10-Q 1 f10q0923_nightfood.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: September 30, 2023

 

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)

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

  

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

 

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

 

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

 

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

 

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

 

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

 

At December 27, 2023, the issuer had 127,221,301 shares of common stock outstanding.

 

 

 

 

 

 

Table of Contents

 

PART I – FINANCIAL INFORMATION
     
Item 1. Financial Statements (Unaudited) 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 26
     
Item 3. Controls and Procedures. 31
     
PART II – OTHER INFORMATION
     
Item 1. Legal Proceedings. 33
     
Item 1A.   Risk Factors. 33
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 33
     
Item 3. Defaults Upon Senior Securities. 33
     
Item 4. Mine Safety Disclosures. 33
     
Item 5. Other Information. 33
     
Item 6. Exhibits. 34
     
Signatures 35

 

i

 

 

Nightfood Holdings, Inc.

 

 

Item 1. Financial Statements

 

Financial Statements   
Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and June 30, 2023 2
Unaudited Condensed Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022 3
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three months ended September 30, 2023 and 2022 4
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2023 and 2022 5
Notes to Unaudited Condensed Consolidated Financial Statements 6 - 25

 

1

 

 

Nightfood Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

   September 30,   June 30, 
   2023   2023 
ASSETS        
         
Current assets:        
Cash  $5,424   $44,187 
Accounts receivable (net of allowance of $0 and $0, respectively)   30,281    33,396 
Inventory   160,756    276,202 
Other current asset   38,416    92,726 
Total current assets   234,877    446,511 
           
Total assets  $234,877   $446,511 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current liabilities:          
Accounts payable and accrued liabilities  $698,260   $604,516 
Accounts payable and accrued liabilities - related party   132,701    101,876 
Convertible notes payable - net of discounts   1,745,100    1,491,719 
Total current liabilities   2,576,061    2,198,111 
           
Commitments and contingencies (Note 12)   
 
    
 
 
           
Stockholders’ equity (deficit):          
Series A Stock, $0.001 par value, 1,000,000 shares authorized 1,000 issued and outstanding as of September 30, 2023 and June 30, 2023, respectively   1    1 
Series B Stock, $0.001 par value, 5,000 shares authorized 1,950 issued and outstanding as of September 30, 2023 and June 30, 2023, respectively   2    2 
Common stock, $0.001 par value, 200,000,000 shares authorized 126,921,301 and 123,587,968 issued and outstanding as of September 30, 2023 and June 30, 2023, respectively   126,921    123,588 
Additional paid in capital   33,973,831    33,112,935 
Accumulated deficit   (36,441,939)   (34,988,126)
Total Stockholders’ Equity (Deficit)   (2,341,184)   (1,751,600)
Total Liabilities and Stockholders’ Equity (Deficit)  $234,877   $446,511 

 

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

 

2

 

 

Nightfood Holdings, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   For the Three Months Ended 
   September 30,
2023
   September 30,
2022
 
         
Revenues, net of slotting and promotion  $8,470   $79,970 
           
Operating expenses          
Cost of product sold   57,580    125,121 
Advertising and promotional   (7,131)   37,166 
Selling, general and administrative   160,011    126,341 
Professional fees   223,200    349,949 
Total operating expenses   433,660    638,577 
           
Loss from operations   425,190    558,607 
           
Other (income) and expenses          
Interest expense – Amortization of debt discount   212,259    544,545 
Interest expense – debt   43,693    22,946 
Interest expense – financing cost   751,900    132,983 
Loss (Gain) on debt extinguishment   
-
    (57,971)
Total other (income) and expenses   1,007,852    642,503 
           
Provision for income tax   
-
    
-
 
           
Net loss  $
(1433,042
)  $(1,201,110)
           
Deemed dividend on Series B Stock   20,771    345,462 
Net loss attributable to common stockholders  $(1,453,813)  $(1,546,572)
           
Basic and diluted net loss per common share
  $(0.01)  $(0.01)
           
Weighted average shares of capital outstanding – basic and diluted
   124,783,621    92,713,941 

 

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

 

3

 

 

Nightfood Holdings, Inc.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

   Common Stock   Preferred
Stock A
   Preferred
Stock B
   Additional       Total 
   Shares   Par
Value
   Shares   Par
Value
   Shares   Par
Value
   Paid in
Capital
   Accumulated
Deficit
   Stockholders’
Equity
 
Balance, June 30, 2023   123,587,968   $123,588    1,000   $1    1,950   $2   $33,112,935   $(34,988,126)  $(1,751,600)
                                              
Common stock issued as financing cost   3,333,333    3,333                        46,667         50,000 
Issuance of warrants                                 84,230         84,230 
Warrants issued associated with Promissory Notes                                 9,878         9,878 
Warrants issued as financing cost                                 699,350         699,350 
Deemed dividends associated with warrant related dilutive adjustments                                 20,771    (20,771)   - 
Net loss                                      (1,433,042)   (1,433,042)
Balance, September 30, 2023   126,921,301   $126,921    1,000   $1    1,950   $2   $33,973,831   $(36,441,939)  $(2,341,184)

 

   Common Stock   Preferred
Stock A
   Preferred
Stock B
   Additional      Total 
   Shares   Par
Value
   Shares   Par
Value
   Shares   Par
Value
   Paid in
Capital
   Accumulated
Deficit
   Stockholders’
Equity
 
Balance, June 30, 2022   91,814,484   $91,814    1,000   $1    3,260   $3   $28,275,216   $(28,101,458)  $265,576 
                                              
Common stock issued for services   100,000    100                        19,910         20,010 
Common stock from conversion   4,050,000    4,050              (810)   (1)   (4,049)        - 
Discount on issuance of convertible notes                                 290,070         290,070 
Warrants issued and dilutive warrant adjustment as financing cost                                 65,783         65,783 
Deemed dividends associated with related dilutive warrant adjustments                                 345,462    (345,462)   - 
Warrants dilutive adjustment as consulting fees                                 108,126         108,126 
Net loss                                      (1,201,110)   (1,201,110)
Balance, September 30, 2022   95,964,484   $95,964    1,000   $1    2,450   $2   $29,100,518   $(29,648,030)  $(451,545)

 

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

 

4

 

 

Nightfood Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   For Three Months
ended
September 30,
 
