The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
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.
|