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.

Intangible assets consist of the following at March 31, 2021 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. 

On April 30, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated April 30, 2018, in the amount of $225,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 30, 2019  and interest rate of 8% per annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $225,000 Notes was calculated using the Black-Scholes pricing model at $287,174, with the following assumptions: risk-free interest rate of 2.24%, expected life of 1 year, volatility of 202%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $225k Notes, a charge was recorded to “Financing cost” for the excess of the fair value of the note, for a net charge of $62,174. As of March 31, 2021, and June 30, 2020, the debt discount was $0.

On February 14, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated February 14, 2019, in the amount of $104,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 14, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $104,000 Notes was calculated using the Black-Scholes pricing model at $90,567, with the following assumptions: risk-free interest rate of 2.53%, expected life of 1 year, volatility of 136%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $104k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2021, and June 30, 2020, the debt discount was $0 and $0, respectively. $50,000 of the note has been successfully retired via conversion into shares during the year ended June 30, 2020 and $54,000 of the note has been successfully retired via conversion into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $36,242 included under line item “Loss on debt extinguishment upon note conversion, net”.

On April 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated April 29, 2019, in the amount of $208,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 29, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $208,000 Notes was calculated using the Black-Scholes pricing model at $170,098, with the following assumptions: risk-free interest rate of 2.42%, expected life of 1 year, volatility of 118%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $208k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021, and June 30, 2020, the debt discount was $0 and $0, respectively. $208,000 of the note has been successfully retired via conversion into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $109,561 included under line item “Loss on debt extinguishment upon note conversion, net”.

On June 11, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated June 11, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 11, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $240,217, with the following assumptions: risk-free interest rate of 2.05%, expected life of 1 year, volatility of 16%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $46,726, respectively.   This note has been successfully retired via conversions into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $177,160 included under line item “Loss on debt extinguishment upon note conversion, net”.

On July 5, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated July 5, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 5, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $239,759, with the following assumptions: risk-free interest rate of 1.98%, expected life of 1 year, volatility of 118%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $2,627, respectively.   This note has been successfully retired via conversions into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $648,036 included under line item “Loss on debt extinguishment upon note conversion, net”.

On August 8, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 8, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 8, 2020  and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $254,082, with the following assumptions: risk-free interest rate of 1.79%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021, and June 30, 2020 the debt discount was $0 and $26,452, respectively.   This note has been successfully retired via conversions into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $611,909 included under line item “Loss on debt extinguishment upon note conversion, net”.

On August 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 29, 2019, in the amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 29, 2020  and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model at $234,052, with the following assumptions: risk-free interest rate of 1.75%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2021, and June 30, 2020 the debt discount was $0 and $37,833.

On September 24, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated September 24, 2019, in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of September 24, 2020  and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $118,009, with the following assumptions: risk-free interest rate of 1.78%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $27,482.   This note has been successfully retired via conversions into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $126,735 included under line item “Loss on debt extinguishment upon note conversion, net”.

On November 7, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated November 7, 2019, in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 7, 2020  and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $121,875, with the following assumptions: risk-free interest rate of 1.58%, expected life of 1 year, volatility of 122%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $43,074, respectively.

On December 31, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated December 31, 2019, in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 31, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes pricing model at $189,172, with the following assumptions: risk-free interest rate of 1.59%, expected life of 1 year, volatility of 115%, and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $150k Notes, $39,172 was recorded to “Financing cost” for the excess of the fair value of the note.  As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $75,205, respectively.

On February 6, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated February 6, 2020, in the amount of $200,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $200,000 Notes was calculated using the Black-Scholes pricing model at $156,061, with the following assumptions: risk-free interest rate of 1.51%, expected life of 1 year, volatility of 113%, and expected dividend yield of zero.  As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $94,064, respectively.

