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: March 31, 2024

 

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 RoadSuite 500

TarrytownNew York

  10591
(Address of Principal Executive Offices)   (Zip Code)

 

888-888-6444

(Registrant’s telephone number, including area code)

 

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 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 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 

 

At June 12, 2024, the issuer had 127,907,407 shares of common stock outstanding.

 

 

 

 

 

 

Table of Contents

 

PART I – FINANCIAL INFORMATION
     
Item 1. Financial Statements (Unaudited) 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 33
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 41
     
Item 4. Controls and Procedures 41
     
PART II – OTHER INFORMATION
     
Item 1. Legal Proceedings. 43
     
Item 1A.   Risk Factors. 43
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 43
     
Item 3. Defaults Upon Senior Securities. 43
     
Item 4. Mine Safety Disclosures. 43
     
Item 5. Other Information. 43
     
Item 6. Exhibits. 44
     
Signatures 45

 

i 

 

 

Nightfood Holdings, Inc. 

 

Item 1. Financial Statements

 

Financial Statements   
Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and June 30, 2023 2
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2024 and 2023 3
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended March 31, 2024 and 2023 4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2024 and 2023 6
Notes to Unaudited Condensed Consolidated Financial Statements 7 - 32

 

1

 

  

Nightfood Holdings, Inc.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   March 31,   June 30, 
   2024   2023 
ASSETS        
         
Current assets:        
Cash and cash equivalents  $186,072   $44,187 
Accounts receivable   25,657    33,396 
Inventory   35,842    276,202 
Other current assets   187,225    92,726 
Total current assets   434,796    446,511 
           
Acquisition costs secured by promissory note   302,000    
-
 
Indefinite lived intangible assets   1,333,271    
-
 
Total assets  $2,070,067   $446,511 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities:          
Accounts payable and accrued liabilities  $883,116   $604,516 
Accounts payable and accrued liabilities - related party   250,747    101,876 
Convertible notes payable - net of discounts   2,990,249    1,491,719 
Total current liabilities   4,124,112    2,198,111 
           
Commitments and contingencies (Note 12)   
 
    
 
 
           
Stockholders’ equity (deficit):          
Series A Stock, $0.001 par value, 1,000,000 shares authorized 1,000 issued and outstanding as of March 31, 2024 and June 30, 2023, respectively   1    1 
Series B Stock, $0.001 par value, 5,000 shares authorized 1,950 issued and outstanding as of March 31, 2024 and June 30, 2023, respectively   2    2 
Series C Stock, $0.001 par value, 500,000 shares authorized 13,333 and 0 issued and outstanding as of March 31, 2024 and June 30, 2023, respectively   13    
-
 
Series D Stock, $0.001 par value, 100,000 shares authorized 1,667 and 0 issued and outstanding as of March 31, 2024, and June 30, 2023, respectively   2    
-
 
Common stock, $0.001 par value, 200,000,000 shares authorized 127,907,407 and 123,587,968 issued and outstanding as of March 31, 2024 and June 30, 2023, respectively   127,907    123,588 
Additional paid in capital   35,469,552    33,112,935 
Accumulated deficit   (37,651,522)   (34,988,126)
Total Stockholders’ Equity (Deficit)   (2,054,045)   (1,751,600)
Total Liabilities and Stockholders’ Equity (Deficit)  $2,070,067   $446,511 

 

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

 

2

 

 

Nightfood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  

  

For the three months

Ended March 31,

  

For the nine months

Ended March 31,

 
   2024   2023   2024   2023 
                 
Revenues, net of slotting and promotion  $1,352   $10,605   $10,423   $103,944 
                     
Operating expenses                    
Cost of product sold   2,034    58,474    60,610    225,591 
Advertising and promotional   6,453    38,960    6,044    129,295 
Selling, general and administrative expense   162,022    155,076    375,470    385,711 
Professional fees   120,983    (96,850)   458,299    744,547 
Total operating expenses   291,492    155,660    900,423    1,485,144 
                     
Loss from operations   (290,140)   (145,055)   (890,000)   (1,381,200)
                     
Other income (expense)                    
Interest expense - debt   (86,136)   (40,758)   (192,872)   (98,086)
Interest expense – financing cost   
-
    1,696,970    (804,160)   (1,813,940)
Amortization of debt discount   (165,113)   (132,805)   (578,853)   (1,162,257)
Gain (loss) on debt extinguishment   (128,330)   (392,459)   (128,330)   (319,995)
Total other income (expense)   (379,579)   1,130,948    (1,704,215)   (3,394,278)
                     
Net (Loss)   (669,719)   985,893    (2,594,215)   (4,775,478)
                     
Deemed dividend on Series B Preferred Stock   48,410    (2,565,151)   69,181    1,120,514 
Net income  (loss) attributable to common shareholders   (718,129)   3,551,044    (2,663,396)   (5,895,993)
                     
Basic and diluted net loss per common share
  $(0.006)  $0.03   $(0.021)  $(0.06)
                     
Weighted average shares of capital outstanding – basic and diluted
   127,688,758    105,672,769    126,540,836    98,556,215 

 

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

 

3

 

  

Nightfood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY (DEFICIT)

 

For the three and nine months ended March 31, 2024, and 2023 

 

   Common Stock   Preferred Stock (*)   Additional
Paid in
   Accumulated   Total
Stockholders’
 
   Shares   Par Value   Shares   Par Value   Capital   Deficit   Equity 
Balance, June 30, 2023   123,587,968   $123,588           -   $       3   $33,112,935   $(34,988,126)  $(1,751,600)
                                    
Common stock issued as financing cost   3,333,333    3,333              46,667         50,000 
Issuance of warrants                       84,230         84,230 
Warrants issued associated with Promissory Notes                       9,878         9,878 
Warrants issued as financing cost                       699,350         699,350 
Deemed dividends associated with warrant related dilutive adjustments                       20,771    (20,771)   
-
 
Net loss                            (1,433,042)   (1,433,042)
Balance, September 30, 2023   126,921,301    126,921    -    3    33,973,831    (36,441,939)   (2,341,184)
                                    
Shares issued as consulting fee   300,000    300              7,500         7,800 
Warrants issued as financing cost                       22,120         22,120 
Net loss                            (491,454)   (491,454)
Balance, December 31, 2023   127,221,301    127,221    -    3    34,003,451    (36,933,393)   (2,802,718)
Warrants exercise, cashless   686,106    686              (686)        
-
 
Business acquisition                  13    1,304,424         1,304,437 
Financing cost associated with modification to convertible notes                  2    113,953         113,955 
Deemed dividends associated with warrant related dilutive adjustments                       48,410    (48,410)   
-
 
Net loss                            (669,719)   (669,719)
Balance, March 31, 2024   127,907,407   $127,907        $18   $35,469,552   $(37,651,522)  $(2,054,045)

 

   Preferred Stock A  

Preferred Stock B

   Preferred Stock C   Preferred
Stock D
   Preferred Stock 
   Shares   Par Value   Shares   Par Value   Shares   Par Value   Shares   Par Value   Par Value 
Balance, June 30, 2023   1,000         1    1,950    2    -    
        -
    -    
        -
            3 
                                              
Balance, September 30, 2023   1,000    1    1,950    2                        3 
                                              
Balance, December 31, 2023   1,000    1    1,950    2                        3 
                                              
Shares issued for acquisition                       13,333    13              13 
Shares  issued for amended convertible note                                 1,667    2    2 
Balance, March 31, 2024   1,000    1    1,950    2    13,333    13    1,667    2    18 

 

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

 

4

 

 

Nightfood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY (DEFICIT)

 

For the three and nine months ended March 31, 2024, and 2023 

 

   Common Stock   Preferred Stock A   Preferred Stock B   Additional
Paid in
   Deferred   Accumulated   Total
Stockholders’
 
   Shares   Par Value   Shares   Par Value   Shares   Par Value   Capital   Compensation   Deficit   Equity 
Balance, June 30, 2022   91,814,484   $91,814    1,000   $       1    3,260   $       3   $28,275,216   $-   $(28,101,458)  $265,576 
Common stock issued for services   100,000    100                        19,910              20,010 
Common stock from conversion   4,050,000    4,050              (810)   (1)   (4,049)             - 
Discount on issuance of convertible notes                                 290,070              290,070 
Warrants issued and dilutive warrant adjustment as financing cost                                 65,783              65,783 
Deemed dividends associated with related dilutive warrant adjustments                                 345,462         (345,462)   - 
Warrants dilutive adjustment as consulting fees                                 108,126              108,126 
Net loss                                           (1,201,110)   (1,201,110)
Balance, September 30, 2022   95,964,484   $95,964    1,000   $1    2,450   $2   $29,100,518   $-   $(29,648,030)  $(451,545)
Common stock from conversion   750,000    750              (150)        (750)             - 
Warrants exercise cashless   586,111    586                        (586)             - 
Units issued under Regulation A offering   1,829,400    1,830                        222,785              224,615 
Common stock issued for services   182,859    183                        31,817    (16,000)        16,000 
Common stock issued as financing cost   500,000    500                        59,500              60,000 
Vested warrants for services                                 5,250              5,250 
Warrants dilutive adjustment as consulting fees                                 305,829              305,829 
Warrants issued and dilutive warrant adjustment as financing cost                                 1,220,790              1,220,790 
Deemed dividends associated with related dilutive warrant adjustments                                 3,340,203         (3,340,203)   - 
Net loss                                           (4,560,262)   (4,560,262)
Balance, December 31, 2022   99,812,854   $99,813    1,000   $1    2,300   $2   $34,285,356   $(16,000)  $(37,548,495)  $(3,179,323)
Stock based compensation                                      8,000         8,000 
Vested warrants for services                                 7,425              7,425 
Common stock from conversion   1,750,000    1,750              (350)        (1,750)             - 
Units issued under Regulation A offering   42,400    42                        5,072              5,114 
Warrants exercise in cash   3,000,000    3,000                        135,566              138,566 
Warrants exercise cashless   2,645,586    2,646                        (2,646)             - 
Common stock issued for services   250,000    250                        24,850              25,100 
Common stock issued under Forbearance and Exchange Agreement   3,800,000    3,800                        338,200              342,000 
Warrants exchange to common stock   2,750,000    2,750                        (2,750)             - 
Discount on issuance of convertible notes                                 765,127              765,127 
Warrants issued as financing cost associated with convertible notes                                 239,970              239,970 
Warrants issued as financing cost under common stock purchase warrant                                 231,430              231,430 
Warrants dilutive adjustment as consulting fees                                 (250,936)             (250,936)
Warrants issued and dilutive warrant adjustment as financing cost                                 (227,036)             (227,036)
Deemed dividends associated with related dilutive warrant adjustments                                 (2,565,151)        2,565,151    - 
Net loss                                           985,893    985,893 
Balance, March 31, 2023   114,050,840   $114,051    1,000   $1    1,950   $2   $32,982,728   $(8,000)  $(33,997,451)  $(908,669)

 

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

 

5

 

 

Nightfood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  

For Nine Months ended

March 31,

 
   2024   2023 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(2,594,215)  $(4,775,478)
Adjustments to reconcile net loss to net cash used in operations activities:          
Warrants issued for services   84,230    12,675 
Warrants issued for financing cost   721,470    482,500 
Stock issued for services   7,800    69,110 
Stock issued for financing costs   50,000    60,000 
Amortization of debt discount   578,853    1,162,257 
Loss on extinguishment of convertible note   128,330    319,995 
Financing cost due to conversion price adjustments   
-
    853,053 
Consulting fee due to conversion price adjustments        163,019 
Financing cost due to default   
-
    229,468 
Impairment of inventory   251,010    
-
 
Write down of other current assets   46,130    
-
 
Change in operating assets and liabilities          
Change in accounts receivable   7,738    40,043 
Change in inventory   (10,650)   (63,990)
Change in other current assets   (140,628)   44,921 
Change in accounts payable   293,277    358,128 
Change in relate party payable   127,475    48,676 
Net cash used in operating activities   (449,180)   (995,623)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash advanced to Future Hospitality Ventures Holdings Inc. before business combination   (149,990)   
-
 
Acquisition costs secured by promissory notes   (176,000)   
-
 
Net cash used by investing activities   (325,990)   
-
 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of units under Reg A   
-
    229,719 
Proceeds from exercise of warrants   
-
    138,566 
Proceeds from related party   
-
    40,000 
Proceeds from the issuance of debt, net   917,055    1,443,750 
Repayment to convertible notes   
-
    (1,110,628)
Net cash provided by financing activities   917,055    741,407 
           
NET (DECREASE) IN CASH AND CASH EQUIVALENTS   141,885    (254,216)
           
Cash and cash equivalents, beginning of period   44,187    280,877 
Cash and cash equivalents, end of period  $186,072   $26,661 
           
Supplemental Disclosure of Cash Flow Information:          
Cash Paid For:          
Interest  $
-
   $39,452 
Income taxes  $
-
   $
-
 
Summary of Non-Cash Investing and Financing Information:          
Warrants and returnable warrants issued for financing cost  $721,470   $
-
 
Stock issued for financing costs  $50,000   $
-
 
Common stock issued for preferred stock conversions  $686   $6,550 
Deemed dividend associated with preferred B stock and dilutive warrant adjustments  $69,181   $1,055,197 
Debt and warrant discounts related to convertible notes  $171,711   $
-
 
Preferred stock C issued per acquisition  $868,708   $
-
 
Preferred stock A valuation per acquisition  $435,729   $
-
 
Preferred stock D issued under convertible note amended  $113,955   $
-
 
Principal increased under convertible note amended  $12,500   $
-
 
Granted interest increased under convertible note amended  $1,875   $
-
 
Acquisition cost under Promissory note acquired under business acquisition  $126,000   $
-
 

 

6

 

  

Nightfood Holdings, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Description of Business and Going Concern

 

Nightfood Holdings, Inc. (“we”, “us”, “the Company” or “Nightfood”) is a Nevada corporation incorporated 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. For the reporting period, all of our operations were being conducted through subsidiary Nightfood, Inc. We are also the sole shareholder of MJ Munchies, Inc., currently revoked in the State of Nevada, which owns certain intellectual property, but does not have any operations as of the period covered by these financial statements.

