UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period
ended:
Or
For the Transition Period from ___________ to____________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
| | ||
| (Address of Principal Executive Offices) | (Zip Code) |
(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 | ||
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.
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).
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 | ☐ |
| ☐ | 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 March 31, 2024,
the issuer had
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. | 31 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 39 |
| Item 4. | Controls and Procedures | 40 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 41 |
| Item 1A. | Risk Factors. | 41 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 41 |
| Item 3. | Defaults Upon Senior Securities. | 41 |
| Item 4. | Mine Safety Disclosures. | 41 |
| Item 5. | Other Information. | 41 |
| Item 6. | Exhibits. | 42 |
| Signatures | 43 | |
i
Nightfood Holdings, Inc.
Item 1. Financial Statements
1
Nightfood Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities - related party | ||||||||
| Convertible notes payable - net of discounts | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A Stock, $ | ||||||||
| Series B Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months Ended December 31, | For the six months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues, net of slotting and promotion | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Cost of product sold | ||||||||||||||||
| Advertising and promotional | ( | ) | ||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and expenses | ||||||||||||||||
| Interest expense - debt | ||||||||||||||||
| Interest expense – financing cost | ||||||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Gain on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Total other expense | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Deemed dividend on Series B Preferred Stock | ||||||||||||||||
| Net loss attributable to common shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
For the three and six months ended December 31, 2023, and 2022
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Common stock issued as financing cost | ||||||||||||||||||||||||||||||||||||
| Issuance of warrants | ||||||||||||||||||||||||||||||||||||
| Warrants issued associated with Promissory Notes | ||||||||||||||||||||||||||||||||||||
| Warrants issued as financing cost | ||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with warrant related dilutive adjustments | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Shares issued as consulting fee | ||||||||||||||||||||||||||||||||||||
| Warrants issued as financing cost | ||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Common Stock | Preferred Stock A | Preferred Stock B | Additional | Total | ||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | Paid
in Capital | Deferred Compensation | Accumulated Deficit | Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||||||||||
| Common stock from conversion | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Discount on issuance of convertible notes | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued and dilutive warrant adjustment as financing cost | ||||||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with related dilutive warrant adjustments | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | ||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Common stock from conversion | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Warrants exercise cashless | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Units issued under Regulation A offering | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued as financing cost | ||||||||||||||||||||||||||||||||||||||||
| Vested warrants for services | ||||||||||||||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued and dilutive warrant adjustment as financing cost | ||||||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with related dilutive warrant adjustments | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six months ended December 31, 2023 | Six months ended December 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations activities: | ||||||||
| Warrants issued for services | ||||||||
| Warrants and returnable warrants issued for financing cost | ||||||||
| Stock issued for services | ||||||||
| Stock issued for financing costs | ||||||||
| Amortization of debt discount | ||||||||
| Loss on extinguishment of debt upon note conversions | ( | ) | ||||||
| Financing cost due to conversion price adjustments | ||||||||
| Financing cost due to default | ||||||||
| Impairment of inventory | ||||||||
| Write down of other current assets | ||||||||
| Change in operating assets and liabilities | ||||||||
| Change in accounts receivable | ||||||||
| Change in inventory | ( | ) | ( | ) | ||||
| Change in other current assets | ( | ) | ||||||
| Change in accounts payable | ||||||||
| Change in accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of units under Reg A | ||||||||
| Proceeds from the issuance of debt, net | ||||||||
| Repayment to convertible notes | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid For: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Summary of Non-Cash Investing and Financing Information: | ||||||||
| Warrants and returnable warrants issued for financing cost | ||||||||
| Stock issued for financing costs | ||||||||
| Common stock issued for preferred stock conversions | $ | $ | ||||||
| Deemed dividend associated with preferred B stock and dilutive warrant adjustments | $ | $ | ||||||
| Debt and warrant discounts related to convertible notes | $ | $ | ||||||
5
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Going Concern
Nightfood Holdings, Inc. (“we”, “us”, “the Company” or “Nightfood”) is a Nevada corporation incorporated on October 16, 2013, to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York corporation from its sole shareholder, Sean Folkson. For the reporting period, all of our operations were being conducted through subsidiary Nightfood, Inc. We are also the sole shareholder of MJ Munchies, Inc., currently revoked in the State of Nevada, which owns certain intellectual property, but does not have any operations as of the period covered by these financial statements.
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.
Going Concern
| ● | The Company’s financial statements are prepared using generally accepted accounting principles, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. No certainty of continuation can be stated. |
| ● | The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. For the six months ended December 31, 2023, the Company had an operating and net loss of $ |
| ● | 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 in the acquisition of additional revenue generating assets through the issuance of debt and/or equity to further assist the Company’s growth initiatives. As of December 31, 2023 we have advanced proceeds totaling $ |
| ● | 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. |
6
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | 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. |
| ● | 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. |
2. Summary of Significant Accounting Policies
Management is responsible for the fair presentation of the Company’s financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP).
Interim Financial Statements
These unaudited condensed consolidated financial statements for the three and six months ended December 31, 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 and six months ended December 31, 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 $ |
7
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 loss on write down of inventory during the period spoilage
is incurred as a part of selling, general and administrative expenses The Company has no minimum purchase commitments with its vendors.
