Company Quick10K Filing
NightFood
Price0.60 EPS-0
Shares55 P/E-7
MCap33 P/FCF-17
Net Debt-0 EBIT-5
TEV33 TEV/EBIT-7
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-20
10-Q 2019-12-31 Filed 2020-02-19
10-Q 2019-09-30 Filed 2019-11-19
10-K 2019-06-30 Filed 2019-10-15
10-Q 2019-03-31 Filed 2019-05-14
10-Q 2018-12-31 Filed 2019-02-19
10-Q 2018-09-30 Filed 2018-11-19
10-K 2018-06-30 Filed 2018-09-28
10-Q 2018-03-31 Filed 2018-05-18
10-Q 2017-12-31 Filed 2018-02-16
10-Q 2017-09-30 Filed 2017-11-16
10-K 2017-06-30 Filed 2017-10-03
10-Q 2017-03-31 Filed 2017-05-18
10-Q 2016-12-31 Filed 2017-02-21
10-Q 2016-09-30 Filed 2016-11-18
10-K 2016-06-30 Filed 2016-09-28
10-Q 2016-03-31 Filed 2016-05-11
10-Q 2015-12-31 Filed 2016-02-09
10-Q 2015-09-30 Filed 2015-11-12
10-K 2015-06-30 Filed 2015-09-30
10-Q 2015-03-31 Filed 2015-05-15
10-Q 2014-12-31 Filed 2015-02-12
10-Q 2014-09-30 Filed 2014-11-04
10-K 2014-06-30 Filed 2014-09-29
10-Q 2014-03-31 Filed 2014-05-20
8-K 2020-06-23 Enter Agreement, Exhibits
8-K 2020-05-20
8-K 2020-05-01
8-K 2020-02-27
8-K 2020-02-06
8-K 2020-01-20
8-K 2019-12-31
8-K 2019-11-07
8-K 2019-09-24
8-K 2019-08-29
8-K 2019-08-08
8-K 2019-07-05
8-K 2019-06-21
8-K 2019-06-11
8-K 2019-04-29
8-K 2019-03-14
8-K 2019-02-04
8-K 2019-01-28
8-K 2018-12-18
8-K 2018-12-10
8-K 2018-10-12
8-K 2018-10-05
8-K 2018-09-06
8-K 2018-08-03
8-K 2018-07-11
8-K 2018-07-02
8-K 2018-06-18
8-K 2018-06-01
8-K 2018-04-30
8-K 2018-04-09
8-K 2018-03-01
8-K 2018-01-31
8-K 2018-01-19
8-K 2018-01-10
8-K 2017-12-27

NGTF 10Q Quarterly Report

Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 f10q0320ex31-1_nightfood.htm
EX-32.1 f10q0320ex32-1_nightfood.htm

NightFood Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.90.1-0.7-1.4-2.2-3.02014201620182020
Assets, Equity
0.3-0.2-0.7-1.3-1.8-2.32014201620182020
Rev, G Profit, Net Income
1.10.70.3-0.2-0.6-1.02014201620182020
Ops, Inv, Fin

10-Q 1 f10q0320_nightfood.htm QUARTERLY REPORT

 

 

U.S. 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 quarter ended: March 31, 2020

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to____________

 

Commission File Number: 000-55406

 

Nightfood Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   46-3885019
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)
     

520 White Plains Road, Suite 500

Tarrytown, New York

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

 

888-888-6444

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes ☐  No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Nightfood Holdings, Inc Common Stock   NGTF   OTCQB

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. At May 20, 2020, the registrant had outstanding 60,363,666 shares of common stock.

 

 

 

 

 

 

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. 2
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 8
     
Item 4. Controls and Procedures. 8
     
PART II – OTHER INFORMATION
     
Item 1. Legal Proceedings. 9
     
Item 1A. Risk Factors. 9
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 9
     
Item 3. Defaults Upon Senior Securities. 9
     
Item 4. Mine Safety Disclosures. 9
     
Item 5. Other Information. 9
     
Item 6. Exhibits. 9
     
Signatures 10

 

i

 

 

Nightfood Holdings, Inc.

 

 

Financial Statements

 

For the nine months ended March 31, 2020 and March 31, 2019

 

Item 1. Financial Statements

 

 

1

 

 

Nightfood Holdings, Inc.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    March 31,     June 30,  
    2020     2019  
    (Unaudited)        
ASSETS            
Current assets:            
Cash   $ 110,101     $ 30,142  
Accounts receivable - net     50,924       45,086  
Inventories     285,879       406,439  
Other current assets     580,746       1,000  
Total current assets     1,027,650       482,667  
                 
Total assets   $ 1,027,650     $ 482,667  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable   $ 1,213,649     $ 496,809  
Accrued expense-related party     9,974       33,974  
Short term borrowings – line of credit     5,000       -  
Convertible notes payable – net of discount     1,790,578       1,117,741  
Fair value of derivative liabilities     1,598,539       1,306,748  
Total current liabilities   $ 4,617,740       2,955,272  
                 
Commitments and contingencies     -       -  
                 
Stockholders’ deficit:                
Preferred stock, ($0.001 par value, 100,000,000 shares authorized, and 1,000 issued and outstanding as of March 31, 2020 and 1,000 outstanding as of June 30, 2019, respectively)     1       1  
Common stock, ($0.001 par value, 200,000,000 shares authorized, and 60,189,966 issued and outstanding as of March 31, 2020 and 53,773,856 outstanding as of June 30, 2019, respectively)     60,190       53,774  
Additional paid in capital     12,310,827       10,692,679  
Accumulated deficit     (15,961,108 )     (13,219,059 )
Total stockholders’ deficit     (3,590,090 )     (2,472,605 )
Total Liabilities and Stockholders’ Deficit   $ 1,027,650     $ 482,667

 

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

 

F-1

 

 

Nightfood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

   For the nine months 
ended March 31,
2020
   For the nine months 
ended March 31,
2019
   For the 
three months
ended March 31,
2020
   For the
three months
ended March 31,
2019
 
Revenues  $227,257   $296,434   $119,475   $159,575 
                     
Operating expenses                    
Cost of product sold   352,240    129,634    157,265    74,443 
Advertising and promotional   673,814    285,700    137,487    105,277 
Selling, general and administrative   295,107    432,095    92,423    127,775 
Professional fees   366,725    449,554    99,727    146,254 
Impairment expense   500,000    -    500,000    - 
Total operating expenses   2,187,886    1,296,983    986,902    453,749 
                     
Loss from operations   (1,960,629)   (1,000,549)   (867,427)   (294,174)
                     
Interest expense - shareholder   82,952    89,750    40,616    (100)
Change in derivative liability   (612,093)   596,033    (256,468)   1,377,160 
Interest expense - other   1,270,943    1,495,485    439,507    539,532 
Other expense   39,618    779    445    - 
Total other expense   781,420    2,182,047    224,100    1,916,412 
                     
Provision for income tax   -    -    -    - 
                     
Net loss  $(2,742,049)  $(3,182,596)  $(1,091,527)  $(2,210,586)
                     
Basic and diluted net loss per common share  $(0.05)  $(0.07)  $(0.02)  $(0.04)
                     
Weighted average shares of capital outstanding – basic and diluted   56,447,392    46,021,658    58,712,745    49,678,759 

 

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

 

F-2

 

 

Nightfood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

   Common Stock   Additional
Paid-in
   Accumulated   Total
Stockholders’
 
   Shares   Par Value   Capital   Deficit   Deficit 
Balance, June 30, 2018   42,608,329   $42,608   $5,919,152   $(8,620,714)  $(2,658,954)
Common stock issued for services   445,598    446    134,266    -    134,711 
Common stock issued for interest   44,487    44    6,258    -    6,302 
Issuance of common stock for debt   914,982    915    129,085    -    130,000 
Net loss   -    -    -    (517,600)   (517,600)
Balance, Three Months ended September 30, 2018   44,013,396   $44,013   $6,188,761   $(9,138,314)  $(2,905,541)
Common stock issued for services   134,813    135    26,387    -    26,522 
Common stock issued for services   (500,000)   (500)   (49,500)   -    (50,000)
Common stock issued for interest   130,893    131    12,929    -    13,060 
Issuance of common stock for debt   2,134,989    2,135    215,365    -    217,500 
Common stock issued for accounts payable   106,957    107    24,493         24,600 
Exercise of warrants   400,000    400    119,600         120,000 
Derivative liability reclassed upon debt conversion             227,145         227,145 
                          
