U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended:December 31, 2017September 30, 2020

Or

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

For the Transition Period from ___________ to____________

Commission File Number:000-55406

NightFoodNightfood Holdings, Inc.

(Exact name of registrant as specified in its charter)

888-888-6444

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. At February 15, 2018,November 20, 2020, the registrant had outstanding 38,244,52066,741,706  shares of common stock.

Table of Contents

NightFoodNightfood Holdings, Inc.

Financial Statements

Financial Statements

For the three and six months ended December 31, 2017September 30, 2020 and December 31, 20162019

Item 1. Financial Statements

Nightfood Holdings, Inc.

NightFood Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

Nightfood Holdings, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

NightFoodNightfood Holdings, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCHANGES IN STOCKHOLDERS’ DEFICIT

For the three months ended September 30, 2020 and 2019

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

NightFoodNightfood Holdings, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

Nightfood Holdings, Inc.

NightFood Holdings, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

During the quarter ending March 31, 2020, the Company determined it would be unable to generate sufficient traction from these digital assets. The Company made the decision to stop utilizing the assets and began conversations with the creditor about eliminating the remaining debt associated with the assets which was successfully negotiated in April 2020. As of the time of this filing, the balance sheet remains unchanged, as this successful renegotiation is conditional upon payment being completed prior to December 1, 2020, which would result in the elimination of $731,118 in total debt should payment be made totaling $166,224 in cash and approximately 4,000 pints of Nightfood ice cream. Should the Company make said payments and retire the debt prior to December 1, 2020, the Company would realize a Gain on Extinguishment of Debt of approximately $560,000. Because this reduction in debt is conditional, the full $731,118 is currently included in the liabilities section of our balance sheet.

On September 12, 2017 the Company successfully retired this convertible promissory note dated March, 16, 2017, in the original principal amount of $75,000.

Below is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of September 30, 2020:

Management considers all of its derivative liabilities to be Level 3 liabilities. At September 30, 2020 and June 30, 2020, respectively the Company had outstanding derivative liabilities, including those from related parties of $1,357,245 and $1,590,638, respectively.

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, 2017,2020, as well as the other information set forth herein.

OVERVIEW

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

MJ Munchies, Inc. is a Nevada corporation formed in January of 2018 to exploit legally compliant opportunities in the CBD and marijuana edibles and related spaces. The Company intends to market some of these new products under the brand name “Half-Baked”. AsTo date, this subsidiary was created subsequent to the end of the current reporting period, which concluded on December 31, 2017,and its operations have nohad a nominal impact on the financial statements contained herein.

Since inception, MJ Munchies has applied for U.S. Trademark protection the brand name Half-Baked as it relates to certain categories of snacks. The Company also applied for, its brandand was granted, trademark protection in the state of California for the name Half-Baked for snacks currently under development.containing THC. In addition, The Company acquired HalfBaked.com, and has secured other intellectual property in its portfolio. The Company intends to license this IP to operators in the Company has entered into a product development agreement with Abunda Foods, controlled by NGTF shareholder Peter Leighton, whereby Abunda will drive the development of new Half-Baked snack products intended to be marketed onlinecannabis edibles space and in dispensaries throughout the country. Abunda, and Leighton, have a long history of success in consumer snack product development, having successfully done product development work for clients such as Tiger’s Milk, Cascadian Farm, and National Beverage Corp.other related spaces.

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

Nightfood ice cream won the 2019 Product of the Year award in the ice cream category in a Kantar survey of over 40,000 consumers. The brand also won Best New Ice Cream at the 2019 World Dairy Innovation Awards. In early 2019, the Company proactively secured trademark protection for evening snacking. NightFood’s first product is the NightFood nutrition bar, currently availableNightfood brand in two flavors (Cookies n’ Dreams, and Midnight Chocolate Crunch).several strategic international markets.

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

In addition to those high-profile public statements, significant strategic interest in the nighttime and sleep-friendly nutrition space has been directly affirmed to Management in recent exploratory discussions initiated by a certain global food and beverage conglomerate. Management anticipates that the multi-national food and beverage companies will necessarily be drawn to the category Nightfood is pioneering because of the volume of nighttime snacking that occurs globally, and the importance of quality sleep to consumers around the world. Growth within the category that Nightfood is creating can bring competitive risk, but also the opportunity that comes with being the pioneer of a growing market segment and the strategic value that the Nightfood brand could deliver to a global partner with significant resources.