During the three and six months ended December 31, 2023 the Company wrote down inventory balances by $ |
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 $ |
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. |
8
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
| ● | The Company generates its revenue by selling its nighttime snack products wholesale to retailers and wholesalers. All sources of revenue are recorded pursuant to FASB Topic 606 Revenue Recognition, to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. In addition, this revenue generation requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. |
| ● | The Company revenue from contracts with customers provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. |
| ● | The Company incurs costs associated with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities and recognizes these costs at the same time that it recognizes the underlying product revenue. As this policy election is in line with the Company’s previous accounting practices, the treatment of shipping and handling activities under FASB Topic 606 did not have any impact on the Company’s results of operations, financial condition and/or financial statement disclosures. |
| ● | The adoption of ASC 606 did not result in a change to the accounting for any of the Company’s revenue streams that are within the scope of the amendments. The Company’s services that fall within the scope of ASC 606 are recognized as revenue as the Company satisfies its obligation to the customer. |
| ● | In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which updates revenue recognition guidance relating to contracts with customers. This standard states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for annual reporting periods, and interim periods therein, beginning after July 1, 2018. The Company adopted ASU 2014-09 and its related amendments (collectively known as “ASC 606”) during the first quarter of fiscal 2019 using the full retrospective method. |
| ● | Management reviewed ASC 606-10-32-25 which states “Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 606-10-32-5 through 32-13.” |
| ● | If the consideration payable to a customer is a payment for a distinct good service, then in accordance with ASC 606-10-32-26, the entity should account for it the same way that it accounts for other purchases from suppliers (expense). Further, “if the amount of consideration payable to the customer exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for such an excess as a reduction of the transaction price. If the entity cannot reasonably estimate the fair value of the good or service received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.” |
| ● | Under ASC 606-10-32-27, if the consideration payable to a customer is accounted for as a reduction of the transaction price, “an entity shall recognize the reduction of revenue when (or as) the later of either of the following events occurs: |
| a) | The entity recognizes revenue for the transfer of the related goods or services to the customer. |
| b) | The entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise might be implied by the entity’s customary business practices.” |
9
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | Management reviewed each arrangement to determine if each fee paid is for a distinct good or service and should be expensed as incurred or if the Company should recognize the payment as a reduction of revenue. |
| ● | The Company recognizes revenue upon shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. |
Concentration of Credit Risk
| ● | Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places its cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal. At December 31, 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 $
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 $
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. |
10
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Original Issue Discount
| ● | If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. |
Stock Settled Debt
| ● | In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. |
Stock-Based Compensation
| ● | The Company accounts for share-based awards issued to employees in accordance with FASB ASC 718. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. The Company applies ASC 718, “Equity Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees. |
Customer Concentration
| ● | In
each of the three- and the six-month periods ended December 31, 2023, we had |
Vendor Concentration
| ● | In
the three- and six-month periods ended December 31, 2023, |
Receivables Concentration
| ● | As
of December 31, 2023, the Company had receivables due from nine customers. One accounted for |
Income/Loss Per Share
| ● | In accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive. Potential common stock consists of the incremental common stock issuable upon convertible notes, stock options and warrants, and classes of shares with conversion features. The computation of basic loss per share for the three and six months ended December 31, 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. |
11
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. Accounts receivable
| ● | The Company’s accounts receivable arises primarily from the sale of the Company’s snacks. On a periodic basis, the Company evaluates each customer account and based on the days outstanding of the receivable, history of past write-offs, collections, and current credit conditions, writes off accounts it considers uncollectible. With most of our retail and distribution partners, invoices will typically be due in 30 days. The Company does not accrue interest on past due accounts and the Company does not require collateral. Accounts become past due on an account-by-account basis. Determination that an account is uncollectible is made after all reasonable collection efforts have been exhausted. The Company has not provided any accounts receivable allowances for December 31, 2023 and June 30, 2023, respectively. |
4. Inventories
| ● |
| December 31, 2023 | June 30, 2023 | |||||||
| Inventory: Finished Goods | $ | $ | ||||||
| Inventory: Ingredients | ||||||||
| Inventory: Packaging | ||||||||
| Total Inventory | $ | $ | ||||||
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 six months ended December 31, 2023 the Company wrote down inventory
balances totaling $
5. Other current assets
| December 31, 2023 | June 30, 2023 | |||||||
| Other Current Assets | ||||||||
| Amounts advanced for operations of acquisition targets secured by promissory notes | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Deposits with vendors | ||||||||
| TOTAL | $ | $ | ||||||
12
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Accounts Payable and Accrued liabilities
| December 31, 2023 |
June 30, 2023 |
|||||||
| Interest Payable | $ | $ | ||||||
| Accounts payable | ||||||||
| TOTAL | $ | $ | ||||||
7. 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) $
The Warrants
were initially exercisable at $
In connection
with Securities Purchase Agreement, the Company issued to the Placement Agent (as defined below), an aggregate of
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 $
The gross
proceeds received from the Offering were approximately $
13
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
The Company was required to pay to the Purchasers on December 10, 2022, as extended to December 29, 2022 (as so extended, the “Maturity Date”) all remaining principal and accrued and unpaid interest on the Maturity Date (the “Owed Amount”) and the failure to so pay the Owed Amount on the Maturity Date is an event of default. The Owed Amount was not paid by the Company in accordance with the terms of the Notes. Subsequent to December 31, 2022 the Company entered into a forbearance agreement with the Purchasers as set out below.
Forbearance and Exchange Agreement
On February 4, 2023, the Company entered into a Forbearance and Exchange Agreement (the “Forbearance Agreement”) with the Purchasers from the Securities Purchase Agreement dated December 10, 2021.
