U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarter ended: March 31, 2019

 

Or

 

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

 

For the Transition Period from ___________ to____________

 

Commission File Number: 000-55406

 

Nightfood Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   46-3885019
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)
     

520 White Plains Road, Suite 500

Tarrytown, New York

  10591
(Address of Principal Executive Offices)   (Zip Code)

 

888-888-6444

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

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)-2 of the Exchange Act). Yes ☐   No ☒

 

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

 

Title of each class  Trading Symbol(s)  Name of each exchange on which registered
Nightfood Holdings, Inc Common Stock  NGTF  OTCQB

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. At May 14, 2019, the registrant had outstanding 52,997,543 shares of common stock. 

 

 

 

 

 

 

Table of Contents

 

PART I – FINANCIAL INFORMATION
     
Item 1. Financial Statements (Unaudited) 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 2
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 7
     
Item 4. Controls and Procedures. 7
     
PART II – OTHER INFORMATION
     
Item 1. Legal Proceedings. 8
     
Item 1A. Risk Factors. 8
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 8
     
Item 3. Defaults Upon Senior Securities. 8
     
Item 4. Mine Safety Disclosures. 8
     
Item 5. Other Information. 8
     
Item 6. Exhibits. 8
     
Signatures 9

 

i

 

 

NightFood Holdings, Inc.

 

 

 

Financial Statements

 

For the nine months ended March 31, 2019 and March 31, 2018

 

Item 1. Financial Statements

 

Financial Statements  
Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and June 30, 2018 F-1
Unaudited Condensed Consolidated Statement of Operations for the three and nine months ended March 31, 2019 and 2018 F-2
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the nine months ended March 31, 2019 F-3
Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended March 31, 2019 and 2018 F-4
Notes to Unaudited Condensed Consolidated Financial Statements F-5 - F-18

 

1

 

 

NightFood Holdings, Inc.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   June 30, 
   2019   2018 
   (Unaudited)     
ASSETS        
         
Current assets :        
Cash  $37,446   $48,440 
Accounts receivable - net   85,604    - 
Inventories   314,966    103,209 
Other current assets   22,019    3,210 
Total current assets   460,035    154,859 
           
Total assets  $460,035   $154,859 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $284,845   $215,782 
Accrued expense-related party   45,974    197,974 
Convertible notes payable – net of discount   741,959    633,870 
Fair value of derivative liabilities   970,010    1,765,187 
Short-term borrowings   -    1,000 
Total current liabilities   2,042,788    2,813,813 
           
Commitments and contingencies   -    - 
           
Stockholders’ deficit:          
Common stock, ($0.001 par value, 200,000,000 shares authorized, and 52,980,943 issued and outstanding as of March 31, 2019 and 42,608,329 outstanding as of June 30, 2018, respectively)   52,981    42,608 
Additional paid in capital   10,167,577    5,919,152 
Accumulated deficit   (11,803,311)   (8,620,714)
Total stockholders’ deficit   (1,582,753)   (2,658,954)
Total Liabilities and Stockholders’ Deficit  $460,035   $154,859 

 

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

 

F-1

 

 

NightFood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

   For the nine months 
ended March 31,
2019
   For the nine months 
ended March 31,
2018
   For the 
three months
ended March 31,
2019
   For the
three months
ended March 31,
2018
 
Revenues  $296,434   $136,458   $159,575   $27,732 
                     
Operating expenses                    
Cost of product sold   129,634    101,807    74,443    16,378 
Advertising and promotional   285,700    132,831    105,277    30,459 
Selling, general and administrative   432,095    441,545    127,775    125,561 
Professional Fees   449,554    982,601    146,254    509,819 
Total operating expenses   1,296,983    1,658,784    453,749    682,217 
                     
Loss from operations   (1,000,549)   (1,522,326)   (294,174)   (654,485)
                     
Interest expense - shareholder   89,750    9,517    (100)   5,529 
Change in derivative liability   596,033    187,255    1,377,160    (63,210)
Interest expense - other   1,495,485    790,831    539,352    346,390 
Other expense   779    1,068,386    -    416,608 
Total other expense   2,182,047    2,055,989    1,916,412    705,317 
                     
Provision for income tax   -    -    -    - 
                     
Net loss  $(3,182,596)  $(3,578,315)  $(2,210,586)  $(1,359,802)
                     
Basic and diluted net loss per common share  $(0.07)  $(0.11)  $(0.04)  $(0.04)
                     
Weighted average shares of capital outstanding – basic and diluted   46,021,658    33,718,520    49,678,759    37,545,845 

 

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

 

F-2

 

 

NightFood Holdings, Inc.

