeds from the $104k Notes,
no charge was recorded to “Financing cost” for the excess of the
fair value of the note. As of September 30, 2020, and June
30, 2020, the debt discount was $0 and $0, respectively. $50,000 of
the note has been successfully retired via conversion into shares
during the year ended June 30, 2020 and $54,000 of the note has
been successfully retired via conversion into shares during the
three months ended September 30, 2020.The Company fair valued the
notes as of conversion date and accounted for a loss on conversion
of $4,098 included under line item “Loss on debt extinguishment
upon note conversion, net” during 2020 fiscal year and accounted
for a loss on conversion of $36,242.
On April 29, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated April 29,
2019, in the amount of $208,000. The lender was Eagle Equities,
LLC. The notes have a maturity of April 29, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest
trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $208,000 Notes was calculated using the Black-Scholes
pricing model at $170,098, with the following assumptions:
risk-free interest rate of 2.42%, expected life of 1 year,
volatility of 118%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$208k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of September 30, 2020, and
June 30, 2020, the debt discount was $0 and $0, respectively.
$208,000 of the note has been successfully retired via conversion
into shares during the three months ended September 30, 2020. The
Company fair valued the notes as of conversion date and accounted
for a loss on conversion of $109,561 included under line item “Loss
on debt extinguishment upon note conversion, net”.
On June 11, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated June 11, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes
have a maturity of June 11, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest trading price
on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior
to conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $300,000 Notes was
calculated using the Black-Scholes pricing model at $240,217, with
the following assumptions: risk-free interest rate of 2.05%,
expected life of 1 year, volatility of 16%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the $300k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note.
As of September 30, 2020 and June 30, 2020, the debt discount
was $0 and $46,726, respectively. The Company fair valued the notes
as of conversion date and accounted for a loss on conversion of
$42,595 included under line item “Loss on debt extinguishment upon
note conversion, net”.
On July 5, 2019, the Company entered into a convertible promissory
note and a security purchase agreement dated July 5, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes
have a maturity of July 5, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest trading price
on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior
to conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC 815,
“Derivatives and Hedging.” The fair value of the $300,000 Notes was
calculated using the Black-Scholes pricing model at $239,759, with
the following assumptions: risk-free interest rate of 1.98%,
expected life of 1 year, volatility of 118%, and expected dividend
yield of zero. Because the fair value of the note did not exceed
the net proceeds from the 300k Notes, no charge was recorded to
“Financing cost” for the excess of the fair value of the note. As
of June 30, 2021 and June 30, 2020, the debt discount was $0 and
$2,627, respectively. This note has been
successfully retired via conversions into shares as of June 30,
2021.
On August 8, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated August 8,
2019, in the amount of $300,000. The lender was Eagle Equities,
LLC. The notes have a maturity of August 8, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest
trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $300,000 Notes was calculated using the Black-Scholes
pricing model at $254,082, with the following assumptions:
risk-free interest rate of 1.79%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$300k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2021, and June
30, 2020 the debt discount was $0 and $26,452, respectively.
This note
has been successfully retired via conversions into shares as of
June 30, 2021.
On August 29, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated August 29,
2019, in the amount of $300,000. The lender was Eagle Equities,
LLC. The notes have a maturity of August 29, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest
trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days
immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $300,000 Notes was calculated using the Black-Scholes
pricing model at $234,052, with the following assumptions:
risk-free interest rate of 1.75%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$300,000 Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2021, and June
30, 2020 the debt discount was $0 and $37,833, respectively.
This note
has been successfully retired via conversions into shares as of
June 30, 2021.
On September 24, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated September
24, 2019, in the amount of $150,000. The lender was Eagle Equities,
LLC. The notes have a maturity of September 24, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $118,009, with the following assumptions:
risk-free interest rate of 1.78%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$150k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2021 and June
30, 2020, the debt discount was $0 and $27,482, respectively.
This note
has been successfully retired via conversions into shares as of
June 30, 2021.
On November 7, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated November 7,
2019, in the amount of $150,000. The lender was Eagle Equities,
LLC. The notes have a maturity of November 7, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $121,875, with the following assumptions:
risk-free interest rate of 1.58%, expected life of 1 year,
volatility of 122%, and expected dividend yield of zero. Because
the fair value of the note did not exceed the net proceeds from the
$150k Notes, no charge was recorded to “Financing cost” for the
excess of the fair value of the note. As of June 30, 2021 and June
30, 2020, the debt discount was $0 and $43,074, respectively.
This note
has been successfully retired via conversions into shares as of
June 30, 2021.
On December 31, 2019, the Company entered into a convertible
promissory note and a security purchase agreement dated December
31, 2019, in the amount of $150,000. The lender was Eagle Equities,
LLC. The notes have a maturity of December 31, 2020 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $189,172, with the following assumptions:
risk-free interest rate of 1.59%, expected life of 1 year,
volatility of 115%, and expected dividend yield of zero. Because
the fair value of the note 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, 2021 and June
30, 2020, the debt discount was $0 and $75,205, respectively.
This note
has been successfully retired via conversions into shares as of
June 30, 2021.