Pursuant to the Forbearance Agreement as amended, among other things:
| ● |
| ● | The 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 |
| ● | 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 $ |
| ● | 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
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Principal ($) | Stock-settled Debt ($) | Debt Discount ($) | Net Value ($) | |||||||||||||
| Balance at June 30, 2021 | ||||||||||||||||
| Convertible notes payable issued during fiscal year ended June 30, 2022 | ||||||||||||||||
| Debt discount associated with new convertible notes | ( | ) | ( | ) | ||||||||||||
| Conversion price adjusted from $ | ( | ) | ||||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||
| Cash repayment | ( | ) | ( | ) | ||||||||||||
| Gain on extinguish of portion of principal | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Penalty | ||||||||||||||||
| Conversion price change | ||||||||||||||||
| Under forbearance Agreement: | ( | ) | ( | ) | ||||||||||||
| Cash repayment | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2023 | ||||||||||||||||
| $ | ||||
| Loss on conversion price change in December 31, 2022 | ||||
| Stock settled debt | ( | ) | ||
| Financing charges due to returnable warrants issued | ||||
| Principal increased due to penalty | ||||
| Loss on extinguishment | $ |
| For the three months Ended December 31, |
For the six months Ended December 31, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Amortization | $ | $ | $ | $ | ||||||||||||
| Interest on the convertible notes | ||||||||||||||||
| Total | $ | - | $ | $ | - | $ | ||||||||||
During the
fiscal years ended June 30, 2023 and 2022, the Company recorded $
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 $
15
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
The Company
paid to J.H. Darbie & Co., Inc. $
The proceeds
received by the Company from the Offering, net of the original issue discount, fees and costs including legal fees of $
On May 2,
2023, a debtholder converted $
| (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 $
The Company
paid to J.H. Darbie & Co., Inc. $
| (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 $
16
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company
paid to J.H. Darbie & Co., Inc. $
| (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 $
The Company
paid to J.H. Darbie & Co., Inc. $
| (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 $
The Company
paid to J.H. Darbie & Co., Inc. $
| (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 $
17
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company
paid to (a) J.H. Darbie & Co., Inc.
| (g) | Promissory Notes Issued on October 6, 2023 |
On
October 6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Secured Promissory Note (the
“Note”) in the principal amount of $
The Note contains restrictions on the Company’s ability to (a) incur additional indebtedness, (b) make distributions or pay dividends, (c) redeem, repurchase or otherwise acquire its securities, (d) sell its assets outside of the ordinary course, (e) enter into certain affiliate transactions, (f) enter into 3(a)(9) Transactions or 3(a)(10) Transactions (each as defined in the Note), or (g) change the nature of its business.
Commencing as of the Effective Date, and until such time as the Note is fully converted or repaid, the Company shall not effect or enter into an agreement to effect any Variable Rate Transaction (as defined in the Purchase Agreement).
The Purchase Agreement contains customary representations and warranties made by each of the Company and Mast Hill. It further grants to Mast Hill certain rights of participation and first refusal, and certain most-favored nation rights, all as set forth in the Purchase Agreement. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).
The Company
paid to Spencer Clarke LLC a cash fee of $
18
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (h) | Promissory Notes Issued on November 17, 2023 |
On
November 17, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the
principal amount of $
The Company
paid to Spencer Clarke LLC a cash fee of $
| (i) | Promissory Notes Issued on December 6, 2023 |
On December
6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal
amount of $
The Company
paid to Spencer Clarke LLC a cash fee of $
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 $
The Company
paid to J.H. Darbie & Co., Inc. $
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 $
19
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company
paid to J.H. Darbie & Co., Inc. $
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.
| Principal $ | Debt Discount $ | Net Value $ | ||||||||||
| Balance at June 30, 2022 | ||||||||||||
| Promissory notes payable issued | ||||||||||||
| Principal converted to common stock | ( | ) | ( | ) | ||||||||
| Debt discount associated with Promissory notes | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ||||||||||||
| Balance at June 30, 2023 | ( | ) | ||||||||||
| Promissory notes payable issued | ||||||||||||
| Debt discount associated with Promissory notes | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | |||||||
Interest expenses associated with above convertible note are as follows:
| For the three months Ended December 31, |
For the six months Ended December 31, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Amortization | $ | $ | $ | $ | ||||||||||||
| Interest on the convertible notes | ||||||||||||||||
| Total | $ | $ | $ | - | $ | |||||||||||
As of December
31, 2023 and June 30, 2023, the interest payable was $
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 $
8. 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.
20
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Common Stock
The Company
is authorized to issue Two Hundred Million (
On October
24, 2022,
| ● | The
Company had |
| ● | The
Company had |
| During the six months ended December 31, 2023: |
| ● | The
Company issued |
| ● | The
Company issued |
During the six months ended December 31, 2022:
| ● | During
the six months ended December 31, 2022, the Company issued an aggregate of |
| ● | During
the six months ended December 31, 2022, the Company issued |
| ● | During
the six months ended December 31, 2022, the Company issued an aggregate of |
21
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | During
the six months ended December 31, 2022, the Company sold |
| ● | During
the six months ended December 31, 2022, holders of the B Preferred converted |
Preferred Stock
Series A Preferred Stock
The Company
is authorized to issue
In addition
to his ownership of the common stock, Mr. Folkson owns
The Company
had
Series B Preferred Stock
In April
2021, the Company designated
During the
fiscal years ended June 30, 2023 and 2022, the Company sold
During the
fiscal year ended June 30, 2023, holders of the B Preferred converted
The Company
had
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
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
22
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. 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
During the
fiscal year ended June 30, 2022,
During the
fiscal year ended June 30, 2022, the Company entered into a warrant agreement with one of the Company’s Directors issuing
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
During the
fiscal year ended June 30, 2023, holders of the Company’s B Preferred converted
During the
fiscal year ended June 30, 2023 the Company issued a cumulative
During the
fiscal year ended June 30, 2023, the Company issued an aggregate of
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
23
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
During the
fiscal year ended June 30, 2023, the Company issued
During the
fiscal year ended June 30, 2023, the Company issued an aggregate of
During the
fiscal year ended June 30, 2023, the Company issued
During the
fiscal year ended June 30, 2023, under the terms of a Warrant Exchange Agreement, among other agreements, SC exchanged an aggregate
of
During the
six months ended December 31, 2023, the Company issued cumulative
During the
three months ended September 30, 2023,
During the
three months ended December 31, 2023, a total of
24
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Exercise Price | June 30, 2023 | Issued | Repricing | Exercised | Others | Cancelled | Expired | Redeemed | December 31, 2023 | |||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||
Returnable Warrants
A cumulative
total of
During the
fiscal year ended June 30, 2023, the Company issued cumulative
10. 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. |
25
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | 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 December 31, 2023 and June 30, 2023, the Company had no outstanding derivative liabilities.