On February 26, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated February 26, 2020, in the amount of $187,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $187,000 Notes was calculated using the Black-Scholes pricing model at $150,268, with the following assumptions: risk-free interest rate of 1.18%, expected life of 1 year, volatility of 118%, and expected dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $99,218, respectively.

On April 30, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated April 30, 2020, in the amount of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities, LLC. The notes have a maturity of April 30, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $128,369, with the following assumptions: risk-free interest rate of 0.16%, expected life of 1 year, volatility of 106%, and expected dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $10,551 and $106,916, respectively.

On June 23, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated June 23, 2020, in the amount of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities, LLC. The notes have a maturity of June 23, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $132,236, with the following assumptions: risk-free interest rate of 0.18%, expected life of 1 year, volatility of 108%, and expected dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $30,432 and $129,700, respectively.

On August 12, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated August 12, 2020, in the amount of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities, LLC. The notes have a maturity of August 12, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $126,029, with the following assumptions: risk-free interest rate of 0.13%, expected life of 1 year, volatility of 101%, and expected dividend yield of zero. As of March 31, 2021, the debt discount was $46,269.

On October 13, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated October 13, 2020, in the amount of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities, LLC. The notes have a maturity of October 13, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $126,471, with the following assumptions: risk-free interest rate of 0.13%, expected life of 1 year, volatility of 103.1%, and expected dividend yield of zero. As of March 31, 2021, the debt discount was $67,913.

On December 21, 2020, the Company entered into a convertible promissory note and a security purchase agreement dated December 21, 2020, in the amount of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities, LLC. The notes have a maturity of December 21, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $121,112, with the following assumptions: risk-free interest rate of 0.09%, expected life of 1 year, volatility of 93.97%, and expected dividend yield of zero. As of March 31, 2021, the debt discount was $87,931.

On February 22, 2021, the Company entered into a convertible promissory note and a security purchase agreement dated December 21, 2020, in the amount of $205,700. This note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities, LLC. The notes have a maturity of December 21, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model at $139,381, with the following assumptions: risk-free interest rate of 0.09%, expected life of 1 year, volatility of 119,49%, and expected dividend yield of zero. As of March 31, 2021, the debt discount was $125,252.

Below is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of March 31, 2021:

Amortization expense for the nine months ended March 31, 2021 and 2020, totaled $787,216 and $1,270,943, respectively and Amortization expense for the three months ended March 31, 2021 and 2020, totaled $210,429 and $439,507 respectively.

As of March 31, 2021 and June 30, 2020, the unamortized portion of debt discount was $368,348  and $605,211, respectively.

Interest expense for the nine months ended March 31, 2021 and 2020, totaled $267,640 and $82,952, respectively and interest expense for the three months ended March 31, 2021 and 2020, totaled $72,110 and $40,616, respectively.

As of March 31, 2021 and June 30, 2020, the accrued interest related to convertible notes was $209,161 and $192,625, respectively.  

Due to the variable conversion price associated with some of these convertible promissory notes disclosed in Note 8 above, the Company has determined that the conversion feature is considered a derivative liability for instruments which are convertible and have not yet been settled. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives on the date they are deemed to be derivative liabilities.

During the nine month period ended March 31, 2021, the Company recorded a change in fair value of derivative $887,301. The Company will measure the fair value of each derivative instrument in future reporting periods and record the change based on the change in fair value. 

Below is a reconciliation of the derivative liability as presented on the Company’s balance sheet as of March 31, 2021:

Change in derivative liability for the nine months ended March 31, 20210 and 2020, totaled $887,301 and $(612,093), respectively and change in derivative liability for the three months ended March 31, 2021 and 2020, totaled $1,096,709 and $(256,468), respectively. 

As of March 31, 2021 and June 30, 2020, the derivative liability related to convertible notes was $ 1,312,178 and $1,590,638, respectively. 