 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

   Common Stock   Additional Paid in   Accumulated   Stockholders’ 
   Shares   Par Value   Capital   Deficit   Deficit 
Balance, June 30, 2018   42,608,329   $42,608   $5,919,152   $(8,620,714)  $(2,658,954)
Common stock issued for services   165,168    165    164,647    -    164,812 
Common stock issued for interest   641,865    642    89,108    -    89,750 
Common stock issued for accounts payable   281,957    282    63,568    -    63,850 
Common stock issued for cash   84,389    84    49,916    -    50,000 
Issuance of warrants   400,000    400    119,600    -    120,000 
Beneficial Conversion for debt discount   -    -    2,546,432    -    2,546,432 
Issuance of common stock for debt   8,799,235    8,800    1,215,153    -    1,223,953 
Net loss   -    -    -    (3,182,596)   (3,182,596)
Balance, March 31, 2019   52,980,943   $52,981   $10,167,577   $(11,803,310)  $(1,582,752)

 

F-3

 

 

NightFood Holdings, Inc.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  

For the 
nine months
ended

March 31,
2019

  

For the
nine months
ended

March 31,
2018

 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(3,182,596)  $(3,578,315)
Adjustments to reconcile net loss to net cash used in operations activities:          
Stock issued for services   164,812    476,900 
Stock issued as part of loan agreement   89,750    9,517 
Amortization of debt discount and deferred financing fees   1,495,334    1,499,255 
Change in derivative liability   596,033    187,255 
Change in accounts receivable   (85,604)   382 
Change in inventory   (211,757)   (29,986)
Change in other current assets   (18,809)   1,170 
Change in accounts payable   132,914    (21,425)
Change in accrued expenses   (32,000)   18,000 
Net cash used in operating activities   (1,051,923)   (1,437,247)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from the sale of stock   50,000    36,117 
Proceeds from the issuance of debt-net   1,094,005    1,714,093 
Advance from shareholders   -    10,800 
Repayment of short-term debt   (1,000)   (1,496)
Repayment of related party advance   -    (11,795)
Repayment of convertible debt   (102,076)   (316,500)
Net cash provided by financing activities   1,040,929    1,431,219 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   (10,994)   (6,028)
           
Cash and cash equivalents, beginning of period   48,440    14,326 
Cash and cash equivalents, end of period  $37,446   $8,298 
           
Supplemental Disclosure of Cash Flow Information:          
Cash Paid For:          
Interest  $89,750   $20,723 
Income taxes  $-   $- 
Summary of Non-Cash Investing and Financing Information:          
Debt discount due to beneficial conversion feature  $392,005   $1,559,886 
Value of embedded derivative liabilities  $-   $522,722 
Stock issued for conversion of debt  $1,223,953   $292,901 

   

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

 

F-4

 

 

NightFood Holdings, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Description of Business   Nightfood Holdings, Inc. (the “Company”) is a Nevada Corporation organized October 16, 2013 to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York Corporation from its sole shareholder, Sean Folkson.  All of its operations are conducted by its two subsidiaries: Nightfood, Inc. (“Nightfood”) and MJ Munchies, Inc.( “Munchies”). Nightfood’s business model is to manufacture and distribute snack products specifically formulated for nighttime snacking to help consumers satisfy nighttime cravings in a better, healthier, more sleep friendly way.  Munchies has acquired a portfolio of intellectual property around the brand name Half-Baked, and is launching a line of cannabis edibles such as cookies, brownies, and candies, through licensees and other relationships.
       
    The Company’s fiscal year end is June 30.
       
    The Company currently maintains its corporate address in Tarrytown, New York.

 

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 as of and for the nine (9) months ended March 31, 2019 and 2018, 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 years ended June 30, 2018 and 2017, respectively, which are included in the Company’s June 30, 2018 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on September 28, 2018. 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 nine (9) months ended March 31, 2019 are not necessarily indicative of results for the entire year ending June 30, 2019.

 

We may make certain reclassifications to prior period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.

       
  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 notes for BCF and derivative liability, among others.
       
  Cash and Cash Equivalents The Company classifies as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various instruments with original maturities of three months or less at the time of purchase.
       