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

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

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

DEVELOPMENT PLANS

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

Nightfood is currently available in over 750 supermarket locations, and Management is expecting a meaningful increase in points of distribution in early 2021. Management believes that current marketing initiatives and existing sales velocity trends, along with securing the designation of being the Official Ice Cream of the American Pregnancy Association all bode well for securing additional expansion of the Nightfood brand. 

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

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

Many large retailers do not charge slotting fees, but most do. The NightFoodManagement of any emerging brand continuescould choose not to focus on online revenue growth at this time. NightFood intends to launch gluten-free versions of NightFood nutrition bars during 2018. It is also expecteddo business with retailers or distributors who charge slotting fees. Such a strategy, while possible, would greatly limit the distribution footprint a brand could establish. Investors should have the expectation that additional flavorsslotting fees will be launched in a similar timeframe. Towards the end of calendar 2018, with new flavors available, and what is expectedcontinue to be a healthy revenue base,significant investment over the Company intends to begin revisiting a retail rollout for NightFood bars.

The Company is also working towards the launch of NightFood ice cream in the latter half of 2018. A major regional ice cream distributor is prepared to bring the NightFood ice cream line to market, provided the product meets certain taste and nutritional standards, which we’re confident it will.

NightFood also intends to addnext one to two new members to its Scientific Advisory Board in the coming months to help ensure NightFood products are able to deliver on their brand promise, and establish additional credibility with consumers, the media, and retail buyers.

MJ Munchies continues to advance the Half-Baked snack line through product R&D and its various industry relationships. Developments are occurring rapidly, as the Company recently announced it had completed U.S. Trademark application for the brand name Half-Baked as it relates to various packaged snacks and baked goods. In addition, the Company has secured the domain name HalfBaked.com. We believe this trademark and domain will prove to be very valuable in the coming months andthree fiscal years as the market for all things related to cannabis and marijuana continues to develop and mature.

Nightfood brand moves towards its goal of national distribution.

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

INFLATION

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

SEASONALITY

There is a significant amount of seasonality in the ice cream industry, with summer months historically delivering the highest consumption. As an early-stage and growing brand, it is unknown how seasonality will impact our brand at this time.

CORONAVIRUS (COVID-19)

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

The offsetting factors are the impact of the virus on the overall economy. Greater unemployment, recession, and other possible unforeseen factors could also have an impact. Research indicates that consumers are less likely to try new brands during economic recession and stress, returning to value and legacy brands.

With consumers generally making fewer shopping trips, while buying more on those occasions and reverting back to more familiar brands, certain brand-launch marketing tactics, such as in-store displays and product sampling, are either impaired or impermissible. So, while overall night snacking demand is up, and consumer need/desire for better sleep is also stronger, driving consumer trial and adoption has been more difficult and expensive during these circumstances.

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

We do not believehave experienced no major issues with supply chain or logistics. Order processing function has been normal to date, and our manufacturers have assured us that our business will be seasonal to any material degree.their operations are “business as usual” as of the time of this filing.

While the virus temporarily disrupted the category review schedules and sell-in process for certain supermarket decision-makers during the spring and early summer, most major accounts seem to be back on schedule and are conducting business as usual with regard to review cycles. Meetings are now conducted virtually, and product samples are shipped to decision-makers. While some retailers told us they were limiting new item additions due to changes in consumer shopping behavior, others have confirmed that they view the increase in at-home entertainment and night snacking as a plus for Nightfood products.

It is possible that the fallout from the pandemic could make it more difficult in the future for the Company to access required growth capital, possibly rendering us unable to meet certain debts and expenses.

It is impossible to know what the future holds with regard to the virus, both for our company and in the broader sense. There are many uncertainties regarding the current coronavirus pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, vendors, and business partners. It is difficult to know if the pandemic has materially impacted the results of operations, and we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments accordingly, if necessary.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIOD ENDED

December 31, 2017September 30, 2020 and December 31, 2016.2019.

For the three months ended December 31, 2017September 30, 2020 and December 31, 20162019 we had revenuesNet Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $72,284$126,983 and $8,043$46,497 respectively and incurred an operating loss of $1,238,738$536,043 and $84,372$294,777 respectively.

