U.S. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterquarterly period ended:December 31, 20172023
Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to____________
Commission File Number:000-55406
NightFood Holdings, Inc.NIGHTFOOD HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 46-3885019 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) | |
520 White Plains Road, Suite 500 Tarrytown, New York | 10591 | |
| (Address of Principal Executive Offices) | (Zip Code) |
888-888-6444
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-212b-2 of the Exchange Act). Yes ☐ No ☒
IndicateAt March 31, 2024, the number ofissuer had 127,907,407 shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date. At February 15, 2018, the registrant had outstanding 38,244,520 shares of common stock. outstanding.
Table of Contents
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | |
| Item 3. | Quantitative and Qualitative Disclosures | |
| Item 4. | Controls and | |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | |
| Item 1A. | Risk Factors. | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | |
| Item 3. | Defaults Upon Senior Securities. | |
| Item 4. | Mine Safety Disclosures. | |
| Item 5. | Other Information. | |
| Item 6. | Exhibits. | |
| Signatures | ||
i
NightFoodNightfood Holdings, Inc.
Financial Statements
For the three and six months ended December 31, 2017 and December 31, 2016
Item 1. Financial Statements
1
NightFoodNightfood Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| December 31, | June 30, | |||||||
| 2017 | 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets : | ||||||||
| Cash | $ | 12,322 | $ | 14,326 | ||||
| Accounts receivable (net of allowance of $0 and $0, respectively) | 321 | 382 | ||||||
| Inventory | 10,115 | 95,865 | ||||||
| Other current assets | 74,968 | 3,491 | ||||||
| Total current assets | 97,726 | 114,064 | ||||||
| Total assets | $ | 97,726 | $ | 114,064 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 229,897 | $ | 205,961 | ||||
| Accrued expense-related party | 192,000 | 180,000 | ||||||
| Convertible notes payable – net of discount | 418,992 | 151,020 | ||||||
| Fair value of derivative liabilities | 1,016,453 | 44,022 | ||||||
| Short-term borrowings | 2,000 | 3.096 | ||||||
| Advance from shareholders | 11,795 | 995 | ||||||
| Total current liabilities | 1,871,137 | 585.094 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock, ($0.001 par value, 200,000,000 shares authorized, and 35,368,758 issued and outstanding as of December 31, 2017 and 29,724,432 outstanding as of June 30, 2017, respectively) | 35,369 | 29,724 | ||||||
| Additional paid in capital | 3,790,954 | 2,880,467 | ||||||
| Accumulated deficit | (5,599,734 | ) | (3,381,221 | ) | ||||
| Total stockholders’ deficit | (1,773,411 | ) | (471,030 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 97,726 | $ | 114,064 | ||||
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 5,804 | $ | 44,187 | ||||
| Accounts receivable | 30,281 | 33,396 | ||||||
| Inventory | 133,371 | 276,202 | ||||||
| Other current assets | 133,410 | 92,726 | ||||||
| Total current assets | 302,866 | 446,511 | ||||||
| Total assets | $ | 302,866 | $ | 446,511 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 747,702 | $ | 604,516 | ||||
| Accounts payable and accrued liabilities - related party | 160,901 | 101,876 | ||||||
| Convertible notes payable - net of discounts | 2,196,981 | 1,491,719 | ||||||
| Total current liabilities | 3,105,584 | 2,198,111 | ||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A Stock, $0.001 par value, 1,000,000 shares authorized 1,000 issued and outstanding as of December 31, 2023 and June 30, 2023, respectively | 1 | 1 | ||||||
| Series B Stock, $0.001 par value, 5,000 shares authorized 1,950 issued and outstanding as of December 31, 2023, 2023 and June 30, 2023, respectively | 2 | 2 | ||||||
| Common stock, $0.001 par value, 200,000,000 shares authorized 127,221,301 and 123,587,968 issued and outstanding as of December 31, 2023 and June 30, 2023, respectively | 127,221 | 123,588 | ||||||
| Additional paid in capital | 34,003,451 | 33,112,935 | ||||||
| Accumulated deficit | (36,933,393 | ) | (34,988,126 | ) | ||||
| Total Stockholders’ Equity (Deficit) | (2,802,718 | ) | (1,751,600 | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 302,866 | $ | 446,511 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months Ended December 31, | For the six months Ended December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues, net of slotting and promotion | $ | 601 | $ | 13,369 | $ | 9,071 | $ | 93,339 | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of product sold | 996 | 41,996 | 58,576 | 167,117 | ||||||||||||
| Advertising and promotional | 6,722 | 53,169 | (409 | ) | 90,335 | |||||||||||
| Selling, general and administrative expense | 53,437 | 104,292 | 213,448 | 230,636 | ||||||||||||
| Professional fees | 114,116 | 491,448 | 337,316 | 841,397 | ||||||||||||
| Total operating expenses | 175,271 | 690,908 | 608,931 | 1,329,485 | ||||||||||||
| Loss from operations | (174,670 | ) | (677,539 | ) | (599,860 | ) | (1,236,146 | ) | ||||||||
| Other income and expenses | ||||||||||||||||
| Interest expense - debt | 63,040 | 34,382 | 106,736 | 57,328 | ||||||||||||
| Interest expense – financing cost | 52,260 | 3,377,927 | 804,160 | 3,510,910 | ||||||||||||
| Amortization of debt discount | 201,481 | 484,907 | 413,740 | 1,029,452 | ||||||||||||
| Gain on debt extinguishment | - | (14,493 | ) | (72,464 | ) | |||||||||||
| Total other expense | 316,784 | 3,882,723 | 1,324,636 | 4,525,226 | ||||||||||||
| Net Loss | (491,454 | ) | (4,560,262 | ) | (1,924,496 | ) | (5,761,372 | ) | ||||||||
| Deemed dividend on Series B Preferred Stock | - | 3,340,203 | 20,771 | 3,685,665 | ||||||||||||
| Net loss attributable to common shareholders | (491,454 | ) | (7,900,465 | ) | (1,945,267 | ) | (9,447,037 | ) | ||||||||
| Basic and diluted net loss per common share | $ | (0.004 | ) | $ | (0.08 | ) | $ | (0.015 | ) | $ | (0.10 | ) | ||||
| Weighted average shares of capital outstanding – basic and diluted | 127,162,606 | 97,436,644 | 125,973,113 | 95,075,293 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-1
NightFoodNightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
| For the six months ended December 31, 2017 | For the six months ended December 31, 2016 | For the three months ended December 31, 2017 | For the three months ended December 31, 2016 | |||||||||||||
| Revenues | $ | 108,726 | $ | 10,507 | $ | 72,284 | $ | 8,043 | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of product sold | 85,429 | 15,246 | 59,403 | 3,145 | ||||||||||||
| Advertising and promotional | 102,372 | 1,058 | 60,548 | 438 | ||||||||||||
| Selling, general and administrative | 315,984 | 18,031 | 172,644 | 5,755 | ||||||||||||
| Professional Fees | 472,782 | 129,372 | 215,542 | 83,040 | ||||||||||||
| Total operating expenses | 976,567 | 163,707 | 508,137 | 92,378 | ||||||||||||
| Loss from operations | (867,841 | ) | (153,200 | ) | (435,853 | ) | (84,335 | ) | ||||||||
| Interest expense – bank debt | - | 338 | - | 37 | ||||||||||||
| Interest expense - shareholder | 3,988 | 5,000 | 1,257 | - | ||||||||||||
| Change in derivative liability | 250,465 | - | 147,546 | - | ||||||||||||
| Interest expense - other | 444,441 | - | 190,936 | - | ||||||||||||
| Other expense | 651,778 | - | 463,146 | - | ||||||||||||
| Total other expense | 1,350,672 | 5,338 | 802,885 | 37 | ||||||||||||
| Provision for income tax | - | - | - | - | ||||||||||||
| Net loss | $ | (2,218,513 | ) | $ | (158,538 | ) | $ | (1,238,738 | ) | $ | (84,372 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.07 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.00 | ) | ||||
| Weighted average shares of capital outstanding – basic and diluted | 31,846,459 | 28,552,706 | 33,172,996 | 28,585,220 | ||||||||||||
For the three and six months ended December 31, 2023, and 2022
| Common Stock | Preferred Stock A | Preferred Stock B | Additional | Total | ||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | Paid in Capital | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||||||||||||||
| Balance, June 30, 2023 | 123,587,968 | $ | 123,588 | 1,000 | $ | 1 | 1,950 | $ | 2 | $ | 33,112,935 | $ | (34,988,126 | ) | $ | (1,751,600 | ) | |||||||||||||||||||
| Common stock issued as financing cost | 3,333,333 | 3,333 | 46,667 | 50,000 | ||||||||||||||||||||||||||||||||
| Issuance of warrants | 84,230 | 84,230 | ||||||||||||||||||||||||||||||||||
| Warrants issued associated with Promissory Notes | 9,878 | 9,878 | ||||||||||||||||||||||||||||||||||
| Warrants issued as financing cost | 699,350 | 699,350 | ||||||||||||||||||||||||||||||||||
| Deemed dividends associated with warrant related dilutive adjustments | 20,771 | (20,771 | ) | - | ||||||||||||||||||||||||||||||||
| Net loss | (1,433,042 | ) | (1,433,042 | ) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | 126,921,301 | $ | 126,921 | 1,000 | $ | 1 | 1,950 | $ | 2 | $ | 33,973,831 | $ | (36,441,939 | ) | $ | (2,341,184 | ) | |||||||||||||||||||
| Shares issued as consulting fee | 300,000 | 300 | 7,500 | 7,800 | ||||||||||||||||||||||||||||||||
| Warrants issued as financing cost | 22,120 | 22,120 | ||||||||||||||||||||||||||||||||||
| Net loss | (491,454 | ) | (491,454 | ) | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 127,221,301 | $ | 127,221 | 1,000 | $ | 1 | 1,950 | $ | 2 | $ | 34,003,451 | $ | (36,933,393 | ) | $ | (2,802,718 | ) | |||||||||||||||||||
| Common Stock | Preferred Stock A | Preferred Stock B | Additional | Total | ||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | Paid in Capital | Deferred Compensation | Accumulated Deficit | Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 91,814,484 | $ | 91,814 | 1,000 | $ | 1 | 3,260 | $ | 3 | $ | 28,275,216 | $ | - | $ | (28,101,458 | ) | $ | 265,576 | ||||||||||||||||||||||
| Common stock issued for services | 100,000 | 100 | 19,910 | 20,010 | ||||||||||||||||||||||||||||||||||||
| Common stock from conversion | 4,050,000 | 4,050 | (810 | ) | (1 | ) | (4,049 | ) | - | |||||||||||||||||||||||||||||||