   2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(1,433,042)  $(1,201,110)
Adjustments to reconcile net loss to net cash used in operations activities:          
Stock issued for financing cost   50,000    20,010 
Amortization of debt discount and deferred financing fees   212,259    544,545 
Warrants issued for services   84,230    108,126 
Warrants and returnable warrants issued for financing   699,350    65,783 
Impairment of inventory   113,196    
-
 
Write down of other current assets   46,130    
-
 
Stock payable for services   
-
    4,041 
Loss on debt extinguishment upon note conversion, net   
-
    (57,971)
Change in operating assets and liabilities:          
Accounts receivable   3,115    (36,723)
Inventories   2,250    (101,657)
Other current assets   8,180    31,052 
Accounts payable and accrued liabilities   93,744    200,294 
Accounts payable and accrued liabilities, related parties   30,825    9,000 
Net cash used in operating activities   (89,763)   (414,610)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Net cash provided by investing activities   
-
    
-
 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from the issuance of debt-net   51,000    644,000 
Repayment of convertible debt   
-
    (289,855)
Net cash provided by financing activities   51,000    354,145 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (38,763)   (60,465)
           
Cash and cash equivalents, beginning of year   44,187    280,877 
Cash and cash equivalents, end of year  $5,424   $220,412 
           
Supplemental Disclosure of Cash Flow Information:          
Cash Paid For:          
Interest  $
-
   $28,180 
Income taxes  $
-
   $
-
 
Summary of Non-Cash Investing and Financing Information:          
Debt and warrants discount accounted on convertible notes  $9,878   $290,070 
Common stock issued for preferred stock conversion  $
-
   $4,050 
Deemed dividend associated with preferred stock B and warrants dilutive adjustment  $
-
   $345,462 

 

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

 

5

 

 

Nightfood Holdings, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Description of Business

 

Nightfood Holdings, Inc. (“we”, “us”, “the Company” or “Nightfood”) is a Nevada corporation incorporated on October 16, 2013 to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York corporation from its sole shareholder, Sean Folkson. All of our operations are conducted through our subsidiary Nightfood, Inc. We are also the sole shareholder of MJ Munchies, Inc., which owns certain intellectual property but does not have any operations as of the period covered by these financial statements.

 

Our corporate address is 520 White Plains Road – Suite 500, Tarrytown, New York 10591 and our telephone number is 888-888-6444. We maintain a web site at www.nightfood.com, along with many additional web properties. Any information that may appear on our web site should not be deemed to be a part of this report.

 

The Company’s fiscal year end is June 30.

 

2. Summary of Significant Accounting Policies

 

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

 

Interim Financial Statements

 

These unaudited condensed consolidated financial statements for the three months ended September 30, 2023, and 2022, respectively, reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.

 

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

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

The Company classifies as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various instruments with original maturities of three months or less at the time of purchase. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits.

 

6

 

 

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. During the three months ended September 30, 2023 the Company wrote down inventory balances by $113,196 as a result of damage, loss and spoilage.

 

Advertising Costs

 

Advertising costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations. Although not traditionally thought of by many as “advertising costs”, the Company includes expenses related to graphic design work, package design, website design, domain names, and product samples in the category of “advertising costs”. The Company recorded advertising costs of ($7,131) and $37,166 for the three months ended September 30, 2023 and 2022, 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 to retailers and wholesalers. All sources of revenue are recorded pursuant to FASB Topic 606 Revenue Recognition, to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. In addition, this revenue generation requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

7

 

 

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

 

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

 

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

 

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

 

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

 

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

  

Under ASC 606-10-32-27, if the consideration payable to a customer is accounted for as a reduction of the transaction price, “an entity shall recognize the reduction of revenue when (or as) the later of either of the following events occurs:

 

a)The entity recognizes revenue for the transfer of the related goods or services to the customer.

 

b)The entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise might be implied by the entity’s customary business practices.”

 

Management reviewed each arrangement to determine if each fee paid is for a distinct good or service and should be expensed as incurred or if the Company should recognize the payment as a reduction of revenue.

 

The Company recognizes revenue upon shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers.

 

8

 

 

Concentration of Credit Risk

 

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

 

Beneficial Conversion Feature

 

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

 

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

 

Beneficial Conversion Feature – Series B Preferred Stock (deemed dividend):

 

Each share of the Company’s Series B Preferred Stock, par value $0.001 per share (the “B Preferred” or “B Preferred Stock”) has a liquidation preference of $1,000 and has no voting rights except as to matters pertaining to the rights and privileges of the B Preferred. Each share of B Preferred is convertible at the option of the holder thereof into (i) 5,000 shares of the Registrant’s common stock (one share for each $0.20 of liquidation preference) (the “Conversion Shares”) and (ii) 5,000 common stock purchase warrants, expiring April 16, 2026 (the “Warrants”). The Warrants carried an initial exercise price of $0.30 per share. Subsequent financing events and debt extinguishment resulted in adjustments to the exercise price of all warrants created from conversion of B Preferred from $0.30 per share to approximately $0.1324 per share through September 30, 2023. The exercise price of these warrants can continue to adjust as the result of subsequent financing events and stock transactions. These adjustments can result in an exercise price that is either higher, or lower, than the price as of September 30, 2023.

 

Based on the guidance in ASC 470-20-20, on issuance date the Company determined that a BCF existed, as the effective conversion price for the B Preferred at issuance was less than the fair value of the common stock which the shares of B Preferred are convertible into. A BCF feature based on the intrinsic value of the date of issuances for the B Preferred through June 30, 2022 was approximately $4.4 million. During the year ended June 30, 2023 the Company recorded an additional deemed dividend of approximately $1.1 million in relation to the B Preferred stock and downward price adjustments to certain warrants.

 

Debt Issue Costs

 

The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of operations.

 

Equity Issuance Costs

 

The Company accounts for costs related to the issuance of equity as a charge to Paid in Capital and records the equity transaction net of issuance costs.

 

Original Issue Discount

 

If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

9

 

 

Stock Settled Debt

 

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

  

Stock-Based Compensation

 

The Company accounts for share-based awards issued to employees in accordance with FASB ASC 718. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.  Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. The Company applies ASC 718, “Equity Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees.

 

Customer Concentration

 

In the three-month period ended September 30, 2023, we had one customer which accounted for more than 10% of gross sales.  During the three months ended September 30, 2022, the Company had five customers each accounting for sales exceeding 10% of the gross sales.

 

Vendor Concentration

 

In the three-month period ended September 30, 2023, one vendor accounted for more than 10% of our costs of goods sold. During the three-month period ended September 30, 2022, one vendor accounted for more than 10% of our costs of goods sold.