On March 19, 2020, the Company secured a $200,000 line of credit with Celtic Bank Corporation. This LOC has a “Flex Credit” component of calculating interest, which means the interest rate on any draws taken against the LOC is set at the time of said draw. As of the date of this filing, the Company has made one draw against the credit line for a gross amount of $5,000 (including proceeds and draw fees). As of March 31, 2021 nine payments had been made against this draw of approximately $368 each. Such payments will continue to be automatically deducted from the corporate checking account until the draw and all fees have been paid in full. The Company may or may not choose to use this line of credit for additional financing needs.  

Interest expense for the nine months ended March 31, 2021 and 2020, totaled $1,012 and $675, respectively and interest expense for the three months ended March 31, 2021 and 2020, totaled $337 and $0, respectively. 

During the nine months ended March 31, 2021 the Company issued 16,049,577 shares in regards to debt and interest being converted into stock valued at $1,467,274 also during these nine months the Company issued 836,630 shares for services valued at $131,017. Further during these nine months the Company accounted in additional paid in capital the warrants issued for services valued at $146,954 and loss on fair value of shares upon conversion amounting to $1,865,685. 

The following is a summary of the Company’s outstanding common stock purchase warrants. Of the 500,000 warrants shown below at an exercise price of $.15, these warrants were issued as compensation for a four-year advisory agreement. 150,000 warrants vested on July 24, 2018, another 150,000 on July 24, 2019, another 150,000 vested on July 24, 2020, and the remaining 50,000 will vest on July 24, 2021, should advisor complete the term of his engagement. These warrants were all accounted for in Fiscal 2020.

During the six months ended December 31, 2020 the Company entered into a warrant agreement with one of the Company’s vendors issuing 500,000 warrants at a strike price of $0.50 having a term of five years. The Company valued these warrants using the Black Scholes model utilizing a 107.93% volatility and a risk-free rate of 0.29%, respectively.

In exchange for the agreement to lock up Mr Folkson’s Shares, Folkson received warrants to acquire 400,000 shares of NGTF stock on February 4, 2021, at a strike price of $.30, and with a term of twelve (12) months from the date of that agreement. The Warrants include a provision for cashless exercise and will expire if not exercised within the twelve month term. The Company valued these warrants using the Black Scholes model utilizing a 107.93% volatility and a risk-free rate of 0.50%.

The aggregate intrinsic value of the warrants as of December 31, 2020 is $-0-.   

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

The carrying amounts of these items approximated fair value.

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

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

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

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

The application of the three levels of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:

Management considers all of its derivative liabilities to be Level 3 liabilities. At March 31, 2021 and June 30, 2020, respectively the Company had outstanding derivative liabilities, including those from related parties of $1,312,178 and $1,590,638, respectively.    

The Company has entered into certain consulting agreements which carry commitments to pay advisors and consultants should certain events occur. An agreement is in place with one Company Advisor that calls for total compensation over the four year Advisor Agreement of 500,000 warrants with an exercise price of $.15 of which 450,000 have vested, should the advisor complete the entire term of the engagement, the remaining 50,000 warrants would vest on July 24, 2021. These warrants were all accounted for in Fiscal 2020.

CEO Sean Folkson has a twelve-month consulting agreement which went into effect on February 4, 2021, which will reward him with bonuses earned of 1,000,000 warrants at a strike price of $.50 when the Company records its first quarter with revenues over $1,000,000, an additional 3,000,000 warrants with a $.50 strike price when the Company records its first quarter with revenues over $3,000,000, and an additional 3,000,000 warrants with a $1 strike price when the Company records its first quarter with revenues over $5,000,000. Folkson will also be awarded warrants with a strike price of $.50 should the Company exceed $500,000 in non-traditional retail channel revenue during the Term of the Agreement, and should the company enter into a product development or distribution partnership with a multi-national food & beverage conglomerate during his Agreement. As of March 31, 2021, those conditions were not met and therefore nothing was accrued related to this arrangement.