| Discount on issuance of convertible notes | 290,070 | 290,070 | ||||||||||||||||||||||||||||||||||||||
| Warrants issued and dilutive warrant adjustment as financing cost | 65,783 | 65,783 | ||||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with related dilutive warrant adjustments | 345,462 | (345,462 | ) | - | ||||||||||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | 108,126 | 108,126 | ||||||||||||||||||||||||||||||||||||||
| Net loss | (1,201,110 | ) | (1,201,110 | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 95,964,484 | $ | 95,964 | 1,000 | $ | 1 | 2,450 | $ | 2 | $ | 29,100,518 | $ | - | $ | (29,648,030 | ) | $ | (451,545 | ) | |||||||||||||||||||||
| Common stock from conversion | 750,000 | 750 | (150 | ) | (750 | ) | - | |||||||||||||||||||||||||||||||||
| Warrants exercise cashless | 586,111 | 586 | (586 | ) | - | |||||||||||||||||||||||||||||||||||
| Units issued under Regulation A offering | 1,829,400 | 1,830 | 222,785 | 224,615 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for services | 182,859 | 183 | 31,817 | (16,000 | ) | 16,000 | ||||||||||||||||||||||||||||||||||
| Common stock issued as financing cost | 500,000 | 500 | 59,500 | 60,000 | ||||||||||||||||||||||||||||||||||||
| Vested warrants for services | 5,250 | 5,250 | ||||||||||||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | 305,829 | 305,829 | ||||||||||||||||||||||||||||||||||||||
| Warrants issued and dilutive warrant adjustment as financing cost | 1,220,790 | 1,220,790 | ||||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with related dilutive warrant adjustments | 3,340,203 | (3,340,203 | ) | - | ||||||||||||||||||||||||||||||||||||
| Net loss | (4,560,262 | ) | (4,560,262 | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 99,812,854 | $ | 99,813 | 1,000 | $ | 1 | 2,300 | $ | 2 | $ | 34,285,356 | $ | (16,000 | ) | $ | (37,630,385 | ) | $ | (3,179,323 | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
NightFoodNightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31, | For the six months ended December 31, | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,218,513 | ) | $ | (158,538 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations activities: | ||||||||
| Stock issued for services | 260,156 | 51,500 | ||||||
| Stock issued for conversion of debt | 117,000 | - | ||||||
| Stock issued as part of loan agreement | 3,988 | 5,000 | ||||||
| Amortization of debt discount and deferred financing fees | 679,714 | - | ||||||
| Change in derivative liability | 250,465 | - | ||||||
| Change decrease in accounts receivable | 61 | (9,677 | ) | |||||
| Change in inventory | 85,750 | 11,611 | ||||||
| Change in other current assets | (71,475 | ) | 1,400 | |||||
| Change in accounts payable | 23,937 | 33,071 | ||||||
| Change in accrued expenses | 12,000 | 36,000 | ||||||
| Net cash used in operating activities | (856,917 | ) | (29,633 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the sale of stock | 36,117 | 10,000 | ||||||
| Proceeds from the issuance of debt-net | 884,093 | - | ||||||
| Advance from shareholders | 10,800 | 21,984 | ||||||
| Advance from related party | - | 28 | ||||||
| Repayment of short-term debt | (1,096 | ) | (1,464 | ) | ||||
| Repayment of related party advance | - | (1,000 | ) | |||||
| Repayment of convertible debt | (75,000 | ) | - | |||||
| Net cash provided by financing activities | 854,914 | 29,548 | ||||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | (2,004 | ) | (86 | ) | ||||
| Cash and cash equivalents, beginning of period | 14,326 | 5,481 | ||||||
| Cash and cash equivalents, end of period | $ | 12,322 | $ | 5,396 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid For: | ||||||||
| Interest | $ | 30 | $ | 301 | ||||
| Income taxes | $ | - | $ | - | ||||
| Summary of Non-Cash Investing and Financing Information: | ||||||||
| Debt discount due to beneficial conversion feature | $ | 871,755 | $ | - | ||||
| Value of embedded derivative liabilities | $ | 101,511 | $ | - | ||||
| Six months ended December 31, 2023 | Six months ended December 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,924,496 | ) | $ | (5,761,372 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations activities: | ||||||||
| Warrants issued for services | 84,230 | 419,205 | ||||||
| Warrants and returnable warrants issued for financing cost | 721,470 | 1,286,573 | ||||||
| Stock issued for services | 7,800 | 36,010 | ||||||
| Stock issued for financing costs | 50,000 | 60,000 | ||||||
| Amortization of debt discount | 413,740 | 1,029,452 | ||||||
| Loss on extinguishment of debt upon note conversions | - | (72,464 | ) | |||||
| Financing cost due to conversion price adjustments | - | 1,843,475 | ||||||
| Financing cost due to default | - | 181,159 | ||||||
| Impairment of inventory | 145,555 | - | ||||||
| Write down of other current assets | 46,130 | |||||||
| Change in operating assets and liabilities | ||||||||
| Change in accounts receivable | 3,115 | 19,253 | ||||||
| Change in inventory | (2,724 | ) | (122,086 | ) | ||||
| Change in other current assets | (86,814 | ) | 34,771 | |||||
| Change in accounts payable | 143,187 | 283,859 | ||||||
| Change in accrued expenses | 59,024 | 24,000 | ||||||
| Net cash used in operating activities | (339,783 | ) | (738,165 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of units under Reg A | - | 224,615 | ||||||
| Proceeds from the issuance of debt, net | 301,400 | 644,000 | ||||||
| Repayment to convertible notes | - | (362,319 | ) | |||||
| Net cash provided by financing activities | 301,400 | 506,296 | ||||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | (38,383 | ) | (231,869 | ) | ||||
| Cash and cash equivalents, beginning of period | 44,187 | 280,877 | ||||||
| Cash and cash equivalents, end of period | $ | 5,804 | $ | 49,008 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid For: | ||||||||
| Interest | $ | - | $ | 39,452 | ||||
| Income taxes | $ | - | $ | - | ||||
| Summary of Non-Cash Investing and Financing Information: | ||||||||
| Warrants and returnable warrants issued for financing cost | 721,470 | 1,286,573 | ||||||
| Stock issued for financing costs | 50,000 | 60,000 | ||||||
| Common stock issued for preferred stock conversions | $ | - | $ | 850 | ||||
| Deemed dividend associated with preferred B stock and dilutive warrant adjustments | $ | 20,771 | $ | 3,685,665 | ||||
| Debt and warrant discounts related to convertible notes | $ | 63,066 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
NightFoodNightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Going Concern
Nightfood Holdings, Inc. (“we”, “us”, “the Company” or “Nightfood”) is a Nevada corporation incorporated on October 16, 2013, to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York corporation from its sole shareholder, Sean Folkson. For the reporting period, all of our operations were being conducted through subsidiary Nightfood, Inc. We are also the sole shareholder of MJ Munchies, Inc., currently revoked in the State of Nevada, which owns certain intellectual property, but does not have any operations as of the period covered by these financial statements.
Our corporate address is 520 White Plains Road – Suite 500, Tarrytown, New York 10591 and our telephone number is 888-888-6444. We maintain a web site at www.nightfood.com, along with many additional web properties. Any information that may appear on our web site should not be deemed to be a part of this report.
The Company’s fiscal year end is June 30.
Going Concern
| ● | The Company has limited available cash resources and we do not believe our cash on hand will be sufficient to fund our operations and growth throughout fiscal year 2024 or adequate to satisfy our immediate or ongoing working capital needs. We are currently in default with |
| The Company is continuing to seek to raise capital through the sales of its common stock, preferred stock and/or convertible notes, as well as potentially the exercise of outstanding warrants, to finance the Company’s operations, of which it can give no assurance of success. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. Additionally, management is investing in the acquisition of additional revenue generating assets through the issuance of debt and/or equity to further assist the Company’s growth initiatives. As of December 31, 2023 we have advanced proceeds totaling $92,500 to potential acquisition targets, which were acquired subsequent to the reporting period (ref: Note 15). |
|
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | Even if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be able to achieve a level of profitability from the sale of its products to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. |
| From both public statements observed, and conversations conducted between Nightfood management and current and former executives from certain global food and beverage conglomerates, it has been affirmed to management that there is increased strategic interest in the nighttime nutrition space as a potential high-growth opportunity, partially due to recent declines in consumer sleep quality and increases in at-home nighttime snacking. |
| ● | The Company has experienced no major issues with supply chain or logistics. Order processing function has been normal to date, and its manufacturers have assured the Company that their operations are “business as usual” as of |
2. Summary of Significant Accounting Policies
Management is responsible for the fair presentation of the Company’s financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP).
Interim Financial Statements
These unaudited condensed consolidated financial statements for the three and six months ended December 31, 2023, and 2022, respectively, reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.
These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal years ended June 30, 2023 and 2022, respectively, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 filed with the United States Securities and Exchange Commission on October 13, 2023. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and six months ended December 31, 2023 are not necessarily indicative of results for the entire year ending June 30, 2024.