 

Receivables Concentration

 

As of September 30, 2023, the Company had receivables due from nine customers.  One accounted for 53% of the total balance, and three of the others each accounted for between 10% and 14% of the outstanding balance. As of June 30, 2023, the Company had receivables due from nine customers, one of who accounted for over 56% of the outstanding balance. Three of the others each accounted for between 10% and 14% of the outstanding balance.

 

Income/Loss Per Share

 

In accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive.  Potential common stock consists of the incremental common stock issuable upon convertible notes, stock options and warrants, and classes of shares with conversion features. The computation of basic loss per share for the three months ended September 30, 2023 and 2022 excludes potentially dilutive securities because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted losses per share.

 

10

 

 

Reclassification

 

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

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06 to simplify the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The update also provides for expanded disclosure requirements to increase transparency. For SEC filers, excluding smaller reporting companies, this update is effective for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years. The adoption of this guidance does not materially impact our financial statements and related disclosures.

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

3. Going Concern

 

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

 

  The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. For the three months ended September 30, 2023, the Company had an operating and net loss of $1,433,042, cash flow used in operations of $89,763 and an accumulated deficit of $36,441,939.

 

 

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

 

The Company is continuing to seek to raise capital through the sales of its common stock, preferred stock and/or convertible notes, as well as potentially the exercise of outstanding warrants, to finance the Company’s operations, of which it can give no assurance of success. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. Additionally, management is investing the acquisition of additional revenue generating assets through the issuance of debt and/or equity to further assist the Company’s growth initiatives.

 

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

  

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

 

11

 

 

From both public statements observed, and conversations conducted between Nightfood management and current and former executives from certain global food and beverage conglomerates, it has been affirmed to management that there is increased strategic interest in the nighttime nutrition space as a potential high-growth opportunity, partially due to recent declines in consumer sleep quality and increases in at-home nighttime snacking.

 

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

 

4. Accounts receivable

 

The Company’s accounts receivable arises primarily from the sale of the Company’s ice cream. On a periodic basis, the Company evaluates each customer account and based on the days outstanding of the receivable, history of past write-offs, collections, and current credit conditions, writes off accounts it considers uncollectible. With most of our retail and distribution partners, invoices will typically be due in 30 days. The Company does not accrue interest on past due accounts and the Company does not require collateral. Accounts become past due on an account-by-account basis. Determination that an account is uncollectible is made after all reasonable collection efforts have been exhausted. The Company has not provided any accounts receivable allowances for September 30, 2023 and September 30, 2022, respectively.

 

5. Inventories

 

Inventory consists of the following at September 30, 2023 and June 30, 2023:

 

   September 30,
2023
   June 30,
2023
 
Inventory: Finished Goods  $124,241   $163,644 
Inventory: Ingredients   28,193    63,734 
Inventory: Packaging   8,322    48,824 
Total Inventory  $160,756   $276,202 

 

Inventories are stated at the lower of cost or net realizable value. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions and the products relative shelf life. Write-downs and write-offs are charged to loss on inventory write down. During the three months ended September 30, 2023 the Company wrote down inventory balances totaling $113,196 as a result of inventory damage and spoilage.

 

6. Other current assets

 

Other current assets consist of the following vendor deposits at September 30, 2023 and June 30, 2023.

 

   September 30,
2023
   June 30,
2023
 
Other Current Assets        
Prepaid expenses  $9,020   $
-
 
Deposits   29,396    92,726 
TOTAL  $38,416   $92,726 

 

7. Accounts Payable and Accrued liabilities

 

Other current liabilities consist of the following at September 30, 2023 and June 30, 2023:

 

   September 30,
2023
   June 30,
2023
 
Interest Payable  $82,578   $40,779 
Accounts payable   615,682    563,737 
TOTAL  $698,260   $604,516 

 

12

 

 

8. Debt

 

Convertible Notes Payable

 

Convertible Notes Issued on December 10, 2021

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

 

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

 

Forbearance and Exchange Agreement

 

On February 4, 2023, the Company entered into a Forbearance and Exchange Agreement (the “Forbearance Agreement”) with the Purchasers.

 

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

 

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

 

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

 

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

  

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

 

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

 

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

 

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

 

14

 

 

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

 

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

  

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

 

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

 

Interest expenses associated with above convertible note are as follows: 

 

   For Three Months Ended 
   September 30, 
   2023   2022 
Amortization  $
-
   $539,570 
Interest on the convertible notes   
-
    21,546 
Total  $
-
   $561,116 

 

During the fiscal years ended June 30, 2023 and 2022, the Company paid $39,452 and $43,478 to interest.

 

As of September 30, 2023 and June 30, 2023, the interest payable was $0.

 

Mast Hill Promissory Notes (MH Notes)

 

(a)Promissory Notes Issued on September 23, 2022

 

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

 

15

 

 

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

 

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

 

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

 

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

  

(b)Promissory Notes Issued on February 5, 2023

 

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

 

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

 

(c)Promissory Notes Issued on February 28, 2023

 

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

 

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

    

16

 

 

(d)Promissory Notes Issued on March 24, 2023

 

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

 

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

 

(e)Promissory Notes Issued on April 17, 2023

 

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

 

The Company paid to J.H. Darbie & Co., Inc. $6,840.00 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 57,000 shares of common stock at $.12, subject to adjustment. The Company paid to Spencer Clarke LLC a cash fee of $13,680 plus warrants to purchase 200,000 shares of common stock at $.08, warrants to 179,000 shares of common stock at $.10, and returnable warrants to 182,000 shares of common stock at $.10, in each case subject to adjustment.

 

(f)Promissory Notes Issued on June 1, 2023

 

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

 

17

 

 

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

 

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

 

Fourth Man, LLC Promissory Notes (Fourth Man Notes)

 

  (a) Promissory Notes Issued on June 29, 2023

 

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

 

The Company paid to J.H. Darbie & Co., Inc. $2,763 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 23,021 shares of common stock at $.10, subject to adjustment. The Company issued Spencer Clarke LLC warrants to purchase 618,079 shares of common stock at $.033, in each case subject to adjustment.

 

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

 

  (b) Promissory Notes Issued on August 28, 2023

 

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

 

The Company paid to J.H. Darbie & Co., Inc. $2,550 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 21,250 shares of common stock at $.12, subject to adjustment.