 

On February 2, 2024, the Company closed the acquisition of Future Hospitality Ventures Holdings Inc. (“FHVH” or “Future Hospitality”), a Nevada corporation and a new entrant in the Robots-as-a-Service (RaaS) space from Mr. Lei Sonny Wang, who concurrently became the Chief Executive Officer (“CEO”) of Nightfood and a member of the Company’s board of directors. Under the leadership of Mr. Wang, Future Hospitality has secured distribution agreements with industry-leading manufacturers United Robotics Group Americas, Inc. and Botin Innovations, Inc. and is in the process of negotiating several additional supply opportunities.

 

Our corporate address is 520 White Plains Road – Suite 500, Tarrytown, New York 10591 and our telephone number is 866-291-7778. We maintain web sites at www.nightfood.com, www.RoboOp365.com, along with several additional web properties. Any information that may appear on those web sites should not be deemed to be a part of this report.

 

The Company’s fiscal year end is June 30.

 

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. No certainty of continuation can be stated.

 

  The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. For the nine months ended March 31, 2024, the Company had an operating and net loss of $2,572,165, cash flow used in operations of $449,180 and an accumulated deficit of $37,629,472.

 

  The Company has limited available cash resources and we do not believe our cash on hand will be sufficient to fund our operations and growth throughout calendar year 2024 or adequate to satisfy our immediate or ongoing working capital needs. We are currently in default with respect to the terms of several of our convertible notes payable.

 

    The Company is continuing to seek to raise capital through the sales of its common stock, preferred stock and/or convertible notes, as well as potentially the exercise of outstanding warrants, to finance the Company’s operations, of which it can give no assurance of success. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. Additionally, management is investing in the acquisition of additional revenue generating assets through the issuance of debt and/or equity to further assist the Company’s growth initiatives. As of March 31, 2024 we have advanced proceeds totaling $302,000 to potential targets, which are under negotiation for acquisition as soon as practicable subsequent to June 30, 2024.

 

  Because the Company has limited sales, no certainty of continuation can be stated. The Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. In addition, the Company will receive the proceeds from its outstanding warrants as, if and when such warrants are exercised for cash. There are no assurances the Company will receive the necessary funding or generate revenue necessary to fund operations.

 

  Even if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be able to achieve a level of profitability from the sale of the products and services of its subsidiaries to sustain 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.

 

7

 

 

2. Summary of Significant Accounting Policies

 

Management is responsible for the fair presentation of the Company’s financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP).

 

Interim Financial Statements

 

These unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2024, and 2023, 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, 2023 and 2022, respectively, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 filed with the United States Securities and Exchange Commission on October 13, 2023. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and nine months ended March 31, 2024 are not necessarily indicative of results for the entire year ending June 30, 2024.

 

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.

 

Business Combinations

 

The Company accounts for business combinations using the purchase method of accounting. The purchase method requires the Company to determine the fair value of all acquired assets, including identifiable intangible assets and all assumed liabilities. The total cost of acquisitions is allocated to the underlying identifiable net assets, based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and the utilization of independent valuation experts, and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items.

 

8

 

 

Goodwill and Intangibles 

 

Goodwill represents the excess of the purchase price over the fair market value of the net assets (including intangibles) acquired on February 2, 2024 respectively and includes the value of indefinite lived intangible assets resulting from noncontractual customer relationships. The Company has implemented the Business Combinations Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles Goodwill and Other. Goodwill is is deemed to have an indefinite life. Goodwill and indefinite life intangible assets are not amortized but are subject to, at a minimum, annual impairment tests. The Company expenses costs to maintain or extend intangible assets as incurred.

 

The Company reviews intangible assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. There were no impairments for the periods presented.

 

The Company tests goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. There were no goodwill impairments for the periods presented.

 

Long-Lived Assets

 

The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. The Company had no long-lived asset impairments as of March 31, 2024 and June 30, 2023.

 

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 loss on write down of inventory during the period spoilage is incurred as a part of selling, general and administrative expenses The Company has no minimum purchase commitments with its vendors. During the three and nine months ended March 31, 2024 the Company wrote down inventory balances by $105,455 and $251,010, respectively, as a result of damage, loss, spoilage, and obsolescence. Expenses related to inventory impairments are included in Selling, General and Administrative expenses on the Company’s statements of profit and loss.

 

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 $6,453 and $38,960 for the three months ended March 31, 2024 and 2023, respectively. The Company recorded advertising costs of $6,044 and $129,295 for the nine months ended March 31, 2024 and 2023, respectively.

 

9

 

 

Income Taxes

 

  The Company has not generated any taxable income, and, therefore, no provision for income taxes has been provided. Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with FASB Topic 740, “Accounting for Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.

 

  A valuation allowance has been recorded to fully offset the deferred tax asset even though the Company believes it is more likely than not that the assets will be utilized

 

  The Company’s effective tax rate differs from the statutory rates associated with taxing jurisdictions because of permanent and temporary timing differences as well as a valuation allowance.

 

Revenue Recognition

 

The Company accounts for revenue in accordance with Accounting Standards Updated (“ASU”) ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”). The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

 

Through the nine months ended March 31, 2024 and 2023, the Company generated revenues from sales generated in operating subsidiary Nightfood, Inc. and the sale of ice-cream and cookie products to customers and distributors using (i) Nightfood.com on the Shopify eCommerce platform (Direct to Consumer); and (ii) third party distributors. Sales focus in the most recent quarter ended March 31, 2024 has shifted entirely to direct-to-consumer as the Company is focused on its newly developed cookie products. Wholesale ice-cream production and sales have been discontinued, and might resume if and when direct-to-consumer scale is achieved. The Company considers its performance obligations satisfied upon shipment of the purchased products to the customer with respect to sales processed by third party fulfilment centers and retail locations, and delivery of the product for sales made to distributors or direct to end user via eCommerce portals. 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. Due to the nature of Nightfood’s products, the company does not accept returns of its snacks. Refunds to consumers are issued under certain circumstances, but product returns are not typically accepted.

 

The Company is not currently earning any revenue associated with its operations in the Robots-as-a-Service (RaaS) space, although product demonstrations have begun and Management believes revenues will begin soon.

 

Disaggregated Revenues

 

The Company currently is earning revenues from a single product line with sales of its cookie products through subsidiary Nightfood, Inc. and therefore has not presented disaggregated revenues.

 

10

 

 

Concentration of Credit Risk

 

  Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places its cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal. At March 31, 2024 and June 30, 2023, the Company did not have any uninsured cash deposits.

  

Deemed Dividend – Series B Preferred Stock Warrants :

 

Each share of the Company’s Series B Preferred Stock, par value $0.001 per share (the “B Preferred” or “B Preferred Stock”) 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 carried an initial exercise price of $0.30 per share. Subsequent financing events and debt extinguishment resulted in adjustments to the exercise price of all warrants created from conversion of B Preferred from $0.30 per share to approximately $0.11082 per share through March 31, 2024. The exercise price of these warrants can continue to adjust as the result of subsequent financing events and stock transactions. These adjustments can result in an exercise price that is either higher, or lower, than the price as of March 31, 2024.

 

The value of the deemed dividend was approximately $4.4 million as of June 30, 2022. During the year ended June 30, 2023 the Company recorded an additional deemed dividend of approximately $1.1 million in relation to the B Preferred stock and downward price adjustments to certain warrants. During the nine months ended March 31, 2024 the Company recorded a further deemed dividend of approximately $69,181 in relation to the B Preferred stock and downward price adjustments to certain warrants.

 

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.

 

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 interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

Stock Settled Debt

 

  In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market.  In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature.

  

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.

 

11

 

 

Customer Concentration

 

 

In each of the three- and the nine-month periods ended March 31, 2024, the Company had 1 customer which accounted for more than 10% of gross sales. 

 

During the three months ended March 31, 2023, the Company had one customer account for approximately 94% of the gross sales. During the nine months ended March 31, 2023, the Company had one customer account for approximately 34% of the gross sales. One other customer accounted for approximately 31% of gross sales, and two other customers accounted for between 10 and 12% of gross sales respectively.

 

Vendor Concentration

 

  In the three- and nine-month periods ended March 31,2024, one vendor accounted for more than 10% of  the Company’s  costs of goods sold. During the three- and nine-month periods ended March 31, 2023, two vendors accounted for more than 10% of the Company’s  costs of goods sold. 

 

Receivables Concentration

 

  As of March 31, 2024, the Company had receivables due from nine customers.  One accounted for 62% of the total balance, and three of the others each accounted for between 15% and 17% of the outstanding balance. As of June 30, 2023, the Company had receivables due from nine customers, one of who accounted for over 56% of the outstanding balance. Three of the others each accounted for between 10% and 14% of the outstanding balance.

 

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.

 

At March 31, 2024 and June 30, 2023, the Company had no outstanding derivative liabilities.

 

12

 

  

Income/Loss Per Share

 

  In accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive.  Potential common stock consists of the incremental common stock issuable upon convertible notes, stock options and warrants, and classes of shares with conversion features. The computation of basic loss per share for the three and nine months ended March 31, 2024 and 2023 excludes potentially dilutive securities because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted losses per share.

 

Reclassification

 

  The Company may occasionally make certain reclassifications to prior period amounts to conform with the current year’s presentation.  Such reclassifications would not have a material effect on its consolidated statement of financial position, results of operations or cash flows.

 

Recent Accounting Pronouncements

 

In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires incremental disclosures related to a public entity’s reportable segments. Required disclosures include, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount for other segment items (which is the difference between segment revenue less segment expenses and less segment profit or loss) and a description of its composition, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The standard also permits disclosure of more than one measure of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are evaluating the impact of adopting ASU 2023-07on our financial statements.

 

In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). ASU 2023-09 is effective for fiscal years beginning after December 15, 2025. We are evaluating the impact of adopting ASU 2023-09 on our financial statements.

 

In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate Related Disclosures for Investors, which requires registrants to disclose climate-related information in registration statements and annual reports. The new rules would be effective for annual reporting periods beginning in fiscal year 2025. However, in April 2024, the SEC exercised its discretion to stay these rules pending the completion of judicial review of certain consolidated petitions with the United States Court of Appeals for the Eighth Circuit in connection with these rules. We are evaluating the impact the adoption of this rule, if any, on our financial statements. 

 

13

 

 

3. Business Combination

 

Acquisition of Future Hospitality Ventures Holdings Inc.