On February 6, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated February 6,
2020, in the amount of $200,000. The lender was Eagle Equities,
LLC. The notes have a maturity of February 6, 2021 and interest
rate of 8% per annum and are convertible at a price of 70% of the
lowest trading price on the primary trading market on which the
Company’s Common Stock is then listed for the fifteen (15) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $200,000 Notes was calculated using the Black-Scholes
pricing model at $156,061, with the following assumptions:
risk-free interest rate of 1.51%, expected life of 1 year,
volatility of 113%, and expected dividend yield of zero. As
of September 30, 2020 and June 30, 2020, the debt discount was
$54,728 and $94,064, respectively. On February 26, 2020, the
Company entered into a convertible promissory note and a security
purchase agreement dated February 26, 2020, in the amount of
$187,000. The lender was Eagle Equities, LLC. The notes have a
maturity of February 6, 2021 and interest rate of 8% per annum and
are convertible at a price of 70% of the lowest trading price on
the primary trading market on which the Company’s Common Stock is
then listed for the fifteen (15) trading days immediately prior to
conversion. The note may be prepaid, but carries a penalty in
association with the remittance amount, as there is an accretion
component to satisfy the note with cash. The convertible note
qualifies for derivative accounting and bifurcation under ASC
“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, 2021 and June 30, 2020, the debt
discount was $0 and $94,064, respectively. . This note has been
successfully retired via conversions into shares as of June 30,
2021.
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. This note
was settled as part of a debt settlement with Eagle Equities, LLC
in conjunction with the Nightfood Holdings, Inc.
financing/refinancing in April 2021.
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. The Company accounted for a loss on refinancing of
25,722 for unamortized of discount included under line item “Loss
on debt extinguishment upon note conversion, net”.
This note was settled as part of a debt settlement with Eagle
Equities, LLC in conjunction with the Nightfood Holdings,
Inc. financing/refinancing in April 2021.
On August 12, 2020, the Company entered into a convertible
promissory note and a security purchase agreement dated August 12,
2020, in the amount of $205,700. This note carried an Original
Discount of 10% or $18,700 which was included in interest expense
at the time of valuation. The lender was Eagle Equities, LLC. The
notes have a maturity of August 12, 2021 and interest rate of 8%
per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the
Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but
carries a penalty in association with the remittance amount, as
there is an accretion component to satisfy the note with cash. The
convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair
value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $126,029, with the following assumptions:
risk-free interest rate of 0.13%, expected life of 1 year,
volatility of 101%, and expected dividend yield of zero. This note
was settled as part of a debt settlement with Eagle Equities, LLC
in conjunction with the Nightfood Holdings, Inc.
financing/refinancing in April 2021.
|
● |
Below
is a reconciliation of the convertible notes payable as presented
on the Company’s balance sheet as of September 30, 2020 and June
30, 2021: |
Convertible Notes payable |
|
Principal $ |
|
|
Debt
Discount $ |
|
|
Net
Value $ |
|
Balance at June 30, 2020 |
|
$ |
2,935,400 |
|
|
$ |
(605,211 |
) |
|
$ |
2,330,189 |
|
Convertible notes payable issued during the fiscal year ended June
30, 2021 |
|
|
822,800 |
|
|
|
|
|
|
|
822,800 |
|
Notes converted into shares of common stock |
|
|
(1,433,000 |
) |
|
|
|
|
|
|
(1,433,000 |
) |
Debt discount associated with new convertible notes |
|
|
|
|
|
|
(512,993 |
) |
|
|
(512,993 |
) |
Amortization of debt discount |
|
|
|
|
|
|
814,769 |
|
|
|
814,769 |
|
True-up adjustment in debt discount and derivative liability |
|
|
|
|
|
|
(37,360 |
) |
|
|
(37,360 |
) |
Notes retired due to refinancing |
|
|
(2,325,200 |
) |
|
|
340,795 |
|
|
|
(1,984,405 |
) |
Balance at June 30, 2021 |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
Change |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at September 30, 2021 |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
All notes were successfully retired at June 30, 2021.
Interest expense for the three months ended September 30, 2021 and
2020 totaled $0 and $322,739, respectively.
9.
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. |
|
● |
Below is a reconciliation of the derivative
liability as presented on the Company’s balance sheet as of June
30, 2021 and September 30, 2021. |
|
● |
Change
in derivative liability for the three months ended September 30,
2021 and 2020, totaled $0 and $207,524, respectively. |
Derivative liability as of June 30, 2020 |
|
$ |
1,590,638 |
|
Initial derivative liability accounted
for convertible notes payable issued during the period ended June
30, 2021 |
|
|
512,993 |
|
True-up adjustment in debt discount
and derivative liability |
|
|
37,360 |
|
Change in derivative liability during
the period |
|
|
(853,329 |
) |
Notes retired due to refinancing |
|
|
(1,287,662 |
) |
Derivative liability as of June 30,
2021 |
|
$ |
-
|
|
Change |
|
|
-
|
|
September 30,
2021 |
|
|
-
|
|
10.
Capital Stock Activity
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.