 

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

 

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

 

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

 

18

 

 

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

 

   Principal
$
   Debt
Discount
$
   Net Value
$
 
Balance at June 30, 2022   
-
    
-
    
-
 
Promissory notes payable issued   2,066,823         2,066,823 
Principal converted to common stock   (16,088)        (16,088)
Debt discount associated with Promissory notes        (864,713)   (864,713)
Amortization of debt discount        305,697    305,697 
Balance at June 30, 2023   2,050,735    (559,016)   1,491,719 
                
Promissory notes payable issued   60,000         60,000 
Debt discount associated with Promissory notes        (18,878)   (18,878)
Amortization of debt discount        212,259    212,259 
Balance at September 30, 2023  $2,110,735   $(365,635)  $1,745,100 

 

Interest expenses associated with above convertible note are as follows: 

 

   For Three Months Ended 
   September 30, 
   2023   2022 
Amortization  $212,259   $4,975 
Interest on the convertible notes   41,799    1,400 
Total  $254,058   $6,375 

 

As of September 30, 2023 and June 30, 2023, the interest payable was $82,578 and $40,779, respectively.

 

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

 

9. Capital Stock Activity

 

On October 16, 2013, Nightfood, Inc. became a wholly-owned subsidiary of Nightfood Holdings, Inc. Accordingly, the stockholders’ equity has been revised to reflect the share exchange on a retroactive basis.

 

Common Stock

 

The Company is authorized to issue Two Hundred Million (200,000,000) shares of common stock $0.001 par value per share (the “Common Stock”). Holders of Common Stock are each entitled to cast one vote for each share held of record on all matters presented to shareholders. Cumulative voting is not allowed; hence, the holders of a majority of the outstanding Common Stock can elect all directors, subject to the rights of the holder of Series A Stock described below. Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore and, in the event of liquidation, to share pro-rata in any distribution of the Company’s assets after payment of liabilities. The Board of Directors is not obligated to declare a dividend and it is not anticipated that dividends will be paid unless and until the Company is profitable. Holders of Common Stock do not have pre-emptive rights to subscribe to additional shares if issued by the Company. There are no conversion, redemption, sinking fund or similar provisions regarding the Common Stock. All of the outstanding shares of Common Stock are fully paid and non-assessable and all of the shares of Common Stock offered thereby will be, upon issuance, fully paid and non-assessable. Holders of shares of Common Stock will have full rights to vote on all matters brought before shareholders for their approval, subject to preferential rights of holders of any series of Preferred Stock. Holders of the Common Stock will be entitled to receive dividends, if and as declared by the Board of Directors, out of funds legally available, and share pro-rata in any distributions to holders of Common Stock upon liquidation. The holders of Common Stock will have no conversion, pre-emptive or other subscription rights. Upon any liquidation, dissolution or winding-up of the Company, assets, after the payment of debts and liabilities and any liquidation preferences of, and unpaid dividends on, any class of preferred stock then outstanding, will be distributed pro-rata to the holders of the common stock. The holders of the common stock have no right to require the Company to redeem or purchase their shares. Holders of shares of common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.

 

19

 

 

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

 

  The Company had 126,921,301 and 123,587,968 shares of its $0.001 par value common stock issued and outstanding as of September 30, 2023 and June 30, 2023 respectively.

 

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

 

During the three months ended September 30, 2023:

 

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

 

During the three months ended September 30, 2022:

 

  The Company issued an aggregate of 100,000 shares of its common stock for services valued at $20,010.

 

  Holders of the B Preferred converted 810 shares of Series B Preferred Stock into 4,050,000 shares of its common stock.

 

Preferred Stock

 

Series A Preferred Stock

 

The Company is authorized to issue 1,000,000 shares of $0.001 par value per share Preferred Stock. Of the 1,000,000 shares, 10,000 shares were designated as Series A Preferred Stock (“Series A Stock”). Holders of Series A Stock are each entitled to cast 100,000 votes for each share held of record on all matters presented to shareholders.

 

In addition to his ownership of the common stock, Mr. Folkson owns 1,000 shares of the Series A Stock which votes with the Common Stock and has an aggregate of 100,000,000 votes.

 

The Company had 1,000 shares of the Series A Stock issued and outstanding as of September 30, 2023, and June 30, 2023.

 

Series B Preferred Stock

 

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

 

During the fiscal years ended June 30, 2023 and 2022, the Company sold 0 and 335 shares of its B Preferred for gross cash proceeds of $0 and $335,000, respectively. These proceeds were used for operating capital. The B Preferred meets the criteria for equity classification and is accounted for as equity transactions. Specifically, among other factors, this qualifies as equity because redemption is not invoked at the option of the holder and the B Preferred does not have to be redeemed on a specified date.

 

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

 

20

 

 

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

 

Dividends

 

The Company has never declared dividends, however as set out below, during the fiscal year ended June 30, 2022 and 2021, upon issuance of a total of 335 and 4,665 shares of B Preferred, respectively, the Company recorded a deemed dividend as a result of beneficial conversion feature associated with the transaction.

 

In connection with certain conversion terms provided for in the designation of the B Preferred, pursuant to which each share of B Preferred is convertible into 5,000 shares of common stock and 5,000 warrants, the Company recognized a beneficial conversion feature upon the conclusion of the transaction in the amount of $4,431,387.  The beneficial conversion feature was treated as a deemed dividend, and fully amortized on the transaction date due to the fact that the issuance of the B Preferred was classified as equity. During the year ended June 30, 2023 the Company recorded an additional deemed dividend of $1,136,946, fully amortized on the transaction dates, in relation to the B Preferred stock and downward price adjustments to certain warrants.

 

10. Warrants

 

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

 

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

 

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

 

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

 

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

 

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

 

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

  

21

 

 

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

 

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

 

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

 

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

 

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

 

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

 

During the fiscal year ended June 30, 2023, the Company issued 1,000,000 retainer warrants under an Amendment and Addendum to Letter of Engagement agreement at a strike price of $.033. The warrants included a provision for cashless exercise and carried a 5 years term. The Company valued these warrants using the Black Scholes model utilizing a 113.71% volatility and a risk-free rate of 3.69%. The Company recorded the value of the retainer warrants as consulting expenses.

 

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

 

During the three months ended September 30, 2023, the Company issued cumulative 650,000 warrants to the holder of outstanding promissory notes, and 21,250 warrants to JH Darbie as commission fees. The warrants were issued at initial exercise prices between $0.10 and $0.12 per share and valued on issuance dates with the Black Scholes model utilizing a volatility at 124.86% and a risk-free rate at 4.38%.