On December 8, 2017, Mr. Folkson purchased Warrants, at a cost of $.15 per Warrant, to acquire up to 80,000 additional shares of NGTF stock at a strike price of $.20, and with a term of three (3) years from the date of said agreement. This purchase resulted in a reduction in the accrued consulting fees due him by $12,000. During the second quarter 2019 Mr. Folkson purchased 400,000 shares of stock at a strike price of $0.30 per share, valued at $120,000 which was charged to his accrual. During the nine months ended March 31, 2021, Folkson had been paid $51,000 against his total accrued balance to date and reflected in the accrued expenses – related party with a balance of $6,974 and $9,974 at March 31, 2021 and June 30, 2020, respectively.

On December 8, 2017, Mr.

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In addition, the Company made bonuses available to Folkson acquired Warrants to acquire up to 80,000 additional sharesupon the Company hitting certain revenue milestones of NGTF stock at$1,000,000 in a quarter, $3,000,000 in a quarter, and $5,000,000 in a quarter. Achieving those milestones would earn Folkson warrants with a $.50 and $1 strike price which would need to be exercised within 90 days of $.20,the respective quarterly or annual filing. As of March 31, 2021, those conditions were not met and with a term of three (3) years from the date oftherefore nothing was accrued related to this agreement. Mr. Folkson acquired these Warrants at a cost of $.15 per warrant, which will result in a reduction in the accrued consulting fees due him by $12,000. In addition, during the quarter ended December 31, 2017, Folkson had been paid $12,000 against his total accrued balance to date. arrangement.

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,Nightfood, 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”. As this subsidiary was created subsequent to the end of the current reporting period, which concluded on December 31, 2017, its operations have no impact on the financial statements contained herein.

Since inception, MJ Munchies has applied for U.S. Trademark protection for its brand of Half-Baked snacks, currently under development. In addition, 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 online 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.

NightFood, Inc. is abetter-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 foodsnational supermarket chains, including divisions of Kroger (Harris Teeter), and divisions of Albertsons (Jewel-Osco, Shaw’s and Star Market), as well as over 1,000 Walmart stores from coast to coast.

The brand is now in its second or third year in distribution in most of these chains, an accomplishment not easily achieved as a start-up in the ice cream space. During our time on-shelf, we’ve seen several better-known and better-funded brands get delisted from these same retailers. We believe the unique attributes of our product line, combined with the anticipation by certain supermarket category managers that are appropriatethere is a boom coming in the world of “sleep-friendly” nutrition has allowed us to retain these placements without being charged additional slotting (except in situations where the retailer has introduced new flavors, which is normal and customary).

Management views this as a significant accomplishment as we continue to work to grow our customer base, our revenues, and strategically add new distribution partners. We were able to successfully redesign and launch our new packaging design into approximately 1,800 stores in the last two months. While it’s too early to report definitive directional results with the new design, Management has received definitive reports from our global hotel brand partner that Nightfood sales have increased since it began testing the new Nightfood package design in select grab-and-go lobby shops.

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. 

It is estimatedWe believe that over $50B is spent annually in the United States onnext several years, a subset of consumers will shift their night snacking behavior towards snacks that are formulated to be more “sleep friendly” compared to what is currently being consumed by much of the population. As research continues to explore the links between dinnernutrition and sleep, and consumers continue to seek healthier snacks in general, we expect a “nighttime nutrition” or “sleep-friendly snacking” category to emerge within the marketplace.

This belief has been corroborated over the last several months as two of the world’s largest food and beverage companies begin to address the nutrition-sleep connection.

In September 2020, Pepsi announced the launch of Driftwell, a beverage formulated with magnesium to help consumers relax and unwind before bed. And in March, 2021, Unilever, the world’s largest ice cream manufacturer, announced it had partnered with Microba Life Sciences to conduct a year-long research project on how diet can improve sleep.