 

On January 22, 2024, the Company, Future Hospitality Ventures Holdings Inc., a Nevada corporation, Sean Folkson as the holder of all issued and outstanding Series A Preferred Stock of NGTF (the “NGTF Series A Shareholder”) and Lei Sonny Wang, the sole shareholder of FHVH (the “FHVH Shareholder”) entered into a share exchange agreement (the “Exchange Agreement”) whereby NGTF agreed to acquire FHVH through a share exchange (the “Exchange”) whereby FHVH became a wholly-owned subsidiary of NGTF.

 

Pursuant to the Exchange Agreement, the FHVH Shareholder exchanged all 1,000 shares of common stock, $0.001 par value per share, of FHVH (the “FHVH Common Stock”) owned by him to NGTF for: (i) all 1,000 issued and outstanding shares of NGTF’s Series Super Voting A Preferred Stock held by the NGTF Series A Shareholder, and (ii) an aggregate of 13,333 newly issued shares of NGTF’s Series C Convertible Preferred Stock, each of which shall convert into 6,000 shares of common stock at $0.025 per share (the “Series C Preferred Stock”, and together with the Series A Super Voting Preferred Stock, the “NGTF Exchange Shares”). In addition, the conversion terms of the Super Voting A Preferred Stock were concurrently amended by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A Certificate of Designation, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1).

 

The Exchange Agreement was subject to certain closing conditions and contained customary representations, warranties and covenants. The consummation of the Exchange was conditioned upon, among other things: Sean Folkson resigning as the Chief Executive Officer of NGTF, continuing to serve as the President of Nightfood, Inc. through December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur; and the appointment of Lei Sonny Wang as a director and Chief Executive Officer of NGTF. The parties at the time of the transaction were considered arm’s length and the exchange agreement was valued at fair market value at the time of the transaction.

 

The aforementioned agreements closed on February 2, 2024.

 

The following is a summary of the estimated fair values of acquisition costs at the date of issuance:

 

Consideration Paid – Fair Value        
Stock issued:        
Number of Series A Preferred Stock:   1,000     
Number of Series C Preferred Stock:   13,333      
Fair value of Series A Preferred Stock       $435,729 
Fair value of Series C Preferred Stock        868,708 
Total consideration       $1,304,437 

 

The following is a summary of the estimated fair values of the assets acquired and liabilities assumed and additional information regarding the intangible assets acquired as of February 2, 2024:

 

Tangible assets acquired:    
Cash  $111,863 
Other current assets   126,000 
Accounts payable   (4,845)
Other current liabilities   (261,852)
Total assets acquired and liability assumed   (28,834)

 

Indefinite-lived intangible assets (noncontractual customer relationships)   1,333,271 
      
Total Net asset acquired  $1,304,437 

 

14

 

 

As of March 31, 2024, no impairment of the Company’s goodwill was required.  The purchase accounting for the acquisition remains incomplete as management continues to gather and evaluate information about circumstances that existed as of the acquisition date. Measurement period adjustments will be recognized prospectively. The measurement period is not to exceed 12 months from the respective dates of acquisition.

 

4. Accounts receivable

 

  The Company’s accounts receivable arises primarily from the sale of the Company’s snacks. On a periodic basis, the Company evaluates each customer account and based on the days outstanding of the receivable, history of past write-offs, collections, and current credit conditions, writes off accounts it considers uncollectible. With most of our retail and distribution partners, invoices will typically be due in 30 days. The Company does not accrue interest on past due accounts and the Company does not require collateral. Accounts become past due on an account-by-account basis. Determination that an account is uncollectible is made after all reasonable collection efforts have been exhausted. The Company has not provided any accounts receivable allowances for March 31, 2024 and June 30, 2023.

 

5. Inventories

 

  Inventory consists of the following at March 31, 2024 and June 30, 2023:

 

   March 31,
2024
   June 30,
2023
 
Inventory: Finished Goods  $6,117   $163,644 
Inventory: Ingredients   29,725    63,734 
Inventory: Packaging   
-
    48,824 
Total Inventory  $35,842   $276,202 

 

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. During the nine months ended March 31, 2024 the Company wrote down inventory balances totaling $251,010 as a result of inventory damage, obsolescence and spoilage.

 

6. Other current assets

 

Other current assets consist of the following at March 31, 2024 and June 30, 2023.

 

   March 31,
2024
   June 30,
2023
 
Other Current Assets          
Prepaid interest expenses  $5,978   $
-
 
Prepaid Professional fees   142,500    
-
 
Other prepaid expenses   38,747      
Deposits with vendors   29,396    92,726 
TOTAL  $187,225   $92,726 

 

7. Acquisition Costs Secured by Promissory Note

 

During the three months ended March 31, 2024 the Company’s subsidiary FHVH provided advances to acquisition targets as follows:

 

Promissory note - acquisition target 1   254,500 
Promissory note - acquisition target 2   47,500 

 

The amounts are secured by promissory notes bearing interest at 1% per annum and due within 12 months from issue date. The Company expects to complete the acquisition of these entities prior to the close of fiscal 2024.

 

15

 

 

8. Accounts Payable and Accrued liabilities

 

Accounts payable and accrued liabilities consist of the following at March 31, 2024 and June 30, 2023:

 

  

March 31,

2024

   June 30,
2023
 
Interest Payable  $234,411   $40,779 
Accounts payable   648,705    563,737 
TOTAL  $883,116   $604,516 

 

9. Debt

 

  Convertible Notes Payable

 

Convertible Notes Issued on December 10, 2021

 

On December 10, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited and institutional investors (the “Purchasers”) for the purchase and sale of an aggregate of: (i) $1,086,956.52 in principal amount of Original Issue Discount Senior Secured Convertible Notes (the “Notes”) for $1,000,000 (representing a 8% original issue discount) (“Purchase Price”) and (ii) warrants to purchase up to 4,000,000 shares of the Company’s common stock (the “Warrants”) in a private placement (the “Offering”). Each Note featured an 8% original issue discount, resulting in net proceeds to the Company of $500,000 for each of the two Notes. The Notes had a maturity of December 10, 2022, an interest rate of 8% per annum, and were initially convertible at a fixed price of $0.25 per share, with provisions for conversions at a fixed price of $0.20 per share should the closing trading price of our common stock be below $0.20 per share after June 10, 2022. The conversion price is also subject to further price adjustments in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations (v) in the event that the Company issues or sells any additional shares of Common Stock or Common Stock Equivalents at a price per share less than the Exercise Price then in effect or without consideration then the Exercise Price upon each such issuance shall be reduced to the Dilutive Issuance Price. These Notes, for as long as they are outstanding, are secured by all assets of the Company and its subsidiaries, senior secured guarantees of the subsidiaries of the Company, and pledges of the common stock of all the subsidiaries of the Company. The Notes have provisions allowing for repayment at any time at 115% of the outstanding principal and interest within the first three months, and 120% of the outstanding principal and interest at any time thereafter.

 

The Warrants were initially exercisable at $0.25 per share and, are subject to cashless exercise after six months if the shares underlying the Warrants are not subject to an effective resale registration statement. The Warrants are also subject to customary adjustments, including price protections.

 

In connection with Securities Purchase Agreement, the Company issued to the Placement Agent (as defined below), an aggregate of 878,260 Common Stock purchase warrants (“PA Warrants”). The PA Warrants are substantially similar to the Warrants. The fair value of the PA Warrants at issuance was estimated to be $170,210 based on a risk-free interest rate of 1.25%, an expected term of 5 years, an expected volatility of 142.53% and a 0% dividend yield.

 

Spencer Clarke Holdings LLC (“Placement Agent”) acted as the placement agent, in connection with the sale of the securities pursuant to the Securities Purchase Agreement. Pursuant to an engagement agreement entered into by and between the Company and the Placement Agent, the Company agreed to pay the Placement Agent a cash commission of $100,000. Pursuant to the discussion above, the Company also issued an aggregate of 878,260 PA Warrants to the Placement Agent.

 

The gross proceeds received from the Offering were approximately $1,000,000. The cash Placement Agent fees of $100,000 was paid separately. Also, the Company reimbursed the lead Purchaser $15,192 for legal fees, which was deducted from the required subscription amount to be paid.

 

16

 

 

On or around September 23, 2022, as a result of certain new financing agreements entered into by the Company, as consideration to the Holders, the Company issued to each Holder a common stock purchase warrant for the purchase of 5,434,783 shares of the Company’s common stock (as amended from time to time, the “Returnable Warrants”, further the Placement Agent received 1,086,957 (Ref below, Mast Hill Loan - Promissory Notes Issued on September 23, 2022). The warrants are subject to customary adjustments (including price-based anti-dilution adjustments) and may be exercised on a cashless basis.

 

The Company was required to pay to the Purchasers on December 10, 2022, as extended to December 29, 2022 (as so extended, the “Maturity Date”) all remaining principal and accrued and unpaid interest on the Maturity Date (the “Owed Amount”) and the failure to so pay the Owed Amount on the Maturity Date is an event of default. The Owed Amount was not paid by the Company in accordance with the terms of the Notes. Subsequent to December 31, 2022 the Company entered into a forbearance agreement with the Purchasers as set out below.

 

Forbearance and Exchange Agreement

 

On February 4, 2023, the Company entered into a Forbearance and Exchange Agreement (the “Forbearance Agreement”) with the Purchasers from the Securities Purchase Agreement dated December 10, 2021.

 

Pursuant to the Forbearance Agreement as amended, among other things:

 

  The Company shall pay to each Purchaser in cash the sum of $482,250.00 for the full and complete satisfaction of the Notes, which includes all due and owing principal, interest and penalties notwithstanding anything to the contrary in the Notes, as follows: (i) $250,000.00 on or before February 7, 2023; (ii) $50,000.00 on or before February 28, 2023; (iii) $50,000.00 on or before March 31, 2023; (iv) $50,000.00 on or before April 30, 2023; and (v) $82,250.00 on or before May 31, 2023.

 

  The Purchasers shall not convert the Notes so long as an event of default pursuant to the Forbearance Agreement has not occurred.

 

  The Company purchased and retired the Returnable Warrants from the Purchasers, in exchange for the Company issuing to each of the Holders 1,900,000 restricted redeemable shares of the Company’s common stock (the “Exchange Shares”).

  

  The Purchasers agreed not to transfer the Exchange Shares prior to September 24, 2023, subject to certain exceptions, including that the Company shall have the right to redeem all or any portion of the Exchange Shares from each Purchaser by paying an amount in cash to such Purchaser equal to $0.1109 per share being redeemed. The Purchaser’s sale of the Exchange Shares on or after September 24, 2023, is subject to a leak-out until all of the Exchange Shares are sold. In addition, the Purchaser’s sale of any common stock of the Company owned by them other than the Exchange Shares, shall also be subject to a leak-out during the period ending on the six-month anniversary of the date of the Forbearance Agreement.

 

  Each Purchaser agrees to forbear from exercising its rights against the Company under its respective Note until and unless the occurrence of any of the following events: (a) the failure of the Company to make a scheduled payment pursuant to the Forbearance Agreement, subject to a five day right to cure; (b) the failure of the Company to observe, or timely comply with, or perform any other covenant or term contained in the Forbearance Agreement, subject to a ten day right to cure; (c) the Company or any subsidiary of the Company commences bankruptcy and/or any insolvency proceedings; or (d) the delivery of any notice of default by Mast Hill Fund, L.P. (“Mast Hill”) to the Company with respect to indebtedness owed to Mast Hill by the Company.

 

The Company evaluated all of the associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.

 

In accordance with ASC 470- Debt, the Company first allocated the cash proceeds to the loan and the warrants on a relative fair value basis, secondly, the proceeds were allocated to the beneficial conversion feature.