 

22

 

 

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

 

During the three months ended September 30, 2023, a total of 23,147,255 outstanding share purchase warrants issued in connection with conversion of the Company’s B Preferred into Common Stock were adjusted as a result of certain antidilution clauses resulting in a total of 24,098,865 outstanding share purchase warrants with a downward adjusted exercise price of $0.1324 per share.

 

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

 

The aggregate intrinsic value of the warrants as of September 30, 2023 is $3,299,000 The aggregate intrinsic value of the warrants as of June 30, 2023 was $4,215,000.

 

Exercise
Price
   June 30,
2023
   Issued   Repricing   Exercised   Others   Cancelled   Expired   Redeemed   September 30,
2023
 
$0.03333    70,935,941    
-
    65,475,796    
      -
    
     -
    
     -
    
     -
    
     -
    136,411,737 
$0.0747    16,181,392    
-
    
-
    
-
    
-
    
-
    
-
    
-
    16,181,392 
$0.1000    600,000    650,000    (600,000)   
-
    
-
    
-
    
-
    
-
    650,000 
$0.1200    
-
    21,250    (21,250)   
-
    
-
    
-
    
-
    
-
    
-
 
$0.1250    100,000    
-
    
-
    
-
    
-
    
-
    
-
    
-
    100,000 
$0.1380    23,147,255    
-
    (23,147,255)   
-
    
-
    
-
    
-
    
-
    
-
 
$0.1324    
-
    
-
    24,098,865    
-
    
-
    
-
    
-
    
-
    24,098,865 
$0.1563    1,871,800    
-
    
-
    
-
    
-
    
-
    
-
    
-
    1,871,800 
$0.2626    100,000    
-
    
-
    
-
    
-
    
-
    
-
    
-
    100,000 
$0.3000    400,000    7,000,000    (7,000,000)   
-
    
-
    
-
    
-
    
-
    400,000 
$0.5000    500,000    
-
    
-
    
-
    
-
    
-
    
-
    
-
    500,000 
      113,836,388    7,671,250    58,806,156    
-
    
-
    
-
    
-
    
-
    180,313,794 

 

Returnable Warrants

 

A cumulative total of 18,956,523 Returnable Warrants issued in conjunction with a financing agreement dated as of September 23, 2022, and a MFN agreement entered into concurrently on September 23, 2022 (ref: Note 8 above) may only be exercised in the event that the Company were to default on certain debt obligations. The Returnable Warrants have an initial exercise price of $0.30 per share, subject to customary adjustments (including price-based anti-dilution adjustments) and may be exercised at any time after an Event of Default until the five-year anniversary of such date. The Returnable Warrants include a cashless exercise provision as set forth therein. The exercise of the Returnable Warrants are subject to a beneficial ownership limitation of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. In the event of the Company’s failure to timely deliver shares of Common Stock upon exercise of the Returnable Warrants, the Company would be obligated to pay a “Buy-In” amount pursuant to the terms of the Returnable Warrants. On December 29, 2022, upon an event of default as defined under the MFN agreement, 5,434,785 returnable warrants issued to each of the Purchasers under the MFN Agreement, and 1,086,957 returnable warrants issued to the Placement Agent, were triggered and valued using the Black Scholes model with a volatility of 124.14% and a risk-free rate of 3.94% resulting in financing expenses recorded as additional financing costs in the cumulative amount of $1,085,780.  In February, the Company issued 3,800,000 shares of its common stock in exchange for the return of 10,869,566 returnable warrants. The warrants issued to the Placement Agent remained available for exercise.

 

23

 

 

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

 

11. Fair Value of Financial Instruments

 

  Cash and Equivalents, Receivables, Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities.

 

  The carrying amounts of these items approximated fair value.

 

  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).

 

Level 1 —  Valuations based on quoted prices for identical assets and liabilities in active markets.

 

Level 2 —  Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 —  Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

 

At September 30, 2023 and June 30, 2023, the Company had no outstanding derivative liabilities.

 

12. Commitments and Contingencies:

 

  The Company has entered into certain consulting agreements which carry commitments to pay advisors and consultants should certain events occur. An agreement is in place with one Company Advisor that calls for total compensation over the four-year Advisor Agreement of 500,000 warrants with an exercise price of $0.15 per share, of which all have vested.

 

  CEO Sean Folkson has a twelve-month consulting agreement which went into effect on January 1, 2022, and continues on a monthly basis, which will reward him with bonuses earned of 1,000,000 warrants at a strike price of $0.50 when the Company records its first quarter with revenues over $1,000,000an additional 3,000,000 warrants with a $0.50 strike price when the Company records its first quarter with revenues over $3,000,000, and an additional 3,000,000 warrants with a $1 strike price when the Company records its first quarter with revenues over $5,000,000. Mr. Folkson will also be awarded warrants with a strike price of $0.50 should the Company exceed $500,000 in non-traditional retail channel revenue during the term of the agreement, and should the Company enter into a product development or distribution partnership with a multi-national food & beverage conglomerate during the term of the Agreement. As of September 30, 2023 and June 30, 2023, those conditions were not met and therefore nothing was accrued related to this arrangement.

 

24

 

 

  Litigation: From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

13. Related Party Transactions

 

  During the third quarter of Fiscal Year 2015, Mr. Folkson began accruing a consulting fee of $6,000 per month which the aggregate of $18,000 is reflected in professional fees for the three months ended September 30, 2023 and 2022. At September 30, 2023 and June 30, 2023 Mr. Folkson was owed $45,000 and $33,000 in unpaid consulting fees which amounts are included on the balance sheets in accounts payable and accrued liabilities- related party.

 

 

On January 20, 2023, the Company entered into the Lock-Up Agreement with Mr. Folkson. For purposes of the Lock-Up Agreement, Mr. Folkson is the direct or indirect owner of 16,776,591 shares of the Company’s common stock (the “Shares”), and Mr. Folkson has agreed to not transfer, sell, or otherwise dispose of any Shares through February 4, 2023. The Lock-Up Agreement is substantially similar to, and serves as an extension of, the lock-up agreement previously in place between the Company and Mr. Folkson, which expired in accordance with its terms on February 4, 2022.