Common Stock
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 85,090,986 and
80,707,459 shares of its $0.001 par value common stock issued and
outstanding as of September 30, 2021 and June 30, 2021
respectively. |
|
● |
The Company had 4,277 and 0 shares
of its $0.001 par value Series B Preferred Stock issued and
outstanding as of September 30, 2021 and June 30, 2021
respectively. |
|
● |
During the three months ended September 30, 2021,
the Company issued an aggregate of 518,519 shares of its $0.001 par
value common stock for services valued at $140,000. During the
three months ended September 30, 2020, the Company issued an
aggregate of 0 shares of its $.001 par value common stock for
services valued at $0. |
|
● |
During
the three months ended September 30, 2021, the Company sold 335
shares of its $0.001 par value Series B Preferred Stock for gross
cash proceeds of 335,000 |
|
● |
During
the three months ended September 30, 2021, holders of the Company’s
Series B Preferred Stock converted 773 shares of Series B Preferred Stock into
3,865,000 shares of its common stock |
During the three months ended September 30, 2020 the Company issued
2,975,979 shares in regards to debt being converted into stock
valued at $347,000, and issued 312,938 shares of common stock
valued at $36,478 as part of a loan agreement and payment of
interest as part of the debt conversion.
Preferred Stock
Series A Stock
On July 9 2018, the Company was authorized to issue 1,000,000
shares of $0.001 par value per share Preferred Stock. Of the
1,000,000 shares. 10,000 shares were designated as Series A
Preferred Stock (“Series A Stock”). Holders of Series A 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 the Series A Stock which votes with the common
stock and has an aggregate of 100,000,000 votes.
The Company had 1,000 and 1,000 shares of its $0.001 par value
preferred Series A stock issued and outstanding as of September 30,
2021, and June 30, 2021, respectively.
Series B Stock
In April 2021, the Company designated 5,000 shares of its Preferred
Stock as Series B Preferred Stock (“B Stock”), each Series B share
of which is convertible into 5,000 shares of common stock and 5,000
non-detachable warrants with a strike price of $.30.
During the
three months ended September 2021, the Company issued 335
shares of B Stock to
investors in exchange for invested capital at a price of $1,000 per
share. These proceeds were used for operating capital. The Series B
stock meets the criteria for equity classification and is accounted
for as equity transactions. Specifically, among other factors, this
qualifies as equity because redemption is not invoked at the option
of the holder and the Series B stock does not have to be redeemed
on a specified date.
Dividends
The Company has never declared dividends, however as set out below,
during the three months ended September 30, 2021, upon issuance of
a total of 350 shares of Series B Preferred stock the Company
recorded a deemed dividend as a result of beneficial conversion
feature associated with the transaction.
In
connection with certain conversion terms provided for in the
designation of the Series B Preferred Stock, pursuant to which each
share of Series B Preferred Stock is convertible into 5,000 shares
of common stock and 5,000 warrants, the Company recognized a
beneficial conversion feature upon the conclusion of the
transaction in the amount of $4,375,860. The
beneficial
conversion feature was treated as a deemed dividend, and fully
amortized on the transaction date due to the fact that the issuance
of the Series B preferred stock was classified as
equity.
11.
Warrants
|
● |
The
following is a summary of the Company’s outstanding common stock
purchase warrants. Of the 500,000 warrants shown below at an
exercise price of $.15, these warrants were issued as compensation
for a four-year advisory agreement. 150,000 warrants vested on
July 24, 2018, another 150,000 on July 24, 2019, another 150,000
vested on July 24, 2020, and the remaining 50,000 vested on July
24, 2021. These warrants were all accounted for in Fiscal
2020. |
|
● |
In July, 2020, the Company entered into a warrant
agreement with one of the Company’s vendors for 500,000 underlying
shares at a strike price of $0.50 having a term of five years. The
Company valued these warrants using the Black Scholes model
utilizing a 107.93% volatility, a provision for dividends of $0,
and a risk-free rate of 0.29%, respectively. |
|
● |
In exchange for the agreement to lock up shares
of Nightfood owned by Mr. Folkson, Mr. Folkson received warrants to
acquire 400,000 shares of common stock on February 4, 2021, at a
strike price of $.30, and with a term of twelve (12) months from
the date of that agreement. The warrants include a provision for
cashless exercise and will expire if not exercised within the
twelve-month term. The Company valued these warrants using the
Black Scholes model utilizing a 107.93% volatility, a provision for
dividends of $0, and a risk-free rate of 0.50%. |
During the three months ended September 30, 2021, holders of the
Company’s Series B Preferred Stock converted 773 shares of Series B
Preferred Stock into 3,865,000 shares of its common stock, along
with that 3,865,000 warrants issued to those holders.
|
● |
The aggregate intrinsic value of the warrants as
of September 30, 2021 is $503,000. |
|
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
Exercise Price |
|
|
June 30,
2021 |
|
|
Issued in Q1
2022 |
|
|
Expired |
|
|
September 30,
2021 |
|
$ |
0.01 |
|
|
|
1,600,000 |
|
|
|
|
|
|
|
-
|
|
|
|
1,600,000 |
|
$ |
0.15 |
|
|
|
500,000 |
|
|
|
|
|
|
|
-
|
|
|
|
500,000 |
|
$ |
0.20 |
|
|
|
2,250,000 |
|
|
|
|
|
|
|
|
|
|
|
2,250,000 |
|
$ |
0.30 |
|
|
|
2,650,000 |
|
|
|
3,865,000 |
|
|
|
-
|
|
|
|
6,515,000 |
|
$ |
0.40 |
|
|
|
150,000 |
|
|
|
|
|
|
|
-
|
|
|
|
150,000 |
|
$ |
0.50 |
|
|
|
500,000 |
|
|
|
|
|
|
|
-
|
|
|
|
500,000 |
|
$ |
0.75 |
|
|
|
300,000 |
|
|
|
|
|
|
|
-
|
|
|
|
300,000 |
|
$ |
1.00 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
8,050,000 |
|
|
|
3,865,000 |
|
|
|
-
|
|
|
|
11,915,000 |
|
12.