 

17

 

 

Below is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of June 30, 2023:

 

   Principal
($)
   Stock-settled
Debt
($)
   Debt 
Discount
($)
   Net Value
($)
 
Balance at June 30, 2021   
-
    
-
    
-
    
-
 
Convertible notes payable issued during fiscal year ended June 30, 2022   1,086,957              1,086,957 
Debt discount associated with new convertible notes             (1,018,229)   (1,018,229)
Conversion price adjusted from $0.25 to $0.20        217,391    (217,391)   
-
 
Amortization of debt discount             275,423    275,423 
Balance at June 30, 2022   1,086,957    217,391    (960,197)   344,151 
Cash repayment   (362,319)             (362,319)
Gain on extinguish of portion of principal        (72,464)        (72,464)
Amortization of debt discount             960,197    960,197 
Penalty   181,159              181,159 
Conversion price change        1,843,475         1,843,475 
Under forbearance Agreement:   58,703    (1,988,402)        (1,929,699)
Cash repayment   (964,500)             (964,500)
Balance at June 30, 2023   
-
    
-
    
-
    
-
 

  

Below is a reconciliation of the extinguishment of debt relative to the exchange of Returnable Warrants for shares of common stock by the holders:

 

3,800,000 shares of common stock issued and exchanged for 10,869,566 returnable warrants  $342,000 
Loss on conversion price change in December 31, 2022   1,051,801 
Stock settled debt   (1,988,402)
Financing charges due to returnable warrants issued   987,060 
Principal increased due to penalty   58,703 
Loss on extinguishment  $392,459 

 

Interest expenses associated with above convertible note are as follows: 

 

   For the three months Ended
March 31,
   For the nine months Ended
March 31,
 
   2024   2023   2024   2023 
Amortization  $
-
   $
-
   $
-
   $960,197 
Interest on the convertible notes   
-
    19,251    
-
    58,703 
Total  $
-
   $19,251   $
-
   $1,018,900 

 

During the fiscal years ended June 30, 2023 and 2022, the Company recorded $39,452 and $43,478 to interest. As of March 31, 2024 and June 30, 2023, the interest payable was $0.

 

Mast Hill Promissory Notes (MH Notes)

 

  (a) Promissory Notes Issued on September 23, 2022

 

On September 23, 2022, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal sum of $700,000.00, which amount is the $644,000 actual amount of the purchase price plus an original issue discount in the amount of $56,000. In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 2,800,000 shares of common stock at an exercise price of $0.225, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 7,000,000 shares of common stock at an exercise price of $0.30, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company.

 

18

 

  

As a result of the transaction, the Purchasers triggered their “most favored nation” clause which resulted in the Company entering into an MFN Amendment Agreement (the “MFN Agreement”) with the Purchasers (ref: Convertible Notes Issued on December 10, 2021 above) pursuant to which the Purchasers exercised their options under the most-favored nation terms contained in their existing transaction documents with the Company. Pursuant to the MFN Agreement, among other things, (a) the Company issued to each of the Purchasers 5,434,783 5-year Returnable Warrants which may only be exercised in the event that the Company were to default on certain debt obligations at an initial Exercise Price per share of $0.30, (b) the events of default set forth in the Notes were amended to include certain of the Events of Default reflected in the Promissory Note, (c) the conversion price of the Notes was amended so that upon an event of default, the conversion price equaled $0.10, subject to adjustment, (d) the Purchasers are entitled to deduct $1,750 from conversions to cover associated fees, and $750 shall be added to each prepayment to reimburse the Purchasers for administrative fees and (e) the definition of Exempt Issuance in the note was modified to remove certain clauses of the definition.

 

The Company paid to J.H. Darbie & Co., Inc. $32,200 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 119,260 shares of common stock at $0.27, subject to adjustment. The Company paid to Spencer Clarke LLC cash fees of $35,000 plus 500,000 shares of common stock.

 

The proceeds received by the Company from the Offering, net of the original issue discount, fees and costs including legal fees of $7,000 and commission fees of $32,200 were $604,800.

 

On May 2, 2023, a debtholder converted $49,995 into 1,500,000 shares of common stock, of which $16,088 was principal and $33,907 was interest payable.

  

  (b) Promissory Notes Issued on February 5, 2023

 

On February 5, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $619,000.00 (actual amount of purchase price of $526,150.00 plus an original issue discount in the amount of $92,850.00). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 6,900,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 7,000,000 shares of common stock at an exercise price of $0.30, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill.

 

The Company paid to J.H. Darbie & Co., Inc. $10,000 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 219,230 shares of common stock at $0.12, subject to adjustment. The Company paid to Spencer Clarke LLC cash fees of $52,615 plus warrants to purchase 619,000 shares of common stock at $0.10, warrants to purchase 690,000 shares of common stock at $0.10, and warrants to purchase 700,000 shares of common stock at $0.30, in each case subject to adjustment.

 

  (c) Promissory Notes Issued on February 28, 2023

 

On February 28, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $169,941 (actual amount of purchase price of $136,800 plus an original issue discount in the amount of $24,141). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 1,790,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 1,820,000 shares of common stock at an exercise price of $0.10, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill.

 

19

 

 

The Company paid to J.H. Darbie & Co., Inc. $6,840.00 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 57,000 shares of common stock at $0.12, subject to adjustment. The Company paid to Spencer Clarke LLC warrants to purchase 200,000 shares of common stock at $0.08, warrants to purchase 179,000 shares of common stock at $0.10, and returnable warrants to purchase 182,000 shares of common stock at $0.30, in each case subject to adjustment.

 

  (d) Promissory Notes Issued on March 24, 2023

 

On March 24, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $169,941 (actual amount of purchase price of $136,800 plus an original issue discount in the amount of $24,141). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 1,790,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 1,820,000 shares of common stock at an exercise price of $0.10, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill.

 

The Company paid to J.H. Darbie & Co., Inc. $6,840.00 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 57,000 shares of common stock at $0.12, subject to adjustment. The Company paid to Spencer Clarke LLC a cash fee of $13,680 plus warrants to purchase 200,000 shares of common stock at $0.08, warrants to purchase 179,000 shares of common stock at $0.10, and warrants to purchase 182,000 shares of common stock at $.30, in each case subject to adjustment. Such 182,000 warrants, without any further action by either party thereto, may be cancelled and extinguished in its entirety if the MH Note is fully repaid and satisfied on or prior to the Maturity Date, subject further to the terms and conditions of the MH Note.

 

  (e) Promissory Notes Issued on April 17, 2023

 

On April 17, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $169,941 (actual amount of purchase price of $136,800 plus an original issue discount in the amount of $24,141). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 1,790,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 1,820,000 shares of common stock at an exercise price of $0.10, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill.

 

The Company paid to J.H. Darbie & Co., Inc. $6,840 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 57,000 shares of common stock at $.12, subject to adjustment. The Company paid to Spencer Clarke LLC a cash fee of $13,680 plus warrants to purchase 200,000 shares of common stock at $.08, warrants to 179,000 shares of common stock at $.10, and returnable warrants to 182,000 shares of common stock at $.10, in each case subject to adjustment.

 

  (f) Promissory Notes Issued on June 1, 2023

 

On June 1, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $200,000 (actual amount of purchase price of $170,000 plus an original issue discount in the amount of $30,000). Also pursuant to the Purchase Agreement, in connection with the issuance of the Note: (a) Sean Folkson, the Company’s Chairman of the Board and Chief Executive Officer, pursuant to a Pledge Agreement dated the Effective Date (the “Pledge Agreement”), pledged to Mast Hill, and granted to Mast Hill a security interest in, all common stock and common stock equivalents of the Company owned by Mr. Folkson; (b) the Company, Nightfood Inc. and MJ Munchies, Inc., each wholly-owned subsidiaries of the Company (collectively, the “Subsidiaries” and with the Company, the “Debtors”) entered into a Security Agreement dated the Effective Date (the “Security Agreement”), pursuant to which each of the Debtors granted Mast Hill a perfected security interest in all of their property to secure the prompt payments, performance and discharge in full of all of the Debtors’ obligations under the Note and the other transaction documents entered into in connection with the Purchase Agreement and the Note (the “Transaction Documents”); (c) The Subsidiaries entered into a Subsidiary Guarantee dated the Effective Date (the “Guarantee”), pursuant to which the Subsidiaries unconditionally and irrevocably guaranteed to Mast Hill the prompt and complete payment and performance by the Company and the Subsidiaries when due, of the obligations under the Transaction Documents.

 

20

 

  

The Company paid to (a) J.H. Darbie & Co., Inc. 298,875 warrants at an exercise price of $0.05688 per share pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement. The Company paid to (b) Spencer Clarke LLC 1,111,110 warrants at an exercise price of $.033, in each case subject to adjustment.

 

  (g) Promissory Notes Issued on October 6, 2023

 

On October 6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Secured Promissory Note (the “Note”) in the principal amount of $62,000 (actual amount of purchase price of $52,700 plus an original issue discount in the amount of $9,300). The maturity date of the Note is 12 months from the issue date and are the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable. Mast Hill has the right, at any time on or following the date that an Event of Default occurs to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any default interest) into Common Stock, at a conversion price of $0.033, subject to customary adjustments as provided in the Note for stock dividends and stock splits, rights offerings, pro rata distributions, fundamental transactions and dilutive issuances. At any time prior to the date that an Event of Default occurs under the Note, the Company may prepay the outstanding principal amount and interest then due under the Note. On any such event, the Company shall make payment to Mast Hill of an amount in cash equal to the sum of (a) 100% multiplied by the principal amount then outstanding plus (b) 100% multiplied by the accrued and unpaid interest on the principal amount to the prepayment date plus (c) $750.00 to reimburse Mast Hill for administrative fees. In addition, if, at any time prior to the full repayment or full conversion of all amounts owed under the Note, the Company receives cash proceeds from any source or series of related or unrelated sources from the issuance of equity (subject to exclusions described in the Note), debt or the issuance of securities pursuant to an Equity Line of Credit (as defined in the Note) of the Company, Mast Hill shall have the right in its sole discretion to require the Company to apply up to 50% of such proceeds after the Minimum Threshold to repay all or any portion of the outstanding principal amount and interest then due under the Note. The Note contains customary Events of Default for transactions similar to the transactions contemplated by the Purchase Agreement and the Note, which entitle Mast Hill, among other things, to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note, in addition to triggering the conversion rights. Upon the occurrence of any Event of Default, the Note shall become immediately due and payable, and the Company shall pay to Mast Hill an amount equal to the principal amount then outstanding plus accrued interest (including any default interest) through the date of full repayment multiplied by 150%, as well as all costs of collection.

 

The Note contains restrictions on the Company’s ability to (a) incur additional indebtedness, (b) make distributions or pay dividends, (c) redeem, repurchase or otherwise acquire its securities, (d) sell its assets outside of the ordinary course, (e) enter into certain affiliate transactions, (f) enter into 3(a)(9) Transactions or 3(a)(10) Transactions (each as defined in the Note), or (g) change the nature of its business.

 

Commencing as of the Effective Date, and until such time as the Note is fully converted or repaid, the Company shall not effect or enter into an agreement to effect any Variable Rate Transaction (as defined in the Purchase Agreement).

 

The Purchase Agreement contains customary representations and warranties made by each of the Company and Mast Hill. It further grants to Mast Hill certain rights of participation and first refusal, and certain most-favored nation rights, all as set forth in the Purchase Agreement. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).

 

The Company paid to Spencer Clarke LLC a cash fee of $5,270 plus 159,697 warrants at an exercise price of $0.033, in each case subject to adjustment.

 

21

 

 

  (h) Promissory Notes Issued on November 17, 2023

 

On November 17, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $62,000 (actual amount of purchase price of $52,700 plus an original issue discount in the amount of $9,300). The maturity date of the Note is 12 months from the issue date and are the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable. All the terms and conditions as set out in (g) above with respect to a Securities Purchase Agreement and Promissory Note entered into on October 6, 2023, apply to the November 17, 2023 financing from Mast Hill. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).

 

The Company paid to Spencer Clarke LLC a cash fee of $5,270 plus 159,697 warrants at an exercise price of $0.033, in each case subject to adjustment.

 

  (i) Promissory Notes Issued on December 6, 2023

 

On December 6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $170,588 (actual amount of purchase price of $145,000 plus an original issue discount in the amount of $25,588). The maturity date of the Note is 12 months from the issue date and are the date upon which the principal amount, as well as any accrued and unpaid interest and other fees, shall be due and payable. All the terms and conditions as set out in (g) above with respect to a Securities Purchase Agreement and Promissory Note entered into on October 6, 2023, apply to the December 6, 2023 financing from Mast Hill. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).

 

The Company paid to Spencer Clarke LLC a cash fee of $14,500 plus 439,394 warrants at an exercise price of $0.033, in each case subject to adjustment.