  Fair Value of Financial Instruments Statement of financial accounting standard FASB Topic 820, Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for assets and liabilities qualifying as financial instruments are a reasonable estimate of fair value.
       
  Inventories Inventories consisting of packaged food items and supplies are stated at the lower of cost (FIFO) or market, including provisions for spoilage commensurate with known or estimated exposures which are recorded as a charge to cost of sales during the period spoilage is incurred. The Company has no minimum purchase commitments with its vendors.

 

F-5

 

 

  Advertising Costs Advertising costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations. Although not traditionally thought of by many as “advertising costs”, the Company includes expenses related to graphic design work, package design, website design, domain names, and product samples in the category of “advertising costs”. The Company incurred advertising costs of $285,700 and $132,831 for the nine months ended March 31, 2019 and 2018, respectively.  Of the $285,700 classified as “advertising costs”, $90,000 was for public relations, $73,572 was related to website design, packaging design and production set-up for the ice cream launch.  Only 32% of this total was for what would be considered by many to be advertising in the form of paid advertisements.
       
  Income Taxes The Company has not generated any taxable income, and, therefore, no provision for income taxes has been provided.
       
    Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with FASB Topic 740, “Accounting for Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.
       
    A valuation allowance has been recorded to fully offset the deferred tax asset even though the Company believes it is more likely than not that the assets will be utilized.
       
    The Company’s effective tax rate differs from the statutory rates associated with taxing jurisdictions because of permanent and temporary timing differences as well as a valuation allowance.
       
  Revenue Recognition The Company generates its revenue by selling its nighttime snack products wholesale and direct to consumer.
       
    All sources of revenue is recorded pursuant to FASB Topic 606 Revenue Recognition, when persuasive evidence of arrangement exists, delivery of services has occurred, the fee is fixed or determinable and collectability is reasonably assured.
       
    The Company offers sales incentives through various programs, consisting primarily of advertising related credits. The Company records advertising related credits with customers as a reduction to revenue as no identifiable benefit is received in exchange for credits claimed by the customer.
       
   

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

 

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

 

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

 

     

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

 

F-6

 

 

      E-commerce revenues. 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. The Company has not revised prior period balances for e-commerce revenues because the changes are not material.
       
  Concentration of
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits at financial institutions. At various times during the year, the Company may exceed the federally insured limits. To mitigate this risk, the Company places its cash deposits only with high credit quality institutions. Management believes the risk of loss is minimal. At March 31, 2019 and June 30, 2018, the Company did not have any uninsured cash deposits.

 

  Beneficial Conversion Feature

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

 

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

       
  Debt Issue Costs The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of operations as amortization of debt discount.
       
  Original Issue
Discount
If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as amortization of debt discount. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
       
  Valuation of Derivative Instruments ASC 815 “Derivatives and Hedging” requires that embedded derivative instruments be bifurcated and assessed, along with free-standing derivative instruments such as warrants, on their issuance date and measured at their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option pricing formula. Upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives and debt discounts and recognizes a net gain or loss on debt extinguishment.
       
  Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations. For stock based derivative financial instruments, Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

 

Once determined, derivative liabilities are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value from inception is made quarterly and appears in results of operations as a change in fair market value of derivative liabilities.

 

F-7

 

 

  Stock-Based Compensation   The Company accounts for share-based awards issued to employees in accordance with FASB ASC 718. Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.  Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value. The Company applies ASC 505-50, “Equity Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees.

 

  Customer Concentration During the nine months ended March 31, 2019, the Company had one customer account for 17.6% of the revenue volume.  As the Company is moving away from a direct-to-consumer model, and more towards wholesaling to large accounts, it is anticipated fewer large customers will begin to comprise total revenues in coming quarters.
       
  Receivables Concentration As of March 31, 2019, the Company had one customer accounting approximately, 43% of the outstanding balance and two customers having approximately 27% and 20% respectively of the outstanding balance.   
       
  Income Per Share Net income per share data for both the nine-month periods ending March 31, 2019 and 2018 are based on net income available to common shareholders divided by the weighted average of the number of common shares outstanding. As of March 31, 2019, there are no outstanding common stock equivalents.
       
  Impairment of Long-lived Assets The Company accounts for long-lived assets in accordance with the provisions of FASB Topic 360, Accounting for the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Fair values are determined based on quoted market value, discounted cash flows or internal and external appraisals, as applicable.
       