Use of Estimates
| ● | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used in the determination of depreciation and amortization, the valuation for non-cash issuances of common stock, and the website, income taxes and contingencies, valuing convertible |
Cash and Cash Equivalents
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| The Company classifies as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various instruments with original maturities of three months or less at the time of purchase. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. |
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
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| Statement of financial accounting standard FASB Topic 820, Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value. |
Inventories
F-4
| ● | Inventories consisting of packaged food items and supplies are stated at the lower of cost (FIFO) or |
Advertising Costs
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| Advertising costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations. Although not traditionally thought of by many as “advertising costs”, the Company includes expenses related to graphic design work, package design, website design, domain names, and product samples in the category of “advertising costs”. The Company |
Income Taxes
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| The Company has not generated any taxable income, and, therefore, no provision for income taxes has been provided. | ||||
| Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with FASB Topic 740, “Accounting for Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not. |
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| A valuation allowance has been recorded to fully offset the deferred tax asset even though the Company believes it is more likely than not that the assets will be |
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| The Company’s effective tax rate differs from the statutory rates associated with taxing jurisdictions because of permanent and temporary timing differences as well as a valuation allowance. |
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
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| The Company generates its revenue by selling its nighttime snack products wholesale to retailers and | ||||
| wholesalers. All sources of revenue |
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| The Company |
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| ● | The adoption of ASC 606 did not result in a change to the accounting for any of the Company’s revenue streams that are within the scope of the amendments. The Company’s services that fall within the scope of ASC 606 are recognized as revenue as the Company satisfies its obligation to the customer. |
| ● | In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which updates revenue recognition guidance relating to contracts with customers. This standard states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for annual reporting periods, and interim periods therein, beginning after July 1, 2018. The Company adopted ASU 2014-09 and its related |
| ● | Management reviewed ASC 606-10-32-25 which states “Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity’s goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity’s goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to |
| ● | If the consideration payable to a customer is a payment for a distinct good service, then in accordance with ASC 606-10-32-26, the entity should account for it the same way that it accounts for other purchases from suppliers (expense). Further, “if the amount of consideration payable to the customer exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for such an excess as a reduction of the transaction price. If the entity cannot reasonably estimate the fair value of the good or service received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.” |
| ● | Under ASC 606-10-32-27, if the consideration payable to a customer is accounted for as a reduction of the transaction price, “an entity shall recognize the reduction of revenue when (or as) the later of either of the following events occurs: |
| a) | The entity recognizes revenue for the transfer of the related goods or services to the customer. |
| b) | The entity pays or promises to pay the consideration (even if the payment is conditional on a future event). That promise might be implied by the |
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | Management reviewed each arrangement to determine if each fee paid is for a distinct good or service and should be expensed as incurred or if the Company should recognize the payment as a reduction of revenue. |
| ● | The Company recognizes revenue upon shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. |
Concentration of Credit Risk
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| Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places its cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal. At December 31, |
Beneficial Conversion Feature
F-5
| ● | For conventional convertible debt where the rate of conversion is below market value, the Company records any |
| ● | When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. |
Beneficial Conversion Feature – Series B Preferred Stock (deemed dividend):
Each share of the Company’s Series B Preferred Stock, par value $0.001 per share (the “B Preferred” or “B Preferred Stock”) has a liquidation preference of $1,000 and has no voting rights except as to matters pertaining to the rights and privileges of the B Preferred. Each share of B Preferred is convertible at the option of the holder thereof into (i) 5,000 shares of the Registrant’s common stock (one share for each $0.20 of liquidation preference) (the “Conversion Shares”) and (ii) 5,000 common stock purchase warrants, expiring April 16, 2026 (the “Warrants”). The Warrants carried an initial exercise price of $0.30 per share. Subsequent financing events and debt extinguishment resulted in adjustments to the exercise price of all warrants created from conversion of B Preferred from $0.30 per share to approximately $0.1247 per share through December 31, 2023. The exercise price of these warrants can continue to adjust as the result of subsequent financing events and stock transactions. These adjustments can result in an exercise price that is either higher, or lower, than the price as of December 31, 2023.
Based on the guidance in ASC 470-20-20, on issuance date the Company determined that a BCF existed, as the effective conversion price for the B Preferred at issuance was less than the fair value of the common stock which the shares of B Preferred are convertible into. A BCF feature based on the intrinsic value of the date of issuances for the B Preferred through June 30, 2022 was approximately $4.4 million. During the year ended June 30, 2023 the Company recorded an additional deemed dividend of approximately $1.1 million in relation to the B Preferred stock and downward price adjustments to certain warrants.
Debt Issue Costs
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| The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of |
Equity Issuance Costs
| ● | The Company accounts for costs related to the issuance of equity as |
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Original Issue Discount
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| If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as |
Stock Settled Debt
| ● | In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. |
Stock-Based Compensation
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value. The Company
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Customer Concentration
F-6
| ● | In each of the three- and the six-month periods ended December 31, 2023, we had 1 customer which accounted for more than 10% of gross sales. During the six months ended December 31, |
Vendor Concentration
| ● | In the three- and six-month periods ended December 31, 2023, one vendor accounted for |
Receivables Concentration
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| As of December 31, |
Income/Loss Per Share
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Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Reclassification
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| The Company | ||||
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Recent Accounting Pronouncements
| ● | In August |
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3. Accounts receivable
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F-7
| The Company’s accounts receivable |
4. Inventories
| ● | Inventory consists of the following at December 31, |
| December 31, 2017 | June 30, 2017 | ||||||||
| Finished Goods | $ | 10,115 | $ | 87,676 | |||||
| Packaging | - | 8,189 | |||||||
| TOTAL | $ | 10,115 | $ | 95,865 | |||||
| December 31, 2023 | June 30, 2023 | |||||||
| Inventory: Finished Goods | $ | 91,883 | $ | 163,644 | ||||
| Inventory: Ingredients | 33,166 | 63,734 | ||||||
| Inventory: Packaging | 8,322 | 48,824 | ||||||
| Total Inventory | $ | 133,371 | $ | 276,202 | ||||
Inventories are stated at the lower of cost or net realizable value. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions and the products relative shelf life. Write-downs and write-offs are charged to loss on inventory write down. During the six months ended December 31, 2023 the Company wrote down inventory balances totaling $145,555 as a result of inventory damage and spoilage. 5. Other current assets Other current assets consist of the following at December 31, 2023 and June 30, 2023.
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6. Accounts Payable and Accrued liabilities Other current liabilities consist of the following at December 31, 2023 and June 30, 2023:
7. Debt
Convertible Notes Issued on December 10, 2021 On December 10, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited and institutional investors (the “Purchasers”) for the purchase and sale of an aggregate of: (i) $1,086,956.52 in principal amount of Original Issue Discount Senior Secured Convertible Notes (the “Notes”) for $1,000,000 (representing a 8% original issue discount) (“Purchase Price”) and (ii) warrants to purchase up to 4,000,000 shares of the Company’s common stock (the “Warrants”) in a private placement (the “Offering”). Each Note featured an 8% original issue discount, resulting in net proceeds to the Company of $500,000 for each of the two Notes. The Notes had a maturity of December 10, 2022, an interest rate of 8% per annum, and were initially convertible at a fixed price of $0.25 per share, with provisions for conversions at a fixed price of $0.20 per share should the closing trading price of our common stock be below $0.20 per share after June 10, 2022. The conversion price is also subject to further price adjustments in the event of (i) stock splits and dividends, (ii) subsequent rights offerings, (iii) pro-rata distributions, and (iv) certain fundamental transactions, including but not limited to the sale of the Company, business combinations, and reorganizations (v) in the event that the Company issues or sells any additional shares of Common Stock or Common Stock Equivalents at a price per share less than the Exercise Price then in effect or without consideration then the Exercise Price upon each such issuance shall be reduced to the Dilutive Issuance Price. These Notes, for as long as they are outstanding, are secured by all assets of the Company and its subsidiaries, senior secured guarantees of the subsidiaries of the Company, and pledges of the common stock of all the subsidiaries of the Company. The Notes have provisions allowing for repayment at any time at 115% of the outstanding principal and interest within the first three months, and 120% of the outstanding principal and interest at any time thereafter. The Warrants were initially exercisable at $0.25 per share and, are subject to cashless exercise after six months if the shares underlying the Warrants are not subject to an effective resale registration statement. The Warrants are also subject to customary adjustments, including price protections. In connection with Securities Purchase Agreement, the Company issued to the Placement Agent (as defined below), an aggregate of 878,260 Common Stock purchase warrants (“PA Warrants”). The PA Warrants are substantially similar to the Warrants. The fair value of the PA Warrants at issuance was estimated to be $170,210 based on a risk-free interest rate of 1.25%, an expected term of 5 years, an expected volatility of 142.53% and a 0% dividend yield. Spencer Clarke Holdings LLC (“Placement Agent”) acted as the placement agent, in connection with the sale of the securities pursuant to the Securities Purchase Agreement. Pursuant to an engagement agreement entered into by and between the Company and the Placement Agent, the Company agreed to pay the Placement Agent a cash commission of $100,000. Pursuant to the discussion above, the Company also issued an aggregate of 878,260 PA Warrants to the Placement Agent. The gross proceeds received from the Offering were approximately $1,000,000. The cash Placement Agent fees of $100,000 was paid separately. Also, the Company reimbursed the lead Purchaser $15,192 for legal fees, which was deducted from the required subscription amount to be paid. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On or around September 23, 2022, as a result of certain new financing agreements entered into by the Company, as consideration to the Holders, the Company issued to each Holder a common stock purchase warrant for the purchase of 5,434,783 shares of the Company’s common stock (as amended from time to time, the “Returnable Warrants”, further the Placement Agent received 1,086,957 (Ref below, Mast Hill Loan - Promissory Notes Issued on September 23, 2022). The warrants are subject to customary adjustments (including price-based anti-dilution adjustments) and may be exercised on a cashless basis. The Company was required to pay to the Purchasers on December 10, 2022, as extended to December 29, 2022 (as so extended, the “Maturity Date”) all remaining principal and accrued and unpaid interest on the Maturity Date (the “Owed Amount”) and the failure to so pay the Owed Amount on the Maturity Date is an event of default. The Owed Amount was not paid by the Company in accordance with the terms of the Notes. Subsequent to December 31, 2022 the Company entered into a forbearance agreement with the Purchasers as set out below. Forbearance and Exchange Agreement On February 4, 2023, the Company entered into a Forbearance and Exchange Agreement (the “Forbearance Agreement”) with the Purchasers from the Securities Purchase Agreement dated December 10, 2021. Pursuant to the Forbearance Agreement as amended, among other things:
The Company evaluated all of the associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting. In accordance with ASC 470- Debt, the Company first allocated the cash proceeds to the loan and the warrants on a relative fair value basis, secondly, the proceeds were allocated to the beneficial conversion feature.