 

  (j) Promissory Notes Issued on January 24, 2024

 

On January 24, 2024 the Company entered into a Securities Purchase Agreement, and issued and sold to Mast Hill a Promissory Note in the principal amount of $388,300 (actual amount of purchase price of $330,055 plus an original issue discount in the amount of $58,245). The maturity date of the Note is the 12-month anniversary of the Issuance Date, and is the date upon which the principal amount, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Company paid certain fees in respect to the aforementioned financing agreements. The agreements also provide for terms of conversion only upon an event of default. All the terms and conditions as set out in (g) above with respect to a Securities Purchase Agreement and Promissory Note entered into on October 6, 2023, apply to the January 24, 2024 financing from Mast Hill. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).

 

  (k) Promissory Notes Issued on March 13, 2024

 

On March 13, 2024, the Company entered into a Securities Purchase Agreement, and issued and sold to Mast Hill a Promissory Note in the principal amount of $336,000 (actual amount of purchase price of $285,600 plus an original issue discount in the amount of $50,400). The maturity date of the Note is the 12-month anniversary of the Issuance Date, and is the date upon which the principal amount, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Company paid certain fees in respect to the aforementioned financing agreements. The agreements also provide for terms of conversion only upon an event of default. All the terms and conditions as set out in (g) above with respect to a Securities Purchase Agreement and Promissory Note entered into on October 6, 2023, apply to the March 13, 2024 financing from Mast Hill. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).

 

22

 

 

Fourth Man, LLC Promissory Notes (Fourth Man Notes)

 

  (a) Promissory Notes Issued on June 29, 2023

 

On June 29, 2023, the Company the Company entered into a Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth Man”), a Promissory Note (the “Note”) in the principal amount of $65,000.00 (actual amount of purchase price of $55,250 plus an original issue discount in the amount of $9,750). In connection with the issuance of the Promissory Note, the Company issued the investor warrants to purchase 600,000 shares of common stock at an exercise price of $0.10 and 1,969,697 shares of Common Stock as commitment shares, 1,477,272 of which shall be cancelled and returned to the Company’s treasury upon repayment of the Note on, or prior to, the date that is 180 calendar days after the date of the Agreement; and (b) granted piggy-back registration rights to Fourth Man.

 

The Company paid to J.H. Darbie & Co., Inc. $2,763 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 23,021 shares of common stock at $0.10, subject to adjustment. The Company issued Spencer Clarke LLC warrants to purchase 618,079 shares of common stock at $.033, in each case subject to adjustment.

 

The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.

 

  (b) Promissory Notes Issued on August 28, 2023

 

On August 28, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth Man”), a Promissory Note (the “Note”) in the principal amount of $60,000.00 (actual amount of purchase price of $51,000 plus an original issue discount in the amount of $9,000). In connection with the issuance of the Promissory Note, the Company issued the investor warrants to purchase 650,000 shares of common stock at an exercise price of $0.10 and 3,333,333 shares of Common Stock as commitment shares, 1,666,667 of which shall be cancelled and returned to the Company’s treasury upon repayment of the Note on, or prior to, the date that is 180 calendar days after the date of the Agreement; and (b) granted piggy-back registration rights to Fourth Man.

 

The Company paid to J.H. Darbie & Co., Inc. $2,550 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 21,250 shares of common stock at $.12, subject to adjustment. The Company paid to Spencer Clarke LLC a cash fee of $5,100 plus 650,000 warrants at an exercise price of $.033, in each case subject to adjustment.

 

The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.

 

Amendment to Fourth Man Promissory Notes.

 

On February 1, 2024, Fourth Man and NGTF entered into a letter agreement whereby Fourth Man agreed to amend that certain promissory note in the principal amount of $65,000 issued by NGTF to Fourth Man on June 29, 2023 the “Promissory Note” and that certain promissory note in the principal amount of $60,000 to Fourth Man on August 28, 2023 (the “Subsequent Note”, together with the Promissory Note, the “Notes”), effective as of January 23, 2024. The amendment removed the right to the adjustment to the conversion price of the Notes to the price per share specified in Section 3.21 of the note (“the Affected Adjustment”) issued on August 28, 2023 by NGTF to Fourth Man (the “Subsequent Note”). The letter also amended the Subsequent Note to remove the right to the adjustment to the conversion price during the effective period, solely with respect to the Affect Adjustment. In exchange for Fourth Man’s execution of the letter, NGTF agreed, to (i) increase the total outstanding principal and accrued interest on the Notes by 10% and (ii) issue 1,667 shares of NGTF’s Series D Preferred Stock to Fourth Man.

 

The Company evaluated all of these associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.

 

In accordance with ASC 470- Debt, the proceeds of issuance is first allocated among the convertible instrument and the other detachable instruments based on their relative fair values.

 

23

 

 

Below is a reconciliation of the above debts (Mast Hills Notes and Fourth Man Notes) as presented on the Company’s balance sheet as of March 31, 2024 and June 30, 2023:

 

   Principal
$
   Debt
Discount
$
   Net Value
$
 
Balance at June 30, 2022   
-
    
-
    
-
 
Promissory notes payable issued   2,066,823         2,066,823 
Principal converted to common stock   (16,088)        (16,088)
Debt discount associated with Promissory notes        (864,713)   (864,713)
Amortization of debt discount        305,697    305,697 
Balance at June 30, 2023   2,050,735    (559,016)   1,491,719 
                
Promissory notes payable issued   1,078,888         1,078,888 
Promissory notes amended   12,500         12,500 
Debt discount associated with Promissory notes        (171,711)   (171,711)
Amortization of debt discount        578,853    578,853 
Balance at December 31, 2023  $3,142,123   $(151,874)  $2,990,249 

 

Interest expenses associated with above convertible notes are as follows: 

 

   For the three months Ended
March 31,
   For the nine months Ended
March 31,
 
   2024   2023   2024   2023 
Amortization  $165,113   $132,805   $578,853   $202,060 
Interest on the convertible notes   83,611    22,996    185,778    38,707 
Total  $248,724   $155,801   $764,631   $240,767 

 

As of March 31, 2024 and June 30, 2023, the interest payable was $234,411 and $40,779, respectively.

 

Below is a reconciliation of the loss on extinguishment of debt relative to the amended promissory notes with Fourth Man:

 

10% increase in principle  $12,500 
10% increase in guaranteed interest   1,875 
1,667 Series D Stock issued   113,955 
Loss on extinguishment  $128,330 

 

As a result of dilutive issuances during the period the exercise price of all of the aforementioned convertible notes has been reset subsequent to the period to $0.03333. In addition, certain warrants issued to the noteholders, placement agent and J.H. Darbie have been repriced in accordance with their respective terms and conditions.

 

10. Capital Stock Activity

 

Common Stock

  

The Company is authorized to issue Two Hundred Million (200,000,000) shares of common stock $0.001 par value per share (the “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, subject to the rights of the holder of Series A Stock described below. 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.

 

24

 

 

On October 24, 2022, the Company launched a Tier 2 offering pursuant to Regulation A (also known as “Regulation A+”) with the intent to raise capital through an equity crowdfunding campaign. The Company is offering (this “Offering”) up to 5,000,000 units, each unit consisting of 4 shares of common stock and 4 common stock purchase warrants (“Unit”), being offered at a price range to be determined after qualification pursuant to Rule 253(b).

 

  The Company had 127,221,301 and 123,587,968 shares of its $0.001 par value common stock issued and outstanding as of December 31, 2023 and June 30, 2023 respectively.

 

  The Company had 1,950 shares of its B Preferred stock issued and outstanding as of December 31, 2023 and June 30, 2023.

 

During the nine months ended March 31, 2024:

 

  The Company issued 3,333,333 shares of common stock for services with a fair value of $50,000.

 

  The Company issued 300,000 shares of common stock for services with a fair value of $7,800.

 

  The Company issued 686,106 shares of common stock for cashless exercise of 1,818,182 stock purchase warrants.

 

During the nine months ended March 31, 2023:

 

  The Company issued an aggregate of 532,859 shares of its common stock for services valued at $61,110.

 

  The Company issued 500,000 shares of its common stock as financing cost valued at $60,000.

 

  The Company issued an aggregate of 3,231,697 shares of its common stock for cashless exercise of 4,050,000 stock purchase warrants.

 

  The Company issued 3,800,000 shares of its common stock in exchange for the return of 10,869,566 returnable warrants.

 

  The Company issued 2,750,000 shares of its common stock in exchange for the return of 2,750,000 stock purchase warrants.

 

  The Company sold 467,950 units at $0.50 per unit, consisting with 1,871,800 shares of common stock under its Regulation A+ Offering. The Company received net proceeds of $229,729.

 

  During the nine months ended March 31, 2023, holders of the B Preferred converted 1,310 shares of Series B Preferred Stock into 6,550,000 shares of its common stock.

 

25

 

 

Preferred Stock

 

Series A Preferred Stock

 

The Company is 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. On January 26, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series A Super Voting Preferred Stock (the “Series A Preferred Stock”) of Nightfood Holdings, Inc. was amended (the “Amended Series A COD”) by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A COD, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1). No other changes were made.

 

During the quarter ended March 31, 2024 the former holder of the 1,000 outstanding shares of Series A Stock transferred his shares to the seller of certain assets as part of a Share Exchange Agreement. (ref: Note 3 – Business Combination)

 

The Company had 1,000 shares of the Series A Stock issued and outstanding as of March 31, 2024, and June 30, 2023 which shares are currently held by the Company’s CEO Lei Sonny Wang.

 

Series B Preferred Stock

 

In April 2021, the Company designated 5,000 shares of its Preferred Stock as Series B Preferred (the “B Preferred”), each share of which is convertible into 5,000 shares of common stock and 5,000 non-detachable warrants with an initial exercise price of $0.30.

 

During the fiscal years ended June 30, 2023 and 2022, the Company sold 0 and 335 shares of its B Preferred for gross cash proceeds of $0 and $335,000, respectively. These proceeds were used for operating capital. The B Preferred 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 B Preferred does not have to be redeemed on a specified date.

 

During the fiscal year ended June 30, 2023, holders of the B Preferred converted 1,310 shares of B Preferred into 6,550,000 shares of Common Stock. During the fiscal year ended June 30, 2022, holders of the B Preferred converted 1,740 shares of B Preferred into 8,700,000 shares of Common Stock.

 

The Company had 1,950 shares of its B Preferred issued and outstanding as of March 31, 2024, and June 30, 2023.

 

Series C Preferred Stock

 

On January 26, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”), which established 500,000 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series C COD. The shares of Series C Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series C Preferred Stock. The shares of Series C Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series C Preferred Stock are not entitled to dividends.

 

On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made.

 

The Company issued 13,333 shares of NGTF’s Series C Preferred Stock under share exchange agreement. (ref Note 3 – Business Combination)

 

26

 

 

The Company had 13,333 shares of its C Preferred issued and outstanding as of March 31, 2024.

 

Series D Preferred Stock

 

On February 7, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”), which established 100,000 shares of Series D Convertible Preferred Stock (the “Series D Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series D COD. The shares of Series D Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series D Preferred Stock. The shares of Series D Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series D Preferred Stock are not entitled to dividends.

 

The Company issued 1,667 shares of NGTF’s Series D Preferred Stock to Fourth Man under the amended promissory notes. (ref Note 7 – Debt)

 

The Company had 1,667 shares of its D Preferred issued and outstanding as of March 31, 2024.

 

Dividends

 

The Company has never declared dividends, however as set out below, during the fiscal year ended June 30, 2022 and 2021, upon issuance of a total of 335 and 4,665 shares of B Preferred, respectively, 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 B Preferred, pursuant to which each share of B Preferred 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 $4,431,387.  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 B Preferred was classified as equity. During the year ended June 30, 2023 the Company recorded an additional deemed dividend of $1,136,946, fully amortized on the transaction dates, in relation to the B Preferred stock and downward price adjustments to certain warrants.

 

11. Warrants

 

The following is a summary of the Company’s outstanding common stock purchase warrants.

 

During the fiscal year ended June 30, 2022, holders of the Company’s B Preferred converted 1,740 shares of B Preferred into 8,700,000 shares of Common Stock, along with 8,700,000 warrants. Said warrants are subject to exercise price adjustments resulting from certain financing activities and equity transactions which may increase or decrease the exercise price in in the future. At June 30, 2022, all warrants issued to the Company’s B Preferred holders had an adjusted exercise price of $0.2919.