In the three months ended September 30, 2020, the Company recorded Gross Sales of $319,324, the highest quarterly gross sales in company history. Accounting standards require exclusion on the income statement of Gross Sales made to a customer to whom the Company is paying slotting fees (slotting fees are fees occasionally charged by retailers and distributors to add a new product into their product assortment). In those situations, the Gross Sales number is reduced, dollar for dollar, by the slotting fees, until the total cost of the slotting is covered. These slotting fees do not appear on the income statement as an expense. Rather, Slotting Fees, along with Sales Discounts, are applied against Gross Sales, resulting in Net Revenue, as shown below. The revenue increases werenetting of Gross Sales against slotting and sales discounts, as described and shown below, results in the resultNet Revenue number at the top of the income statement. This is not a reflection of the amount of product shipped to customers, but rather a function of the way certain sales are accounted for when those sales are made to customers who are charging slotting fees.

The following tables summarize Gross Sales for the three months ended September 30, 2020 and 2019. Product sales are net of slotting fees (a typically one-time fee charged by supermarkets in order to have the product placed on their shelves) and sales discounts.

The Company focus on direct to consumer sales through the new NightFood.com website and having NightFood products listed on Amazon. A result of this increase in sales ishad an increase onin cost of goods sold from $3,145$146,500 for the three months ending December 31, 2016September 30, 2019 to $59,403$229,696 for the three months ending December 31, 2017. As part ofSeptember 30, 2020 because we sold significantly more ice cream to our customers (supermarket chains and distributors) this quarter than the direct-to-consumer initiative, the Company chose to increase spending on advertising and related expenses, resultingsame quarter last year, when measured in Gross Sales.

Our income statement shows an increase in “Advertising and Promotional” from $438198,270 for the three months ending December 31, 2016September 30, 2019 to $60,548$185,289 for the three months ending December 31, 2017. SG&ASeptember 30, 2020. This increase is due to the way certain marketing expenses were accounted for. Further, as discussed on above footnote 3, due to the reclassification $396,250 expenses was reversed and set off with the advertising costs incurred during 2019. The Company invested approximately $396,047 in marketing and distribution partnerships it determined would benefit operations for 2020 and beyond. Due to circumstances, including the global COVID-19 coronavirus pandemic, it does not appear these distribution partnerships will be as beneficial to the Company as envisioned when entered. In April, 2020, the Company successfully negotiated a Debt Incentive Agreement with a creditor to whom it owed $731,118, most of which is in conjunction with this impaired asset. This Debt Incentive Agreement provides for the elimination of the entire debt should the Company make payments in calendar 2020 totaling $166,224 in cash, and approximately 4,000 pints of ice cream. Because this reduction in debt is conditional, the full $731,118 is currently included in the liabilities section of our balance sheet. Should the Company make the payments and retire the debt during calendar 2020, the Company would realize a Gain on Extinguishment of Debt of approximately $560,000

Selling, general, and administrative expenses increased from $5,755$101,834 for the three months ending December 31, 2016September 30, 2019 to $172,644$118,167 for the three months ending December 31, 2017, and this increase was largely attributable to the buildout and completion of the new NightFood.com website and video assets, along with an increase inSeptember 30, 2020. This category includes expenses such as web hosting, web services, freight, warehousing, shipping, product liability insurance, investor relations activities.and research & development of new products. Professional fees increased from $83,040$124,234 for the three months ending December 31, 2016September 30, 2019 to $215,524$168,668 for the three months ending December 31, 2017,September 30, 2020. $65,700 of the professional fees in the current quarter are the result of accounting for 500,000 warrants issued to a Company consultant with mucha strike price of this$.50.

For the three months ended September 30, 2019 we experienced an increase resultingin Loss on extinguishment of debt upon notes conversion of $188,397 compared to $0 in the three months ended September 30, 2020. For the three months ended September 30, 2019 compared to the three months ended September 30, 2020, we also experienced changes in derivative liabilities from expenses relating($190,062) to capital raises($207,524) and total interest expense from $218,803 to fund operations$407,783, of which $382,267 and refinance$322,739 respectively were entries directly related to the amortization of preexisting Companydebt discounts and deferred financing fees related to loss on extinguishment of debt.  For the three months ended December 31, 2017 compared to the three months ended December 31, 2016, we also experienced increases in derivative liabilities (from $0 to $147,546) and interest expense (from $0 to $190,936).For the three months ended December 31, 2017,September 30, 2020, the Company recorded other expenses“other expenses” of $463,146$19,877 compared to $0 for the three months ended December 31, 2016. These otherSeptember 30, 2019.  This was interest expenses consistrelated to loss on extinguishment of non-cash items primarily of $463,146 in amortization of debt discount and deferred financing fees. These are all a direct resultdebt.