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Below is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of June 30, 2023:
Below is a reconciliation of the extinguishment of debt relative to the exchange of Returnable Warrants for shares of common stock by the holders:
Interest expenses associated with above convertible note are as follows:
During the fiscal years ended June 30, 2023 and 2022, the Company recorded $39,452 and $43,478 to interest. As of December 31, 2023 and June 30, 2023, the interest payable was $0. Mast Hill Promissory Notes (MH Notes)
On September 23, 2022, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal sum of $700,000.00, which amount is the $644,000 actual amount of the purchase price plus an original issue discount in the amount of $56,000. In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 2,800,000 shares of common stock at an exercise price of $0.225, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 7,000,000 shares of common stock at an exercise price of $0.30, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company.
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As a result of the transaction, the Purchasers triggered their “most favored nation” clause which resulted in the Company entering into an MFN Amendment Agreement (the “MFN Agreement”) with the Purchasers (ref: Convertible Notes Issued on December 10, 2021 above) pursuant to which the Purchasers exercised their options under the most-favored nation terms contained in their existing transaction documents with the Company. Pursuant to the MFN Agreement, among other things, (a) the Company issued to each of the Purchasers 5,434,783 5-year Returnable Warrants which may only be exercised in the event that the Company were to default on certain debt obligations at an initial Exercise Price per share of $0.30, (b) the events of default set forth in the Notes were amended to include certain of the Events of Default reflected in the Promissory Note, (c) the conversion price of the Notes was amended so that upon an event of default, the conversion price equaled $0.10, subject to adjustment, (d) the Purchasers are entitled to deduct $1,750 from conversions to cover associated fees, and $750 shall be added to each prepayment to reimburse the Purchasers for administrative fees and (e) the definition of Exempt Issuance in the note was modified to remove certain clauses of the definition. The Company paid to J.H. Darbie & Co., Inc. $32,200 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 119,260 shares of common stock at $0.27, subject to adjustment. The Company paid to Spencer Clarke LLC cash fees of $35,000 plus 500,000 shares of common stock. The proceeds received by the Company from the Offering, net of the original issue discount, fees and costs including legal fees of $7,000 and commission fees of $32,200 were $604,800. On May 2, 2023, a debtholder converted $49,995 into 1,500,000 shares of common stock, of which $16,088 was principal and $33,907 was interest payable.
On February 5, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $619,000.00 (actual amount of purchase price of $526,150.00 plus an original issue discount in the amount of $92,850.00). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 6,900,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 7,000,000 shares of common stock at an exercise price of $0.30, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill. The Company paid to J.H. Darbie & Co., Inc. $10,000 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 219,230 shares of common stock at $0.12, subject to adjustment. The Company paid to Spencer Clarke LLC cash fees of $52,615 plus warrants to purchase 619,000 shares of common stock at $0.10, warrants to purchase 690,000 shares of common stock at $0.10, and warrants to purchase 700,000 shares of common stock at $0.30, in each case subject to adjustment.
On February 28, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $169,941 (actual amount of purchase price of $136,800 plus an original issue discount in the amount of $24,141). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 1,790,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 1,820,000 shares of common stock at an exercise price of $0.10, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill.
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Company paid to J.H. Darbie & Co., Inc. $6,840.00 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 57,000 shares of common stock at $0.12, subject to adjustment. The Company paid to Spencer Clarke LLC warrants to purchase 200,000 shares of common stock at $0.08, warrants to purchase 179,000 shares of common stock at $0.10, and returnable warrants to purchase 182,000 shares of common stock at $0.30, in each case subject to adjustment.
On March 24, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $169,941 (actual amount of purchase price of $136,800 plus an original issue discount in the amount of $24,141). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 1,790,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 1,820,000 shares of common stock at an exercise price of $0.10, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill. The Company paid to J.H. Darbie & Co., Inc. $6,840.00 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 57,000 shares of common stock at $0.12, subject to adjustment. The Company paid to Spencer Clarke LLC a cash fee of $13,680 plus warrants to purchase 200,000 shares of common stock at $0.08, warrants to purchase 179,000 shares of common stock at $0.10, and warrants to purchase 182,000 shares of common stock at $.30, in each case subject to adjustment. Such 182,000 warrants, without any further action by either party thereto, may be cancelled and extinguished in its entirety if the MH Note is fully repaid and satisfied on or prior to the Maturity Date, subject further to the terms and conditions of the MH Note.
On April 17, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $169,941 (actual amount of purchase price of $136,800 plus an original issue discount in the amount of $24,141). In connection with the issuance of the Promissory Note, the Company issued to the investor warrants to purchase 1,790,000 shares of common stock at an exercise price of $0.10, as well as returnable warrants, which may only be exercised in the event that the Company were to default on certain debt obligations, to purchase 1,820,000 shares of common stock at an exercise price of $0.10, in each case subject to adjustment. The Promissory Note may be converted into Company common stock in the event of an event of default under the Promissory Note by the Company. The Company granted piggy-back registration rights to Mast Hill. The Company paid to J.H. Darbie & Co., Inc. $6,840 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 57,000 shares of common stock at $.12, subject to adjustment. The Company paid to Spencer Clarke LLC a cash fee of $13,680 plus warrants to purchase 200,000 shares of common stock at $.08, warrants to 179,000 shares of common stock at $.10, and returnable warrants to 182,000 shares of common stock at $.10, in each case subject to adjustment.
On June 1, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $200,000 (actual amount of purchase price of $170,000 plus an original issue discount in the amount of $30,000). Also pursuant to the Purchase Agreement, in connection with the issuance of the Note: (a) Sean Folkson, the Company’s Chairman of the Board and Chief Executive Officer, pursuant to a Pledge Agreement dated the Effective Date (the “Pledge Agreement”), pledged to Mast Hill, and granted to Mast Hill a security interest in, all common stock and common stock equivalents of the Company owned by Mr. Folkson; (b) the Company, Nightfood Inc. and MJ Munchies, Inc., each wholly-owned subsidiaries of the Company (collectively, the “Subsidiaries” and with the Company, the “Debtors”) entered into a Security Agreement dated the Effective Date (the “Security Agreement”), pursuant to which each of the Debtors granted Mast Hill a perfected security interest in all of their property to secure the prompt payments, performance and discharge in full of all of the Debtors’ obligations under the Note and the other transaction documents entered into in connection with the Purchase Agreement and the Note (the “Transaction Documents”); (c) The Subsidiaries entered into a Subsidiary Guarantee dated the Effective Date (the “Guarantee”), pursuant to which the Subsidiaries unconditionally and irrevocably guaranteed to Mast Hill the prompt and complete payment and performance by the Company and the Subsidiaries when due, of the obligations under the Transaction Documents. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Company paid to (a) J.H. Darbie & Co., Inc. 298,875 warrants at an exercise price of $0.05688 per share pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement. The Company paid to (b) Spencer Clarke LLC 1,111,110 warrants at an exercise price of $.033, in each case subject to adjustment.
On October 6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Secured Promissory Note (the “Note”) in the principal amount of $62,000 (actual amount of purchase price of $52,700 plus an original issue discount in the amount of $9,300). The maturity date of the Note is 12 months from the issue date and are the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable. Mast Hill has the right, at any time on or following the date that an Event of Default occurs to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any default interest) into Common Stock, at a conversion price of $0.033, subject to customary adjustments as provided in the Note for stock dividends and stock splits, rights offerings, pro rata distributions, fundamental transactions and dilutive issuances. At any time prior to the date that an Event of Default occurs under the Note, the Company may prepay the outstanding principal amount and interest then due under the Note. On any such event, the Company shall make payment to Mast Hill of an amount in cash equal to the sum of (a) 100% multiplied by the principal amount then outstanding plus (b) 100% multiplied by the accrued and unpaid interest on the principal amount to the prepayment date plus (c) $750.00 to reimburse Mast Hill for administrative fees. In addition, if, at any time prior to the full repayment or full conversion of all amounts owed under the Note, the Company receives cash proceeds from any source or series of related or unrelated sources from the issuance of equity (subject to exclusions described in the Note), debt or the issuance of securities pursuant to an Equity Line of Credit (as defined in the Note) of the Company, Mast Hill shall have the right in its sole discretion to require the Company to apply up to 50% of such proceeds after the Minimum Threshold to repay all or any portion of the outstanding principal amount and interest then due under the Note. The Note contains customary Events of Default for transactions similar to the transactions contemplated by the Purchase Agreement and the Note, which entitle Mast Hill, among other things, to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note, in addition to triggering the conversion rights. Upon the occurrence of any Event of Default, the Note shall become immediately due and payable, and the Company shall pay to Mast Hill an amount equal to the principal amount then outstanding plus accrued interest (including any default interest) through the date of full repayment multiplied by 150%, as well as all costs of collection.
The Note contains restrictions on the Company’s ability to (a) incur additional indebtedness, (b) make distributions or pay dividends, (c) redeem, repurchase or otherwise acquire its securities, (d) sell its assets outside of the ordinary course, (e) enter into certain affiliate transactions, (f) enter into 3(a)(9) Transactions or 3(a)(10) Transactions (each as defined in the Note), or (g) change the nature of its business. Commencing as of the Effective Date, and until such time as the Note is fully converted or repaid, the Company shall not effect or enter into an agreement to effect any Variable Rate Transaction (as defined in the Purchase Agreement). The Purchase Agreement contains customary representations and warranties made by each of the Company and Mast Hill. It further grants to Mast Hill certain rights of participation and first refusal, and certain most-favored nation rights, all as set forth in the Purchase Agreement. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f). The Company paid to Spencer Clarke LLC a cash fee of $5,270 plus 159,697 warrants at an exercise price of $0.033, in each case subject to adjustment.