Elevated interest from global food and beverage giants continues to bring attention and validation to the sleep-diet connection. As the pioneer in the space, Founder Sean Folkson views Nightfood as more than an ice cream company. Rather, he believes the Nightfood brand can continue to occupy a leadership role in the “sleep-friendly nutrition” category that he envisions rapidly developing over the next 1-2 years.

American consumers spend over $50 Billion annually on snacks consumed at night, and this figure continues to grow. A majority of adults are trying to eat foods and snacks that they understand will prevent or manage health problems and 37% of consumers are willing to pay more for foods with perceived health benefits. Moreover, industry data indicates that the most popular nighttime snack choices include products and categories that are traditionally considered high in calories, and “unhealthy” options, such as cookies, salty snacks (chips, pretzels, and popcorn), ice cream, and candy.

Management believes interest in the space from global food and beverage companies such as Nestle, Unilever, and PepsiCo represents early validation for the category concept. While Management continues to iterate on products, distribution, and marketing, the team steadfastly believes that nighttime nutrition is a billion dollar category in the making. Management believes the Nightfood brand can be the pioneer and the leading brand in the night snacking category. Management anticipates that the multi-national food and beverage companies will necessarily be drawn to the category Nightfood is pioneering because of these facts:

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.

Company managementManagement believes that a significantmeaningful percentage of thatthis $50 billion in 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.

NightFood has recently reported significant growth in direct-to-consumer sales through In March of 2018, the NightFood.com website and Amazon.

DEVELOPMENT PLANS

Company added Dr. Michael Breus to their Scientific Advisory Board. Breus, known to millions as The NightFood brand continues to focus on online revenue growth at this time. NightFood intends to launch gluten-free versions of NightFood nutrition bars during 2018. ItSleep Doctor™, is also expected that additional flavors will be launched in a similar timeframe. Towards the end of calendar 2018, with new flavors available, and what is expectedbelieved to be a healthy revenue base, the Company intends to begin revisiting a retail rollout for NightFood bars.

The Company is also working towards the launch of NightFood ice creamNation’s most prominent authority on sleep. He regularly appears in the latter halfnational 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 2018. A major regional ice cream distributor is preparedEducation & 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 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 add one to two new members to its Scientific Advisory Boardplay an important role in the coming monthsdevelopment of Nightfood ice cream. These experts work with Company management to help ensure NightFoodNightfood products are able to deliver on their nighttime-appropriate, and sleep-friendly promises.

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

MJ Munchies, continuesInc. is a Nevada corporation formed in January of 2018 to advanceexploit legally compliant opportunities in the Half-Baked snack line through product R&DCBD and marijuana edibles and related spaces. To date, this subsidiary and its various industry relationships. Developments are occurring rapidly, asoperations have had a nominal impact on the Company recently announced it had completedfinancial statements contained herein.

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

DEVELOPMENT PLANS

Nightfood ice cream pints are currently available in divisions of some of the largest supermarket chains in the United States, including Walmart, Kroger, Albertsons, and H-E-B. Current distribution totals approximately 1,800 grocers across the United States. Management is working to simultaneously secure additional distribution opportunities, while also nurturing revenue growth and consumer growth in our existing points of distribution.

Since inception, additional distribution relationships were established with regional ice cream distributors and non-traditional retailers, with varying degrees of success. Management will provecontinue to work within the industry to identify opportunities to grow the Nightfood brand. In the future, outlets such as hotels, college campus bookstores, and other non-traditional outlets could develop into relevant elements of our distribution mix as the brand continues to grow awareness and distribution infrastructure.

Nightfood has nine ice cream flavors already in ongoing production, and an additional ten products have been developed or in late stages of development, these include additional flavors of Nightfood dairy-based ice cream as well as several flavors of non-dairy oat-based ice cream.

In addition to introduction of additional pint products, including such possibilities as non-dairy and keto-friendly versions of Nightfood pints, future expansion could also include frozen novelties, other popular nighttime snack formats, as well as sleep-friendly beverages Management has done preliminary research on CBD infused ice cream. Current FDA guidelines do not currently permit CBD to be very valuableused as an additive in food. While some companies are manufacturing and distributing food products with CBD, industry reports indicate that major retailers have been avoiding those products due to current FDA regulations.