  Recent Accounting Pronouncements   In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurements of Financial Assets and Financial Liabilities. The standard will be effective for us beginning January 1, 2019. We are currently evaluating the impact of this standard on our financial statements, including accounting policies, processes, and systems.

 

F-8

 

 

     

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequently amended the guidance relating largely to transition considerations under the standard in January 2017, to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We will be required to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available.

 

The standard will be effective for us beginning July 1, 2019. The standard may have a material impact on our balance sheets in the future if we entered into new leases, but will not have a material impact on our statement of operations. The most significant impact will be the recognition of ROU assets and lease liabilities for operating leases. We are currently evaluating the impact of this standard on our financial statements, including accounting policies, processes, and systems.

 

The Company will continue to monitor these emerging issues to assess any potential future impact on its financial statements.

       
     

In August 2016, the FASB issued “ASU” 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments.  This standard clarifies how specific cash receipts and cash payments are classified and presented in the statement of cash flows. This update is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material effect on its consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation.  This standard provides guidance related to the scope of stock option modification accounting, to reduce diversity in practice and reduce cost and complexity regarding existing guidance. This update is effective for annual periods beginning after December 15, 2017.  Early adoption is permitted. The Company does not expect the adoption of ASU 2017-09 to have a material effect on its consolidated financial statements.

       
      In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The new guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption is permitted in interim periods, including periods for which financial statements have not been issued or financial statements have not been made available for issuance. The adoption of this standard is not expected to have a material effect on the Company’s consolidated financial statements.

 

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

 

    Management is taking steps to raise additional funds to address its operating and financial cash requirements to continue operations in the next twelve months. Management has devoted a significant amount of time in the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. The Company has received several tranches of capital from a friendly institutional investor, who we expect to continue to fund ongoing operations, as well as the development and launch of new products and intellectual property for Nightfood and MJ Munchies.

 

F-9

 

 

4. Accounts receivable The Company’s accounts receivable arise primarily from the sale of the Company’s products. On a periodic basis, the Company evaluates each customer account and based on the days outstanding of the receivable, history of past write-offs, collections, and current credit conditions, writes off accounts it considers uncollectible. With most of our retail and distribution partners, invoices will typically be due in 30 or 45 days. The Company does not accrue interest on past due accounts and the Company does not require collateral. Accounts become past due on an account-by-account basis. Determination that an account is uncollectible is made after all reasonable collection efforts have been exhausted. The Company has not provided any sales allowances for March 31, 2019 and June 30, 2018, respectively.

 

5. Inventories Inventory consists of the following at March 31, 2019 and June 30, 2018,

 

   March 31,
2019
   June 30,
2018
 
Finished goods - bars  $37,322   $96,116 
Finished goods - ice cream   229,169    - 
Raw material - ingredients   18,192    - 
Packaging   30,283    7,093 
TOTAL  $314,966   $103,209 

 

      Inventories are stated at the lower of cost or market. 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.

 

6. Other current assets Other current assets consist of the following at March 31, 2019 and June 30, 2018,

 

   March 31,
2019
   June 30,
2018
 
Vendor deposits - Other  $22,019   $3,210 
TOTAL  $22,019   $3,210 

  

7. Other Current Liabilities Other current liabilities consist of the following at March 31, 2019 and June 30, 2018,

 

   March 31,
2019
   June 30,
2018
 
Accrued consulting fees – related party  $45,974   $197,974 
TOTAL  $45,974   $197,974 

 

F-10

 

 

8. Notes Payable Notes Payable consist of the following at March 31, 2019,

 

     

On September 8, 2017, the Company entered into a convertible promissory note and a security purchase agreement dated September 8, 2017 and funded on September 12, 2017, in the amount of $222,750. The lender was Eagle Equities, LLC. The notes have a maturity of September 8, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital.  As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

 

     

On November 6, 2017, the Company entered into a convertible promissory note and a security purchase agreement dated November 6, 2017, in the amount of $48,647. The lender was Eagle Equities, LLC. The notes have a maturity of November 6, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

 

     

On November 6, 2017, the Company entered into a convertible promissory note and a security purchase agreement dated November 6, 2017, in the amount of $45,551. The lender was Eagle Equities, LLC. The notes have a maturity of November 6, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

       
     

On November 15, 2017, the Company entered into a convertible promissory note a security purchase agreement dated November 15, 2017, in the amount of $75,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 15, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

 

F-11

 

 

     

On December 27, 2017, the Company entered into a convertible promissory note and a security purchase agreement dated December 27, 2017, in the amount of $60,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 27, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

       
     

On January 10, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated January 10, 2018, in the amount of $110,000. The lender was Eagle Equities, LLC. The notes had a maturity of January 10, 2019 and interest rate of 8% per annum and was convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock was then listed for the twenty (20) trading days immediately prior to conversion.