11. 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 |
| ● | Sean
Folkson has a consulting agreement which went into effect on December 1, 2023, and runs through December 31, 2024. The agreement
contains the potential for cash and equity bonuses should Nightfood, Inc. achieve certain revenue milestones. The Cash Performance
Bonus shall be equal to |
| ● | 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. |
12. Related Party Transactions
| ● | During the third quarter of Fiscal Year 2015, Mr. Folkson began accruing a consulting fee of $ |
| ● | 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 |
The Lock-Up Agreement further provides, in exchange for the agreement to lock up the Shares, that Mr. Folkson shall receive warrants to acquire
26
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | Folkson
Loan On February 7, 2023, Sean Folkson, the Chairman and CEO of the Company, loaned $ |
Mr. Folkson was owed $
The Company used the proceeds from the Folkson Note for working capital.
| ● | In
addition, at December 31, 2023 and June 30, 2023, respectively, there was $ |
13. Subsequent Events
Acquisition of Future Hospitality Ventures Holdings Inc. and certain agreements with executive management
On January 22, 2024, Nightfood Holdings, Inc. (“NGTF”), Future Hospitality Ventures Holdings Inc., a Nevada corporation, and its subsidiaries (“FHVH”), Sean Folkson as the holder of all issued and outstanding Series A Preferred Stock of NGTF (the “NGTF Series A Shareholder”) and Lei Sonny Wang, the sole shareholder of FHVH (the “FHVH Shareholder”) entered into a share exchange agreement (the “Exchange Agreement”) whereby NGTF has agreed to acquire FHVH through a share exchange (the “Exchange”) whereby FHVH became a wholly-owned subsidiary of NGTF. NGTF’s Board of Directors (the “Board”) unanimously determined that the transactions contemplated by the Exchange Agreement, including the Exchange, were in the best interests of the Company and its stockholders, and approved the Exchange Agreement and the transactions contemplated by the Exchange Agreement. The Exchange Agreement was also approved by the affirmative vote of NGTF’s majority stockholder entitling it to a majority of the voting power.
Pursuant to the Exchange
Agreement, the FHVH Shareholder exchanged all
The Exchange Agreement was subject to certain closing conditions and contains customary representations, warranties and covenants. The consummation of the Exchange was conditioned upon, among other things: Sean Folkson resigning as the Chief Executive Officer of NGTF, continuing to serve as the President of Nightfood, Inc. through December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur; and the appointment of Lei Sonny Wang as a director and Chief Executive Officer of NGTF.
The aforementioned agreements closed on February 2, 2024, at which time Sean Folkson resigned as chief executive officer of NGTF and Lei Sonny Wang was appointed Chief Executive Officer and a director.
27
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On February 2, 2024,
Mr. Folkson, NGTF and Nightfood, Inc. entered into a consulting agreement (the “Consulting Agreement”). Pursuant to the Consulting
Agreement, Mr. Folkson will (1) continue to serve as a director of NGTF, subject to shareholder approval, for no less than the company’s
first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur, during which time both NGTF and its board of
directors (the “Board”) will use its best effort to maintain Mr. Folkson’s directorship and (2) will serve as president
of Nightfood, Inc. until December 31, 2024, which may date be extended. Mr. Folkson will receive cash and equity compensation as a director
commensurate with the compensation received by other directors. Unless either party provides the other written notice at least 45 days
before the end of the Consulting Agreement’s term of its intention to terminate, then the Consulting Agreement will renew automatically
for one-year terms. The Consulting Agreement can be terminated for cause without notice. Upon termination of the Consulting Agreement
for any reason, Mr. Folkson will receive NGTF common stock with a market value equal to $
In exchange for his services,
Mr. Folkson will receive a minimum annual salary of $
Upon Mr. Folkson’s
resignation, and pursuant to the Share Exchange Agreement, effective February 2, 2024, the Board of NGTF appointed Lei Sonny Wang to the
Board and to act as chief executive officer of NGTF. In connection with his appointment as chief executive officer, NGTF and Mr. Wang
entered into an employment agreement effective as of February 2, 2024 (the “Employment Agreement”). Pursuant to the Employment
Agreement, Mr. Wang will serve his initial term beginning February 2, 2024 (the “Effective Date”) ending on the earlier of
(i) the one year anniversary of the Effective Date or (ii) the termination of the Employment Agreement (the “Initial Term”).
The Initial Term will be automatically extended for additional one-year terms (each a “Renewal Term”), unless NGTF or Mr.