Management believes opportunities will exist to expand into other snack food formats that are popular with nighttime snackers. Possibilities include chips, candy, cookies, popcorn, and more. 

Aggressive supermarket expansion could result in additional “slotting fees” either in 2021 or beyond. Slotting fees are normal and customary in the coming monthsconsumer goods industry and years, as the market for all things relatedare fees that certain retailers and distributors charge to cannabis and marijuana continues to develop and mature.

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.

Certain large retailers do not charge slotting fees, but most do. The Management of any emerging food or beverage brand could choose not to do business with retailers or distributors who charge slotting fees. Such a strategy, while possible, could greatly slow or restrict the distribution footprint a brand could establish.

Through the first three quarters of Fiscal 2021, slotting commitments have resulted in revenue reductions totaling $190,295. As of the time of this filing, over 80% of the way through our Fiscal 2021, Management projects slotting fees for the current Fiscal Year will deliver a total revenue reduction of less than $250,000. By comparison, slotting fees with in Fiscal 2020 resulted in total revenue reductions of $541,500. This significant decrease in slotting expense should not be viewed as an indication of a trend. Rather, it is simply a function of past slotting arrangements having been paid down and paid off, along with minimal new slotting fees incurred during the current fiscal year. Investors should have the expectation that Nightfood, like any growing food or beverage brand, will continue to incur slotting fees as we continue toward our goal of national distribution.

In addition to traditional retail such as supermarkets and big-box retailers, Management also believes significant opportunities exist in the hotel and hospitality vertical where ice cream is one of the top-selling categories in hotel lobby shops. With travelers wanting better sleep, Management believes hotels that sell ice cream would benefit by making Nightfood’s sleep-friendly ice cream part of their offering assortment. Before COVID, Management had been pursuing initiatives in the hotel space. While those were put on hold for most of calendar 2020, hotels have now reemerged as an important point of focus for the distribution of Nightfood products.

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, and winter months delivering the lowest consumption.

As an early-stage and growing brand, the full impact of seasonality on our ice cream might not be fully understood for several additional annual cycles, but early indications point to the existence of a material seasonality impact across the ice cream industry through grocery channels. Over time, should the Company successfully expand into more distribution verticals and into additional snack formats, it is possible that the impacts of seasonality could lessen.

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 understood and identified. 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 showed 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, and the impact that a down economic period can have on consumer behavior, including trial of new brands. Greater unemployment, recession, and other possible unforeseen factors are shown to have an impact. Research indicates that consumers are less likely to try new brands during economic recession and stress, returning to the legacy brands they’ve known for decades.

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 in-store product sampling tables, 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 ongoing exploratory meetings between Nightfood Management and experts 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.

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.

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.

More directly, COVID has impaired Nightfood’s ability to execute certain in-store and out-of-store marketing initiatives. For example, since the inception of COVID, the Company was unable to conduct in-store demonstrations and unable to participate in local pregnancy, baby expos, and health expos that were originally intended to be part of our marketing mix.

Additionally, with more consumers shopping online, both for delivery or at-store pickup, the opportunity for shoppers to learn about new brands at-shelf has been somewhat diminished. Management is working to identify opportunities to build awareness and drive trial under these new circumstances.

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 MONTHMONTHS PERIOD ENDED

DecemberMarch 31, 20172021 and December 31, 2016.2020.