Net loss   -    -    -    (454,411)   (454,411)
Balance, Three Months ended December 31, 2018   46,421,048   $46,421   $6,765,182   $(9,592,725)  $(2,781,124)
                          
Common stock issued for services   84,757    85    53,494    -    53,579 
Common stock issued for interest   466,485    466    69,921    -    70,387 
Issuance of common stock for debt   5,749,264    5,749    870,703    -    876,452 
Common stock issued for accounts payable   175,000    175    39,075         39,250 
Common stock issued for cash   84,389    84    49,916    -    50,000 
Derivative liability reclassed upon debt conversion             2,319,287         2,319,287 
                          
Net loss   -    -    -    (2,210,585)   (2,210,585)
Balance, Three Months ended March 31, 2019   52,980,943   $52,981   $10,167,578   $(11,803,310)  $(1,582,752)

 

   Common Stock   Preferred Stock   Additional
Paid-in
   Accumulated   Total Stockholders’ 
   Shares   Par Value   Shares   Par Value   Capital   Deficit   Deficit 
Balance, June 30, 2019   53,773,856   $53,774    1,000   $    1   $10,692,679   $(13,219,059)  $(2,472,605)
Common stock issued for services   122,762    123    -    -    49,274    -    49,397 
Common stock issued for interest   110,404    110              26,487    -    26,597 
Issuance of common stock for debt conversion   1,409,349    1,409              335,591    -    337,000 
Derivative liability reclassed upon debt conversion   -    -              213,739    -    213,739 
Net loss   -    -    -    -    -    (513,581)   (513,581)
Balance, Three Months ended September 30, 2019   55,416,371   $55,416    1,000   $1   $11,317,770   $(13,732,640)  $(2,359,452)
Common stock issued for services   85,000    85    -    -    21,415    -    21,500 
Common stock issued for interest   107,227    107              15,632    -    15,739 
Issuance of common stock for debt conversion   1,500,495    1,500              218,500    -    220,000 
Derivative liability reclassed upon debt conversion   -    -              128,605    -    128,605 
Net loss   -    -    -    -    -    (1,136,941)   (1,136,941)
Balance, Three Months ended December 31, 2019   57,109,093   $57,109    1,000    1   $11,701,922   $(14,869,581)  $(3,110,549)
                                    
Common stock issued for interest   320,650    321              40,615    -    40,936 
Issuance of common stock for debt conversion   2,760,223    2,760              351,240    -    354,000 
Derivative liability reclassed upon debt conversion   -    -              217,050    -    217,050 
Net loss   -    -    -    -    -    (1,091,527)   (1,091,527)
Balance, Three Months ended March 31, 2020   60,189,966   $60,190    1,000   $1   $12,310,827   $(15,961,108)  $(3,590,090)

 

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

F-3

 

 

Nightfood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the nine
months ended March 31,
2020
   For the nine
months ended March 31,
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(2,742,049)  $(3,182,596)
Adjustments to reconcile net loss to net cash used in operations activities:          
Stock issued for services   70,897    164,812 
Stock issued for interest   82,952    89,750 
Amortization of debt discount   1,270,943    1,495,334 
Deferred financing fees   39,493    - 
Change in derivative liability   (612,093)   596,033 
Amortization of intangible assets   500,000    - 
Impairment expenses related to intangible assets   500,000    - 
Change in operating assets and liabilities          
Change in accounts receivable   (5,838)   (85,604)
Change in inventory   120,560    (211,757)
Change in other current assets   (579,746)   (18,809)
Change in accounts payable   50,173    132,914 
Change in accrued expenses   (24,000)   (32,000)
Net cash used in operating activities   (1,328,708)   (1,051,923)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Cash paid for purchase of intangible assets   (333,333)   - 
Net cash used in investing activities   (333,333)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from the issuance of debt-net   1,737,000    1,094,005 
Proceeds from sale of stock   -    50,000 
Repayment of short-term debt   -    (1,000)
Borrowings on line of credit   5,000    - 
Repayment of convertible debt   -    (102,076)
Net cash provided by financing activities   1,742,000    1,040,929 
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   79,959    (10,994)
           
Cash and cash equivalents, beginning of period   30,142    48,440 
Cash and cash equivalents, end of period  $110,101   $37,446 
           
Supplemental Disclosure of Cash Flow Information:          
Cash Paid For:          
Income taxes  $-   $- 
Summary of Non-Cash Investing and Financing Information:          
Initial derivative liability and debt discount accounted  $1,463,278   $392,005 
Value of embedded derivative liabilities  $-   $- 
Stock issued for conversion of debt  $911,000   $1,223,953 
Intangible assets acquired and adjusted in accounts payable balance  $

666,667

      
Stock Issued for Interest  $82,952   $89,750 

 

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

 

F-4

 

 

Nightfood Holdings, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Description of Business   Nightfood Holdings, Inc. (the “Company”) is a Nevada Corporation organized October 16, 2013 to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York Corporation from its sole shareholder, Sean Folkson.  All of its operations are conducted by its two subsidiaries: Nightfood, Inc. (“Nightfood”) and MJ Munchies, Inc. (“Munchies”). Nightfood’s business model is to manufacture and distribute snack products specifically formulated for nighttime snacking to help consumers satisfy nighttime cravings in a better, healthier, more sleep friendly way.  Munchies has acquired a portfolio of intellectual property around the brand name Half-Baked, and intends to license said IP to operators in the cannabis edibles space and other related spaces.
       
    The Company’s fiscal year end is June 30.
       
    The Company currently maintains its corporate address in Tarrytown, New York.

 

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

 

  Interim Financial Statements  

These unaudited condensed consolidated financial statements as of and for the three (3) and nine (9) months ended March 31, 2020 and 2019, respectively, reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.

 

These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the years ended June 30, 2019 and 2018, respectively, which are included in the Company’s June 30, 2019 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on October 15, 2019. 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 nine (9) months ended March 31, 2020 are not necessarily indicative of results for the entire year ending June 30, 2020.

 

We made certain reclassifications to prior period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.

 

  Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used in the determination of depreciation and amortization, the valuation for non-cash issuances of common stock, and the website, income taxes and contingencies, valuing convertible notes for BCF and derivative liability, among others.

 

  Cash and Cash Equivalents The Company classifies as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various instruments with original maturities of three months or less at the time of purchase.
       
  Fair Value of Financial Instruments Statement of financial accounting standard FASB Topic 820, Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.
       
  Inventories Inventories consisting of packaged food items and supplies are stated at the lower of cost (FIFO) or net realizable value, including provisions for spoilage commensurate with known or estimated exposures which are recorded as a charge to cost of sales during the period spoilage is incurred. The Company has no minimum purchase commitments with its vendors.

 

  Advertising Costs

Advertising costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations. Although not traditionally thought of by many as “advertising costs”, the Company includes expenses related to graphic design work, package design, website design, domain names, and product samples in the category of “advertising costs”. The Company reported advertising costs of $673,814 and $285,700 for the nine months ended March 31, 2020 and 2019, respectively.  The Company reported advertising costs of $119,475 and $105,277 for the three months ended March 31, 2020 and 2019, respectively.

       
  Income Taxes The Company has not generated any taxable income, and, therefore, no provision for income taxes has been provided.
       
    Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with FASB Topic 740, “Accounting for Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.
       
    A valuation allowance has been recorded to fully offset the deferred tax asset even though the Company believes it is more likely than not that the assets will be utilized.
       
    The Company’s effective tax rate differs from the statutory rates associated with taxing jurisdictions because of permanent and temporary timing differences as well as a valuation allowance.
       
  Revenue Recognition The Company generates its revenue by selling its nighttime snack products wholesale and direct to consumer.

 

F-5

 

 

    All sources of revenue are recorded pursuant to FASB Topic 606 Revenue Recognition, to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. In addition, this revenue generation requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
       
    The Company offers sales incentives through various programs, consisting primarily of advertising related credits. The Company records advertising related credits with customers as a reduction to revenue as no identifiable benefit is received in exchange for credits claimed by the customer.  
       
   

The Company revenue from contracts with customers provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. 

 

The Company incurs costs associated with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities and recognizes these costs at the same time that it recognizes the underlying product revenue. As this policy election is in line with the Company’s previous accounting practices, the treatment of shipping and handling activities under FASB Topic 606 did not have any impact on the Company’s results of operations, financial condition and/or financial statement disclosures.

 

The adoption of ASC 606 did not result in a change to the accounting for any of the Company’s revenue streams that are within the scope of the amendments. The Company’s services that fall within the scope of ASC 606 are recognized as revenue as the Company satisfies its obligation to the customer.