Wang provides the other with notice, at least 30 days prior to the expiration of the current term, of its desire not to renew the Employment
Agreement. For his services, Mr. Wang will receive an annual base salary of $
28
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Employment Agreement may be terminated with or without cause by NGTF and may be terminated with or without good reason by Mr. Wang. If NGTF terminates the agreement for cause, then NGTF will (i) pay Mr. Wang any unpaid Base Salary, benefits and any unreimbursed expenses within 10 days after the termination date; (ii) any unvested portion of equity granted to Mr. Wang through any agreement, including restricted stock awards, will be automatically forfeited; and (iii) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. If NGTF terminates the agreement without cause, then NGTF will (i) pay Mr. Wang any Base Salary or other amounts accrued and any unreimbursed expenses incurred within 10 days following the termination date; (ii) pay Mr. Wang a lump sum equal to the Base Salary that would have been paid to Mr. Wang for the remainder of the Initial Term or Renewal Term within 10 days of the termination; (iii) any grant of equity made to Mr. Wang, to the extent not vested, will automatically vest; and (iv) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. Should Mr. Wang terminate the Employment Agreement with good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated without cause. If Mr. Wang terminates the Employment Agreement without good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated with cause.
With regards to intellectual property, Mr. Wang has agreed that any work product resulting from the Employment Agreement will be the sole and exclusive property of NGTF and has irrevocably assigned all right, title and interest worldwide in and to any work product to NGTF. NGTF may also sublicense any work product resulting from the Employment Agreement.
Financing agreements
Mast Hill Fund, L.P.
On January 24, 2024 (the
“Issuance Date”), the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), and issued
and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “MH Note”) in the principal amount of $
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, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Company paid certain fees and issued certain agents warrants in respect to the aforementioned financing agreements. The agreements also provide for terms of conversion only upon an event of default. Further the MH Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in Note 7(f).
On March 15, 2024, the Company consummated certain
transactions pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) dated as of March 12, 2024 (the “Effective
Date”) and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “Note”) in the
principal amount of $
Fourth Man
On February 1, 2024,
Fourth Man and NGTF entered into a letter agreement whereby Fourth Man agreed to amend that certain promissory note in the principal amount
of $
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Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Amendments to Articles of Incorporation
On January 26, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series A Super Voting Preferred Stock (the “Series A Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series A COD”) by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A COD, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1). No other changes were made.
Also on January 26, 2024,
NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series
C COD”), which established
The Company’s board of directors unanimously approved the Amended Series A COD and the Series C COD. The Amended Series A COD was also approved by the affirmative vote of the Company’s majority stockholder entitling it to a majority of the voting power.
On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made.
Also on February 7, 2024,
NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series
D COD”), which established
NGTF’s board of directors unanimously approved the Amended Series C COD and the Series D COD. The Amended Series C COD was also approved by the affirmative vote of NGTF’s majority stockholder entitling it to a majority of the voting power.
The Company has evaluated events for the period through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts, and use words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “may,” “should,” “plan,” “project,” “will” and other words of similar meaning. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, technological developments related to business support services and outsourced business processes, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth under the headings “Business” and “Risk Factors” within our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 13, 2023, as well as the other information set forth herein.
OVERVIEW
Nightfood Holdings, Inc. is focused on identifying and exploiting explosive market trends within the hospitality, food services, and consumer goods sectors. By leading newly emerging categories and by identifying opportunities in markets undergoing transformational upheaval, our aim is to create upside potential unmatched in more mature markets.
In February 2024, we acquired recently formed Future Hospitality Ventures Holdings, Inc. (“Future Hospitality”) in an all-stock transaction. We’re in the process of acquiring two additional operating subsidiaries sectors, to add to the two subsidiaries currently in our portfolio: Nightfood, Inc. and Future Hospitality).
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RECENT DEVELOPMENTS
On February 2, 2024, Nightfood Holdings, Inc. (“NGTF”) completed the acquisition of Future Hospitality Ventures Holdings Inc., a Nevada corporation, and its subsidiaries (“FHVH”) from Lei Sonny Wang, the sole shareholder of FHVH (the “FHVH Shareholder”). The acquisition of FHVH was approved by the majority shareholder of the Company, Mr. Sean Folkson, and the board of directors. Pursuant to the Exchange Agreement, the FHVH Shareholder exchanged all 1,000 shares of common stock, $0.001 par value per share, of FHVH (the “FHVH Common Stock”) owned by him to NGTF for: (i) all 1,000 issued and outstanding shares of NGTF’s Series Super Voting A Preferred Stock held by the NGTF Series A Shareholder, and (ii) an aggregate of 13,333 newly issued shares of NGTF’s Series C Convertible Preferred Stock, each of which shall convert into 6,000 shares of common stock at $0.025 per share (the “Series C Preferred Stock”, and together with the Series A Super Voting Preferred Stock, the “NGTF Exchange Shares”). Under the terms of the agreement, Sean Folkson resigned as the Chief Executive Officer of NGTF, and continues to serve as the President of Nightfood, Inc. through at least December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur. Mr. Lei Sonny Wang was concurrently appointed a director and Chief Executive Officer of NGTF. Each of Mr. Folkson and Mr. Wang entered into compensation agreements for their services effective February 2, 2024.