For the three months ended DecemberMarch 31, 20172021 and December 31, 20162020 we had revenuesGross Sales of $72,284$181,172 and $8,043$281,284 and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $96,726 and $119,475 respectively and incurred an operating loss of $1,238,738$391,240 and $84,372$867,427 respectively. The revenue increases wereAccounting standards require exclusion on the resultincome statement of Gross Sales made to a customer to whom the Company focus on directis paying slotting fees (slotting fees are fees occasionally charged by retailers and distributors to consumer sales throughadd a new product into their product assortment). In those situations, the new NightFood.com website and having NightFood products listed on Amazon. A result of this increase in salesGross Sales number is an increase onreduced, dollar for dollar, by the slotting fees, until the total cost of goods sold from $3,145the slotting is covered. These slotting fees do not appear on the income statement as an expense. Rather, Slotting Fees, along with Sales Discounts, are applied against Gross Sales, resulting in Net Revenue, as shown below. The netting of Gross Sales against slotting and sales discounts, as described and shown below, results in the Net Revenue number at the top of the income statement. This is not a reflection of the amount of product shipped to customers, but rather a function of the way certain sales are accounted for when those sales are made to customers who are charging slotting fees.

The decrease in Gross Sales, is largely due to the fact that during the three months ending Decemberended March 31, 20162020, we recognized sales from the onboarding and pipeline fill of two major supermarket accounts (Jewel-Osco and Shaw’s/Star Market). Although Nightfood did not begin appearing on shelves in some of those stores until May due to $59,403 forthe pandemic, product was ordered, shipped, and delivered in February and March of 2020 to those accounts.

During the three months ending Decemberended March 31, 2017.2021, no major new accounts were onboarded. Walmart, our largest account, started carrying Nightfood in April 2021. While the initial purchase orders were received from Walmart in March, delivery was requested for early April. We book revenue not when product is shipped from our facility, but when it is received by the customer. As part of the direct-to-consumer initiative, the Company chose to increase spending on advertising and related expenses, resulting in an increase from $438a result, zero Walmart revenue was recognized or reported for the three monthsquarter ending DecemberMarch 31, 2016 to $60,548 for2021. That revenue will be recognized in the three monthsquarter ending December 31, 2017. SG&A increased from $5,755 for the three months ending December 31, 2016 to $172,644 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 in investor relations activities. Professional fees increased from $83,040 for the three months ending December 31, 2016 to $215,524 for the three 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. June 30, 2021.

For the three months ended DecemberMarch 31, 20172021 and 2020, Cost of Product Sold decreased to $102,922 from $157,265. This is the result of lower gross sales as a result of no new account onboarding during the three months ended March 31, 2021, which brings about lower broker fees, less freight, and other expenses related directly to the generation of sales.

The decrease in operating losses is largely the result of lower spend on slotting fees, advertising and promotion, and other marketing expenses as well as a charge of $166,667 in the three months ended March 31, 2020 for amortization of intangible assets. These decreases are reflected in the decrease of total operating expenses from $986,902 in the three months ended March 31, 2020 to $487,567 in the 3 months ended March 31, 2021.

For the three months ended March 31, 2021 compared to the three months ended DecemberMarch 31, 2016,2020, we also experienced increasesa change in derivative liabilities (from $0 to $147,546)$1,152,119 from ($256,468). This is largely the result of a significant increase in our stock price during the period, and interestshows up as an expense (from $0 to $190,936).on our income statement. For the three months ended DecemberMarch 31, 2017, the Company recorded other expenses of $463,1462021 compared to $0 for the three months ended DecemberMarch   31, 2016. These2020 total other expenses consist of non-cash items primarily of $463,146expense, which includes the calculation for change in amortization of debt discountderivative liability, increased to $1,548,474 from $224,100. Again, this is not an actual cash expense that needs to be paid, but rather a “paper expense” that is driven largely by the increase in stock price.

RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED

March 31, 2021 and deferred financing fees. 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.2020.

For the sixnine months ended DecemberMarch 31, 20172021 and December 31, 20162020 we had revenuesGross Sales of $108,726$643,359 and $10,507$666,438 and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $270,919 and $227,257 respectively and incurred an operating loss of $2,218,513$1,379,102 and $158,538$1,960,629 respectively.

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