 

The Lock-Up Agreement further provides, in exchange for the agreement to lock up the Shares, that Mr. Folkson shall receive warrants to acquire 400,000 shares of Company Common Stock at an exercise price of $0.30 per share, which warrants carry a twelve-month term and a cashless provision, and will expire if not exercised within the twelve-month term.

 

 

 Folkson Loan

 

On February 7, 2023, Sean Folkson, the Chairman and CEO of the Company, loaned $40,000 to the Company, which was evidenced by a promissory note (the “Folkson Note”). The maturity date under the Folkson Note is February 7, 2024. The Folkson Note bears interest at a fixed rate of 12.0% per annum, and shall be payable on the maturity date. Notwithstanding the foregoing, the Company shall not make any payment to Mr. Folkson under the Folkson Note, whether of principal or interest, and whether or not on the maturity date when due and payable, unless and until all indebtedness of the Company owed or owing to each of Mast Hill, Puritan Partners and Verition has been repaid in full. The Folkson Note has customary events of default.

 

Mr. Folkson was owed $43,076 and $41,876 as of September 30, 2023 and June 30, 2023, respectively, which amounts are included on the balance sheets in accounts payable and accrued liabilities- related party.

 

The Company intends to use the proceeds from the Folkson Note for working capital.

 

  In addition, at September 30, 2023 and June 30, 2023, respectively, there was $44,625 and $27,000 in unpaid directors fees which amounts are included on the balance sheets n accounts payable and accrued liabilities- related party.

 

15. Subsequent Events 

 

On October 6, 2023, Nightfood Holdings, Inc. (the “Company”) consummated the transactions pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) dated as of October 5, 2023 (the “Effective Date”) and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “Note”) in the principal amount of $62,000.00 (actual amount of purchase price of $52,700 plus an original issue discount (“OID”) in the amount of $9,300).

 

On November 17, 2023 (the “Issuance Date”), the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) dated as of November 16, 2023, and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “MH Note”) in the principal amount of $62,000 (actual amount of purchase price of $52,700 plus an original issue discount (“OID”) in the amount of $9,300).

 

Mast Hill has the right, at any time on or following the date that an Event of Default occurs to convert all or any portion of the then outstanding and unpaid Principal Amount and interest, to convert all or any portion of the then outstanding and unpaid principal amount and interest (including any default interest) into Common Stock, at a conversion price of $0.033, subject to customary adjustments as provided in the Note for stock dividends and stock splits, rights offerings, pro rata distributions, fundamental transactions and dilutive issuances.

 

On December 7, 2023 (the “Issuance Date”), the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) dated as of December 6, 2023, and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “MH Note”) in the principal amount of $170,588 (actual amount of purchase price of $145,000 plus an original issue discount (“OID”) in the amount of $25,588).

 

The use of proceeds from the sale of the MH Note is strictly for expenses related to ongoing acquisition and uplist activity and for no other purpose.

 

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

 

Mast Hill has the right, at any time on or following the date that an event of default occurs under the Note, to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any default interest) into Common Stock, at a conversion price of $0.033, subject to customary adjustments as provided in the MH Note for stock dividends and stock splits, rights offerings, pro rata distributions, fundamental transactions and dilutive issuances.

 

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

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD LOOKING STATEMENT INFORMATION

 

Certain statements made in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “may,” “should,” “plan,” “project,” “will” and other words of similar meaning. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, technological developments related to business support services and outsourced business processes, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.

 

Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth under the headings “Business” and “Risk Factors” within our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 13, 2023, as well as the other information set forth herein.

 

OVERVIEW

 

The Nighttime Snack Problem and Opportunity

 

What you eat before bed matters.

 

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

 

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

 

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

 

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

 

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

 

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

 

As the pioneers of the nighttime snacking category, Nightfood accepts the responsibility to educate consumers and build the awareness required to grow the nighttime segment of the overall snack market. Along with that responsibility comes the opportunity to be the category king. We envision a future where nighttime specific, sleep-friendly snacks comprise a meaningful subsegment of the estimated $150 billion American snack market.

 

Management believes significant latent consumer demand exists for better nighttime snacking options, and that a new consumer category, consisting of nighttime specific snacks, is set to emerge in the coming years. This belief is supported by research from major consumer goods research firms such as IRI Worldwide, and Mintel, who identified nighttime specific foods and beverages as one of the “most compelling and category changing trends” for 2017 and beyond. In recent years, CEOs and other executives from major consumer goods conglomerates such as Nestle, PepsiCo, Mondelez, and Kellogg’s have commented on consumer nighttime snack habits and alluded to the opportunity that might exist in solving this problem for the marketplace.

 

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

 

Compared to regular ice cream, Nightfood is formulated with more tryptophan, more vitamin B6, more calcium, magnesium, and zinc, more protein and more prebiotic fiber. Nightfood also contains less fat, less sugar, and fewer calories than traditional ice cream, and is lactose free.

 

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

 

Each new Nightfood snack format would be expected to deliver sleep-friendly snacking in a way that is appropriate for that format. For example, Nightfood chips would not necessarily contain significantly more tryptophan than other brands of chips but may be more sleep-friendly in other ways.

 

In February of 2019, it was announced that Nightfood had won the 2019 Product of the Year Award in the ice cream category in a Kantar innovation survey of over 40,000 consumers. In June of 2019, it was announced that Nightfood won both the Best New Ice Cream and Best New Dairy Dessert awards at the World Dairy Innovation Awards.

 

In November of 2021, Nightfood won the Real California Milk Excelerator Dairy Innovation competition, with a top prize of $150,000 in marketing support. Executives and judges from the California Milk Advisory Board and corporate entities such as Hershey’s, Coca-Cola, and Whole Foods commended the unique problem the Nightfood brand addresses for consumers, and the opportunities and strategic advantages afforded by widespread hotel distribution for a brand pioneering sleep-friendly nighttime snacking.

 

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Nightfood has received media coverage in outlets such as The Today Show, Oprah Magazine, The Rachael Ray Show, Food Network Magazine, The Wall Street Journal, USA Today, The Washington Post, Fox Business News, and many other media outlets.

 

DEVELOPMENT PLANS

 

The Company has recently experienced a substantial decline in sales as a result of pivoting away from supermarket distribution. We expect to revisit supermarket and traditional retail distribution after we have established a meaningful revenue base and achieved a higher level of consumer awareness. We have plans to leverage direct-to-consumer sales and hotel distribution to enhance revenue, grow brand awareness, and establish the sleep-friendly snack category we are pioneering.