Lei Sonny Wang, 44, founded and has served as chief executive officer of Future Hospitality Ventures Holdings Inc., a service robots distribution company to address operational inefficiencies in the hospitality industry, since October 28, 2023. On October 17, 2017, Mr. Wang established, and acted as executive director of, Intelligent Ventures Group Inc., which specializes in scaling and reviving California’s early-stage and distressed small businesses through turnkey management. On March 1, 2019, Mr. Wang joined Tri Cascade Inc. as the Executive Director of Business Development, an early-stage IoT device manufacturing and smart device development company focusing on deploying Outdoor Air Quality Monitor applications to address high-density urban air population concerns. On March 2, 2020, Mr. Wang joined Komfort IQ as the Chief Revenue Officer, an IoT startup enhancing energy efficiency in commercial office spaces by up to 60%. On January 5, 2022, Mr. Wang joined Retrofitek Inc., a startup distribution company innovating in the HVAC sector with energy-saving coating technologies, as the interim CEO. Mr. Wang studied Political Science at the University of California, Santa Barbara, and obtained degrees in Consumer Behavior and Business Administration from the University of North Texas. Mr. Wang’s history in managing, launching, and growing companies that address critical challenges uniquely positions him as a qualified board member. NGTF believes that Mr. Wang’s strategic vision, combined with his operational experience, will contribute to creative problem-solving, business development, fundraising, and overall management.
FHVH is a new entrant in an explosive space: Robots-as-a-Service (RaaS). The up-and-coming global service robots market is projected to exceed $170 billion by 2030. Under the leadership of Mr. Sonny Wang as CEO, FHVH has successfully secured valuable distribution agreements with industry-leading manufacturers United Robotics Group and Botin Innovation and has distribution agreements with at least one other global manufacturer expected to be signed in the fourth quarter of fiscal 2024.
OPERATING SUBSIDIARIES
Nightfood, Inc. - The Nighttime Snack Problem and Opportunity
What you eat before bed matters.
Nightfood is pioneering the category of sleep-friendly nighttime snacking.
Research indicates that humans are biologically hard-wired to load up on sweets and fats at night. Loading a surplus of calories (fuel) into the body before the long nightly fast is believed to be an outdated survival mechanism from our hunter-gatherer days. Unfortunately, while modern consumers know this type of consumption isn’t necessary for survival, willpower also weakens at night, so consumers are more likely to succumb to these unhealthy nighttime cravings for excess “survival calories”.
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As a result, over 90% of adults report snacking regularly between dinner and bed (according to SleepFoundation.org), resulting in an estimated 1 billion nighttime snack occasions weekly in the United States, and an annual spend on night snacks of over $60 billion. Because of our hard-wired evolutionary preferences at night for calorie-dense foods which increased the odds of short-term survival for our ancestors, the most popular nighttime snacks are ice cream, cookies, chips, and candy. These are all understood to be generally unhealthy. They can also impair sleep quality.
And, because these cravings are biologically hardwired, we believe modern unhealthy nighttime snacking behavior will continue to be a pattern and a problem for a significant portion of the population in developed nations around the world. We believe it’s a problem that demands a solution.
In recent years, billions of dollars of consumer spend have shifted to better-for-you versions of consumers’ favorite snacks. Nightfood snacks are not only formulated to be better-for-you, but they’re uniquely formulated by sleep experts and nutritionists to provide a better nutritional foundation for quality sleep.
A significant portion of total snack consumption takes place between dinner and bed. Nutrition is an important part of sleep-hygiene because what one eats at night impacts sleep. Industry surveys indicate that modern consumers seek functional benefits from their snacks, and most consumers would also prefer better sleep.
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.
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Nightfood has received media coverage for its sleep-friendly snacks in outlets such as The Today Show, Oprah Magazine, The Rachael Ray Show, Food Network Magazine, The Wall Street Journal, USA Today, The Washington Post, Fox Business News, and many other major media outlets.
The Company is in the process of launching a direct-to-consumer (“DTC”) initiative for Nightfood sleep-friendly cookies that Management believes has the potential to quickly scale, providing stability and a foundation from which to grow the Nightfood brand and the sleep-friendly snack category.
Because of the potential size and strategic importance of the nighttime-specific snack market, and the growing interest and understanding of the link between nutrition and sleep, potential exists for joint ventures with international food and beverage and wellness companies. In recent years, some of the largest food and beverage companies in the world have approached us to explore partnership opportunities. This includes Nestlé (with whom we completed a “test-and-learn” joint initiative in 2023) and others. Most recently, in January 2024, we were contacted by a leading international wellness brand which wanted to explore development of Nightfood branded snacks in a joint venture.
Discussions surrounding such partnership opportunities remain ongoing, and shareholders should expect advancement of such initiatives to be predicated on successful Nightfood DTC scaling in mid-2024. DTC scaling would also allow us to evaluate additional opportunities in the hotel vertical. Nightfood ice cream pints remain available in a number of hotels across the country, some of whom are buying direct, and others through a third-party distributor. This limited distribution, and resulting revenue, are not significant. But we believe this distribution continues to indicate interest and opportunity in the hotel sector upon which we can capitalize in the future.
Future plans for the Nightfood brand include the introduction of sleep-friendly snacks in additional formats with retail distribution in supermarkets, hospitality, and other traditional and non-traditional channels.
Future Hospitality Ventures Holdings, Inc.
Future Hospitality is a new and well-positioned entrant in the burgeoning Robotics-as-a-Service (“RaaS”) sector. The global service robots market is projected to exceed $170 billion by 2030. With a focus on the RaaS opportunity across the United States, Future Hospitality launched in California, a labor market undergoing upheaval due to recent shifts in labor laws, minimum wage for restaurant workers, and high turnover rates that have forever burdened the foodservice and hospitality industry.