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On November 17, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $62,000 (actual amount of purchase price of $52,700 plus an original issue discount in the amount of $9,300). The maturity date of the Note is 12 months from the issue date and are the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable. All the terms and conditions as set out in (g) above with respect to a Securities Purchase Agreement and Promissory Note entered into on October 6, 2023, apply to the November 17, 2023 financing from Mast Hill. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f). The Company paid to Spencer Clarke LLC a cash fee of $5,270 plus 159,697 warrants at an exercise price of $0.033, in each case subject to adjustment.
On December 6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $170,588 (actual amount of purchase price of $145,000 plus an original issue discount in the amount of $25,588). The maturity date of the Note is 12 months from the issue date and are the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable. All the terms and conditions as set out in (g) above with respect to a Securities Purchase Agreement and Promissory Note entered into on October 6, 2023, apply to the December 6, 2023 financing from Mast Hill. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f). The Company paid to Spencer Clarke LLC a cash fee of $14,500 plus 439,394 warrants at an exercise price of $0.033, in each case subject to adjustment. Fourth Man, LLC Promissory Notes (Fourth Man Notes)
On June 29, 2023, the Company the Company entered into a Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth Man”), a Promissory Note (the “Note”) in the principal amount of $65,000.00 (actual amount of purchase price of $55,250 plus an original issue discount in the amount of $9,750). In connection with the issuance of the Promissory Note, the Company issued the investor warrants to purchase 600,000 shares of common stock at an exercise price of $0.10 and 1,969,697 shares of Common Stock as commitment shares, 1,477,272 of which shall be cancelled and returned to the Company’s treasury upon repayment of the Note on, or prior to, the date that is 180 calendar days after the date of the Agreement; and (b) granted piggy-back registration rights to Fourth Man. The Company paid to J.H. Darbie & Co., Inc. $2,763 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 23,021 shares of common stock at $0.10, subject to adjustment. The Company issued Spencer Clarke LLC warrants to purchase 618,079 shares of common stock at $.033, in each case subject to adjustment. The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.
On August 28, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth Man”), a Promissory Note (the “Note”) in the principal amount of $60,000.00 (actual amount of purchase price of $51,000 plus an original issue discount in the amount of $9,000). In connection with the issuance of the Promissory Note, the Company issued the investor warrants to purchase 650,000 shares of common stock at an exercise price of $0.10 and 3,333,333 shares of Common Stock as commitment shares, 1,666,667 of which shall be cancelled and returned to the Company’s treasury upon repayment of the Note on, or prior to, the date that is 180 calendar days after the date of the Agreement; and (b) granted piggy-back registration rights to Fourth Man. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Company paid to J.H. Darbie & Co., Inc. $2,550 in fees pursuant to the Company’s existing agreement with J.H. Darbie & Co., Inc., in relation to the transactions contemplated by the Purchase Agreement plus warrants to purchase 21,250 shares of common stock at $.12, subject to adjustment. The Company paid to Spencer Clarke LLC a cash fee of $5,100 plus 650,000 warrants at an exercise price of $.033, in each case subject to adjustment. The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Company evaluated all of these associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting. In accordance with ASC 470- Debt, the proceeds of issuance is first allocated among the convertible instrument and the other detachable instruments based on their relative fair values. Below is a reconciliation of the above debts (Mast Hills Notes and Fourth Man Notes) as presented on the Company’s balance sheet as of December 31, 2023 and June 30, 2023:
Interest expenses associated with above convertible note are as follows:
As of December 31, 2023 and June 30, 2023, the interest payable was $142,946 and $40,779, respectively. As a result of dilutive issuances during the period the exercise price of all of the aforementioned convertible notes has been reset subsequent to the period to $0.03333. In addition, certain warrants issued to the noteholders, placement agent and J.H. Darbie have been repriced in accordance with their respective terms and conditions. 8. Capital Stock Activity On October 16, 2013, Nightfood, Inc. became a wholly-owned subsidiary of Nightfood Holdings, Inc. Accordingly, the stockholders’ equity has been revised to reflect the share exchange on a retroactive basis. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Common Stock The Company is authorized to issue Two Hundred Million (200,000,000) shares of common stock $0.001 par value per share (the “Common Stock”). Holders of Common Stock are each entitled to cast one vote for each share held of record on all matters presented to shareholders. Cumulative voting is not allowed; hence, the holders of a majority of the outstanding Common Stock can elect all directors, subject to the rights of the holder of Series A Stock described below. Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore and, in the event of liquidation, to share pro-rata in any distribution of the Company’s assets after payment of liabilities. The Board of Directors is not obligated to declare a dividend and it is not anticipated that dividends will be paid unless and until the Company is profitable. Holders of Common Stock do not have pre-emptive rights to subscribe to additional shares if issued by the Company. There are no conversion, redemption, sinking fund or similar provisions regarding the Common Stock. All of the outstanding shares of Common Stock are fully paid and non-assessable and all of the shares of Common Stock offered thereby will be, upon issuance, fully paid and non-assessable. Holders of shares of Common Stock will have full rights to vote on all matters brought before shareholders for their approval, subject to preferential rights of holders of any series of Preferred Stock. Holders of the Common Stock will be entitled to receive dividends, if and as declared by the Board of Directors, out of funds legally available, and share pro-rata in any distributions to holders of Common Stock upon liquidation. The holders of Common Stock will have no conversion, pre-emptive or other subscription rights. Upon any liquidation, dissolution or winding-up of the Company, assets, after the payment of debts and liabilities and any liquidation preferences of, and unpaid dividends on, any class of preferred stock then outstanding, will be distributed pro-rata to the holders of the common stock. The holders of the common stock have no right to require the Company to redeem or purchase their shares. Holders of shares of common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors. On October 24, 2022, the Company launched a Tier 2 offering pursuant to Regulation A (also known as “Regulation A+”) with the intent to raise capital through an equity crowdfunding campaign. The Company is offering (this “Offering”) up to 5,000,000 units, each unit consisting of 4 shares of common stock and 4 common stock purchase warrants (“Unit”), being offered at a price range to be determined after qualification pursuant to Rule 253(b).
During the six months ended December 31, 2022:
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock Series A Preferred Stock The Company is authorized to issue 1,000,000 shares of $0.001 par value per share Preferred Stock. Of the 1,000,000 shares, 10,000 shares were designated as Series A Preferred Stock (“Series A Stock”). Holders of Series A Stock are each entitled to cast 100,000 votes for each share held of record on all matters presented to shareholders. In addition to his ownership of the common stock, Mr. Folkson owns 1,000 shares of the Series A Stock which votes with the Common Stock and has an aggregate of 100,000,000 votes. The Company had 1,000 shares of the Series A Stock issued and outstanding as of December 31, 2023, and June 30, 2023. Series B Preferred Stock In April 2021, the Company designated 5,000 shares of its Preferred Stock as Series B Preferred (the “B Preferred”), each share of which is convertible into 5,000 shares of common stock and 5,000 non-detachable warrants with an initial exercise price of $0.30. During the fiscal years ended June 30, 2023 and 2022, the Company sold 0 and 335 shares of its B Preferred for gross cash proceeds of $0 and $335,000, respectively. These proceeds were used for operating capital. The B Preferred meets the criteria for equity classification and is accounted for as equity transactions. Specifically, among other factors, this qualifies as equity because redemption is not invoked at the option of the holder and the B Preferred does not have to be redeemed on a specified date. During the fiscal year ended June 30, 2023, holders of the B Preferred converted 1,310 shares of B Preferred into 6,550,000 shares of Common Stock. During the fiscal year ended June 30, 2022, holders of the B Preferred converted 1,740 shares of B Preferred into 8,700,000 shares of Common Stock. The Company had 1,950 shares of its B Preferred issued and outstanding as of December 31, 2023, and June 30, 2023. Dividends The Company has never declared dividends, however as set out below, during the fiscal year ended June 30, 2022 and 2021, upon issuance of a total of 335 and 4,665 shares of B Preferred, respectively, the Company recorded a deemed dividend as a result of beneficial conversion feature associated with the transaction. In connection with certain conversion terms provided for in the designation of the B Preferred, pursuant to which each share of B Preferred is convertible into 5,000 shares of common stock and 5,000 warrants, the Company recognized a beneficial conversion feature upon the conclusion of the transaction in the amount of $4,431,387. The beneficial conversion feature was treated as a deemed dividend, and fully amortized on the transaction date due to the fact that the issuance of the B Preferred was classified as equity. During the year ended June 30, 2023 the Company recorded an additional deemed dividend of $1,136,946, fully amortized on the transaction dates, in relation to the B Preferred stock and downward price adjustments to certain warrants. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 9. Warrants The following is a summary of the Company’s outstanding common stock purchase warrants. During the fiscal year ended June 30, 2022, holders of the Company’s B Preferred converted 1,740 shares of B Preferred into 8,700,000 shares of Common Stock, along with 8,700,000 warrants. Said warrants are subject to exercise price adjustments resulting from certain financing activities and equity transactions which may increase or decrease the exercise price in in the future. At June 30, 2022, all warrants issued to the Company’s B Preferred holders had an adjusted exercise price of $0.2919. During the fiscal year ended June 30, 2022, 4,000,000 warrants were issued to the holder of outstanding convertible notes with an initial exercise price of $0.25 per share, and 878,260 warrants issued to the placement agent with an initial exercise price of $0.25 per share. The Company valued these warrants using the Black Scholes model utilizing a 143.39% volatility and a risk-free rate of 1.25%. In addition, 167,500 warrants issued to the placement agent with an initial exercise price of $0.20 per share and 167,500 warrants issued to the placement agent with an initial exercise price of $0.30 per share. The Company valued these warrants using the Black Scholes model utilizing a 148.06% volatility and a risk-free rate of 0.83%. During the fiscal year ended June 30, 2022, the Company entered into a warrant agreement with one of the Company’s Directors issuing 100,000 warrants at a strike price of $0.2626 having a term of five years. The Company valued these warrants using the Black Scholes model utilizing a 151.07% volatility and a risk-free rate of 0.79%. During the fiscal year ended June 30, 2022, the Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up Agreement”), with Mr. Folkson, issuing 400,000 warrants at a strike price of $0.30 having a term of one year. The Company valued these warrants using the Black Scholes model utilizing a 107.93% volatility and a risk-free rate of 0.50%. During the fiscal year ended June 30, 2023, holders of the Company’s B Preferred converted 1,310 shares of B Preferred into 6,550,00 shares of Common Stock, along with 6,550,000 warrants. Said warrants are subject to further exercise price adjustments resulting from certain financing activities and equity transactions which may increase or decrease the exercise price in in the future. At June 30, 2023 all warrants issued to the Company’s B Preferred holders had an adjusted exercise price of $0.13796. During the fiscal year ended June 30, 2023, 2,800,000 warrants were issued to the holder of an outstanding promissory note with an initial exercise price of $0.225 per share, 280,000 warrants were concurrently issued to the Placement Agent with an initial exercise price of $0.225, and a further 119,260 warrants were issued to the Placement Agent with initial exercise price of $0.27 per share. The Company valued these warrants using the Black Scholes model utilizing a 122.42% volatility and a risk-free rate of 3.91%. On October 4, 2022, the Company and the Placement Agent entered into an Addendum to amend their Letter of Engagement to cancel compensatory warrants to purchase 280,000 shares of common stock of the Company and to cancel returnable compensatory warrants to purchase 700,000 shares of Common Stock of the Company for a one-time cash payment of $35,000 and the issuance of 500,000 shares of Common Stock in full satisfaction of compensation earned. During the fiscal year ended June 30, 2023 the Company issued a cumulative 12,870,000 warrants to the holder of outstanding promissory notes, 19,460,000 returnable warrants (which warrants are cancelable in full should the notes be repaid in full on or before maturity), 4,875,189 placement agent warrants, 546,000 returnable placement agent warrants (which warrants are cancelable in full should the notes be repaid in full on or before maturity) and 831,386 warrants to JH Darbie. The warrants were issued at initial exercise prices between $0.033 and $0.12 per share and valued on issuance dates with the Black Scholes model utilizing a volatility from 111.36% and 112.33% and a risk-free rate from 3.41% and 4.18%. During the fiscal year ended June 30, 2023, the Company issued an aggregate of 6,549,128 shares of its Common Stock for the cashless exercise of 4,928,260 original issued stock purchase warrants. During the fiscal year ended June 30, 2023, the Company entered into a warrant agreement with one of the Company’s Directors for the issuance of 100,000 warrants at a strike price of $0.125 having a term of five years. The Company valued these warrants using the Black Scholes model utilizing a 121.75% volatility and a risk-free rate of 4.06%. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS During the fiscal year ended June 30, 2023, the Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up Agreement”), with Mr. Folkson, issuing 400,000 warrants at a strike price of $0.30 having a term of one year. The Company valued these warrants using the Black Scholes model utilizing a 103.60% volatility and a risk-free rate of 4.30%. During the fiscal year ended June 30, 2023, the Company issued 1,871,800 warrants to various subscribers under its Tier 2 offering pursuant to Regulation A (also known as “Regulation A+”) pursuant to which the Company is offering up to 5,000,000 units at a price of $0.50 per unit, each unit consisting of 4 shares of Common Stock and 4 Common Stock purchase warrants (“Unit”) for exercise at a strike price per Share equal to 125% of the price per share of Common Stock, or $0.15625 per share with a term of 2 years. During the fiscal year ended June 30, 2023, the Company issued an aggregate of 5,750,000 shares of its Common Stock for cash exercise of 5,750,000 original issued stock purchase warrants at $0.05 per share. The Company received net proceeds of $276,066. In addition, as incentive to induce the aforementioned warrant holders to exercise existing warrants, the Company issued an aggregate of 6,900,000 replacement warrants to investors and placement agents. The warrants were issued at initial exercise prices between $0.05 and $0.125 per share and valued on issuance dates with the Black Scholes model utilizing a volatility from 110.80% and 111.31% and a risk-free rate from 3.69% and 4.27%. A total of $377,560 was expensed on issuance as financing costs. During the fiscal year ended June 30, 2023, the Company issued 1,000,000 retainer warrants under an Amendment and Addendum to Letter of Engagement agreement at a strike price of $0.033. The warrants included a provision for cashless exercise and carried a 5 years term. The Company valued these warrants using the Black Scholes model utilizing a 113.71% volatility and a risk-free rate of 3.69%. The Company recorded the value of the retainer warrants as consulting expenses. During the fiscal year ended June 30, 2023, under the terms of a Warrant Exchange Agreement, among other agreements, SC exchanged an aggregate of 16,181,393 of its existing warrants originally issued in fiscal 2021 with initial exercise prices ranging from $0.20 to $0.30, the exercise price of which had been subject to downward price adjustments following issuance and were exercisable at $0.0747 per share as a result of anti-dilution provisions as of February 2023, for a like amount of new warrants to purchase Company Common Stock at a price per share capped at $0.0747 (the “New Warrants”). During the six months ended December 31, 2023, the Company issued cumulative 650,000 warrants to the holder of outstanding promissory notes, and cumulative 6,208,788 warrants to the placement agent, and 21,250 warrants to JH Darbie as commission fees. The warrants were issued at initial exercise prices between $0.033 and $0.12 per share and valued on issuance dates with the Black Scholes model utilizing a volatility between 124.86% and 136.57, and a risk-free rate between 4.12% and 4.68%. During the three months ended September 30, 2023, 7,000,000 returnable warrants became non-returnable warrants as a result of the Company’s default on certain debt obligations and $699,350 was recorded as additional financing costs. During the three months ended December 31, 2023, a total of 23,147,255 outstanding share purchase warrants issued in connection with conversion of the Company’s B Preferred into Common Stock were adjusted as a result of certain antidilution clauses resulting in a total of 25,539,751 outstanding share purchase warrants with a downward adjusted exercise price of $0.1247 per share. Certain warrants in the below table include dilution protection for the warrant holders, which could cause the exercise price to be adjusted either higher or lower as a result of various financing events and stock transactions. The result of the warrant exercise price downward adjustment on modification date is treated as a deemed dividend and fully amortized on the transaction date. In addition to the reduction in exercise price, with certain warrants there is a corresponding increase to the number of warrants to the holder on a prorated basis. Under certain conditions, such as the successful retirement of a convertible note through repayment, it is possible for the exercise price of these warrants to increase and for the number of warrants outstanding to decrease. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The aggregate intrinsic value of the warrants as of December 31, 2023 is $6.57 million. The aggregate intrinsic value of the warrants as of June 30, 2023 was $4.22. million.
Returnable Warrants A cumulative total of 18,956,523 Returnable Warrants issued in conjunction with a financing agreement dated as of September 23, 2022, and a MFN agreement entered into concurrently on September 23, 2022 (ref: Note 7 above) may only be exercised in the event that the Company were to default on certain debt obligations. The Returnable Warrants have an initial exercise price of $0.30 per share, subject to customary adjustments (including price-based anti-dilution adjustments) and may be exercised at any time after an Event of Default until the five-year anniversary of such date. The Returnable Warrants include a cashless exercise provision as set forth therein. The exercise of the Returnable Warrants are subject to a beneficial ownership limitation of 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. In the event of the Company’s failure to timely deliver shares of Common Stock upon exercise of the Returnable Warrants, the Company would be obligated to pay a “Buy-In” amount pursuant to the terms of the Returnable Warrants. On December 29, 2022, upon an event of default as defined under the MFN agreement, 5,434,785 returnable warrants issued to each of the Purchasers under the MFN Agreement, and 1,086,957 returnable warrants issued to the Placement Agent, were triggered and valued using the Black Scholes model with a volatility of 124.14% and a risk-free rate of 3.94% resulting in financing expenses recorded as additional financing costs in the cumulative amount of $1,085,780. In February 2023, the Company issued 3,800,000 shares of its common stock in exchange for the return of 10,869,566 returnable warrants. The warrants issued to the Placement Agent remained available for exercise. During the fiscal year ended June 30, 2023, the Company issued cumulative 12,460,000 returnable warrants to the Purchasers of certain convertible notes issued after September 2022, and cumulative 546,000 returnable warrants to the Placement Agent. Any expense related to such warrants will be recorded in a future reporting period and only in the event the Company defaults on certain debt obligations. These returnable warrants were initially valued using the Black Scholes model with a volatility of between 111.36% and 112.33% and a risk-free rate of between 3.67% and 3.91% resulting in contingent expenses to be recorded as additional financing costs in the cumulative amount of $809,800, which amount will be recorded in a future reporting period, only in the event the Company defaults on certain debt obligations. 10. Fair Value of Financial Instruments
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2023 and June 30, 2023, the Company had no outstanding derivative liabilities. 11. Commitments and Contingencies:
12. Related Party Transactions
The Lock-Up Agreement further provides, in exchange for the agreement to lock up the Shares, that Mr. Folkson shall receive warrants to acquire 400,000 shares of Company Common Stock at an exercise price of $0.30 per share, which warrants carry a twelve-month term and a cashless provision, and will expire if not exercised within the twelve-month term.
Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Mr. Folkson was owed $44,276 and $41,876 as of December 31, 2023 and June 30, 2023, respectively, which amounts are included on the balance sheets in accounts payable and accrued liabilities- related party. The Company used the proceeds from the Folkson Note for working capital.