 

During the fiscal year ended June 30, 2022, 4,000,000 warrants were issued to the holder of outstanding convertible notes with an initial exercise price of $0.25 per share, and 878,260 warrants issued to the placement agent with an initial exercise price of $0.25 per share. The Company valued these warrants using the Black Scholes model utilizing a 143.39% volatility and a risk-free rate of 1.25%. In addition, 167,500 warrants issued to the placement agent with an initial exercise price of $0.20 per share and 167,500 warrants issued to the placement agent with an initial exercise price of $0.30 per share. The Company valued these warrants using the Black Scholes model utilizing a 148.06% volatility and a risk-free rate of 0.83%.

 

During the fiscal year ended June 30, 2022, the Company entered into a warrant agreement with one of the Company’s Directors issuing 100,000 warrants at a strike price of $0.2626 having a term of five years. The Company valued these warrants using the Black Scholes model utilizing a 151.07% volatility and a risk-free rate of 0.79%.

 

27

 

 

During the fiscal year ended June 30, 2022, the Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up Agreement”), with Mr. Folkson, issuing 400,000 warrants at a strike price of $0.30 having a term of one year. The Company valued these warrants using the Black Scholes model utilizing a 107.93% volatility and a risk-free rate of 0.50%.

 

During the fiscal year ended June 30, 2023, holders of the Company’s B Preferred converted 1,310 shares of B Preferred into 6,550,00 shares of Common Stock, along with 6,550,000 warrants. Said warrants are subject to further exercise price adjustments resulting from certain financing activities and equity transactions which may increase or decrease the exercise price in in the future. At June 30, 2023 all warrants issued to the Company’s B Preferred holders had an adjusted exercise price of $0.13796.

 

During the fiscal year ended June 30, 2023, 2,800,000 warrants were issued to the holder of an outstanding promissory note with an initial exercise price of $0.225 per share, 280,000 warrants were concurrently issued to the Placement Agent with an initial exercise price of $0.225, and a further 119,260 warrants were issued to the Placement Agent with initial exercise price of $0.27 per share. The Company valued these warrants using the Black Scholes model utilizing a 122.42% volatility and a risk-free rate of 3.91%. On October 4, 2022, the Company and the Placement Agent entered into an Addendum to amend their Letter of Engagement to cancel compensatory warrants to purchase 280,000 shares of common stock of the Company and to cancel returnable compensatory warrants to purchase 700,000 shares of Common Stock of the Company for a one-time cash payment of $35,000 and the issuance of 500,000 shares of Common Stock in full satisfaction of compensation earned.

  

During the fiscal year ended June 30, 2023 the Company issued a cumulative 12,870,000 warrants to the holder of outstanding promissory notes, 19,460,000 returnable warrants (which warrants are cancelable in full should the notes be repaid in full on or before maturity), 4,875,189 placement agent warrants, 546,000 returnable placement agent warrants (which warrants are cancelable in full should the notes be repaid in full on or before maturity) and 831,386 warrants to JH Darbie. The warrants were issued at initial exercise prices between $0.033 and $0.12 per share and valued on issuance dates with the Black Scholes model utilizing a volatility from 111.36% and 112.33% and a risk-free rate from 3.41% and 4.18%.

 

During the fiscal year ended June 30, 2023, the Company issued an aggregate of 6,549,128 shares of its Common Stock for the cashless exercise of 4,928,260 original issued stock purchase warrants.

 

During the fiscal year ended June 30, 2023, the Company entered into a warrant agreement with one of the Company’s Directors for the issuance of 100,000 warrants at a strike price of $0.125 having a term of five years. The Company valued these warrants using the Black Scholes model utilizing a 121.75% volatility and a risk-free rate of 4.06%.

  

During the fiscal year ended June 30, 2023, the Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up Agreement”), with Mr. Folkson, issuing 400,000 warrants at a strike price of $0.30 having a term of one year. The Company valued these warrants using the Black Scholes model utilizing a 103.60% volatility and a risk-free rate of 4.30%.

 

During the fiscal year ended June 30, 2023, the Company issued 1,871,800 warrants to various subscribers under its Tier 2 offering pursuant to Regulation A (also known as “Regulation A+”) pursuant to which the Company is offering up to 5,000,000 units at a price of $0.50 per unit, each unit consisting of 4 shares of Common Stock and 4 Common Stock purchase warrants (“Unit”) for exercise at a strike price per Share equal to 125% of the price per share of Common Stock, or $0.15625 per share with a term of 2 years.

 

During the fiscal year ended June 30, 2023, the Company issued an aggregate of 5,750,000 shares of its Common Stock for cash exercise of 5,750,000 original issued stock purchase warrants at $0.05 per share. The Company received net proceeds of $276,066. In addition, as incentive to induce the aforementioned warrant holders to exercise existing warrants, the Company issued an aggregate of 6,900,000 replacement warrants to investors and placement agents. The warrants were issued at initial exercise prices between $0.05 and $0.125 per share and valued on issuance dates with the Black Scholes model utilizing a volatility from 110.80% and 111.31% and a risk-free rate from 3.69% and 4.27%. A total of $377,560 was expensed on issuance as financing costs.

 

During the fiscal year ended June 30, 2023, the Company issued 1,000,000 retainer warrants under an Amendment and Addendum to Letter of Engagement agreement at a strike price of $0.033. The warrants included a provision for cashless exercise and carried a 5 years term. The Company valued these warrants using the Black Scholes model utilizing a 113.71% volatility and a risk-free rate of 3.69%. The Company recorded the value of the retainer warrants as consulting expenses.

 

28

 

  

During the fiscal year ended June 30, 2023,  under the terms of a Warrant Exchange Agreement, among other agreements, SC exchanged an aggregate of 16,181,393 of its existing warrants originally issued in fiscal 2021 with initial exercise prices ranging from $0.20 to $0.30, the exercise price of which had been subject to downward price adjustments following issuance and were exercisable at $0.0747 per share as a result of anti-dilution provisions as of February 2023, for a like amount of new warrants to purchase Company Common Stock at a price per share capped at $0.0747 (the “New Warrants”).

 

During the nine months ended March 31, 2024, the Company issued cumulative 650,000 warrants to the holder of outstanding promissory notes, and cumulative 6,208,788 warrants to the placement agent, and 21,250 warrants to JH Darbie as commission fees. The warrants were issued at initial exercise prices between $0.033 and $0.12 per share and valued on issuance dates with the Black Scholes model utilizing a volatility between 124.86% and 136.57, and a risk-free rate between 4.12% and 4.68%.

 

During the three months ended September 30, 2023, 7,000,000 returnable warrants became non-returnable warrants as a result of the Company’s default on certain debt obligations and $699,350 was recorded as additional financing costs.

 

During the nine months ended March 31, 2024, a total of 23,147,255 outstanding share purchase warrants issued in connection with conversion of the Company’s B Preferred into Common Stock were adjusted as a result of certain antidilution clauses resulting in a total of 28,557,967 outstanding share purchase warrants with a downward adjusted exercise price of $0.11082 per share.

 

During the nine months ended March 31, 2024, a total of 1,818,182 share purchased warrants were exercised in a cashless transaction.

 

Certain warrants in the below table include dilution protection for the warrant holders, which could cause the exercise price to be adjusted either higher or lower as a result of various financing events and stock transactions.  The result of the warrant exercise price downward adjustment on modification date is treated as a deemed dividend and fully amortized on the transaction date. In addition to the reduction in exercise price, with certain warrants there is a corresponding increase to the number of warrants to the holder on a prorated basis. Under certain conditions, such as the successful retirement of a convertible note through repayment, it is possible for the exercise price of these warrants to increase and for the number of warrants outstanding to decrease.

  

The aggregate intrinsic value of the warrants as of March 31, 2024 is $7.39 million. The aggregate intrinsic value of the warrants as of June 30, 2023 was $4.22. million.

 

Exercise
Price
   June 30,
2023
   Issued   Repricing   Exercised   Others   Cancelled   Expired   Redeemed   March 31,
2024
 
$0.03333    70,935,941    6,208,788    67,445,493    (1,818,182)   
   -
    
    -
    
-
    
    -
    142,772,040 
$0.0747    16,181,392    
-
    
-
    
-
    
-
    
-
    
-
    
-
    16,181,392 
$0.1000    600,000    650,000    (1,250,000)   
-
    
-
    
-
    
-
    
-
    
-
 
$0.1200    
-
    21,250    (21,250)   
-
    
-
    
-
    
-
    
-
    
-
 
$0.1250    100,000    
-
    
-
    
-
    
-
    
-
    
-
    
-
    100,000 
$0.1380    23,147,255    
-
    (23,147,255)   
-
    
-
    
-
    
-
    
-
    
-
 
$0.1108    
-
    
-
    28,557,967    
-
    
-
    
-
    
-
    
-
    28,557,967 
$0.1563    1,871,800    
-
    
-
    
-
    
-
    
-
    
-
    
-
    1,871,800 
$0.2626    100,000    
-
    
-
    
-
    
-
    
-
    
-
    
-
    100,000 
$0.3000    400,000    7,000,000    (7,000,000)   
-
    
-
    
-
    (400,000)   
-
    
-
 
$0.5000    500,000    
-
    
-
    
-
    
-
    
-
    
-
    
-
    500,000 
      113,836,388    13,880,038    64,584,955    (1,818,182)   
-
    
-
    (400,000)   
-
    190,083,199 

 

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Returnable Warrants

 

A cumulative total of 18,956,523 Returnable Warrants issued in conjunction with a financing agreement dated as of September 23, 2022, and a MFN agreement entered into concurrently on September 23, 2022 (ref: Note 7 above) may only be exercised in the event that the Company were to default on certain debt obligations. The Returnable Warrants have an initial exercise price of $0.30 per share, subject to customary adjustments (including price-based anti-dilution adjustments) and may be exercised at any time after an Event of Default until the five-year anniversary of such date. The Returnable Warrants include a cashless exercise provision as set forth therein. The exercise of the Returnable Warrants are subject to a beneficial ownership limitation of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. In the event of the Company’s failure to timely deliver shares of Common Stock upon exercise of the Returnable Warrants, the Company would be obligated to pay a “Buy-In” amount pursuant to the terms of the Returnable Warrants. On December 29, 2022, upon an event of default as defined under the MFN agreement, 5,434,785 returnable warrants issued to each of the Purchasers under the MFN Agreement, and 1,086,957 returnable warrants issued to the Placement Agent, were triggered and valued using the Black Scholes model with a volatility of 124.14% and a risk-free rate of 3.94% resulting in financing expenses recorded as additional financing costs in the cumulative amount of $1,085,780.  In February 2023, the Company issued 3,800,000 shares of its common stock in exchange for the return of 10,869,566 returnable warrants. The warrants issued to the Placement Agent remained available for exercise.

 

During the fiscal year ended June 30, 2023, the Company issued cumulative 12,460,000 returnable warrants to the Purchasers of certain convertible notes issued after September 2022, and cumulative 546,000 returnable warrants to the Placement Agent. Any expense related to such warrants will be recorded in a future reporting period and only in the event the Company defaults on certain debt obligations. These returnable warrants were initially valued using the Black Scholes model with a volatility of between 111.36% and 112.33% and a risk-free rate of between 3.67% and 3.91% resulting in contingent expenses to be recorded as additional financing costs in the cumulative amount of $809,800, which amount will be recorded in a future reporting period, only in the event the Company defaults on certain debt obligations.

 

12. 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 $0.15 per share, of which all have vested.

 

  Sean Folkson has a consulting agreement which went into effect on December 1, 2023 and runs through December 31, 2024.  The agreement contains the potential for cash and equity bonuses should Nightfood, Inc. achieve certain revenue milestones.  The Cash Performance Bonus shall be equal to 2% of gross Nightfood, Inc. revenues, paid quarterly.  The Equity Performance Bonus shall be paid in any quarter where gross Nightfood, Inc. revenues exceed $250,000 and shall be paid in stock equal to 10% of the gross quarterly revenues for the bonus period, based on the average closing priced for the last 10 trading days.

 

  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.

 

30

 

 

13. Related Party Transactions

 

As of March 31, 2024 and June 30, 2023, related parties are due a total of 234,747 and $101,876, respectively:

 

   March 31,
2024
   June 30,
2023
 
Sean Folkson consulting fees payable  $97,000   $33,000 
Directors fees payable   57,000    27,000 
Accrued compensation payable with shares and warrants (unissued)   29,875    
-
 
Lei Sonny Wang consulting fees payable   20,000    
-
 
Sean Folkson loan (principal $40,000) and interest payable   45,476    41,876 
Lei Sonny Wang reimbursement expenses   1,396    
-
 
Total related party payable  $250,747   $101,876 

 

Services provided from related parties as professional fees:

 

  

Three Months Ended

March 31,

  

Nine Months Ended

March 31,

 
   2024   2023   2024   2023 
Sean Folkson  $30,000   $18,000   $70,000   $54,000 
Directors fees and compensation   25,250    19,625    59,875    58,875 
Lei Sonny Wang   20,000    -    20,000    - 
Total fees under professional fees  $75,250   $37,625   $149,875   $112,875 

 

On February 2, 2024, Sean Folkson resigned as chief executive officer of NGTF and Lei Sonny Wang was appointed Chief Executive Officer and a director.