Fair Value of Financial Instruments
|
● |
Cash
and Equivalents, Receivables, Other Current Assets, Short-Term
Debt, Accounts Payable, Accrued and Other Current
Liabilities. |
|
● |
The
carrying amounts of these items approximated fair
value. |
|
● |
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase
the comparability of fair value measures, Financial Accounting
Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair
value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurement) and the
lowest priority to unobservable inputs (level 3
measurements). |
Level 1— Valuations based on quoted prices for
identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other
than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets, quoted prices for
identical or similar assets and liabilities in markets that are not
active, or other inputs that are observable or can be corroborated
by observable market data.
Level 3—Valuations based on unobservable inputs
reflecting our own assumptions, consistent with reasonably
available assumptions made by other market participants. These
valuations require significant judgment.
The application of the three levels
of the fair value hierarchy under Topic 820-10-35 to our assets and
liabilities are described below:
|
|
September 30, 2020 Fair Value Measurements |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total Fair
Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
Total |
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
|
$ |
-
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short and long-term debt |
|
|
$ |
|
|
$ |
-
|
|
|
$ |
2,794,100 |
|
|
$ |
2,794,100 |
|
Management considers all of its derivative liabilities to be Level
3 liabilities. At September 30, 2021 and June 30, 2021,
respectively the Company had outstanding derivative liabilities,
including those from related parties of $-0- and $-0-,
respectively.
13.
Commitments and Contingencies:
|
● |
The
Company has entered into certain consulting agreements which carry
commitments to pay advisors and consultants should certain events
occur. An agreement is in place with one Company Advisor that calls
for total compensation over the four-year Advisor Agreement of
500,000 warrants with an exercise price of $.15 per share, of which
all have vested. |
|
● |
CEO
Sean Folkson has a twelve-month consulting agreement which went
into effect on February 4, 2021, which will reward him with bonuses
earned of 1,000,000 warrants at a strike price of $.50 when the
Company records its first quarter with revenues over $1,000,000, an
additional 3,000,000 warrants with a $.50 strike price when the
Company records its first quarter with revenues over $3,000,000,
and an additional 3,000,000 warrants with a $1 strike price when
the Company records its first quarter with revenues over
$5,000,000. Mr. Folkson will also be awarded warrants with a strike
price of $.50 should the Company exceed $500,000 in
non-traditional retail channel revenue during the term of the
agreement, and should the Company enter into a product development
or distribution partnership with a multi-national food &
beverage conglomerate during the term of the Agreement. As of
September 30, 2021, those conditions were not met and therefore
nothing was accrued related to this arrangement. |
Litigation: From time to time, we may become involved in various
lawsuits and legal proceedings, which arise, in the ordinary course
of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. The Company is
not aware of any such legal proceedings that we believe will have,
individually or in the aggregate, a material adverse effect on our
business, financial condition or operating results
Coronavirus (COVID-19): On March 11, 2020, the World Health
Organization declared the COVID-19 outbreak to be a global pandemic
which continues to spread throughout the U.S. and the globe. In
addition to the devastating effects on human life, the pandemic is
having a negative ripple effect on the global economy, leading to
disruptions and volatility in the global financial markets. Most
U.S. states and many countries have issued policies intended to
stop or slow the further spread of the disease such as issuing
temporary Executive Orders that, among other stipulations,
effectively prohibit in-person work activities for most industries
and businesses, having the effect of suspending or severely
curtailing operations. COVID-19 and the U.S’s response to the
pandemic are significantly affecting the economy. There are no
comparable events that provide guidance as to the effect the
COVID-19 pandemic may have, and, as a result, the ultimate effect
of the pandemic is highly uncertain and subject to change. The
extent of the ultimate impact of the pandemic on the Company’s
operational and financial performance will depend on various
developments, including the duration and spread of the outbreak,
which cannot be reasonably predicted at this time. Accordingly,
while management reasonably expects the COVID-19 outbreak to
negatively impact the Company, the related consequences and
duration are highly uncertain and cannot be predicted at this
time.
14.
Related Party Transactions
|
● |
During the third quarter of Fiscal Year 2015, Mr.
Folkson began accruing a consulting fee of $6,000 per month which
the aggregate of $18,000 is reflected in professional fees for the
three-month period ended September 30, 2021 and reflected in
accrued expenses – related party with a balance of $0 and $6,974 at
September 30, 2021 and June 30, 2021, respectively. The
debit balance of $3,000 at September 30, 2021 is due to Mr.
Folkson’s monthly $6,000 consulting fee ACH having been processed
by the bank on September 28, 2021 rather than on October 1,
2021. |
|
● |
On December 8, 2017, Mr. Folkson purchased
Warrants, at a cost of $.15 per Warrant, to acquire up to 80,000
additional shares of Company stock at a strike price of $.20, and
with a term of three (3) years from the date of said agreement.
This purchase resulted in a reduction in the accrued consulting
fees due him by $12,000. Those warrants were not exercised during
that timeframe and have expired. During the second quarter 2019 Mr.