The potential for growth across the United States is significant. We believe the RaaS landscape will be ripe with opportunities for organic growth and strategic and accretive mergers and acquisitions. The goal of Future Hospitality is to leverage our resources to become an leader in the RaaS (Robotics as a Service) sector, value to our customers and driving industry innovation, while strategically expanding our market footprint, revenues, and profits to maximize shareholder value in this high-margin industry.
DEVELOPMENT PLANS
Our focus is on identifying and exploiting explosive market trends within the hospitality, food services, and consumer goods sectors. By leading newly emerging categories and by identifying opportunities in existing markets undergoing transformational upheaval, our aim is to create upside potential unmatched in more mature markets.
In November, 2023, we announced our goal of building a portfolio of operating companies in these spaces to enhance stability and shareholder value through uplist to a senior exchange such as NASDAQ. The first acquisition in this process was completed in February 2024, when we acquired newly formed Future Hospitality in an all-stock transaction.
We are currently in the process of acquiring two additional operating companies which are expected to bring millions of dollars in assets and synergistic revenue under the Nightfood Holdings umbrella, should the acquisitions be successfully completed, which we anticipate. Our updated timeline targets have us completing these two acquisitions in May of 2024, with the goal of transitioning to the NASDAQ before the end of calendar 2024.
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INFLATION
Inflation can be expected to have an impact on our operating costs. A prolonged period of inflation could cause a general economic downturn and negatively impact our results.
SEASONALITY
We do not expect a significant seasonality impact on either Nightfood or Future Hospitality during the anticipated upcoming growth stages of either company. The full impact of seasonality on our businesses might not be fully understood for several additional annual cycles.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 2023 AND 2022
Revenue
For the three months ended December 31, 2023 and 2022, we had Gross Sales of $636 and $38,424, respectively and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $601 and $13,369, respectively, and incurred operating losses of $174,670 and $677,539 respectively. and the pivot to Direct-To-Consumer sales of our cookies which had not yet launched as of December 31, 2023.
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 month period ended December 31, 2023 | For the three month period ended December 31, 2022 | ||||||
| Gross product sales | $ | 636 | $ | 38,424 | ||||
| Less: | ||||||||
| Slotting fees | - | - | ||||||
| Sales discounts, promotions, and other reductions | (35 | ) | (25,055 | ) | ||||
| Net Revenues | $ | 601 | $ | 13,369 | ||||
Costs and expenses
For the three months ended December 31, 2023 and 2022, Cost of Product Sold decreased to $996 from $41,996. This is due to a decrease in the amount of product sold.
For the three months ended December 31, 2023 and 2022, Advertising and Promotional Expenses decreased from $53,169 to $6,722 as we paused advertising and promotional efforts during the current three month period.
For the three months ended December 31, 2023 and 2022, Selling, General, and Administrative expenses decreased from $104,292 to $53,437. The decrease was a result of reductions to inventory write downs in the current three-month period, as well as a reduction to other general and administrative costs.
For the three months ended December 31, 2023 and 2022, Professional Fees decreased from $491,448 to $114,116. This decrease was largely due to reduced expenses in the current three months ended December 31, 2023, as we did not have costs associated with the preparation, filing, and qualification of our Tier 2 offering pursuant to Regulation A, which received qualification from the SEC on October 25, 2022. In addition consulting fees were substantially reduced in the most recent three months ended December 31, 2023 as compared to the prior period.
For the three months ended December 31, 2023 and 2022, Total Operating Expenses decreased from $690,908 to $175,271. As discussed above, the major component of this decrease was the reduction professional fees by $377,332 period over period.
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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 December 31, 2023 and 2022, Total Other Expenses decreased to $316,784 from $3,882,723. 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 December 31, 2023 we recorded amortization of debt discount of $201,481 and financing costs of $52,260. During the three months ended December 31, 2022 we recorded amortization of debt discount of $484,907 and financing costs of $3,377,927. This is not an actual cash expense but is a function of the way certain financing activities are accounted for. Interest expenses totaled $63,040 and $34,382 in the three months ended December 31, 2023 and 2022, respectively. Other expense in the three months ended December 31, 2022 was offset by a gain of $14,493 with respect to the extinguishment of certain debt in the period.
Net Loss
Our net loss in the three months ended December 31, 2023 totaled $491,454 as compared to $4,560,262 in the three months ended December 31, 2022. The decrease to the net loss is directly related to a substantial decrease in financing costs and the amortization of debt discount in the current three months ended December 31, 2023.
RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2023 AND 2022
Revenue
For the six months ended December 31, 2023 and 2022, we had Gross Sales of $9,438 and $137,647, respectively and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $9,071 and $93,339, respectively, and incurred operating losses of $599,860 and $1,236,146 respectively. and the pivot to Direct-To-Consumer sales of our cookies which had not yet launched as of December 31, 2023.
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.
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| GROSS SALES | For the six month period ended December 31, 2023 | For the six month period ended December 31, 2022 | ||||||
| Gross product sales | $ | 9,438 | $ | 137,647 | ||||
| Less: | ||||||||
| Slotting fees | - | - | ||||||
| Sales discounts, promotions, and other reductions | (367 | ) | (44,308 | ) | ||||
| Net Revenues | $ | 9,071 | $ | 93,339 | ||||
Costs and expenses
For the six months ended December 31, 2023 and 2022, Cost of Product Sold decreased to $58,576 from $167,117. This is due to a decrease in the amount of product sold.
For the six months ended December 31, 2023 and 2022, Advertising and Promotional Expenses decreased from $90,335 to a gain of $409. 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 six months ended December 31, 2023 is a result of certain previously booked marketing expenditures which were reversed in the current six month period, and when offset with actual costs in the period, resulted in a gain.