 

INFLATION

 

Inflation can be expected to have an impact on our operating costs. Similar to many other industries, we have recently seen increases in the cost of certain ingredients and packaging materials. Such increases will either result in lower gross margins or necessitate an increase in our wholesale pricing. A prolonged period of inflation could cause a general economic downturn and negatively impact our results.

 

SEASONALITY

 

As an early-stage and growing brand, with a product mix that is expected to include a variety of snacks such as ice cream, cookies, chips, candy, and more, the full impact of seasonality on our business might not be fully understood for several additional annual cycles. 

 

RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2023 AND 2022

 

Revenue

 

For the three months ended September 2023 and 2022, we had Gross Sales of $8,802 and $99,223, respectively and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $8,470 and $79,790, respectively, and incurred operating losses of $425,190 and $558,607, respectively. The substantial decline in revenues is a direct result of our pivot away from supermarket channel accounts during fiscal 2023 and the delay in distribution expansion of Nightfood products within the hotel vertical.

 

Accounting standards require exclusion on the income statement of Gross Sales made to a customer to whom the Company is paying slotting fees and certain other payments (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 and other payments, until the total cost is covered. These payments do not appear on the income statement as an expense. Rather, Slotting Fees, along with Sales Discounts, are applied against Gross Sales, resulting in Net Revenue, as shown below. The netting of Gross Sales against slotting and sales discounts, as described and shown below, results in the Net Revenue number at the top of the income statement. This is not a reflection of the amount of product shipped to customers, but rather a function of the way certain sales are accounted for when those sales are made to customers who are charging slotting fees.

 

GROSS SALES  For the
three months
period ended
September 30,
2023
   For the
three months
period ended
September 30,
2022
 
Gross product sales  $8,802   $99,223 
Less:          
Slotting fees   -    - 
Sales discounts, promotions, and other reductions   (332)   (19,253)
Net Revenues  $8,470   $79,970 

  

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Costs and expenses

 

For the three months ended September 30, 2023 and 2022, Cost of Product Sold decreased to $57,580 from to $125,121. The primary reason Cost of Product Sold exceeds gross revenues is significant freight and shipping costs incurred on a per unit basis related to the transportation of ice cream. This is partly due to increases in gas prices driving up freight costs in general, and also due to our average shipment being substantially smaller than for the same period last year.

 

For the three months ended September 30, 2023 and 2022, Advertising and Promotional Expenses decreased from $37,166 to a gain of $7,131. This decrease is largely due to us pausing advertising and promotional efforts during the period. In addition, the gain in advertising and promotional costs in the three months ended September 30, 2023 is a result of certain previously booked marketing expenditures which were reversed in the current three month period, and when offset with actual costs in the period, resulted in a gain.

 

For the three months ended September 30,2023 and 2022, Selling, General, and Administrative expenses increased from $126,343 to $160,012. The largest component of this increase was the result of a write down of inventory of $113,196 as a result of inventory spoils and damage.

 

For the three months ended September 30, 2023 and 2022, Professional Fees decreased from $349,949 to $223,200. This decrease was largely due to reduced expenses in the current three months ended September 30, 2023, as we did not have costs associated with the preparation, filing, and qualification of our Tier 2 offering pursuant to Regulation A, which offering received notice of qualification from the SEC on October 25, 2022.

 

For the three months ended September 30, 2023 and 2022, Total Operating Expenses decreased from $638,577 to $433,660. As discussed above, the major component of this decrease was the reduction in advertising and marketing spend, selling, general and administrative costs and professional fees. For the three months ended September 30, 2023, our Total Operating Expenses were $433,660. Of that, $217,103 is related to running our snack business operations, and $216,557 is related to financing, compliance, and other non-operational activities. For the three months ended September 30, 2022, our Total Operating Expenses were $638,577. Of that, $274,598 is related to running our business operations, and $363,979 is related to financing, compliance, and other non-operational activities.

 

Total Operating Expenses include those expenses associated with running the operating portion of our business (such as the manufacturing our snacks, advertising for our product, warehousing, freight, and the like). It also includes certain cash and non-cash expenses incurred by us related to activities such as SEC compliance, fundraising activities, and maintaining our public entity in good standing. Our revenues and operations are currently limited, therefore expenses relating to financing and compliance activities make up a larger portion of our total expenses than they might in a larger company.

 

Other Income (Expense)

 

For the three months ended September 30, 2023 and 2022, Loss From Operations decreased from $558,609 to $425,190. This decrease was due to decreased expenses across all operating and non-operating categories in the current three months as sales and associated costs of sales decreased, professional fees and selling and general administrative expenses decreased, and we reduced the spend on advertising and promotion. Decreases to operating and non operating expenditures were offset in the current three months by inventory write downs of $113,196, as set out above.

  

For the three months ended September 30, 2023 and 2022, Total Other Expenses increased to $1,007,852 from $642,503. The majority of these expenses are related to accounting treatment applied to financing costs, debt and the amortization of debt discount. During the three months ended September 30, 2023 we recorded amortization of debt discount of $212,259 and financing costs of $751,900. During the three months ended September 30, 2022 we recorded amortization of debt discount of $544,545 and financing costs of $132,983. This is not an actual cash expense but is a function of the way certain financing activities are accounted for. Interest expenses totaled $43,693 and $22,946 in the three months ended September 30, 2023 and 2022, respectively. Other expense in the three months ended September 30, 2022 was offset by a gain of $57,971 with respect to the extinguishment of certain debt in the period.

 

Net Loss

 

Our net loss in the three months ended September 30, 2023 totaled $1,433,042 as compared to $1,201,110 in the three months ended September 30, 2022. The increase to the net loss is directly related to an increase in financing costs, amortization of debt discount and interest expenses.

 

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Customers

 

During the three months ended September 30, 2023, the Company had one customer accounting for over 10% of gross sales. This customer accounted for approximately 100% of the gross sales.

 

During the three months ended September 30, 2022, the Company had five customers accounting for over 10% of gross sales. One of those accounted for approximately 29% of the gross sales and another accounted for approximately 22% of the gross sales.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2023, we had cash on hand of $5,424, receivables of $30,281 and inventory valued at $160,756.

 

Our cash on hand is not adequate to satisfy our working capital needs. We believe that our current capitalization structure, combined with ongoing increases in distribution, revenues, and market capitalization, will enable us to successfully secure the required financing to continue our growth. In addition, we are currently seeking the acquisition of additional revenue generating businesses to bolster our growth and strengthen our balance sheet.