 

      In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which updates revenue recognition guidance relating to contracts with customers. This standard states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for annual reporting periods, and interim periods therein, beginning after July 1, 2018. The Company adopted ASU 2014-09 and its related amendments (collectively known as “ASC 606”) during the first quarter of fiscal 2019 using the full retrospective method.

 

      Management reviewed ASC 606-10-32-25 which states “Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 606-10-32-5 through 32-13.”

 

      If the consideration payable to a customer is a payment for a distinct good service, then in accordance with ASC 606-10-32-26, the entity should account for it the same way that it accounts for other purchases from suppliers (expense). Further, “if the amount of consideration payable to the customer exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for such an excess as a reduction of the transaction price. If the entity cannot reasonably estimate the fair value of the good or service received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.”

 

      Under ASC 606-10-32-27, if the consideration payable to a customer is accounted for as a reduction of the transaction price, “an entity shall recognize the reduction of revenue when (or as) the later of either of the following events occurs:
      a) The entity recognizes revenue for the transfer of the related goods or services to the customer.
      b) The entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise might be implied by the entity’s customary business practices.”
      Management reviewed each arrangement to determine if each fee paid is for a distinct good or service and should be expensed as incurred or if the Company should recognize the payment as a reduction of revenue.

 

F-6

 

 

      The Company recognizes revenue upon shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers.
       
  Concentration of
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places its cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal. At March 31, 2020 and June 30, 2019, the Company did not have any uninsured cash deposits.

 

  Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records any “beneficial conversion feature” (“BCF”) intrinsic value as additional paid in capital and related debt discount.

 

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

       
  Debt Issue Costs The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of operations as amortization of debt discount.
       
  Original Issue
Discount
If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as amortization of debt discount. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
       
  Valuation of Derivative Instruments ASC 815 “Derivatives and Hedging” requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula. Upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives and debt discounts and recognizes a net gain or loss on derivative liability under the line item “change in derivative liability”.
       
  Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations. For stock based derivative financial instruments, Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
       
      Once determined, derivative liabilities are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value from inception is made quarterly and appears in results of operations as a change in fair market value of derivative liabilities.

 

  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 505-50, “Equity Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees.

 

F-7

 

 

  Customer Concentration During the nine months ended March 31, 2020, the Company had one customer account for approximately 45% of the gross sales. During the nine months ended March 31, 2019, one customer accounted for approximately 16% of the revenue volume.  The reason for this change is that almost all revenue in Fiscal Year 2019 was from sales of Nightfood bars direct to individual consumers, whereas in Fiscal Year 2020, the majority of revenue was from wholesale sales of ice cream direct to supermarkets and wholesalers. As the Company continues to grow its distribution base, it is anticipated that revenue distribution will become less concentrated.
       
  Receivables Concentration

As of March 31, 2020, the Company had receivables due from five customers, each accounting for over 10% of the outstanding balance. As of June 30, 2019, the Company had receivables due from five customers, four of which accounted for over 10% of the outstanding balance.

       
  Income Per Share Net income per share data for both the nine-month periods ending March 31, 2020 and 2019, and the three-month periods ending March 31, 2020 are based on net income available to common shareholders divided by the weighted average of the number of common shares outstanding.
       
  Impairment of Long-lived Assets

The Company accounts for long-lived assets in accordance with the provisions of FASB Topic 360, Accounting for the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Fair values are determined based on quoted market value, discounted cash flows or internal and external appraisals, as applicable.

 

During the period ended March 31 2020 and 2019, the Management determined and impaired $500,000 and $-0-, respectively as impairment on intangible asset

       
  Digital Asset Capitalization

ASC 350-50-05-01 states “ on accounting for costs incurred to develop a website, including whether to capitalize or expense the following types of costs:

      a) Costs incurred in the planning stage
      b) Costs incurred in the website application and infrastructure development stage
      c) Costs incurred to develop graphics
      d) Costs incurred to develop content
      e) Costs incurred in the operating stage.”
       
     

ASC 350-50-25-6 states “Costs incurred to purchase software tools, or costs incurred during the application development stage for internally developed tools, shall be capitalized unless they are used in research and development and meet either of the following conditions:

       
      a) They do not have any alternative future uses.
      b) They are internally developed and represent a pilot project or are being used in a specific research and development project (see paragraph 350-40-15-7).”
       
     

Further, at ASC 350-50-25-7, “Costs to obtain and register an Internet domain shall be capitalized under Section 350-30-25.”

       
     

During the period ended March 31 2020, the Management determined and capitalized $1,000,000 under ASC 350-50 and accounted as an intangible asset and amortize the costs over the life of the relationship.

       
  Recent Accounting Pronouncements  

The Company reviews all of the Financial Accounting Standard Board’s updates periodically to ensure the Company’s compliance of its accounting policies and disclosure requirements to the Codification Topics.

 

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers, to establish ASC Topic 606, (ASC 606). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

F-8

 

 

      The standard became effective for us beginning on July 1, 2018 and did not have a material impact on our financial statements.
       
      In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurements of Financial Assets and Financial Liabilities. The standard will be effective for us beginning January 1, 2019. We are currently evaluating the impact of this standard on our financial statements, including accounting policies, processes, and systems.
       
      In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017, to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We will be required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.
       
      The standard became effective for us beginning July 1, 2019. We have reviewed this and have determined that there is no material impact on our financial statements.
       
      The Company will continue to monitor these emerging issues to assess any potential future impact on its financial statements.
       
3.

Restatement of Prior Financial Information

  Subsequent to our external auditor’s periodic review of the Form 10-Q for the Periods Ended September 30, 2019 and December 31, 2019 and, in the process of review, the current Form 10-Q for the Period Ended March 31, 2020, the Company conducted further reviews of the financial statements. Based on such reviews, the following determinations were made:
       
      Error in Accounting for Slotting and Set-up Fees
       
      During our review, we determined that the accounting treatment for the recognition of slotting fees and other fees paid or payable by the Company to certain strategic partners was incorrect. Specifically, it has been determined that revenue relating to the slotting fee, which was originally capitalized and amortized into expense over an 18-month period should instead be treated as a reduction in revenue at the later of recognition of revenue for the transfer of the Nightfood product or when the Company pays or promised to pay the slotting fee. In addition, certain fees related to platforms to launch our products and advertising efforts should have been capitalized and recorded as an intangible asset. The Company previously recorded a portion of this fee as an intangible asset – placement fee and expensed the remaining amount as advertising expense in the Period Ended December 31, 2019.
       
      In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality (“SAB 99”) and Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), the Company has determined that the impact of adjustments relating to the corrections of this accounting error are not material to previously issued annual audited and unaudited financial statements. Accordingly, these changes are disclosed herein and will be disclosed prospectively.

  

F-9

 

 

   As of June 30, 2019 (A) 
   Previously
Reported
   Adjustments   As Corrected 
Consolidated Balance Sheet            
Current assets  $482,667   $487,500   $970,167 
Current liabilities  $2,955,272   $223,333   $3,178,605 
Working capital (deficit)  $(2,472,605)  $264,167   $(2,208,438)
Total assets  $482,667   $487,500   $970,167 
Total liabilities  $2,955,272   $223,333   $3,178,605 
Total stockholders' deficit  $(2,472,605)  $264,167   $(2,208,438)

(A) The balance sheet impact of the errors was corrected in the quarter ended September 30, 2019.

 

   As of September 30, 2019 
   Previously
Reported
   Adjustments   As Corrected 
Consolidated Balance Sheet            
Current assets  $858,216   $387,917   $1,246,133 
Current liabilities  $3,287,252   $1,151,666   $4,438,918 
Working capital (deficit)  $(2,429,036)  $(763,749)  $(3,192,785)
Total assets  $858,216   $1,221,250   $2,079,466 
Total liabilities  $3,287,252   $1,151,666   $4,438,918 
Total stockholders' deficit  $(2,429,036)  $69,584   $(2,359,452)

 

   As of December 31, 2019 
   Previously
Reported
   Adjustments   As Corrected 
Consolidate Balance Sheet            
Current assets  $577,944   $408,294   $986,238 
Current liabilities  $4,514,446   $249,007   $4,763,453 
Working capital (deficit)  $(3,936,502)  $159,287   $(3,777,215)
Total assets  $1,550,298   $102,607   $1,652,905 
Total liabilities  $4,514,446   $249,007   $4,763,453 
Total stockholders' deficit  $(2,964,148)  $(146,400)  $(3,110,548)

 

   For the Year Ended June 30, 2019 (A) 
   Previously Reported   Adjustments   As Corrected 
Consolidated Statements of Operations            
Revenues  $352,172   $-     $352,172 
Operating expenses  $2,263,722   $(264,167)  $1,999,555 
Loss from operations  $(1,911,550)  $264,167   $(1,647,383)
Other income (expenses)  $2,686,793   $-     $2,686,793 
Net income (loss)  $(4,598,343)  $264,167   $(4,334,176)
Basic & diluted EPS  $(0.09)  $-     $(0.09)

(A) The income statement impact of the errors was corrected in the quarter ended September 30, 2019.