13. Subsequent Events Acquisition of Future Hospitality Ventures Holdings Inc. and certain agreements with executive management On January 22, 2024, Nightfood Holdings, Inc. (“NGTF”), Future Hospitality Ventures Holdings Inc., a Nevada corporation, and its subsidiaries (“FHVH”), Sean Folkson as the holder of all issued and outstanding Series A Preferred Stock of NGTF (the “NGTF Series A Shareholder”) and Lei Sonny Wang, the sole shareholder of FHVH (the “FHVH Shareholder”) entered into a share exchange agreement (the “Exchange Agreement”) whereby NGTF has agreed to acquire FHVH through a share exchange (the “Exchange”) whereby FHVH became a wholly-owned subsidiary of NGTF. NGTF’s Board of Directors (the “Board”) unanimously determined that the transactions contemplated by the Exchange Agreement, including the Exchange, were in the best interests of the Company and its stockholders, and approved the Exchange Agreement and the transactions contemplated by the Exchange Agreement. The Exchange Agreement was also approved by the affirmative vote of NGTF’s majority stockholder entitling it to a majority of the voting power. Pursuant to the Exchange Agreement, the FHVH Shareholder exchanged all 1,000 shares of common stock, $0.001 par value per share, of FHVH (the “FHVH Common Stock”) owned by him to NGTF for: (i) all 1,000 issued and outstanding shares of NGTF’s Series Super Voting A Preferred Stock held by the NGTF Series A Shareholder, and (ii) an aggregate of 13,333 newly issued shares of NGTF’s Series C Convertible Preferred Stock, each of which shall convert into 6,000 shares of common stock at $0.025 per share (the “Series C Preferred Stock”, and together with the Series A Super Voting Preferred Stock, the “NGTF Exchange Shares”). The Exchange Agreement was subject to certain closing conditions and contains customary representations, warranties and covenants. The consummation of the Exchange was conditioned upon, among other things: Sean Folkson resigning as the Chief Executive Officer of NGTF, continuing to serve as the President of Nightfood, Inc. through December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur; and the appointment of Lei Sonny Wang as a director and Chief Executive Officer of NGTF. The aforementioned agreements closed on February 2, 2024, at which time Sean Folkson resigned as chief executive officer of NGTF and Lei Sonny Wang was appointed Chief Executive Officer and a director. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS On February 2, 2024, Mr. Folkson, NGTF and Nightfood, Inc. entered into a consulting agreement (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Folkson will (1) continue to serve as a director of NGTF, subject to shareholder approval, for no less than the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur, during which time both NGTF and its board of directors (the “Board”) will use its best effort to maintain Mr. Folkson’s directorship and (2) will serve as president of Nightfood, Inc. until December 31, 2024, which may date be extended. Mr. Folkson will receive cash and equity compensation as a director commensurate with the compensation received by other directors. Unless either party provides the other written notice at least 45 days before the end of the Consulting Agreement’s term of its intention to terminate, then the Consulting Agreement will renew automatically for one-year terms. The Consulting Agreement can be terminated for cause without notice. Upon termination of the Consulting Agreement for any reason, Mr. Folkson will receive NGTF common stock with a market value equal to $125,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned as of the termination. Additionally, if the Consulting Agreement is terminated prior to December 31, 2024, then Mr. Folkson will be entitled to continue to receive his Base Salary from the termination date until December 31, 2024. If Mr. Folkson is removed as a director of NGTF earlier than one year after NGTF’s successful uplist to any national securities exchange, then he will receive NGTF common stock with a market value equal to $500,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned on the date he was removed from the Board. In exchange for his services, Mr. Folkson will receive a minimum annual salary of $120,000 (“Base Salary”), payable monthly. Mr. Folkson will be paid $6,000 per month of his Base Salary until NGTF completes a capital raise of not less than $1,000,000 or Nightfood, Inc. develops a monthly positive cash flow greater than $10,000 (the “Financial Conditions”). Until the Financial Conditions are met, any unpaid portion of the Base Salary will accrue. Nightfood, Inc. and NGTF have agreed that the entirety of the Base Salary will accrue between December 1, 2023 and February 29, 2024. The payments of $6,000 will begin on March 1, 2024. Upon meeting the Financial Conditions or successfully uplisting to NASDAQ, the parties will create a payment schedule to ensure payment of the full salary and accrued income within three to nine months, including $57,000 in consulting fees owed to Mr. Folkson as of November 1, 2023 pursuant to a consulting agreement dated December 27, 2021 between Mr. Folkson and NGTF. Mr. Folkson will be entitled to cash and equity bonuses based on certain conditions, beginning with the three-month period ending March 31, 2024 and quarterly thereafter. The cash bonus will equal 2% of Nightfood, Inc.’s revenues, including royalties, during the quarterly period, which will be paid no later than 15 days after the close of the quarterly period to which it relates. The equity bonus will be paid in any quarter where gross Nightfood, Inc. revenues exceed $250,000, commencing with the three-month period ending March 31, 2024 and quarterly thereafter. The equity bonus will be paid in NGTF common stock with a market value equal to 10% of gross quarterly revenues for the applicable period, based on the average closing price for the last 10 trading days. Such stock shall be deemed fully earned as of the last day of the applicable quarter and issued within 30 days of the end of the quarter. The cash and equity bonuses will be paid during the term of the Consulting Agreement and for 36 months afterward. Should NGTF sell all shares of Nightfood, Inc., its business, or any rights to any other party to manufacture, market, and distribute products under the Nightfood brand name, then Mr. Folkson will receive a cash bonus equal to 2% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received and an equity bonus equal to 10% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received (the “Sale Bonus”). The Sale Bonus will be paid with respect to any transaction during the term of the Consulting Agreement or that is consummated within 36 months thereafter. Upon Mr. Folkson’s resignation, and pursuant to the Share Exchange Agreement, effective February 2, 2024, the Board of NGTF appointed Lei Sonny Wang to the Board and to act as chief executive officer of NGTF. In connection with his appointment as chief executive officer, NGTF and Mr. Wang entered into an employment agreement effective as of February 2, 2024 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. Wang will serve his initial term beginning February 2, 2024 (the “Effective Date”) ending on the earlier of (i) the one year anniversary of the Effective Date or (ii) the termination of the Employment Agreement (the “Initial Term”). The Initial Term will be automatically extended for additional one-year terms (each a “Renewal Term”), unless NGTF or Mr. Wang provides the other with notice, at least 30 days prior to the expiration of the current term, of its desire not to renew the Employment Agreement. For his services, Mr. Wang will receive an annual base salary of $120,000, payable monthly beginning on the Effective Date. Until NGTF completes an additional two mergers and a capital raise in excess of $1,000,000 gross proceeds, or NGTF has financial capabilities to support the Base Salary, Mr. Wang will be paid $6,000 per month of the Base Salary, and the unpaid portion of the Base Salary will accrue. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Employment Agreement may be terminated with or without cause by NGTF and may be terminated with or without good reason by Mr. Wang. If NGTF terminates the agreement for cause, then NGTF will (i) pay Mr. Wang any unpaid Base Salary, benefits and any unreimbursed expenses within 10 days after the termination date; (ii) any unvested portion of equity granted to Mr. Wang through any agreement, including restricted stock awards, will be automatically forfeited; and (iii) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. If NGTF terminates the agreement without cause, then NGTF will (i) pay Mr. Wang any Base Salary or other amounts accrued and any unreimbursed expenses incurred within 10 days following the termination date; (ii) pay Mr. Wang a lump sum equal to the Base Salary that would have been paid to Mr. Wang for the remainder of the Initial Term or Renewal Term within 10 days of the termination; (iii) any grant of equity made to Mr. Wang, to the extent not vested, will automatically vest; and (iv) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. Should Mr. Wang terminate the Employment Agreement with good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated without cause. If Mr. Wang terminates the Employment Agreement without good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated with cause. With regards to intellectual property, Mr. Wang has agreed that any work product resulting from the Employment Agreement will be the sole and exclusive property of NGTF and has irrevocably assigned all right, title and interest worldwide in and to any work product to NGTF. NGTF may also sublicense any work product resulting from the Employment Agreement. Financing agreements Mast Hill Fund, L.P. On January 24, 2024 (the “Issuance Date”), the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “MH Note”) in the principal amount of $388,300 (the “Principal Amount”) (actual amount of purchase price of $330,055 plus an original issue discount (“OID”) in the amount of $58,245). The use of proceeds from the sale of the MH Note is strictly for payment of operating expenses and to provide operating capital of $250,300.00 to Future Hospitality Ventures Holdings, LLC (“FHVH”) in advance of the anticipated acquisition transaction with FHVH, and for no other purpose. The maturity date of the MH Note is the 12-month anniversary of the Issuance Date, and is the date upon which the principal amount, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Company paid certain fees and issued certain agents warrants in respect to the aforementioned financing agreements. The agreements also provide for terms of conversion only upon an event of default. Further the MH Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in Note 7(f). On March 15, 2024, the Company consummated certain transactions pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) dated as of March 12, 2024 (the “Effective Date”) and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “Note”) in the principal amount of $336,000.00 (actual amount of purchase price of $285,600 plus an original issue discount (“OID”) in the amount of $50,400). The use of proceeds from the sale of the Mast Hill Note is strictly for business development and expenses related to compliance and merger and ongoing acquisition activity, and not for any other purpose. The maturity date of the Mast Hill Note is the 12-month anniversary of the Issuance Date, and is the date upon which the principal amount, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Company paid certain fees and issued certain agents warrants in respect to the aforementioned financing agreements. The agreements also provide for terms of conversion only upon an event of default. Further the MH Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in Note 7(f). Fourth Man On February 1, 2024, Fourth Man and NGTF entered into a letter agreement whereby Fourth Man agreed to amend that certain promissory note in the principal amount of $65,000 issued by NGTF to Fourth Man on June 29, 2023 (the “Note”) and that certain promissory note in the principal amount of $60,000 to Fourth Man on August 28, 2023 (the “Subsequent Note”, together with the Note, the “Notes”), effective as of January 23, 2024. The amendment removed the right to the adjustment to the conversion price of the note to the price per share specified in Section 3.21 of the promissory note (“the Affected Adjustment”) issued on August 28, 2023 by NGTF to Fourth Man (the “Subsequent Note”). The letter also amended the Subsequent Note to remove the right to the adjustment to the conversion price during the effective period, solely with respect to the Affect Adjustment. In exchange for Fourth Man’s execution of the letter, NGTF agreed, to (i) increase the total outstanding principal and accrued interest of the Notes and (ii) issue 1,667 shares of NGTF’s Series D Preferred Stock to Fourth Man. Nightfood Holdings, Inc. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Amendments to Articles of Incorporation On January 26, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series A Super Voting Preferred Stock (the “Series A Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series A COD”) by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A COD, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1). No other changes were made. Also on January 26, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”), which established 500,000 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series C COD. The shares of Series C Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series C Preferred Stock. The shares of Series C Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series C Preferred Stock are not entitled to dividends. The Company’s board of directors unanimously approved the Amended Series A COD and the Series C COD. The Amended Series A COD was also approved by the affirmative vote of the Company’s majority stockholder entitling it to a majority of the voting power. On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made. Also on February 7, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”), which established 100,000 shares of Series D Convertible Preferred Stock (the “Series D Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series D COD. The shares of Series D Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series D Preferred Stock. The shares of Series D Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series D Preferred Stock are not entitled to dividends. NGTF’s board of directors unanimously approved the Amended Series C COD and the Series D COD. The Amended Series C COD was also approved by the affirmative vote of NGTF’s majority stockholder entitling it to a majority of the voting power. The Company has evaluated events for the period through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure. 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,