Folkson purchased 400,000 shares of stock at a price of $0.30 per
share, valued at $120,000 which was charged to his accrual. During
the three months ended September 30, 2021, Mr. Folkson had been
paid $24,000 against his total accrued balance to date and
reflected in accrued expenses – related party with a balance of $0
and $3,000 at September 30, 2021 and June 30, 2021,
respectively. The debit balance of $3,000 at September 30,
2021 is due to Mr. Folkson’s monthly $6,000 consulting fee ACH
having been processed by the bank on September 28, 2021 rather than
on October 1, 2021. |
|
● |
In
addition, the Company made bonuses available to Mr. Folkson upon
the Company hitting certain revenue milestones of $1,000,000 in a
quarter, $3,000,000 in a quarter, and $5,000,000 in a quarter.
Achieving those milestones would earn Mr. Folkson warrants with a
$.50 and $1.00 strike price which would need to be exercised within
90 days of the respective quarterly or annual filing. As of
September 30, 2021, those conditions were not met and
therefore nothing was accrued related to this
arrangement |
15.
Subsequent Events
|
● |
Subsequent to September 30, 2021, holders of our
Series B Preferred Stock converted an aggregate of 300 Class B
Shares into 1,500,000 shares of Company common
stock. |
|
● |
Subsequent to September 30, 2021, an aggregate of
50,500 shares of Company common stock to consultants and
influencers for services received. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Quarterly Report on Form 10-Q
involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance, or achievements to
be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. You can identify these statements by the fact that they
do not relate strictly to historical or current facts, and use
words such as “anticipate,” “believe,” “estimate,” “expect,”
“forecast,” “may,” “should,” “plan,” “project,” “will” and other
words of similar meaning. The forward-looking statements included
herein are based on current expectations that involve numerous
risks and uncertainties. Our plans and objectives are based, in
part, on assumptions involving judgments with respect to, among
other things, future economic, competitive and market conditions,
technological developments related to business support services and
outsourced business processes, and future business decisions, all
of which are difficult or impossible to predict accurately and many
of which are beyond our control.
Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included in this Quarterly
Report on Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking
statements included herein particularly in view of the current
state of our operations, the inclusion of such information should
not be regarded as a statement by us or any other person that our
objectives and plans will be achieved. Factors that could cause
actual results to differ materially from those expressed or implied
by such forward-looking statements include, but are not limited to,
the factors set forth under the headings “Business” and “Risk
Factors” within our Annual Report on Form 10-K for the fiscal year
ended June 30, 2021, as well as the other information set forth
herein.
OVERVIEW
Nightfood solves the problem of night snacking.
Research indicates that humans are biologically hard-wired to load
up on sweets and fats at night. Loading a surplus of calories into
the body before the long nightly fast is believed to be an outdated
survival mechanism from our hunter-gatherer days. Unfortunately,
willpower also weakens at night. As a result, over 85% of adults
report snacking regularly between dinner and bed, resulting in an
estimated 700 million nighttime snack occasions weekly, and an
annual spend on night snacks of over $50 billion. Because of our
hard-wired cravings, the most popular choices are ice cream,
cookies, chips, and candy. These are all understood to be generally
unhealthy. They can also impair sleep quality.
In recent years, billions of dollars of consumer spend have shifted
to better-for-you versions of our favorite snacks. But none of
those brands formulated their products for better sleep. Nightfood
snacks are not only formulated to be better-for-you, they’re
formulated by sleep experts and nutritionists to provide a better
nutritional foundation for sleep
Almost half of all snacking takes place between dinner and bed.
Nutrition is an important part of sleep-hygiene, because what one
eats at night impacts sleep. Most consumers now seek functional
benefits from their snacks, and most consumers would also prefer
better sleep.
As the pioneers of the night snack category, Nightfood accepts the
responsibility to build the awareness required to grow the
nighttime segment of the snack market. Along with that
responsibility comes the opportunity to be the category king. We
envision a future where nighttime specific, sleep-friendly snacks
comprise a multi-billion dollar segment of the estimated $120
billion American snack market.
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 recent years,
CEO’s and other executives from major consumer goods conglomerates
such as Nestle, PepsiCo, Mondelez, and Kellogg’s have commented on
consumer nighttime snack habits and the opportunity that exists in
solving this problem for the marketplace.
Nightfood has established a Scientific Advisory Board consisting of
sleep and nutrition experts to drive product formulation decisions
and provide consumer confidence in the brand promise. The first
member of this advisory board was Dr. Michael Grandner, Director of
the Sleep and Health Research Program at the University of Arizona.
Dr. Grandner has been conducting research on the link between
nutrition and sleep for over ten years, and he believes improved
nighttime nutritional choices can improve sleep, resulting in many
short and long-term health benefits. In March of 2018, the Company
added Dr. Michael Breus to their Scientific Advisory Board. Dr.
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. Dr. Broch also
has a master’s degree in human nutrition. This 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.
Management envisions 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.
Compared to regular ice cream, Nightfood is formulated with more
tryptophan, more vitamin B6, more calcium, magnesium, and zinc,
more protein and more prebiotic fiber. Nightfood also contains less
fat, less sugar, and fewer calories than traditional ice cream, and
is lactose free.
Each new Nightfood snack format would deliver sleep-friendly
snacking in a way that is most appropriate for that format. For
example, Nightfood chips would not necessarily contain
significantly more tryptophan than other brands of chips, but may
be more sleep-friendly in other ways.
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.
DEVELOPMENT PLANS
Nightfood ice cream pints are currently available in divisions of
some of the largest supermarket chains in the United States,
including Walmart, Albertsons, and H-E-B. Current distribution
totals approximately 1,500 stores. Management is working to
simultaneously secure additional distribution opportunities, while
also nurturing revenue growth and consumer growth in our existing
points of distribution.