 

  

For the Three Months Ended

September 30, 2019

 
   Previously Reported   Adjustments   As Corrected 
Consolidated Statements of Operations            
Revenues  $206,497   $(160,000)  $46,497 
Operating expenses  $570,858   $(229,584)  $341,274 
Loss from operations  $(364,361)  $69,584   $(294,777)
Other income (expenses)  $218,803   $-     $218,803 
Net income (loss)  $(583,164)  $69,584   $(513,580)
Basic & diluted EPS  $(0.01)  $-     $(0.01)

 

  

For the Six Months Ended

December 31, 2019

 
   Previously Reported   Adjustments   As Corrected 
Consolidated Statements of Operations            
Revenues  $379,488   $(271,706)  $107,782 
Operating expenses  $1,326,290   $(125,306)  $1,200,984 
Loss from operations  $(946,802)  $(146,400)  $(1,093,202)
Other income (expenses)  $557,320   $-     $557,320 
Net income (loss)  $(1,504,122)  $(146,400)  $(1,650,522)
Basic & diluted EPS  $(0.02)  $-     $(0.02)

 

  

For the Three Months Ended

December 31, 2019

 
   Previously Reported   Adjustments   As Corrected 
Consolidated Statements of Operations            
Revenues  $172,991   $(111,706)  $61,285 
Operating expenses  $755,432   $104,278   $859,710 
Loss from operations  $(582,441)  $(215,984)  $(798,425)
Other income (expenses)  $338,517   $-     $338,517 
Net income (loss)  $(920,958)  $(215,984)  $(1,136,942)
Basic & diluted EPS  $(0.02)  $-     $(0.02)

 

F-10

 

  

3. Going Concern The Company’s financial statements are prepared using generally accepted accounting principles, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. Because the business is new and has limited operating history and relatively few sales, no certainty of continuation can be stated.

 

    The Company has limited available cash resources and we do not believe our cash on hand will be adequate to satisfy our ongoing working capital needs. The Company is continuing to raise capital through private placement of our common stock and through the use of convertible notes to finance the Company’s operations, of which it can give no assurance of success. However, the Company has a strong ongoing relationship with Eagle Equities and we expect to be able to continue to finance our operations as we have over the previous several quarters, although no assurance can be guaranteed. We believe that our current capitalization structure, combined with ongoing increases in revenues, will enable us to successfully secure required financing to continue our growth. In the short term, the Company plans to continue to take advantage of convertible notes as a financing vehicle, as it allows for today’s operating capital to be either repaid, or converted to equity at future valuations.
       
      Because the business is new and has limited operating history and sales, no certainty of continuation can be stated. Management has devoted a significant amount of time in the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company will receive the necessary funding or generate revenue necessary to fund operations.
       
      Even if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be able to achieve a level of profitability from the sale of its products to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

4. Accounts receivable The Company’s accounts receivable arise primarily from the sale of the Company’s ice cream. On a periodic basis, the Company evaluates each customer account and based on the days outstanding of the receivable, history of past write-offs, collections, and current credit conditions, writes off accounts it considers uncollectible. With most of our retail and distribution partners, invoices will typically be due in 30 days. The Company does not accrue interest on past due accounts and the Company does not require collateral. Accounts become past due on an account-by-account basis. Determination that an account is uncollectible is made after all reasonable collection efforts have been exhausted. The Company has not provided any accounts receivable allowances for March 31, 2020 and June 30, 2019, respectively.

 

F-11

 

 

5. Inventories Inventory consists of the following at March 31, 2020 and June 30, 2019,

 

   March 31,
2020
   June 30,
2019
 
Finished goods – bars  $-   $30,800 
Finished goods - ice cream   265,755    346,229 
Raw material – ingredients   12,848    25,477 
Packaging   7,276    3,933 
TOTAL  $285,879   $406,439 

 

      Inventories are stated at the lower of cost or net realizable value. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions and the products relative shelf life. Write-downs and write-offs are charged to loss on inventory write down.

 

6. Other current assets Other current assets consist of the following vendor deposits at March 31, 2020 and June 30, 2019.  The majority of this amount relates to deposits towards distribution and marketing partnerships,

  

   March 31,
2020
   June 30,
2019
 
Prepaid advertising costs  $

580,746

   $- 
Vendor deposits – Other  $      -   $1,000 
TOTAL  $

580,46

   $1,000 

 

7.Intangible Assets

 

Intangible assets consist of the following at March 31, 2020 and June 30, 2019. The amount of the intangible assets represents fees and expenses in connection with the development and launch of platforms used to track conversions, optimize ads, and scale online customer growth through a hybrid distribution model.

 

   March 31,   June 30, 
   2020   2019 
Intangible assets  $1,000,000   $        - 
Amortization of intangible assets   (500,000)   - 
Impairment of intangible assets   (500,000)     
TOTAL  $-   $- 

 

During the quarter ending March 31, 2020, the Company determined it would be unable to generate sufficient traction from these digital assets.  The Company made the decision to stop utilizing the assets and began conversations with the creditor about eliminating the remaining debt associated with the assets which was successfully negotiated in April 2020. As of the time of this filing, the balance sheet remains unchanged, as this successful renegotiation is conditional upon payment being completed in calendar 2020, which would result in the elimination of $731,118 in total debt should payment be made totaling $166,224 in cash and approximately 4,000 pints of Nightfood ice cream. Should the Company make said payments and retire the debt during calendar 2020, the Company would realize a Gain on Extinguishment of Debt of approximately $560,000 (see note 16 – Subsequent Events).

 

F-12

 

 

8. Other Current Liabilities Other current liabilities consist of the following at March 31, 2020 and June 30, 2019,

 

   March 31,
2020
   June 30,
2019
 
Accrued consulting fees – related party  $9,974   $33,974 
TOTAL  $9,974   $33,974 

 

9. Notes Payable Notes Payable consist of the following at March 31, 2020,

 

      On April 30, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated April 30, 2018, in the amount of $225,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 30, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $225,000 Notes was calculated using the Black-Scholes pricing model at $287,174, with the following assumptions: risk-free interest rate of 2.24%, expected life of 1 year, volatility of 202%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $225k Notes, a charge was recorded to “Financing cost” for the excess of the fair value of the note, for a net charge of $62,174. As of March 31, 2020, the debt discount was $0.

 

      On June 5, 2018, the Company received cash in conjunction with a convertible promissory note and Securities Purchase Agreement dated June 5, 2018.  The note was in the amount of in the amount of $210,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 6, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $210,000 Notes was calculated using the Black-Scholes pricing model at $265,498, with the following assumptions: risk-free interest rate of 2.09%, expected life of 1 year, volatility of 200%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $210k Notes, a charge was recorded to “Financing cost” for the excess of the fair value of the note, for a net charge of $55,498.  As of March 31, 2020, the debt discount was $0.

 

      On July 2, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated July 12, 2018, in the amount of $207,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 12, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $207,000 Notes was calculated using the Black-Scholes pricing model at $257,842, with the following assumptions: risk-free interest rate of 2.59%, expected life of 1 year, volatility of 183%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $207k Notes, a charge was recorded to “Financing cost” for the excess of the fair value of the note, for a net charge of $50,842.  
       
      This note has been successfully retired via conversion into shares during the three months ended September 30, 2019. The Company fair valued the notes as of conversion date and accounted for a gain on conversion of $5,749 included under line item “change in derivative liability” and also, reclassed the related $139,268 derivative liability balance into additional paid in capital.

 

F-13

 

 

     

On November 16, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated November 16, 2018, in the amount of $130,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 16, 2019 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $130,000 Notes was calculated using the Black-Scholes pricing model at $131,898, with the following assumptions: risk-free interest rate of 2.71%, expected life of 1 year, volatility of 150%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $130k Notes, a charge was recorded to “Financing cost” for the excess of the fair value of the note, for a net charge of $1,898.