 

This note has been successfully retired

       
     

On January 31, 2018, the Company received funding in conjunction with a convertible promissory note and a security purchase agreement dated September 8, 2017, in the amount of $210,000. The lender was Eagle Equities, LLC. The notes have a maturity of September 8, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion.

 

This note has been successfully retired.

       
     

On March 2, 2018, the Company received funding in conjunction with a convertible promissory note and a security purchase agreement dated November 15, 2017, in the amount of $75,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 15, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

 

F-12

 

 

     

On March 2, 2018, the Company received funding in conjunction with a convertible promissory note and a security purchase agreement dated December 27, 2017, in the amount of $60,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 27, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

       
     

On March 2, 2018, the Company received funding in conjunction with a convertible promissory note and a security purchase agreement dated March 2, 2018, in the amount of $115,000. The lender was Eagle Equities, LLC. The notes have a maturity of March 2, 2019 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest closing bid on the primary trading market on which the Company’s Common Stock is then listed for the ten (10) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

       
     

On April 10, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated April 10, 2018, in the amount of $62,500. The lender was Eagle Equities, LLC. The notes have a maturity of April 10, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

       
      On April 30, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated April 30, 2018, in the amount of $225,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 30, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $18,493.

 

F-13

 

 

      On June 5, 2018, the Company received cash in conjunction with a convertible promissory note and Securities Purchase Agreement dated June 5, 2018.  The note was in the amount of in the amount of $210,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 6, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $36,066.
       
     

On June 18, 2018, the Company received cash in conjunction with a convertible promissory note and Securities Purchase Agreement dated October 18, 2017. The note was in the amount of in the amount of $52,500. The lender was Eagle Equities, LLC. The notes have a maturity of October 18, 2018 and interest rate of 8% per annum and are convertible at a price of 50% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading days immediately prior to conversion.

 

This note has been successfully retired.

 

On June 18, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated June 18, 2018, in the amount of $52,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 18, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

       
      On July 2, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated July 12, 2018, in the amount of $207,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 12, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $52,743.

 

     

On August 2, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated August 2, 2018, in the amount of $107,005. The lender was Eagle Equities, LLC. The notes have a maturity of August 2, 2019 and interest rate of 8% per annum and are convertible at a price of 60% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

 

     

On September 7, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated September 7, 2018, in the amount of $78,000. The lender was Eagle Equities, LLC. The notes have a maturity of September 7, 2019 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $0.

 

This note has been successfully retired.

 

F-14

 

 

      On October 5, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated October 5, 2018, in the amount of $104,000. The lender was Eagle Equities, LLC. The notes have a maturity of October 5, 2019 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $53,567.
       
      On November 16, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated November 16, 2018, in the amount of $130,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 16, 2019 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $81,205.
       
      On December 18, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated December 18, 2018, in the amount of $130,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 18, 2019 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $92,580.
       
      On January 28, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated January 28, 2019, in the amount of $234,000. The lender was Eagle Equities, LLC. The notes have a maturity of January 28, 2020 and interest rate of 8% per annum and are convertible at a price of 65% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $187,986.
       
      On February 14, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated February 14, 2019, in the amount of $104,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 14, 2020 and interest rate of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The Company also determined there was a beneficial conversion feature ( BCF ) as a result of the intrinsic value between the effective exercise price and the market price. The BCF is included in additional paid in capital. As of March 31, 2019, the BCF was $75,183.

 

      Below is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of March 31, 2019:

 

Convertible notes payable issued as of June 30, 2018  $633,870 
Convertible notes payable issued as of March 31, 2019   1,094,005 
Unamortized amortization of debt and beneficial conversion feature   340,113 
Notes paid   (102,076)
Notes converted into shares of common stock   (1,223,953)
Balance at March 31, 2019  $741,959 

  

F-15

 

 

9. Derivative Liability  

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

 

During the nine month period ended March 31, 2019, the Company recorded a loss in fair value of derivative $596,033. The Company will measure the fair value of each derivative instrument in future reporting periods and record a gain or loss based on the change in fair value.