The Company recently completed a pilot test with a leading
international hotel group which placed Nightfood ice cream pints
for sale in select hotel lobby shops in various regions of the
United States. The test was declared a success by our hotel
partner, leading to their decision to distribute Nightfood
nationally, initially in one or more of their leading banners, and
soon thereafter expected to be introduced into several of their
additional banners, representing several thousand properties in the
U.S.
We have engaged iDEAL Hospitality Partners Group to secure
distribution partnerships with additional global hotel brands,
oversee hospitality-related business development initiatives, and
provide sales and support during the national hotel rollout. Our
goal in working with iDEAL is to secure distribution in 7,500 hotel
locations by the summer of 2022.
To take maximum advantage of the hotel distribution opportunity,
Nightfood is developing additional snack formats to supplement ice
cream pints. These include single-serve ice cream sandwiches as
well as snacks in other, non-frozen, formats. Considerations
include other popular nighttime snack formats such as chips, candy,
cookies, popcorn, and more. The Company has registered the
Nightfood brand for federal trademark protection in those
categories.
In addition to the opportunity to capture greater revenue and
profit contribution, we believe that having such additional snack
formats available in hotels creates a greater opportunity for
consumer visibility, awareness, and trial.
Management expects hotel distribution to generate significant
incremental sales with higher gross and net margins than the
supermarket vertical, where slotting, advertising, and trade
promotion expenses make profitability more difficult to attain.
Management believes widespread hotel distribution would also
support the brand’s growth in the supermarket vertical,
accelerating both the growth of both the Nightfood brand and the
night snack category which the Company is pioneering.
Additional supermarket expansion is anticipated and would likely
result in additional slotting fees either in 2022 or beyond.
Retailer slotting fees are normal and customary in the consumer
goods industry and are fees that certain retailers and distributors
charge to introduce a new product into their available
assortment.
In some cases, slotting fees, also called “new item placement fees”
or “new item placement allowances” can be nominal. In other
situations, slotting fees for certain retail and distribution
partners could run hundreds of thousands of dollars.
We do not believe our recent decreases in slotting expense should
be viewed as an indication of a trend. Rather, we believe it is
simply a function of past slotting arrangements having been paid
down and paid off, along with minimal new slotting fees incurred
during the current fiscal year. Investors should have the
expectation that Nightfood, like any growing food or beverage
brand, will continue to incur slotting fees as we add new
mainstream supermarket retail accounts.
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.
SEASONALITY
There is traditionally a significant amount of seasonality in the
ice cream industry, with summer months historically delivering the
highest consumption, and winter months delivering the lowest
consumption.
As an early-stage and growing brand, the full impact of seasonality
on our brand of ice cream might not be fully understood for several
additional annual cycles, but early indications point to the
existence of a material seasonality impact across the ice cream
industry through grocery channels. Over time, should the Company
successfully expand into more distribution verticals and into
additional snack formats, it is possible that the impacts of
seasonality could lessen.
CORONAVIRUS (COVID-19)
The outbreak of the novel coronavirus (COVID-19), including the
measures to reduce its spread, and the impact on the economy,
cannot fully be understood and identified. Indications to date are
that there are somewhat offsetting factors relating to the impact
on our Company. Industry data shows that supermarket sales remain
up, with more people spending more time at home. Anecdotally and
statistically, snacking activity is also up while consumers are
reporting a decrease in sleep quality and sleep satisfaction.
The offsetting factors are the impact of the virus on the overall
economy, and the impact that a down economic period can have on
consumer behavior, including trial of new brands. Greater
unemployment, recession, and other possible unforeseen factors are
shown to have an impact. Research indicates that consumers are less
likely to try new brands during economic recession and stress,
returning to the legacy brands they’ve known for decades.
With consumers generally making fewer shopping trips, while buying
more on those occasions and reverting back to more familiar brands,
certain brand-launch marketing tactics, such as in-store displays
and in-store product sampling tables, are either impaired or
impermissible. So, while overall night snacking demand is up, and
consumer need/desire for better sleep is also stronger, driving
consumer trial and adoption has been more difficult and expensive
during these circumstances.
COVID has directly impaired Nightfood’s ability to execute certain
in-store and out-of-store marketing initiatives. For example, since
the inception of COVID, the Company was unable to conduct in-store
demonstrations and unable to participate in local pregnancy, baby
expos, and health expos that were originally intended to be part of
our marketing mix.
From both public statements, and conversations between Nightfood
Management and current and former executives from certain global
food and beverage conglomerates, it has been affirmed to Management
that there is increased strategic interest in the nighttime
nutrition space as a potential high-growth opportunity, partially
due to recent declines in consumer sleep quality and increases in
at-home nighttime snacking.
We have experienced no major issues with supply chain or logistics.
Order processing function has been normal to date, and our
manufacturers have assured us that their operations are “business
as usual” as of the time of this filing.
It is possible that the fallout from the pandemic could make it
more difficult in the future for the Company to access required
growth capital, possibly rendering us unable to meet certain debts
and expenses.
Additionally, with more consumers shopping online, both for
delivery or at-store pickup, the opportunity for shoppers to learn
about new brands at-shelf has been somewhat diminished. Management
is working to identify opportunities to build awareness and drive
trial under these new circumstances.