 

This note has been successfully retired via conversion into shares during the three months ended September 30, 2019. The Company fair valued the notes as of conversion date and accounted for a gain on conversion of $25,398 included under line item “change in derivative liability” and also, reclassed the related $74,472 derivative liability balance into additional paid in capital.

 

     

On December 18, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated December 18, 2018, in the amount of $130,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 18, 2019 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $130,000 Notes was calculated using the Black-Scholes pricing model at $128,976, with the following assumptions: risk-free interest rate of 2.64%, expected life of 1 year, volatility of 144%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $130k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $0.

 

This note has been successfully retired via conversion into shares during the three months ended December 31, 2019. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $2,066 included under line item “change in derivative liability” and also, reclassed the related $75,946 derivative liability balance into additional paid in capital.

       
     

On January 28, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated January 28, 2019, in the amount of $234,000. The lender was Eagle Equities, LLC. The notes have a maturity of January 28, 2020 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $234,000 Notes was calculated using the Black-Scholes pricing model at $226,452, with the following assumptions: risk-free interest rate of 2.60%, expected life of 1 year, volatility of 135%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $234k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $0. 

 

$90,000 of the note has been successfully retired via conversion into shares during the three months ended December 31, 2019. The Company fair valued the notes as of conversion date and accounted for a gain on conversion of $4,882 included under line item “change in derivative liability” and also, reclassed the related $52,659 derivative liability balance into additional paid in capital.

 

The balance of this note of $144,000 of the note has been successfully retired via conversion into shares during the three months ended March 31, 2020. The Company fair valued the notes as of conversion date and accounted for a gain on conversion of $1,463 included under line item “change in derivative liability” and also, reclassed the related $48,218 derivative liability balance into additional paid in capital.

       
      On February 14, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated February 14, 2019, in the amount of $104,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 14, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $104,000 Notes was calculated using the Black-Scholes pricing model at $90,567, with the following assumptions: risk-free interest rate of 2.53%, expected life of 1 year, volatility of 136%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $104k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $0.

F-14

 

 

      On April 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated April 29, 2019, in the amount of $208,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 29, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $208,000 Notes was calculated using the Black-Scholes pricing model at $170,098, with the following assumptions: risk-free interest rate of 2.42%, expected life of 1 year, volatility of 118%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the 208k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $13,049.

  

      On June 11, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated June 11, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 11, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $240,217, with the following assumptions: risk-free interest rate of 2.05%, expected life of 1 year, volatility of 16%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $46,727.
       
      On July 5, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated July 5, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 5, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $239,759, with the following assumptions: risk-free interest rate of 1.98%, expected life of 1 year, volatility of 118%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the 300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $62,403.
       
      On August 8, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 8, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 8, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $254,082, with the following assumptions: risk-free interest rate of 1.79%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $89,799.
       
      On August 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 29, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 29, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $234,052, with the following assumptions: risk-free interest rate of 1.75%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the 300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $96,186.

 

F-15

 

 

      On September 24, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated September 24, 2019, in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of September 24, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $118,009, with the following assumptions: risk-free interest rate of 1.78%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $56,903.
       
      On November 7, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated November 7, 2019, in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 7, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $121,875, with the following assumptions: risk-free interest rate of 1.58%, expected life of 1 year, volatility of 122%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $73,459.
       
      On December 31, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated December 31, 2019, in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 31, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $189,172, with the following assumptions: risk-free interest rate of 1.59%, expected life of 1 year, volatility of 115%, and expected dividend yield of zero. Because the fair value of the note exceed the net proceeds from the $150k Notes, $39,172 was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2020, the debt discount was $112,603.
       
     

On February 6, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated February 6, 2019, in the amount of $200,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $200,000 Notes was calculated using the Black-Scholes pricing model at $156,061, with the following assumptions: risk-free interest rate of 1.51%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero.  As of March 31, 2020, the debt discount was $132,973.

 

On February 26, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated February 26, 2019, in the amount of $187,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $187,000 Notes was calculated using the Black-Scholes pricing model at $150,268, with the following assumptions: risk-free interest rate of 1.18%, expected life of 1 year, volatility of 118%, and expected dividend yield of zero. As of March 31, 2020, the debt discount was $136,682.

 

  Below is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of March 31, 2020:

 

Convertible notes payable issued as of June 30, 2019  $1,117,741 
Convertible notes payable issued as of March 31, 2020   1,737,000 
Unamortized amortization of debt and beneficial conversion feature   (153,163)
Notes converted into shares of common stock   (911,000)
Balance at March 31, 2020  $1,790,578 

F-16

 

 

10. Derivative Liability   Due to the variable conversion price associated with some of these convertible promissory notes disclosed in Note 8 above, the Company has determined that the conversion feature is considered a derivative liability for instruments which are convertible and have not yet been settled. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives on the date they are deemed to be derivative liabilities.
       
      During the nine month period ended March 31, 2020, the Company recorded a loss in fair value of derivative $612,093. The Company will measure the fair value of each derivative instrument in future reporting periods and record a gain or loss based on the change in fair value.
       
      Below is a reconciliation of the derivative liability as presented on the Company’s balance sheet as of March 31, 2020:

 

Derivative liability as of June 30, 2019  $1,306,748 
Initial derivative liability accounted for convertible notes payable issued during the period ended March 31, 2020   1,463,278 
Reclassed to additional paid in capital for notes converted into shares of common stock   (559,394)
Change in derivative liability during the period   (612,093)
Balance at March 31, 2020  $1,598,539 

 

11. Line of Credit   On March 19, 2020, the Company secured a $200,000 line of credit with Celtic Bank Corporation.  This LOC has a “Flex Credit” component of calculating interest, which means the interest rate on any draws taken against the LOC is set at the time of said draw.  As of the date of this filing, the Company has made one draw against the credit line for a gross amount of $5,000 (including proceeds and draw fees).  Two payments have been made against this draw of approximately $480 each.  Such payments will continue to be automatically deducted from the corporate checking account until the draw and all fees have been paid in full.  The Company may or may not choose to use this line of credit for additional financing needs.

 

12. Capital Stock Activity The Company has 60,189,966 and 53,773,856 shares of its $0.001 par value common stock issued and outstanding as of March 31, 2020 and June 30, 2019 respectively.
       
    During the nine months ended March 31, 2020 the Company issued 207,762 shares of common stock for services valued at $70,897, issued 5,670,067 shares in regards to debt being converted into stock valued at $911,000, and issued 538,281 shares of common stock valued at $82,292 as part of a loan agreement and payment of interest as part of the debt conversion.

 

13. Warrants   The following is a summary of the Company’s outstanding common stock purchase warrants.  Of the 500,000 warrants shown below at an exercise price of $.15, only 300,000 have vested as of the date of this filing.  These warrants were issued as compensation for a four-year advisory agreement.  150,000 warrants vested on July 24, 2018, another 150,000 on July 24, 2019, another would vest 150,000 on July 24, 2020, and the remaining 50,000 on July 24, 2021, should advisor complete the term of his engagement. 
       
      The aggregate intrinsic value of the warrants as of March 31, 2020 is $28,025.

 

    Outstanding at           Outstanding 
Exercise Price   June 30,
2019
   Exercised in
2019
   Expired   March 31,
2020
 
$0.15    500,000             -            -    500,000 
$0.20    105,000    -    -    105,000 
$0.30    100,000    -    -    100,000 
$0.40    150,000              150,000 
$0.75    300,000    -    -    300,000 
      1,155,000    -    -    1,155,000 

 

F-17

 

 

14. Fair Value of Financial Instruments   Cash and Equivalents, Receivables, Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities.
       
      The carrying amounts of these items approximated fair value.
       
      Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).
       
      Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
       
      Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
       
      Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
       
      The application of the three levels of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:

 

   March 31, 2020 Fair Value Measurements 
   Level 1   Level 2   Level 3   Total Fair
Value
 
Assets                
Other assets  $     -   $      -   $-   $- 
Total  $-   $-   $-   $- 
Liabilities                    
Short and long-term debt  $    $-   $2,574,000   $2,574,000 
Total  $    $-   $2,574,000   $2,574,000 

 

   Fiscal 2019 Fair Value Measurements 
   Level 1   Level 2   Level 3   Total Fair
Value
 
Assets                
Other assets  $        -   $        -   $-   $- 
Total  $-   $-   $-   $- 
Liabilities                    
Short and long-term debt  $    $-   $1,748,000   $1,748,000 
Total  $    $-   $1,748,000   $1,748,000 

 

15. Commitments and Contingencies:     The Company has entered into certain consulting agreements which carry commitments to pay advisors and consultants should certain events occur. An agreement is in place with one Company Advisor that calls for total compensation over the four year Advisor Agreement of 500,000 warrants with an exercise price of $.15 of which 300,000 have vested, should the advisor complete the entire term of the engagement, 150,000 warrants will vest on July 24, 2020, and the remaining 50,000 on July 24, 2021. 
       