Customers

During the three months ended September 30, 2020, the Company had one customer account for approximately 39% of the Company tapping into available sourcesgross sales. One other customer accounted for approximately 21% of capital to begin ongross sales, and two other customers accounted for over 9% of gross sales. During the paththree months ended September 30, 2019, one customer accounted for approximately 34% of significant revenue growth and investor awareness. Although no assurances can be given, management believes that the positive resultsgross sales while two other customers accounted for over 10% of these efforts will lead to more efficient sources of capital in the form of more favorable terms from existing investors, and allowgross sales.  As the Company continues to grow the NightFood brand and revenues in a meaningful way, ultimately increasing shareholder value.its distribution base, it is anticipated that revenue distribution will become less concentrated.

For the six months ended December 31, 2017 and December 31, 2016 we had revenues of $108,726 and $10,507 respectively and incurred an operating loss of $2,218,513 and $158,538 respectively. The revenue increases were the result of a Company focus on direct to consumer sales through the new NightFood.com website and having NightFood products listed on Amazon. A result of this increase in sales is an increase on cost of goods sold from $15,246 for the six months ending December 31, 2016 to $85,429 for the six months ending December 31, 2017. As part of the direct-to-consumer initiative, the Company chose to increase spending on advertising and related expenses, resulting in an increase from $1,058 for the six months ending December 31, 2016 to $102,372 for the six months ending December 31, 2017. SG&A increased from $18,031 for the six months ending December 31, 2016 to $315,984 for the six months ending December 31, 2017, and this increase was largely attributable to the buildout and completion of the new NightFood.com website and video assets, along with an increase in investor relations activities. Professional fees increased from $129,372 for the six months ending December 31, 2016 to $472,782 for the six months ending December 31, 2017, with much of this increase resulting from expenses relating to capital raises to fund operations and refinance of preexisting Company debt. For the six months ended December 31, 2017 compared to the six months ended December 31, 2016, we also experienced increases in derivative liabilities (from $0 to $250,465) and interest expense (from $0 to $444,441).For the six months ended December 31, 2017, the Company recorded other expenses of $651,778 compared to $0 for the six months ended December 31, 2016. These other expenses consist of non-cash items primarily of $679,714 in amortization of debt discount and deferred financing fees and a credit of $27,936. These are all a direct result of the Company tapping into available sources of capital to begin on the path of significant revenue growth and investor awareness. Although no assurances can be given, management believes that the positive results of these efforts will lead to more efficient sources of capital in the form of more favorable terms from existing investors, and allow the Company to grow the NightFood brand and revenues in a meaningful way, ultimately increasing shareholder value.

Customers

For the three month period ending December 31, 2017, the majority of revenues resulted from sales of NightFood direct to consumer through the NightFood.com website and Amazon’s Fulfilled by Amazon program.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2017,September 30, 2020, we had cash on hand of $12,322$8,360, receivables of $65,053 and inventory value of $10,115.$213,384.

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

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

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

Since our inception, we have sustained operating losses. During the sixthree months ended December 31, 2017,September 30, 2020, we incurred a net loss of $2,218,513$943,824 compared to $158,538$513,580 for the sixthree months ended December 31, 2016.September 30, 2019. Much of this loss is largely a function of the way certain financing activities are recorded, and does not represent actual operating losses.

During the sixthree months ended December 31, 2017,September 30, 2020, net cash used in operating activities was $856,918$368,159 compared to $29,633net cash provided of $26,916 for the sixthree months ended December 31, 2016. The majoritySeptember 30, 2019. Much of what shows as “net cash used in operating activities” is related to non-cash items associated with to the ongoing capitalization of the Company during the reporting period.

During the sixthree months ended December 31, 2017,September 30, 2020, net cash of $0 was used in investing activities, compared to $1,000,000 for the three months ended September 30, 2019.

During the three months ended September 30, 2020, net cash aggregating $854,914$178,897 was provided by financing activities. Much of this financing activity relatedactivities, compared to a restructuring of pre-existing debts, and consolidation of$1,050,000 for the majority of debt with a single investor at a lower interest rate and similar conversion terms.

three months ended September 30, 2019.