For the six months ended December 31,2023 and 2022, Selling, General, and Administrative expenses decreased from $230,636 to $213,448, the slight decrease was largely due to reductions to investor relations related costs in the current six months ended December 31, 2023.
For the six months ended December 31, 2023 and 2022, Professional Fees decreased from $841,397 to $337,316. This decrease was largely due to reduced expenses in the current six months ended December 31, 2023, as we did not have costs associated with the preparation, filing, and qualification of our Tier 2 offering pursuant to Regulation A, which received qualification from the SEC on October 25, 2022. In addition we experienced a substantial decrease in consulting fees period over period.
For the six months ended December 31, 2023 and 2022, Total Operating Expenses decreased from $1,329,485 to $608,931. As discussed above, the major components of this decrease was the reduction in advertising and marketing spend and professional fees for a cumulative reduction in costs from these two cost centers over the comparative periods of $594,825.
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 six months ended December 31, 2023 and 2022, Total Other Expenses decreased to $1,324,636 from $4,525,226. The majority of these expenses are related to accounting treatment applied to financing costs, debt and the amortization of debt discount. During the six months ended December 31, 2023 we recorded amortization of debt discount of $413,740 and financing costs of $804,160. During the six months ended December 31, 2022 we recorded amortization of debt discount of $1,029,452 and financing costs of $3,510,910. This is not an actual cash expense but is a function of the way certain financing activities are accounted for. Interest expenses totaled $106,736 and $57,328 in the six months ended December 31, 2023 and 2022, respectively. Other expense in the six months ended December 31, 2022 was offset by a gain of $72,464 with respect to the extinguishment of certain debt in the period.
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Net Loss
Our net loss in the six months ended December 31, 2023 totaled $1,924,496 as compared to $5,761,372 in the six months ended December 31, 2022. The decrease to the net loss is directly related to a substantial decrease in financing costs and amortization of debt discounts, as well as a decrease to our overall operating costs by approximately half.
Customers
In each of the three- and the six-month periods ended December 31, 2023, we had 1 customer which accounted for more than 10% of gross sales. During the six months ended December 31, 2022, the Company had four customers which individually accounted for more than 10% of gross sales and collectively accounted for approximately 83% of the gross sales. During the three months ended December 31, 2022, the Company had two customers account for approximately 97% of the gross sales.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2023, we had cash on hand of $5,804, receivables of $30,281, other current assets of $133,410 and inventory valued at $133,371.
Our cash on hand is not adequate to satisfy our working capital needs. We believe that our current capitalization structure, ongoing merger and acquisition activity, and our access to institutional capital will enable us to successfully secure the required financing to execute our development plans. In addition, we are currently working on acquisitions 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 December 31, 2023, we raised additional gross proceeds, net of original issuance discounts, of $615,655.
Since inception in January 2010 through December 31, 2023, we have generated an accumulated deficit of approximately $36,933,393. 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.
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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 direct-to-consumer product sales in fiscal year 2024, but we cannot at this time quantify the amount. Subsequent to December 31, 2023 we were successful in acquiring a new operating subsidiary in the Robots-as-a-Service (RaaS) space, and expect to enhance our revenues through these operations in the coming months. In addition, we expect to successfully complete the acquisition of two additional operating companies in the second quarter of calendar 2024.
Cash Flow from Operating Activities
During the six months ended December 31, 2022, net cash used in operating activities was $738,165 compared to net cash used of $339,783 for the six months ended December 31, 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 six-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 six months ended December 31, 2022.
Cash Flow from Investing Activities
We did not use any cash in investing activities, during the six months ended December 31, 2023 or December 31, 2022.
Cash Flow from Financing Activities
During the six months ended December 31, 2023, net cash of $301,400 was raised through the issuance of debt in the form of convertible notes and secured promissory notes. In the six months ended December 31, 2022, our financing activities provided net cash of $506,296, and consisted of the issuance of debt in the form of convertible notes totaling $644,000 offset by repayments to debt of $362,319, and proceeds from shares sold under our Reg A offering of $224,615.
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 six months ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide this information.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.
We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 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 December 31, 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 December 31, 2023, the Company issued 300,000 shares as a consulting fee with a fair value of $7,800. 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.
Amendments to Articles of Incorporation
On January 26, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series A Super Voting Preferred Stock (the “Series A Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series A COD”) by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A COD, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1). No other changes were made.
Also on January 26, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”), which established 500,000 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series C COD. The shares of Series C Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series C Preferred Stock. The shares of Series C Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series C Preferred Stock are not entitled to dividends.
The Company’s board of directors unanimously approved the Amended Series A COD and the Series C COD. The Amended Series A COD was also approved by the affirmative vote of the Company’s majority stockholder entitling it to a majority of the voting power.
On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made.
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Also on February 7, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”), which established 100,000 shares of Series D Convertible Preferred Stock (the “Series D Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series D COD. The shares of Series D Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series D Preferred Stock. The shares of Series D Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series D Preferred Stock are not entitled to dividends.
NGTF’s board of directors unanimously approved the Amended Series C COD and the Series D COD. The Amended Series C COD was also approved by the affirmative vote of NGTF’s majority stockholder entitling it to a majority of the voting power.
Changes to executive Management
On February 2, 2024 Mr. Sean Folkson resigned as CEO and Mr. Lei Sonny Wang was appointed CEO and to the Company’s board of directors.
ITEM 6. EXHIBITS.
| * | 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: April 1, 2024 | By: | /s/ Lei Sonny Wang |
| Lei Sonny Wang | ||
| Chief Executive Officer | ||
| (Principal Executive, Financial and Accounting Officer) | ||
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