It is impossible to know what the future holds with regard to the
virus, both for our company and in the broader sense. There are
many uncertainties regarding the current coronavirus pandemic, and
the Company is closely monitoring the impact of the pandemic on all
aspects of its business, including how it will impact its
customers, vendors, and business partners. It is difficult to know
if the pandemic has materially impacted the results of operations,
and we are unable to predict the impact that COVID-19 will have on
our financial position and operating results due to numerous
uncertainties. The Company expects to continue to assess the
evolving impact of the COVID-19 pandemic and intends to make
adjustments accordingly, if necessary.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED
September 30, 2021 and 2020.
For the three months ended September 2021 and 2020 we had Gross
Sales of $189,536 and $319,324 and Net Revenues (Net Revenues are
defined as Gross Sales, less Slotting Fees, Sales Discounts, and
certain other revenue reductions) of $114,453 and $126,983
respectively and incurred an operating loss of $833,675 and
$536,043 respectively. Accounting standards require exclusion on
the income statement of Gross Sales made to a customer to whom the
Company is paying slotting fees (slotting fees are fees
occasionally charged by retailers and distributors to add a new
product into their product assortment). In those situations, the
Gross Sales number is reduced, dollar for dollar, by the slotting
fees, until the total cost of the slotting is covered. These
slotting fees do not appear on the income statement as an expense.
Rather, Slotting Fees, along with Sales Discounts, are applied
against Gross Sales, resulting in Net Revenue, as shown below. The
netting of Gross Sales against slotting and sales discounts, as
described and shown below, results in the Net Revenue number at the
top of the income statement. This is not a reflection of the amount
of product shipped to customers, but rather a function of the way
certain sales are accounted for when those sales are made to
customers who are charging slotting fees.
GROSS SALES |
|
For the
three months
period ended
September 30,
2021 |
|
|
For the
three months
period ended
September 30,
2020 |
|
Gross product sales |
|
$ |
189,536 |
|
|
$ |
319,324 |
|
Less: |
|
|
|
|
|
|
|
|
Slotting fees |
|
|
- |
|
|
|
(134,222 |
) |
Sales
discounts, promotions, and other reductions |
|
|
(75,083 |
) |
|
|
(58,119 |
) |
Net Revenues |
|
$ |
114,453 |
|
|
$ |
126,983 |
|
The decrease in Gross Sales relative to the same period in 2020 was
largely attributable to the loss of one significant account, Harris
Teeter, which represented 39% of our gross sales in the three
months ended September 30, 2020. During the three months ended
September 30, 2021, no major new accounts were onboarded. Walmart,
our largest account, started carrying Nightfood in April 2021.
During the quarter ended June 30, 2021, Walmart filled their
pipeline. We ship product to Walmart weekly. Because sales to date
are below originally projected velocities, which management
believes is largely due to sub-optimal flavor assortments in a
majority of our Walmart locations, the weekly shipments are not as
large as they would otherwise be, as certain warehouses already
have sufficient inventory on hand of certain flavors. Management is
suggesting revisions to the flavor assortment carried by Walmart
for calendar 2022. This would include a focus on our more
traditional flavors, including the flavors that have been selected
by our hotel partner for their national rollout, as well as a focus
on the geographic areas where the Nightfood brand is experiencing
the strongest sales.
For the three months ended September 30 2021 and 2020, Cost of
Product Sold decreased to $124,874 from $229,696. This is the
result of lower gross sales as a result of a lost account, which
brings about lower broker fees, less freight, and other expenses
related directly to the generation of sales.
The increase in operating losses is largely the result of increased
advertising, promotion, and other marketing expenses as well as a
one-time expense under professional fees in conjunction with a
perpetual consulting engagement related to category development and
design consulting. Management believes this will deliver strong
return-on-investment over time. These increases are reflected in
the increase of total operating expenses from $663,026 in the three
months ended September 30, 2020 to $948,128 in the 3
months ended September 30, 2021.
Customers
During the three months ended September 30, 2021, the Company had
four customers accounting for over 10% of gross sales. There were
two customers each accounting for approximately 20% of the gross
sales and one for 17% and one for 14%.
During the three months ended September 30, 2020, one customer
accounted for approximately 39% of the gross sales. One other
customer accounted for approximately 21% of gross sales, and two
other customers accounted for over 9% of gross sales.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2021, we had cash on hand of $471,705,
receivables of $77,429 and inventory value of $491,603.
The Company believes it has sufficient cash on hand to operate
until the first quarter of calendar 2022 at which time it will
require additional funds for operating capital and the planned
hotel rollout of its products in early 2022. We do not believe our
cash on hand will be adequate to satisfy our long-term working
capital needs. We believe that our current capitalization
structure, combined with ongoing increases in distribution,
revenues, and market capitalization, will enable us to successfully
secure required financing to continue our growth.
Because the business has limited operating history and sales, no
certainty of continuation can be stated. Management has devoted a
significant amount of time in the raising of capital from
additional debt and equity financing. However, the Company’s
ability to continue as a going concern will again be dependent upon
raising additional funds through debt and equity financing and
generating revenue. There are no assurances the Company will
receive the necessary funding or generate revenue necessary to fund
operations long-term.
The Company cannot give any assurance that it will, in the future,
be able to achieve a level of profitability from the sale of its
products to sustain its operations. These conditions raise
substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include
any adjustments to reflect the possible future effects on
recoverability and reclassification of assets or the amounts and
classification of liabilities that may result from the outcome of
this uncertainty.