From our inception in January 2010 through December 31, 2017,September 30, 2020, we have generated an accumulated deficit of approximately $5,599,734,$18,574,946, compared to $3,381,221$17,631,122 from inception through June 30, 2017.2020. Assuming we raise additional funds and continue operations, we expect to incur additional operating losses during the next two to three quarters and possibly thereafter. We plan to continue to pay or satisfy existing obligation and commitments and finance our operations, as we have in the past, primarily through the sale of our securities and other forms of external financing until such time that we are able to generate sufficient funds from the sale of our products to finance our operations, of which we can give no assurance.

On November 25, 2016, the company entered into a material definitive agreement. On that date, the company executed and delivered a Plan of Reorganization Including Option to Acquire (the “Plan”) by and among the Registrant, Hook Group, LLC (“Hook”) and Suffield Foods. LLC (“Suffield”). The Plan contemplates the Registrant acquiring an equity interest in and potentially merging Hook and its subsidiary Suffield with and into a wholly owned subsidiary of the Registrant. As of the date of this filing, the agreement has been formally terminated by the Registrant.

As of February 8, 2017, we entered into two agreements with Black Forest, an Equity Purchase Agreement (the “EPA”) and a Registration Rights Agreement (the “RRA”). The two agreements were filed as exhibits to the Registrant’s Current Report on Form 8-K dated February 8, 2017, and this Registration Statement is being filed in order for us to fulfill our obligations under the RRA. The following summary is qualified in its entirety by reference to such exhibits to our Form 8-K. On August 24, 2017, the Company issued its first and, to date, only “put notice” to Black Forest and delivered Black Forest 264,085 shares of common stock in exchange for $30,000. On October 23, 2017, we were advised that our stock has been moved from the OTCQB to the OTCPink marketplace. We may not utilize the EPA facility during the time quoted on the OTCPink. The Company does not believe the change in OTC Market tiers will have any material positive or negative impact on Company operations. If, the Company determines that there is incremental value in being listed on the OTCQB, it is possible that another tier change could occur in the future. Accordingly, future utilization of the EPA is uncertain.

During calendar 2017, through the date of this filing, the Company entered into convertible promissory notes with several lenders totaling approximately $1,600,000 Among these notes were promissory notes totaling $120,000 with Black Forest which notes have been assigned to a third party that is not affiliated with Black Forest. During the past several months, the Company has successfully consolidated most of its outstanding notes with a single investor who, although there is no written commitment to do so, management believes will continue to provide funding for operations.

The agreements with Black Forest required us to file a registration statement for the common stock underlying the EPA. Subject to various limitations set forth in the EPA, Black Forest, after effectiveness of such registration statement, will be required to purchase up to $5,000,000 worth of our common stock at a price equal to 85% of the market price as determined under the EPA. The EPA provides for volume limitations on the amount of shares that Black Forest must purchase at any time and provides that we will be paid for the common stock upon electronic delivery of the shares to Black Forest. To date we have raised a net of $28,260.50 through the EPA. No assurance can be given as to the total amount we will raise through the EPA.

We intend to rely on the sale of stock in private placements, and the issuance of morenew debt, to fund our operations. If we are unable to raise cash through the sale of our stock, we may be required to severely restrict our operations.

The Company has received several tranches of capital from a friendly institutional investor, who has been our primary source of capital for the last 30 months. We have entered into other notes as disclosed on our Current Reports on Form 8-K filed on September 20, 2017, and in our Annual Report on Form 10K, filed on October 3, 2017.expect this investor to continue to fund ongoing operations

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

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

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

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

On January 20, 2020, Folkson and the Company entered into a new Lock-Up Agreement which went into effect on February 4, 2020 and is in a positionplace for twelve months, with identical financial terms to pay Folkson. As of the date of this filing, three payments have been made to Folkson against this accrual.February 4, 2019 Agreement.

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

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

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, 2017,2020, 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 sixthree months ended December 31, 2017.September 30, 2020.

OFF BALANCE SHEET ARRANGEMENTS

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

No report required.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017.September 30, 2020. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report because we did not document our Sarbanes-Oxley Act Section 404 internal controls and procedures.

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

Changes in internal controls over financial reporting

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

Limitations on the Effectiveness of Controls

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

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

Not required for smaller reporting companies.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.