      In April, 2020, the Company successfully negotiated a Debt Incentive Agreement with one of its creditors to whom it owed $731,118. This Debt Incentive Agreement provides for the elimination of the entire debt should the Company make payments in calendar 2020 totaling $166,224 in cash, and approximately 4,000 pints of ice cream. Because this reduction in debt is conditional, the full $731,118.33 is currently included in the liabilities section of our balance sheet. Should the Company make the payment and retire the debt during calendar 2020, The Company would realize a Gain on Extinguishment of Debt of approximately $560,000.

 

F-18

 

 

     

Additional Consulting agreements call for two Individual Consultants to receive cash and stock bonuses for directly assisting the Company in hitting certain operational milestones, such as national television publicity, achieving revenues of $500,000 monthly, $1,000,000 monthly, and $3,000,000 quarterly.

 

CEO Sean Folkson has a consulting agreement which will reward him with 1,000,000 warrants at a strike price of $.50 when the Company records its first quarter with revenues over $1,000,000, an additional 3,000,000 warrants with a $.50 strike price when the Company records its first quarter with revenues over $3,000,000, and an additional 3,000,000 warrants with a $1 strike price when the Company records its first quarter with revenues over $5,000,000.

       
16. Related Party Transactions

During the third quarter of Fiscal Year 2015, Mr. Folkson began accruing a consulting fee of $6,000 per month which the aggregate of $24,000 is reflected in professional fees for the three month period ended March 31, 2020 and reflected in the accrued expenses – related party with a balance of $9,974 and $33,974 at March 31, 2020 and June 30, 2019, respectively.

 

On December 8, 2017, Mr. Folkson purchased Warrants to acquire up to 80,000 additional shares of NGTF stock at a strike price of $.20, and with a term of three (3) years from the date of this agreement. Mr. Folkson acquired these Warrants at a cost of $.15 per warrant, which resulted in a reduction in the accrued consulting fees due him by $12,000. During the second quarter 2019 Mr. Folkson purchased 400,000 shares of stock at a strike price of $0.30 per share, valued at $120,000 which was charged to his accrual. During the three months ended March 31, 2020, Folkson had been paid $18,000 against his total accrued balance to date.

 

    In addition, the Company made bonuses available to Folkson upon the Company hitting certain revenue milestones of $1,000,000 in a quarter, $3,000,000 in a quarter, and $5,000,000 in a quarter.   Achieving those milestones would earn Folkson warrants with a $.50 and $1 strike price which would need to be exercised within 90 days of the respective quarterly or annual filing

 

17. Subsequent Events On April 30, 2020 the Company entered into a convertible promissory note and security purchase agreement funded May 1, 2020, in the net amount of $187,000. The lender was Eagle Equities, LLC.
       
    On May 11, 2020, The Company issued 215,000 shares to vendors and consultants for services provided.  
       
    The Company continues to monitor the ongoing impact of the conroavirus pandemic on our operations and our market. This is an evolving situation, and one that contains certain positive components, and certain negative components for our business, addressed extensively in Management’s Discussion and Analysis of our Financial Statements. As such, the outcome of the impact on our Company remains uncertain.
       
   

In April, 2020, the Company successfully negotiated a Debt Incentive Agreement with one of its creditors to whom it owed $731,118. This Debt Incentive Agreement provides for the elimination of the entire debt should the Company make payments in calendar 2020 totaling $166,224 in cash, and approximately 4,000 pints of ice cream. Because this reduction in debt is conditional, the full $731,118.33 is currently included in the liabilities section of our balance sheet. Should the Company make the payment and retire the debt during calendar 2020, The Company would realize a Gain on Extinguishment of Debt of approximately $560,000.

 

F-19

 

 

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, 2019, as well as the other information set forth herein.

 

OVERVIEW

 

Nightfood Holdings runs two distinct operating companies, each serving a different market segment with different products.

 

MJ Munchies, Inc. is a Nevada corporation formed in January of 2018 to exploit legally compliant opportunities in the CBD and marijuana edibles and related spaces. To date, this subsidiary and its operations have had a nominal impact on the financial statements contained herein.

 

Since inception, MJ Munchies has applied for U.S. Trademark protection the brand name Half-Baked as it relates to certain categories of snacks. The Company also applied for, and was granted, trademark protection in the state of California for the name Half-Baked for snacks containing THC. In addition, The Company acquired HalfBaked.com, and has secured other intellectual property in its portfolio. The Company intends to license this IP to operators in the cannabis edibles space and other related spaces.

 

Nightfood, Inc. is a better-for-you snack company focused on manufacturing and distributing snacks with sleep-friendly formulations and ingredients. The national roll-out of Nightfood ice cream, the first Nightfood product with significant mainstream retail distribution, began in 2019. The Company has since secured distribution in multiple regional supermarket chains, and divisions of national supermarket chains, including divisions of Kroger (Harris Teeter), and divisions of Albertsons (Jewel-Osco, Shaw’s and Star Market).

 

Nightfood ice cream won the 2019 Product of the Year award in the ice cream category in a Kantar survey of over 40,000 consumers. The brand also won Best New Ice Cream at the 2019 World Dairy Innovation Awards.

 

Management is confident consumer demand exists for better nighttime snacking options, and that they are pioneering a new consumer category consisting of nighttime specific snacks. This confidence 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 the coming years. In addition, Nestle, one of the largest food and beverage companies in the world, has stated that it believes there is consumer demand for healthier snacks for consumers to eat before bed. 

 

It is estimated that over $50 billion is spent annually in the United States on snacks that are consumed between dinner and bed. Company management believes that a meaningful percentage of that consumer spend will move from conventional snacks over to nighttime specific, sleep-friendly snacks in coming years.

 

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The Nightfood Scientific Advisory Board is made up of leading sleep and nutrition experts, who help Nightfood deliver on its brand promise. The first member of this advisory board was Dr. Michael Grandner, Director of the Sleep and Health Research Program at the University of Arizona. Dr. Grandner has been conducting research on the link between nutrition and sleep for over ten years, and he believes improved nighttime nutritional choices can improve sleep, resulting in many short and long-term health benefits. In March of 2018, the Company added Dr. Michael Breus to their Scientific Advisory Board. Breus, known to millions as The Sleep Doctor™, is believed to be the Nation’s most prominent authority on sleep. He regularly appears in the national media to educate and inform consumers so they can sleep better and lead happier, healthier, more productive lives. In July, 2018, we added Lauren Broch, Ph.D, M.S. Dr. Broch is a sleep therapist and former Director of Education & Training at the Sleep-Wake Disorders Center at Weill Cornell Medical College. Dr. Broch also has a master’s degree in human nutrition. This unique combination allowed her to play an important role in the development of Nightfood ice cream. These experts work with Company management to ensure Nightfood products deliver on their nighttime-appropriate, and sleep-friendly promises.

 

In February 2020, Nightfood was named the Official Ice Cream of the American Pregnancy Association. Compared to regular ice cream, Nightfood is higher in calcium, magnesium, zinc, protein and fiber, and contains less sugar, fewer calories, and is lower glycemic. Ease of digestion and the impact of nighttime heartburn were also considerations that went in to Nightfood’s formulations. Management believes the designation and recommendation from the American Pregnancy Association will expose the brand to a large base of new consumers and drive a volume of new demand that will support an effective national roll-out of the ice cream line.

 

DEVELOPMENT PLANS

 

Nightfood has eight ice cream flavors in ongoing production, and an additional ten products have been developed or in late stages of development. Management has also done preliminary research on CBD infused ice cream, current FDA guidelines do not permit CBD to be used as an additive in conventional food, and Management does not believe such products will be allowed under FDA guidelines for several quarters.

 

Nightfood is currently available in approximately 700 supermarket locations, up from under 200 at the same time in 2019. The Company has secured commitments from additional supermarket chains that will be launching Nightfood in coming weeks. Management believes that current marketing initiatives and existing sales velocity trends, along with securing the designation of being the Official Ice Cream of the American Pregnancy Association all bode well for securing additional supermarket chain distribution during calendar 2020. 