OVERVIEW
In February 2024, we acquired recently formed Future Hospitality Ventures Holdings, Inc. (“Future Hospitality”) in an all-stock transaction. We’re in the process of acquiring two
RECENT DEVELOPMENTS On February 2, 2024, Nightfood Holdings, Inc. Lei Sonny Wang, 44, founded and has served as chief executive officer of Future Hospitality Ventures Holdings Inc., a service robots distribution company to address operational inefficiencies in the FHVH is a new entrant in an explosive space: Robots-as-a-Service (RaaS). The OPERATING SUBSIDIARIES Nightfood, Inc. - The Nighttime Snack Problem and Opportunity What you eat before bed matters. Nightfood is pioneering the category of sleep-friendly nighttime snacking. Research indicates that humans are biologically hard-wired to load up on sweets and fats at night. Loading a surplus of calories (fuel) into the body before the long nightly fast is believed to be an outdated survival mechanism from our hunter-gatherer days. Unfortunately, while modern consumers know this type of consumption isn’t necessary for survival, willpower also weakens at night, so consumers are more likely to succumb to these As a result, over 90% of adults report snacking regularly between dinner and bed (according to SleepFoundation.org), resulting in an estimated 1 billion nighttime snack occasions weekly in the And, because these cravings are biologically hardwired, we believe modern unhealthy nighttime snacking behavior will continue to be a pattern and a problem for a significant portion of the In recent years, billions of dollars of consumer spend have
A significant portion of total snack consumption takes place between dinner and bed. Nutrition is an important part of sleep-hygiene because what one eats at night impacts sleep. Industry surveys indicate that modern consumers seek functional benefits from their snacks, and most consumers would also prefer better sleep. As the
Management believes significant latent consumer demand exists for better nighttime snacking options, and that a new consumer category, consisting of nighttime specific snacks,
Nightfood cookies offer similar nutritional benefits when compared to conventional cookies. They feature less sugar, less fat, fewer calories, more protein, more prebiotic fiber, and contain added inositol and vitamin B6. Each new Nightfood snack format would be expected to deliver sleep-friendly snacking in
The Because of the potential size and strategic importance of the nighttime-specific snack market, and the growing interest and understanding of the link between nutrition and sleep, potential exists for joint ventures with international food and beverage and wellness companies. In recent years, some of the largest food and beverage companies in the world have approached us to explore partnership opportunities. This includes Nestlé (with whom we completed a “test-and-learn” joint initiative in 2023) and others. Most recently, in January 2024, we were contacted by a leading international wellness brand which wanted to explore development of Nightfood branded snacks in a joint venture. Discussions surrounding such partnership opportunities remain ongoing, and shareholders should expect advancement of such initiatives to be predicated on successful Nightfood DTC scaling in mid-2024. DTC scaling would also allow us to evaluate additional opportunities in the hotel vertical. Nightfood ice cream pints remain available in a number of hotels across the country, some of whom are buying direct, and others through a third-party distributor. This limited distribution, and resulting revenue, are not significant. But we believe this distribution continues to indicate interest and opportunity in the hotel sector upon which we can capitalize in the future. Future plans for the Nightfood brand include the introduction of sleep-friendly snacks in additional formats with retail distribution in supermarkets, hospitality, and other traditional and non-traditional channels. Future Hospitality Ventures Holdings, Inc. Future Hospitality is a new and well-positioned entrant in the burgeoning Robotics-as-a-Service (“RaaS”) sector. The global service robots market is projected to exceed $170 billion by 2030. With a focus on The potential for growth DEVELOPMENT PLANS Our focus is on identifying and exploiting explosive market trends within the hospitality, food services, and consumer goods sectors. By leading newly emerging categories and by identifying opportunities in existing markets undergoing transformational upheaval, our aim is to create upside potential unmatched in more mature markets. In November, 2023, we announced our goal of building a portfolio of operating companies in these spaces to enhance stability and shareholder value through uplist to a senior exchange such as NASDAQ. The first acquisition in this process was completed in February 2024, when we acquired newly formed Future Hospitality in an all-stock transaction. We are currently in the process of acquiring two additional operating companies which are expected to bring millions of dollars in assets and synergistic revenue under the Nightfood Holdings umbrella, should the acquisitions be successfully completed, which we anticipate. Our updated timeline targets have us completing these two acquisitions in May of 2024, with the goal of transitioning to the NASDAQ before the end of calendar
Inflation can be expected to have an impact on our operating costs. A prolonged period of inflation could cause a general economic downturn and negatively impact our results.
SEASONALITY
We do not
RESULTS OF OPERATIONS FOR THE
For the three months ended December 31, Accounting standards require exclusion on the income statement of Gross Sales made to
Costs and For the three months ended December 31, For the three months ended December 31, For the three months ended December 31, For the three months ended December 31, 2023 and 2022, Professional Fees decreased from $491,448 to $114,116. This decrease was largely due to reduced expenses For the three months ended December 31, 2023 and 2022, Total Operating Expenses decreased from $690,908 to $175,271. As discussed above, the major component of this decrease was the reduction professional fees by $377,332 period over period. Total Operating Expenses include those expenses associated with running the operating portion of our business (such as the manufacturing our snacks, advertising for our product, warehousing, freight, and the like). It also includes certain cash and non-cash Other Income (Expense) For the three months ended December 31, 2023 and 2022, Total Other Expenses decreased to $316,784 from $3,882,723. The majority of these expenses are related to accounting treatment applied to financing costs, debt and the amortization of debt discount. During the three months ended December 31, 2023 we recorded amortization of debt discount of $201,481 and Net Loss Our net loss in the three months ended December 31, 2023 totaled $491,454 as compared to $4,560,262 in the three months ended December 31, 2022. The decrease to the net loss is directly related to a substantial decrease in financing costs and
RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2023 AND 2022 Revenue For the six months ended December 31, Accounting standards require exclusion on the income statement of Gross Sales made to
Costs and For the six months ended December 31, For the six months ended December 31, For the six months ended December 31,2023 and 2022, Selling, General, and Administrative expenses For the six months ended December 31, 2023 and 2022, Professional Fees decreased from $841,397 to $337,316. This decrease was largely due to reduced expenses in the current six months ended December 31, 2023, as we did not have costs associated with the preparation, filing, and qualification of our Tier 2 offering pursuant to Regulation A, which received qualification from the SEC on October 25, 2022. In addition we experienced a substantial decrease in consulting fees period over period. For the six months ended December 31, 2023 and 2022, Total Operating Expenses decreased from $1,329,485 to $608,931. As discussed above, the major components of this decrease was the reduction in advertising and marketing spend and professional fees for a cumulative reduction in costs from these two cost centers over the comparative periods of $594,825. Total Operating Expenses include those expenses associated with running the operating portion of our business (such as the manufacturing our snacks, advertising for our product, warehousing, freight, and the like). It also includes certain cash and non-cash Other Income (Expense) For the six months ended December 31, 2023 and 2022, Total Other Expenses decreased to $1,324,636 from $4,525,226. The majority of these expenses are related to accounting treatment applied to financing costs, debt and the amortization of debt discount. During the six months ended December 31, 2023 we recorded amortization of debt discount of $413,740 and
Net Loss
Customers In each of the three- and the six-month periods ended December 31, 2023, we had 1 customer which accounted for more than 10% of gross sales. During the six months ended December 31, 2022, the Company had four customers which individually accounted for more than 10% of gross sales and collectively accounted for approximately 83% of the gross sales. During the three
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, Our cash on hand is not adequate to satisfy our working capital needs. We believe that our current capitalization structure, ongoing merger and acquisition activity, and our access to institutional capital will enable us to successfully secure the required financing to execute our development plans. In addition, we are currently working on acquisitions of
If we are unable to raise cash through the sale of our securities, we may be required to severely restrict or
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.
Assuming we raise additional funds and continue operations, it is expected we
Cash Flow from Operating Activities During the six months ended December 31, 2022, net cash used in operating activities was $738,165 compared to
Cash Flow from Investing Activities We did not use any cash in investing activities, during the six months ended December 31, 2023 or December 31, 2022. Cash Flow from Financing Activities During the six months ended December 31, 2023, net cash of $301,400 was raised through the
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,
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
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,
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.
During the three months ended December 31, 2023, the Company issued 300,000 shares as a consulting fee with a fair value of $7,800. The shares were issued in reliance on an exemption from registration pursuant to 4(a)(2) of the Securities Act, as a transaction not involving any public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable. ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable. ITEM 5. OTHER INFORMATION.
On January 26, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series A Super Voting Preferred Stock (the “Series A Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series A COD”) by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A COD, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1). No other changes were made. Also on January 26, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”), which established 500,000 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series C COD. The shares of Series C Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series C Preferred Stock. The shares of Series C Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series C Preferred Stock are not entitled to dividends. The Company’s board of directors unanimously approved the Amended Series A COD and the Series C COD. The Amended Series A COD was also approved by the affirmative vote of the Company’s majority stockholder entitling it to a majority of the voting power. On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made. Also on February 7, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”), which established 100,000 shares of Series D Convertible Preferred Stock (the “Series D Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series D COD. The shares of Series D Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series D Preferred Stock. The shares of Series D Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series D Preferred Stock are not entitled to dividends. NGTF’s board of directors unanimously approved the Amended Series C COD and the Series D COD. The Amended Series C COD was also approved by the affirmative vote of NGTF’s majority stockholder entitling it to a majority of the voting power. Changes to executive Management On February 2, 2024 Mr. Sean Folkson resigned as CEO and Mr. Lei Sonny Wang was appointed CEO and to the Company’s board of directors. ITEM 6. EXHIBITS.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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