 

As discussed above, the Company has limited available cash resources and we do not believe our cash on hand will be sufficient to fund our operations and growth in fiscal year 2024 or adequate to satisfy our immediate or ongoing working capital needs. The Company is continuing to raise capital through the sale of its securities, including common stock, preferred stock, and debt (including convertible debt) to finance the Company’s operations, of which it can give no assurance of success. In addition, we will receive the proceeds from our outstanding warrants as, if and when such warrants are exercised for cash.

 

If we are unable to raise cash through the sale of our securities, we may be required to severely restrict or cease our 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.

 

Subsequent to September 30, 2023, we raised additional gross proceeds, net of original issuance discounts, of $105,400.

 

Since inception in January 2010 through September 30, 2023, we have generated an accumulated deficit of approximately $36,441,939. This accumulated deficit is not debt, and there is no obligation or liability associated with it. An accumulated deficit reflects a negative balance of retained earnings and an accumulation of historical losses over time, related to both operations and financing activities. It is not unusual for growing companies to have significant accumulated deficit, even after turning profitable. Many large, fast growing, and successful companies have reported accumulated deficits in recent years, such as Warby Parker, The Honest Company, Beyond Meat, Roblox, Robinhood, Sweetgreen, Oatly, Rivian, Celsius Holdings, Chobani, and Tesla. In our case, like many of these others, an accumulated deficit is a function of losses sustained over time, along with the costs associated with raising operating capital.

 

Assuming we raise additional funds and continue operations, it is expected we may incur additional operating losses during the course of fiscal year 2024 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 anticipate deriving additional revenue from product sales and new distribution arrangements in fiscal year 2024, but we cannot at this time quantify the amount.

 

 

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Cash Flow from Operating Activities

 

During the three months ended September 30, 2022, net cash used in operating activities was $414,610 compared to net cash used of $89,763 for the three months ended September 30, 2023. This decrease in net cash used is largely due to the overall reduction in our operating and non-operating activities in the most recently completed three-month period. While we continue to report increases to accounts payable and other liabilities as well as non-cash expenses such as financing costs including costs of the issuance of warrants in respect to financings and services, the overall size of the increase to our operating liabilities is substantially reduced to results reported in the three months ended September 30, 2022.

 

Cash Flow from Investing Activities

 

We did not use any cash in investing activities, during the three months ended September 30, 2023 or September 30, 2022.

 

Cash Flow from Financing Activities

 

During the three months ended September 30, 2023, net cash of $51,000 was raised through the issuance of debt in the form of convertible notes. In the three months ended September 30, 2022, our financing activities consisted of the issuance of debt in the form of convertible notes totaling $644,000, offset by repayments to debt of $289,855.

 

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, 2023, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. There were no significant changes in our critical accounting estimates during the three months ended September 30, 2023.

 

ITEM 3. 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.

 

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We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. 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 that evaluation, our chief executive officer concluded that our disclosure controls and procedures were not effective at September 30, 2023 due to the lack of full-time accounting and management personnel. We will consider hiring additional employees when we obtain sufficient capital.

 

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.

 

There were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and/or were not previously reported in a Current Report on Form 8-K filed by the Company other than as set out below:

 

During the three months ended September 30, 2023, the Company issued 3,333,333 shares of Common Stock for services with a fair value of $50,000. The shares were issued in reliance on an exemption from registration pursuant to 4(a)(2) of the Securities Act, as a transaction not involving any public offering.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

On October 11, 2023, the Company was informed that our independent registered accounting firm since April 2022, Gries & Associates, LLC (“Gries”) had sold its business to GreenGrowth CPAs (“GreenGrowth”). On November 7, 2023, the Company engaged and executed an agreement with GreenGrowth as the Company’s new independent accountant to replace Gries.

 

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ITEM 6. EXHIBITS.

  

Exhibit   Exhibit Description  
     
3.1   Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (333-193347) filed with the Commission on January 13, 2014)
3.2   Articles of Amendment (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 20, 2017)
3.3   Bylaws (Incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 (333-193347) filed with the Commission on January 13, 2014)
3.4   Certificate of Designation – Series A Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on July 17, 2018 )
3.5   Certificate of Designation – Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on April 23, 2021)
4.1   Promissory Note issued to Fourth Man, LLC dated as of June 29, 2023 (Incorporated by reference to Exhibit 10.46 on the Registrant’s Annual Report on Form 10-K filed with the Commission on October 13, 2023).

4.2

  Common Stock Purchase Warrant issued to Fourth Man, LLC dated as of June 29, 2023 (Incorporated by reference to Exhibit 10.47 on the Registrant’s Annual Report on Form 10-K filed with the Commission on October 13, 2023).
4.3*   Warrants issued to J.H. Darbie & Co., Inc. dated as of June 29, 2023
4.4   Common Stock Purchase Warrant issued to Fourth Man, LLC dated as of August 28, 2023 (Incorporated by reference to Exhibit 10.52 on the Registrant’s Annual Report on Form 10-K filed with the Commission on October 13, 2023).
4.5   Promissory Note issued to Fourth Man, LLC dated as of August 28, 2023 (Incorporated by reference to Exhibit 10.51 on the Registrant’s Annual Report on Form 10-K filed with the Commission on October 13, 2023).
4.6*   Warrants issued to J.H. Darbie & Co., Inc. dated as of August 28, 2023
10.1   Securities Purchase Agreement with Mast Hill Fund, L.P. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 20, 2023)
10.2   Promissory Note dated with Mast Hill Fund, L.P. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on November 20, 2023)

10.3

  Securities Purchase Agreement dated as of June 29, 2023 between the Company and Fourth Man, LLC (Incorporated by reference to Exhibit 10.45 on the Registrant’s Annual Report on Form 10-K filed with the Commission on October 13, 2023).
10.4   Securities Purchase Agreement dated as of August 28, 2023 between the Company and Fourth Man, LLC (Incorporated by reference to Exhibit 10.50 on the Registrant’s Annual Report on Form 10-K filed with the Commission on October 13, 2023).
31.1*   Certification of the Chief Executive and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS*   Inline XBRL Instance Document
101.SCH*   Inline XBRL Taxonomy Extension Schema Document
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

*Filed herewith

 

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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: December 29, 2023

By: /s/ Sean Folkson
    Sean Folkson,
Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)

 

 

35

 

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