 

Aggressive supermarket expansion could result in expensive “slotting fees”. Slotting fees are normal and customary in the consumer goods industry and are fees that certain retailers and distributors charge to introduce a new product into their inventory.

 

In some cases, slotting fees, also called “new item placement fees” or “new item placement allowances” can be nominal. In other situations, slotting fees for certain retail and distribution partners could run hundreds of thousands of dollars. Slotting fees are not an auction for shelf (or freezer) space. One brand does not outbid others to get on shelf. Different retailers have established different standard slotting, and that is simply the cost of doing business with those specific partners.

 

Many large retailers do not charge slotting fees, but most do. The Management of any emerging brand could choose not to do business with retailers or distributors who charge slotting fees. Such a strategy, while possible, would greatly limit the distribution footprint a brand could establish. Investors should have the expectation that slotting fees will continue to be a significant expense over the next one to three fiscal years as the brand moves towards its goal of national distribution.

 

Management had previously been working on initiatives relating to distribution and partnerships in the hotel and hospitality vertical. With COVID-19 and its impact on the travel habits of consumers, these initiatives have been impaired and put on hold at this time.

 

INFLATION

 

Inflation can be expected to have an impact on our operating costs. A prolonged period of inflation could cause a general economic downturn and negatively impact our results. However, the effect of inflation has been minimal over the past three years.

 

SEASONALITY

 

Because management expects rapid growth in terms of both distribution and sales velocity in the coming months and years, we do not believe that our business will be seasonal to any material degree until full national penetration has been established.

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CORONAVIRUS (COVID-19)

 

The outbreak of the novel coronavirus (COVID-19), including the measures to reduce its spread, and the impact on the economy, cannot fully be predicted. Initial indications are that there are somewhat offsetting factors relating to the impact on our Company. Industry data shows that supermarket sales are up, with more people spending more time at home. Anecdotally and statistically, snacking activity is also up. And, industry sales data also shows ice cream as one of the categories experiencing the largest increase with year over year growth averaging over 30% through a series of five one-week periods between March 15 and April 12, 2020 according to IRI data.

 

The outbreak did delay the introduction of Nightfood into our two newest supermarket chains, Albertsons Divisions Jewel-Osco and Shaw’s and Star Market. As of the time of this filing, we have been notified that Nightfood has now been introduced in all 343 of those stores. Initial timing called for introduction in all locations in late March and early April. While a significant portion of the introductions occurred on time, management estimates 25-50% of the locations were delayed by several weeks. The Company also pushed back by 8 weeks a major in-store marketing initiative in partnership with News America Corp. It was announced in February that Nightfood coupon machines would be installed in approximately 700 major supermarket locations. That initiative was originally scheduled to begin in mid March. In fact, Nightfood coupon machines were installed in a number of supermarkets in mid-March before News America informed Management that the rollout would have to be delayed. At the time of this filing, the installation of coupon machines had begun again (on May 16, 2020).

 

We have experienced no issues with supply chain or logistics. Order processing function has been perfectly normal to date, and our manufacturers have assured us that their operations are “business as usual” as of the time of this filing.

 

The offsetting factors are the impact of the virus on the overall economy. Greater unemployment, recession, and other possible unforeseen factors could also have an impact.

 

While the virus also disrupted the sell-in process for certain supermarket decision-makers, we have confirmed that our largest and most important target accounts do intend to conduct new product reviews and category resets on a regular schedule going forward. Furthermore, in early May, we received placement confirmation from two new supermarket chains with whom dialogue began in late 2019.

 

It is conceivable that certain retailers may delay or skip an upcoming review opportunity which could cause us to have to wait longer to secure distribution in certain chains.

 

It is impossible to know what the future holds with regard to the virus, both for our company and in the broader sense. There are many uncertainties regarding the current coronavirus pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, vendors, and business partners. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended March 31, 2020, we are unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments accordingly, if necessary.

 

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RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIOD ENDED

 

March 31, 2020 and March 31, 2019.

 

For the three months ended March 31, 2020 and March 31, 2019 we had Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees) of $119,475 and $159,575 respectively and incurred an operating loss of $867,427 and $294,174 respectively. The decrease in reported revenues does not reflect a reduction in Gross Sales from the previous period.  In the three months ended March 31, 2020, the Company recorded Gross Sales of $281,284, the highest quarterly gross sales in company history. Accounting standards require exclusion on the income statement of Gross Sales made to a customer to whom the Company is paying slotting fees (slotting fees are fees occasionally charged by retailers and distributors to add a new product into their product assortment). In those situations, the Gross Sales number is reduced, dollar for dollar, by the slotting fees, until the total cost of the slotting is covered. These slotting fees do not appear on the income statement as an expense. Rather, Slotting Fees, along with Sales Discounts, are applied against Gross Sales, resulting in Net Revenue, as shown below. The netting of Gross Sales against slotting and sales discounts, as described and shown below, results in the Net Revenue number at the top of the income statement. This is not a reflection of the amount of product shipped to customers, but rather a function of the way certain sales are accounted for when those sales are made to customers who are charging slotting fees.

 

The Company had an increase in cost of goods sold from $74,443 for the three months ending March 31, 2019 to $157,265 for the three months ending March 31, 2020 because we sold more than twice as much ice cream to our customers (supermarket chains and distributors) this quarter than the same quarter last year, when measured in Gross Sales. Selling, general, and administrative expenses decreased from $127,775 for the three months ending March 31, 2019 to $92,423 for the three months ending March 31, 2020. This category includes expenses such as web hosting, web services, freight, warehousing, shipping, product liability insurance, and research & development of new products. Professional fees decreased from $146,254 for the three months ending March 31, 2019 to $99,727 for the three months ending March 31, 2020.

 

For the three months ended March 31, 2019 compared to the three months ended March 31, 2020, we also experienced changes in derivative liabilities from $1,377,160 to ($256,468) and interest expense from $539,431 to $480,123, of which $539,531 and $439,507 respectively were entries directly related to the amortization of debt discounts and deferred financing fees. For the three months ended March 31, 2020, the Company recorded “other expenses” of $321 compared to $0 for the three months ended March 31, 2019.

  

For the nine months ended March 31, 2020 and March 31, 2019 we had Net Revenues (Gross Sales net of Slotting) of $227,257 and $296,434 respectively and incurred an operating loss of $1,460,629 and $1,000,549 respectively. The decrease in reported revenues does not reflect a reduction in Gross Sales from the previous period.  In the nine months ended March 31, 2020, the Company recorded Gross Sales of $666,439, the highest Gross Sales through nine months in company history.   Accounting standards require exclusion on the income statement of Gross Sales made to a customer to whom the Company is paying slotting fees (slotting fees are fees occasionally charged by retailers and distributors to add a new product into their product assortment).  In those situations, the Gross Sales number is reduced, dollar for dollar, by the slotting fees, until the total cost of the slotting is covered.  These slotting fees do not appear on the income statement as an expense.  Rather, Slotting Fees, along with Sales Discounts, are applied against Gross Sales, resulting in Net Revenue, as shown below. The netting of Gross Sales against slotting and sales discounts, as described and shown below, results in the Net Revenue number at the top of the income statement.  This is not a reflection of the amount of product shipped to customers, but rather a function of the way certain sales are accounted for when those sales are made to customers who are charging slotting fees.

 

The following tables summarize Gross Sales for the nine months ended March 31, 2020 and 2019 and three months ended March 31, 2020 and 2019. Product sales are net of slotting fees (a onetime fee charged by supermarkets in order to have the product placed on their shelves) and sales discounts.