 

Agreements with Mr. Folkson

 

On February 2, 2024, Mr. Folkson, NGTF and Nightfood, Inc. entered into a consulting agreement (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Folkson will (1) continue to serve as a director of NGTF, subject to shareholder approval, for no less than the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur, during which time both NGTF and its board of directors (the “Board”) will use its best effort to maintain Mr. Folkson’s directorship and (2) will serve as president of Nightfood, Inc. until December 31, 2024, which may date be extended. Mr. Folkson will receive cash and equity compensation as a director commensurate with the compensation received by other directors. Unless either party provides the other written notice at least 45 days before the end of the Consulting Agreement’s term of its intention to terminate, then the Consulting Agreement will renew automatically for one-year terms. The Consulting Agreement can be terminated for cause without notice. Upon termination of the Consulting Agreement for any reason, Mr. Folkson will receive NGTF common stock with a market value equal to $125,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned as of the termination. Additionally, if the Consulting Agreement is terminated prior to December 31, 2024, then Mr. Folkson will be entitled to continue to receive his Base Salary from the termination date until December 31, 2024. If Mr. Folkson is removed as a director of NGTF earlier than one year after NGTF’s successful uplist to any national securities exchange, then he will receive NGTF common stock with a market value equal to $500,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned on the date he was removed from the Board.

 

In exchange for his services, Mr. Folkson will receive a minimum annual salary of $120,000 (“Base Salary”), payable monthly. Mr. Folkson will be paid $6,000 per month of his Base Salary until NGTF completes a capital raise of not less than $1,000,000 or Nightfood, Inc. develops a monthly positive cash flow greater than $10,000 (the “Financial Conditions”). Until the Financial Conditions are met, any unpaid portion of the Base Salary will accrue. Nightfood, Inc. and NGTF have agreed that the entirety of the Base Salary will accrue between December 1, 2023 and February 29, 2024. The payments of $6,000 will begin on March 1, 2024. Upon meeting the Financial Conditions or successfully uplisting to NASDAQ, the parties will create a payment schedule to ensure payment of the full salary and accrued income within three to nine months, including $57,000 in consulting fees owed to Mr. Folkson as of November 1, 2023 pursuant to a consulting agreement dated December 27, 2021 between Mr. Folkson and NGTF. Mr. Folkson will be entitled to cash and equity bonuses based on certain conditions, beginning with the three-month period ending March 31, 2024 and quarterly thereafter. The cash bonus will equal 2% of Nightfood, Inc.’s revenues, including royalties, during the quarterly period, which will be paid no later than 15 days after the close of the quarterly period to which it relates. The equity bonus will be paid in any quarter where gross Nightfood, Inc. revenues exceed $250,000, commencing with the three-month period ending March 31, 2024 and quarterly thereafter. The equity bonus will be paid in NGTF common stock with a market value equal to 10% of gross quarterly revenues for the applicable period, based on the average closing price for the last 10 trading days. Such stock shall be deemed fully earned as of the last day of the applicable quarter and issued within 30 days of the end of the quarter. The cash and equity bonuses will be paid during the term of the Consulting Agreement and for 36 months afterward. Should NGTF sell all shares of Nightfood, Inc., its business, or any rights to any other party to manufacture, market, and distribute products under the Nightfood brand name, then Mr. Folkson will receive a cash bonus equal to 2% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received and an equity bonus equal to 10% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received (the “Sale Bonus”). The Sale Bonus will be paid with respect to any transaction during the term of the Consulting Agreement or that is consummated within 36 months thereafter.

 

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Agreements with Mr. Wang

 

In connection with Mr. Lei Sonny Wang’s appointment as chief executive officer, NGTF and Mr. Wang entered into an employment agreement effective as of February 2, 2024 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. Wang will serve his initial term beginning February 2, 2024 (the “Effective Date”) ending on the earlier of (i) the one year anniversary of the Effective Date or (ii) the termination of the Employment Agreement (the “Initial Term”). The Initial Term will be automatically extended for additional one-year terms (each a “Renewal Term”), unless NGTF or Mr. Wang provides the other with notice, at least 30 days prior to the expiration of the current term, of its desire not to renew the Employment Agreement. For his services, Mr. Wang will receive an annual base salary of $120,000, payable monthly beginning on the Effective Date. Until NGTF completes an additional two mergers and a capital raise in excess of $1,000,000 gross proceeds, or NGTF has financial capabilities to support the Base Salary, Mr. Wang will be paid $6,000 per month of the Base Salary, and the unpaid portion of the Base Salary will accrue.

 

The Employment Agreement may be terminated with or without cause by NGTF and may be terminated with or without good reason by Mr. Wang. If NGTF terminates the agreement for cause, then NGTF will (i) pay Mr. Wang any unpaid Base Salary, benefits and any unreimbursed expenses within 10 days after the termination date; (ii) any unvested portion of equity granted to Mr. Wang through any agreement, including restricted stock awards, will be automatically forfeited; and (iii) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. If NGTF terminates the agreement without cause, then NGTF will (i) pay Mr. Wang any Base Salary or other amounts accrued and any unreimbursed expenses incurred within 10 days following the termination date; (ii) pay Mr. Wang a lump sum equal to the Base Salary that would have been paid to Mr. Wang for the remainder of the Initial Term or Renewal Term within 10 days of the termination; (iii) any grant of equity made to Mr. Wang, to the extent not vested, will automatically vest; and (iv) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. Should Mr. Wang terminate the Employment Agreement with good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated without cause. If Mr. Wang terminates the Employment Agreement without good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated with cause.

 

With regards to intellectual property, Mr. Wang has agreed that any work product resulting from the Employment Agreement will be the sole and exclusive property of NGTF and has irrevocably assigned all right, title and interest worldwide in and to any work product to NGTF. NGTF may also sublicense any work product resulting from the Employment Agreement.

 

14. Subsequent Events 

 

On May 9, 2024, the Company consummated transactions pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) dated as of May 5, 2024 (the “Effective Date”) and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “Note”) in the principal amount of $395,000.00 (actual amount of purchase price of $335,750 plus an original issue discount (“OID”) in the amount of $59,250). The use of proceeds from the sale of the Mast Hill Note is strictly for business development and expenses related to compliance and merger and ongoing acquisition activity, and not for any other purpose. The maturity date of the Mast Hill Note is the 12-month anniversary of the Issuance Date, and is the date upon which the principal amount, as well as any accrued and unpaid interest and other fees, shall be due and payable. Mast Hill has the right, at any time on or following the date that an event of default occurs under the Note, to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any default interest) into common stock of the Company, at a conversion price of $0.033, subject to customary adjustments as provided in the Mast Hill Note for stock dividends and stock splits, rights offerings, pro rata distributions, fundamental transactions and dilutive issuances. In addition, Mast Hill is entitled to deduct $1,750.00 from the conversion amount upon each conversion, to cover Mast Hill’s fees associated with each conversion. Any such conversion is subject to customary conversion limitations set forth in the Mast Hill Note so Mast Hill beneficially owns less than 4.99% of the Common Stock.

 

The Company has evaluated events for the period through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.

 

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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, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 13, 2023, as well as the other information set forth herein.

 

OVERVIEW

 

Nightfood Holdings, Inc. is focused on identifying and exploiting explosive market trends within the hospitality, food services, and consumer goods sectors.  By leading newly emerging categories and by identifying opportunities in markets undergoing transformational upheaval, our aim is to create upside potential unmatched in more mature markets. 

 

In February 2024, we acquired recently formed Future Hospitality Ventures Holdings, Inc. (“Future Hospitality”) in an all-stock transaction. We’re in the process of acquiring two additional operating subsidiaries sectors, to add to the two subsidiaries currently in our portfolio: Nightfood, Inc. and Future Hospitality).

 

RECENT DEVELOPMENTS

 

On February 2, 2024, Nightfood Holdings, Inc. completed the acquisition of Future Hospitality Ventures Holdings Inc., a Nevada corporation, and its subsidiaries from Lei Sonny Wang, the sole shareholder of Future Hospitality. The acquisition of Future Hospitality was approved by the majority shareholder of the Company, Mr. Sean Folkson, and the board of directors. Pursuant to the Exchange Agreement, the Future Hospitality Shareholder exchanged all 1,000 shares of common stock, $0.001 par value per share, of Future Hospitality owned by him to NGTF for: (i) all 1,000 issued and outstanding shares of NGTF’s Series Super Voting A Preferred Stock held by the NGTF Series A Shareholder, and (ii) an aggregate of 13,333 newly issued shares of NGTF’s Series C Convertible Preferred Stock, each of which shall convert into 6,000 shares of common stock at $0.025 per share (the “Series C Preferred Stock”, and together with the Series A Super Voting Preferred Stock, the “NGTF Exchange Shares”). Under the terms of the agreement, Sean Folkson resigned as the Chief Executive Officer of NGTF, and continues to serve as the President of Nightfood, Inc. through at least December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur. Mr. Lei Sonny Wang was concurrently appointed a director and Chief Executive Officer of NGTF. Each of Mr. Folkson and Mr. Wang entered into compensation agreements for their services effective February 2, 2024.

 

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Lei Sonny Wang, 44, founded and has served as chief executive officer of Future Hospitality Ventures Holdings Inc., a service robots distribution company to address operational inefficiencies in the hospitality industry, since October 28, 2023. On October 17, 2017, Mr. Wang established, and acted as executive director of, Intelligent Ventures Group Inc., which specializes in scaling and reviving California’s early-stage and distressed small businesses through turnkey management. On March 1, 2019, Mr. Wang joined Tri Cascade Inc. as the Executive Director of Business Development, an early-stage IoT device manufacturing and smart device development company focusing on deploying Outdoor Air Quality Monitor applications to address high-density urban air population concerns. On March 2, 2020, Mr. Wang joined Komfort IQ as the Chief Revenue Officer, an IoT startup enhancing energy efficiency in commercial office spaces by up to 60%. On January 5, 2022, Mr. Wang joined Retrofitek Inc., a startup distribution company innovating in the HVAC sector with energy-saving coating technologies, as the interim CEO. Mr. Wang studied Political Science at the University of California, Santa Barbara, and obtained degrees in Consumer Behavior and Business Administration from the University of North Texas. Mr. Wang’s history in managing, launching, and growing companies that address critical challenges uniquely positions him as a qualified board member. NGTF believes that Mr. Wang’s strategic vision, combined with his operational experience, will contribute to creative problem-solving, business development, fundraising, and overall management.

 

FHVH is a new entrant in an explosive space: Robots-as-a-Service (RaaS). The up-and-coming global service robots market is projected to exceed $170 billion by 2030. Under the leadership of Mr. Wang, FHVH has secured distribution agreements with industry-leading manufacturers United Robotics Group and Botin Innovation and is in the process of negotiating several additional supply opportunities.

 

OPERATING SUBSIDIARIES

 

Nightfood, Inc. - The Nighttime Snack Problem and Opportunity

 

What you eat before bed matters.

 

Nightfood is pioneering the category of sleep-friendly nighttime snacking.

 

Research indicates that humans are biologically hard-wired to load up on sweets and fats at night. Loading a surplus of calories (fuel) into the body before the long nightly fast is believed to be an outdated survival mechanism from our hunter-gatherer days. Unfortunately, while modern consumers know this type of consumption isn’t necessary for survival, willpower also weakens at night, so consumers are more likely to succumb to these unhealthy nighttime cravings for excess “survival calories”.

 

As a result, over 90% of adults report snacking regularly between dinner and bed (according to SleepFoundation.org), resulting in an estimated 1 billion nighttime snack occasions weekly in the United States, and an annual spend on night snacks of over $60 billion. Because of our hard-wired evolutionary preferences at night for calorie-dense foods which increased the odds of short-term survival for our ancestors, the most popular nighttime snacks are ice cream, cookies, chips, and candy. These are all understood to be generally unhealthy. They can also impair sleep quality.