Since our inception, we have sustained operating losses. During the
three months ended September 30, 2021, we incurred a net loss of
$833,675 compared to $943,824 for the three months ended September
30, 2020. During the three months ended September 30, 2021, net
cash used in operating activities was $878,394 compared to net cash
used of $368,159 for the three months ended September 30, 2020.
During the three months ended September 30, 2021, net cash of $0
was used in investing activities, compared to $0 for the three
months ended September 30, 2020.
During the three months ended September 30, 2021, net cash
aggregating $308,200 was provided by financing activities, compared
to $178,897 for the three months ended September 30, 2020.
From our inception in January 2010 through September 30, 2021, we
have generated an accumulated deficit of approximately $26,320,481.
This is not debt and this is not an amount that needs to be paid
out at any point in the future. An accumulated deficit reflects a
negative balance of retained earnings and an accumulation of
historical losses over time, related to both operations and
financing activities. It is not unusual for growing companies to
have significant accumulated deficit, even after turning
profitable. Many large and successful companies have large
accumulated deficits, such as Tesla and Starbucks. In our case, it
is a function of losses sustained over time, along with the costs
associated with raising operating capital.
Assuming we raise additional funds and continue operations, we
expect to incur additional operating losses during the next two to
five quarters and possibly thereafter. We plan to continue to pay
or satisfy existing obligation and commitments and finance our
operations, as we have in the past, primarily through the sale of
our securities and other forms of external financing until such
time that we are able to generate sufficient funds from the sale of
our products to finance our operations, of which we can give no
assurance.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results
of operations is based on our unaudited condensed consolidated
financial statements, which have been prepared in accordance with
U.S. generally accepted accounting principles. The preparation of
these unaudited condensed consolidated financial statements
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent liabilities. On an on-going basis,
we evaluate past judgments and our estimates, including those
related to allowance for doubtful accounts, allowance for inventory
write-downs and write offs, deferred income taxes, provision for
contractual obligations and our ability to continue as a going
concern. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under
the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that
are not apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Note 2 to the consolidated financial statements, presented in our
Annual Report on Form 10-K for the fiscal year ended June 30, 2021,
describe the significant accounting estimates and policies used in
preparation of our consolidated financial statements. There were no
significant changes in our critical accounting estimates during the
three months ended September 30, 2021.
OFF BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
No report required.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) are designed to ensure that
information required to be disclosed in reports filed or submitted
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
Disclosure and control procedures are also designed to ensure that
such information is accumulated and communicated to management,
including the chief executive officer and chief financial officer,
to allow timely decisions regarding required disclosures.
We carried out an evaluation, under the supervision and with the
participation of management, including our principal executive
officer and principal financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures
as of September 30, 2021. In designing and evaluating the
disclosure controls and procedures, management recognizes that
there are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their
desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, management is
required to apply its reasonable judgment. Based on the evaluation
described above, our principal executive officer and principal
financial officer concluded that our disclosure controls and
procedures were not effective as of the end of the period covered
by this report in part because we did not document our
Sarbanes-Oxley Act Section 404 internal controls and
procedures.
As funds become available to us, we expect to implement additional
measures to improve disclosure controls and procedures such as
implementing and documenting our internal controls procedures.
Changes in internal controls over financial reporting
There was no change in our internal controls over financial
reporting that occurred during the period covered by this report,
which has materially affected, or is reasonably likely to
materially affect, our internal controls over financial
reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The Company’s management,
including its Principal Executive Officer and its Principal
Financial Officer, do not expect that the Company’s disclosure
controls will prevent or detect all errors and all fraud. Further,
the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion
of two or more people, or by management override of the controls.
The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls
may become inadequate because of changes in conditions or
deterioration in the degree of compliance with associated policies
or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not engaged in any litigation at the present time, and
management is unaware of any claims or complaints that could result
in future litigation. Management will seek to minimize disputes
with its customers but recognizes the inevitability of legal action
in today’s business environment as an unfortunate price of
conducting business.
ITEM 1A. RISK FACTORS.
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
During the three months ended September 30, 2021, we issued 518,519
shares of our common stock to a consultant as consideration for
services. The securities were issued in a private transaction in
reliance upon an exemption from registration pursuant to Section
4(a)(2) of the Securities Act, as a transaction not involving any
public offering.
During the three months ended September 30, 2021, we issued
3,865,000 shares of our common stock to existing holders of our
Series B Preferred Stock upon conversion of such preferred stock in
accordance with its terms. Upon the conversion, the Company also
issued warrants to the converting preferred stockholders to
purchase 3,865,000 shares of the Company’s common stock. The shares
and the warrants were issued in reliance on the exemption from
registration provided by Section 4(a)(2) of the Securities Act
and/or Section 3(a)(9) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibit |
|
Exhibit
Description |
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) certification of Chief Executive
Officer |
|
|
|
32.1 |
|
Section 1350 certification of Chief Executive
Officer |
|
|
|
101.INS |
|
Inline
XBRL Instance Document |
101.SCH |
|
Inline
XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline
XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover
Page Interactive Data File (formatted as Inline XBRL and contained
in Exhibit 101) |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Nightfood
Holdings, Inc. |
|
|
|
Dated:
November 22, 2021 |
By: |
/s/
Sean Folkson |
|
|
Sean
Folkson,
Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer) |
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