 

   Nine Months Ended March 31, 
   2020   2019 
Gross product sales  $666,439   $296,434 
Less:          
Slotting fees  $(428,650)  $-   
Sales discounts   (10,532)   -   
Net Revenues  $227,257   $296,434 

 

   Three Months Ended March 31, 
   2020   2019 
Gross product sales  $281,284   $159,575 
Less:          
Slotting fees  $(156,944)  $- 
Sales discounts   (4,865)   - 
Net Revenues  $119,475   $159,575 

 

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The Company had an increase in cost of goods sold from $129,634 for the nine months ending March 31, 2019 to $352,240 for the nine months ending March 31, 2020 because we sold more than twice as much ice cream to our customers (supermarket chains and distributors) this quarter than the same quarter last year, when measured in Gross Sales. Our income statement shows an increase in “Advertising and Promotional” from $285,700 for the nine months ending March 31, 2019 to $673,814 for the nine months ending March 31, 2020. The Company invested approximately $396,047 in marketing and distribution partnerships it determined would benefit operations for 2020 and beyond. Due to circumstances, including the global coronavirus pandemic, it does not appear these distribution partnerships will be as beneficial to the Company as envisioned when entered. As a result, the Company is reporting a one-time impairment expense of $500,000 in the reporting quarter. In April, 2020, the Company successfully negotiated a Debt Incentive Agreement with a creditor to whom it owed $731,118, most of which is in conjunction with this impaired asset. This Debt Incentive Agreement provides for the elimination of the entire debt should the Company make payments in calendar 2020 totaling $166,224 in cash, and approximately 4,000 pints of ice cream. Because this reduction in debt is conditional, the full $731.118 is currently included in the liabilities section of our balance sheet. Should the Company make the payments and retire the debt during calendar 2020, the Company would realize a Gain on Extinguishment of Debt of approximately $560,000

 

Selling, general, and administrative expenses decreased from $432,095 for the nine months ending March 31, 2019 to $295,107 for the nine months ending March 31, 2020. This category includes expenses such as web hosting, web services, freight, warehousing, shipping, product liability insurance, and research & development of new products. Professional fees decreased from $449,554 for the nine months ending March 31, 2019 to $366,725 for the nine months ending March 31, 2020.

 

For the nine months ended March 31, 2019 compared to the nine months ended March 31, 2020, we also experienced changes in derivative liabilities from $596,033 to ($612,093) and interest expense from $1,585,235 to $1,353,895, of which $1,495,485 and $1,270,943 respectively were entries directly related to the amortization of debt discounts and deferred financing fees. For the nine months ended March 31, 2020, the Company recorded “other expenses” of $39,618 compared to $779 for the nine months ended March 31, 2019.

 

Customers

 

For the both the three and nine month periods ending March 31, 2020, the majority of revenues resulted from wholesale sales of Nightfood ice cream to wholesale distributors and direct to supermarkets. One customer accounted for approximately 44.7% of Gross Sales. As the Company has largely shifted away from direct-to-consumer e-commerce, and towards a wholesale approach for the national ice cream rollout, it is expected that future revenues will be significantly more concentrated than in past years when the majority of revenue was from direct to consumer sales. 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of March 31, 2020, we had cash on hand of $110,101, receivables of $50,924 and inventory value of $285,879.

 

The Company has limited available cash resources and we do not believe our cash on hand will be adequate to satisfy our ongoing working capital needs. The Company is continuing to raise capital through private placement of our common stock and through the use of convertible notes to finance the Company’s operations, of which it can give no assurance of success. However, the Company has a strong ongoing relationship with Eagle Equities and we expect to be able to fund our projected growth over the next several quarters. We believe that our current capitalization structure, combined with ongoing increases in revenues, will enable us to successfully secure required financing to continue our growth. In the short term, the Company plans to continue to take advantage of convertible notes as a financing vehicle, as it allows for today’s operating capital to be either repaid, or converted to equity at future valuations, as well as exploring other capitalization strategies.

 

Because the business is new and has limited operating history and sales, no certainty of continuation can be stated. Management has devoted a significant amount of time in the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company will receive the necessary funding or generate revenue necessary to fund operations.

 

6

 

 

Even if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be able to achieve a level of profitability from the sale of its products to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

Since our inception, we have sustained operating losses. During the three months ended March 31, 2020, we incurred a net loss of $1,091,527 compared to $2,210,586 for the three months ended March 31, 2019. Much of this loss is largely a function of the way certain financing activities are recorded, and does not represent actual operating losses.

 

During the nine months ended March 31, 2020, net cash used in operating activities was $1,328,708 compared to $1,051,923 for the nine months ended March 31, 2019. Much of what shows as “net cash used in operating activities” is related to non-cash items associated with to the ongoing capitalization of the Company during the reporting period.

 

During the nine months ended March 31, 2020, net cash aggregating $333,333 was used in investing activities, compared to $0 for the nine months ended March 31, 2020.

 

During the nine months ended March 31, 2020, net cash aggregating $1,742,000 was provided by financing activities, compared to $1,040,929 for the nine months ended March 31, 2019.

 

From our inception in January 2010 through March 31, 2020, we have generated an accumulated deficit of approximately $15,961,108, compared to $13,219,059 from inception through June 30, 2019. Assuming we raise additional funds and continue operations, we expect to incur additional operating losses during the next two to three quarters and possibly thereafter. We plan to continue to pay or satisfy existing obligation and commitments and finance our operations, as we have in the past, primarily through the sale of our securities and other forms of external financing until such time that we are able to generate sufficient funds from the sale of our products to finance our operations, of which we can give no assurance.

  

We intend to rely on the sale of stock in private placements, and the issuance of new debt, to fund our operations. If we are unable to raise cash through the sale of our stock, we may be required to severely restrict our operations. The Company has received several tranches of capital from a friendly institutional investor, who has been our primary source of capital for the last 30 months. We expect this investor to continue to fund ongoing operations

 

Effective May 6, 2015, the Company entered into a consulting agreement with Sean Folkson. The agreement was retroactive to January 1st, 2015. In exchange for services provided to the Company by Folkson, the Company agreed to pay Folkson $6,000 monthly. This compensation expense started accruing on January 1, 2015, and accrued on a monthly basis through June of 2018.

 

In June of 2018, and again in June of 2019, the Company entered into updated consulting agreements with Folkson, which included a modified compensation structure. Each new Consulting Agreement contained the identical cash compensation allowance of $6,000 monthly. In addition, Folkson would earn Warrants with a strike price of $.50 or $1 when the Company hit certain revenue milestones. All Warrants earned under Folkson’s current agreement would convert into restricted shares, shall carry a cashless provision, and must be exercised within 90 days of the filing of the 10Q or 10K on which such revenues are reported.

 

On October 12, 2018, Folkson opted to purchase 400,000 shares of common stock at $.30 per share, by exercising warrants. To make this purchase, Folkson used $120,000 in accrued Nightfood consulting fees.

 

On February 4, 2019, the Company entered into a “Lock-Up” Agreement with Folkson whereby Folkson agreed to not transfer, sell, or otherwise dispose of any shares of his NGTF stock during the next twelve months. As part of this agreement, Folkson received warrants to acquire 400,000 shares of NGTF common stock at an exercise price of $.30 per share. All warrants in this agreement carried a twelve month term and a cashless provision, and were to expire if not exercised within the twelve month term. Folkson did not have rights to transfer, sell, or otherwise dispose of these warrants at any time, as there were no transfer rights provided for in the Agreement. The warrants that were part of the February 2019 Lock Up Agreement expired unexercised, as the share price was below $.30 at the end of the Agreement.

 

On January 20, 2020, Folkson and the Company entered into a new Lock-Up Agreement which went into effect on February 4, 2020 and is in place for twelve months, with identical financial terms to the February 4, 2019 Agreement.

 

The foregoing accounts for the entirety of compensation earned by Folkson since inception.

 

On February 6, 2019, the Registrant entered into a “Leak-Out” Agreement with Peter Leighton, former affiliate and owner of 4,000,000 shares, which will restrict Leighton’s ability to sell, transfer, or otherwise dispose of his shares above a certain, mutually agreed-upon monthly threshold.

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Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate past judgments and our estimates, including those related to allowance for doubtful accounts, allowance for inventory write-downs and write offs, deferred income taxes, provision for contractual obligations and our ability to continue as a going concern. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Note 2 to the consolidated financial statements, presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. There were no significant changes in our critical accounting estimates during the three months ended March 31, 2020.

 

OFF BALANCE SHEET ARRANGEMENTS

 

None.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

No report required.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.

 

We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2020. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report because we did not document our Sarbanes-Oxley Act Section 404 internal controls and procedures.

 

As funds become available to us, we expect to implement additional measures to improve disclosure controls and procedures such as implementing and documenting our internal controls procedures.

 

Changes in internal controls over financial reporting

 

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

Limitations on the Effectiveness of Controls

 

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The Company’s management, including its Principal Executive Officer and its Principal Financial Officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

We are not engaged in any litigation at the present time, and management is unaware of any claims or complaints that could result in future litigation. Management will seek to minimize disputes with its customers but recognizes the inevitability of legal action in today’s business environment as an unfortunate price of conducting business.

 

ITEM 1A. RISK FACTORS.

 

Not required for smaller reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Exhibit   Exhibit Description
     
31.1   Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
     
32.1   Section 1350 certification of Chief Executive Officer
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Nightfood Holdings, Inc.
     
Dated: May 20, 2020 By: /s/ Sean Folkson
    Sean Folkson,
Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)

 

 

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