 

And, because these cravings are biologically hardwired, we believe modern unhealthy nighttime snacking behavior will continue to be a pattern and a problem for a significant portion of the population in developed nations around the world. We believe it’s a problem that demands a solution.

 

In recent years, billions of dollars of consumer spend have shifted to better-for-you versions of consumers’ favorite snacks. Nightfood snacks are not only formulated to be better-for-you, but they’re uniquely formulated by sleep experts and nutritionists to provide a better nutritional foundation for quality sleep.

 

A significant portion of total snack consumption takes place between dinner and bed. Nutrition is an important part of sleep-hygiene because what one eats at night impacts sleep. Industry surveys indicate that modern consumers seek functional benefits from their snacks, and most consumers would also prefer better sleep.

 

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As the pioneers of the nighttime snacking category, Nightfood accepts the responsibility to educate consumers and build the awareness required to grow the nighttime segment of the overall 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 meaningful subsegment of the estimated $150 billion American snack market.

 

Management believes significant latent consumer demand exists for better nighttime snacking options, and that a new consumer category, consisting of nighttime specific snacks, is set to 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, CEOs and other executives from major consumer goods conglomerates such as Nestle, PepsiCo, Mondelez, and Kellogg’s have commented on consumer nighttime snack habits and alluded to the opportunity that might exist in solving this problem for the marketplace.

 

Nightfood has established a highly credentialed 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 fifteen 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 Dr. 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 allows her to play an important role in the formulation of Nightfood snacks. These experts work with Company management to ensure Nightfood products deliver on their nighttime-appropriate, and sleep-friendly promises.

 

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.

 

Nightfood cookies offer similar nutritional benefits when compared to conventional cookies. They feature less sugar, less fat, fewer calories, more protein, more prebiotic fiber, and contain added inositol and vitamin B6.

 

Each new Nightfood snack format would be expected to deliver sleep-friendly snacking in a way that is 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.

  

Nightfood has received media coverage for its sleep-friendly snacks 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 other major media outlets.

 

The Company is in the process of launching a direct-to-consumer (“DTC”) initiative for Nightfood sleep-friendly cookies that Management believes has the potential to quickly scale, providing stability and a foundation from which to grow the Nightfood brand and the sleep-friendly snack category.

 

Because of the potential size and strategic importance of the nighttime-specific snack market, and the growing interest and understanding of the link between nutrition and sleep, potential exists for joint ventures with international food and beverage and wellness companies. In recent years, some of the largest food and beverage companies in the world have approached us to explore partnership opportunities. This includes Nestlé (with whom we completed a “test-and-learn” joint initiative in 2023) and others. Most recently, in January 2024, we were contacted by a leading international wellness brand which wanted to explore development of Nightfood branded snacks in a joint venture.

 

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Discussions surrounding such partnership opportunities remain ongoing, and shareholders should expect advancement of such initiatives to be predicated on successful Nightfood DTC scaling in mid-2024. DTC scaling could also allow us to evaluate additional opportunities in the hotel vertical.

 

During April of 2024, Nightfood, Inc. observed a significant increase in direct-to-consumer sales of its cookies resulting from its social media strategy, with TikTok being the primary sales driver. During the 30-day period from April 21, 2024 through May 20, 2024, Nightfood generated over $50,000 in unaudited net revenue from direct-to-consumer sales according to unaudited Shopify reporting, with over 80% of these sales occurring on the Nightfood.com website, and the balance occurring via TikTok Shop.

 

Future plans for the Nightfood brand include the introduction of sleep-friendly snacks in additional formats conducive to ecommerce, such as chips and candy, as well as retail distribution in supermarkets, hospitality, and other traditional and non-traditional channels.

 

Future Hospitality Ventures Holdings, Inc.

 

Future Hospitality is a new and well-positioned entrant in the burgeoning Robotics-as-a-Service (“RaaS”) sector. The global service robots’ market is projected to exceed $170 billion by 2030. With a focus on the RaaS opportunity across the United States, Future Hospitality launched in California, a labor market currently making national news due to significant upheaval from recent shifts in labor laws, minimum wage for food service workers, and high turnover rates that have forever burdened the foodservice and hospitality industry.

 

The United States is brimming with potential for growth, and we believe the RaaS landscape is poised for remarkable opportunities. At Future Hospitality, our mission is to leverage our resources to become a leading force in the commercialization of RaaS and Internet-of-Things (IoT) automation applications. Our vision is to create immense value for our customers and drive industry innovation, all while strategically expanding our market footprint.

 

Future Hospitality is not just aiming for growth; we're targeting significant revenues and profits to maximize shareholder value in this high-growth, high-margin industry. By pursuing organic growth and strategically accretive mergers and acquisitions, we're setting the stage for a future where Future Hospitality leads the charge in RaaS and IoT automation. Together, we'll redefine the industry and achieve extraordinary success. 

 

DEVELOPMENT PLANS

 

Our focus is on identifying and exploiting explosive market trends within the hospitality, food services, and consumer goods sectors. By leading newly emerging categories and by identifying opportunities in existing markets undergoing transformational upheaval, our aim is to create upside potential unmatched in more mature markets.

 

In November 2023, we announced our goal of building a portfolio of operating companies in these spaces to enhance stability and shareholder value through uplist to a senior exchange such as NASDAQ. The first acquisition in this process was completed in February 2024, when we acquired newly formed Future Hospitality in an all-stock transaction.

 

We are currently in the process of acquiring two additional operating companies which are expected to bring millions of dollars in assets and synergistic revenue under the Nightfood Holdings umbrella, should the acquisitions be successfully completed, which we anticipate. Our updated timeline targets have us completing these two acquisitions in July of 2024, with the goal of transitioning to the NASDAQ as soon as practicable thereafter.

  

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.

 

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SEASONALITY

 

We do not expect a significant seasonality impact on either Nightfood or Future Hospitality during the anticipated upcoming growth stages of either company. The full impact of seasonality on our businesses might not be fully understood for several additional annual cycles. 

 

RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2024 AND 2023

 

Revenue

 

For the three months ended March 31, 2024 and 2023, we had Gross Sales of $1,491 and $15,217, respectively and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $1,352 and $10,605, respectively, and incurred operating expenses of $291,492 and $155,660 respectively. During the three months ended March 31, 2024 the pivot from ice cream sales to Direct-To-Consumer sales of our cookies had only just commenced. As we have shifted from retail distribution of Nightfood snacks to direct- to-consumer, we do not expect to incur slotting fees in the future until and unless we again begin distributing Nightfood product offerings through certain retail channels and partners.

 

Costs and expenses

 

  

For the three months Ended
March 31,

 
   2024   2023 
         
Operating expenses        
Cost of product sold   2,034    58,474 
Advertising and promotional   6,453    38,960 
Selling, general and administrative expense   162,022    155,076 
Professional fees   120,983    (96,850)
Total operating expenses   291,492    155,660 

 

For the three months ended March 31, 2024 and 2023, Cost of Product Sold decreased to $2,034 from $58,474. This is due to a decrease in the amount of product sold.

 

For the three months ended March 31, 2024 and 2023, Advertising and Promotional Expenses decreased from $38,960 to $6,453 as we paused advertising and promotional efforts during the current three month period.

 

For the three months ended March 31, 2024 and 2023, Selling, General, and Administrative expenses increased from $155,076 to $162,022. The increase was a direct result of inventory impairment charges of $105,455 in the current three months ended March 31, 2024. Selling, General, and Administrative expenses experienced a substantive decrease period over period as sales decreased period over period, along with associated costs.

 

For the three months ended March 31, 2024 and 2023, Professional Fees reflect an expense of $120,983 for the current three months ended March 31, 2024 as compared to a credit to professional fees of $96,850 in the three months ended March 31, 2023. The results reported in the three months ended March 31, 2023, reflecting a net credit to professional fees of $96,850 is the result of the repricing of certain consulting fees issued as warrants as part of a Forbearance and Exchange Agreement entered into with certain parties in February 2023 resulting in an adjustment to previously recorded consulting expenses in the period of $250,936.

 

Total Operating Expenses include those expenses associated with running the operating portion of our business (such as the manufacturing our snacks, advertising for our product, warehousing, freight, and the like). It also includes certain cash and non-cash expenses incurred by us related to activities such as SEC compliance, fundraising activities, and maintaining our public entity in good standing. Our revenues and operations are currently limited, therefore expenses relating to financing and compliance activities make up a larger portion of our total expenses than they might in a larger company. For the three months ended March 31, 2024 and 2023, Total Losses from Operations increased from $145,055 to $290,140. As discussed above, the major component of this increase was the increase to professional fees period over period and substantial inventory write-downs in the current period as we shift from ice-cream sales to cookie sales, offset by reductions to both costs of products sold and advertising and promotional costs.

 

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Other Income (Expense)

 

For the three months ended March 31, 2024 and 2023, Total Other Expenses totaled $379,579 as compared to other income of $1,130,948. The majority of these results are related to accounting treatment applied to financing costs, debt and the amortization of debt discount. During the three months ended March 31, 2024 we recorded interest expenses of $86,136, amortization of debt discounts of $165,113 and loss on debt extinguishment of $128,330. During the three months ended March 31, 2023 we recorded amortization of debt discount of $132,805, interest expenses of $40,758 and a loss on debt extinguishment of $392,459, offset by a gain from financing costs of $1,696,970 as a result of entry into a Forbearance and Exchange Agreement in February 2023 with certain parties which resulted in adjustments to prior recorded expenses.

 

Net Loss

 

Our net loss in the three months ended March 31, 2024 totaled $669,719 as compared to net income of $985,894 in the three months ended March 31, 2023. The change in results from net income in 2023 to a net loss in the current period in 2024 is directly related to adjustments to previously recorded expenses in the three months ended March 31, 2023 as a result of a certain Forbearance and Exchange Agreement entered into in February 2023 which required revaluation of various financing costs and share based consulting expenses, the impact of which resulted in a gain to financing costs in the three months ended March 31, 2023 of $1,696,970

 

RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2024 AND 2023

 

Revenue

 

For the nine months ended March 31, 2024 and 2023 we had Gross Sales of 11,159 and $152,864, respectively and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $736 and $48,920, respectively, and incurred operating expenses of $900,423 and $1,485,144 respectively. During the nine months ended March 31, 2024 the pivot from ice cream sales to Direct-To-Consumer sales of our cookies only commenced in the most recent quarter ending March 31, 2024. As we have shifted from product sales at retail and wholesale to direct to consumer, we do not expect to incur slotting fees in the future, unless we determine to introduce our current product offerings to a retail format.

 

Costs and expenses

 

  

For the nine months Ended
March 31,

 
   2024   2023 
         
Operating expenses        
Cost of product sold   60,610    225,591 
Advertising and promotional   6,044    129,295 
Selling, general and administrative expense   375,470    385,711 
Professional fees   458,299    744,547 
Total operating expenses   900,423    1,485,144 

 

For the nine months ended March 31, 2024 and 2023, Cost of Product Sold decreased from $225,591 to $60,610. This is due to a decrease in the amount of product sold.

 

For the nine months ended March 31, 2024 and 2023, Advertising and Promotional Expenses decreased from $129,295 to $6,044. This decrease is largely due to us pausing advertising and promotional efforts during the period. In addition, certain previously booked marketing expenditures during the nine months ended March 31, 2024, were reversed in the current nine month period, upon non-provision of services resulting in a reduction to the overall costs in the current nine months.

 

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For the nine months ended March 31, 2024 and 2023, Selling, General, and Administrative expenses decreased from $385,711 to $375,470.In fact the Company’s expenditures on Selling, General and Administrative costs was substantially reduced period over period, such reductions being offset in the nine months ended March 31, 2024 by a sizeable impairment to inventory in the period of $251,010,as the Company shifted from ice-cream sales to direct to consumer sales of cookie products.

 

For the nine months ended March 31, 2024 and 2023, Professional Fees decreased from $744,547 to $458,299. This decrease was largely due to reduced expenses in the current nine months ended March 31, 2024, as we did not have costs associated with the preparation, filing, and qualification of our Tier 2 offering pursuant to Regulation A, which received qualification from the SEC on October 25, 2022. In addition, we experienced a substantial decrease in professional consulting fees period over period as a result of the restructure of certain debt agreements.