       
10. Short and long term Borrowings On November 24, 2010, the Company entered into a Small Business Working Capital Loan with a well-established Bank. The loan is personally guaranteed by the Company’s Chief Executive Officer, which is further guaranteed for 90% by the United States Small Business Administration (SBA). 
       
      The term of the loan is seven years until full amortization and currently carries an 9.75% interest rate, which is based upon Wall Street Journal (“WSJ”) Prime 5.00 % Plus 4.75% and is adjusted quarterly. Monthly principal payments are required during this 84 month period. This note was satisfied during the second quarter ended December 31, 2018.

 

   March 31,
2019
   June 30,
2018
 
Bank loan  $-   $1,000 
Total borrowings   -    1,000 
Less: current portion   -    (1,000)
Long term debt  $-   $- 

 

      There was no interest expense incurred for the nine months ended March 31, 2019 and 2018, respectively.

 

11. Capital Stock Activity The Company has 52,980,943 and 42,608,329 shares of its $0.001 par value common stock issued and outstanding as of March 31, 2019 and June 30, 2018 respectively.
       
    During the nine months ended March 31, 2019 the Company issued 665,168 shares of common stock for services valued at $204,812, cancelled 500,000 shares at a value of $50,000, issued 8,799,235 shares in regards to debt being converted into stock valued at $1,223,953, issued 281,957 shares in regards of relieving an accounts payable liability valued at $63,850, issued 400,000 shares in regards to the exercise of warrants valued at $120,000 to CEO Sean Folkson, issued 84,389 shares valued at $50,000 for cash, and issued 641,865 shares of common stock valued at $89,750 as part of a loan agreement and payment of interest as part of the debt conversion.

 

12. Warrants   The following is a summary of the Company’s outstanding common stock purchase warrants.  Of the 500,000 warrants shown below at an exercise price of $.15, only 150,000 have vested as of the date of this filing.  These warrants were issued as compensation for a four-year advisory agreement.  Should the advisor complete the entire term of the engagement the remaining warrants will vest as follows; 150,000 warrants on July 24, 2019, another 150,000 on July 24, 2020, and the remaining 50,000 on July 24, 2021.
       
      The aggregate intrinsic value of the warrants as of March 31, 2019 is $332,250.

 

    Outstanding at           Outstanding 
Exercise Price   June 30,
2018
   Exercised in
2019
   Expired   March 31,
2019
 
$0.15    500,000    -    -    500,000 
$0.20    105,000    -    -    105,000 
$0.30    500,000    (400,000)   -    100,000 
$0.75    300,000    -    -    300,000 
      1,405,000    (400,000)   -    1,005,000 

  

F-16

 

 

13. Fair Value of Financial Instruments   Cash and Equivalents, Receivables, Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities.
       
      The carrying amounts of these items approximated fair value.
       
      Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).
       
      Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
       
      Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
       
      Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.
       
      The application of the three levels of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:

 

   March 31, 2019 Fair Value Measurements 
   Level 1   Level 2   Level 3   Total Fair
Value
 
Assets                
Other assets  $-   $-   $-   $- 
Total  $-   $-   $-   $- 
Liabilities                    
Short and long-term debt  $1,344,000   $-   $-   $1,344,000 
Total  $1,344,000   $-   $-   $1,344,000 

 

   Fiscal 2018 Fair Value Measurements 
   Level 1   Level 2   Level 3   Total Fair
Value
 
Assets                
Other assets  $-   $-   $-   $- 
Total  $-   $-   $-   $- 
Liabilities                    
Short and long-term debt  $1,576,024   $-   $-   $1,576,024 
Total  $1,576,024   $-   $-   $1,576,024 

 

14. Commitments and Contingencies:    

The Company has entered into certain consulting agreements which carry commitments to pay advisors and consultants should certain events occur. An agreement is in place with one Company Advisor that calls for total compensation over the four year Advisor Agreement of 500,000 warrants with an exercise price of $.15 of which 150,000 have vested, should the advisor complete the entire term of the engagement, 150,000 warrants will vest on July 24, 2019, another 150,000 on July 24, 2020, and the remaining 50,000 on July 24, 2021.

 

Additional Consulting agreements call for two Individual Consultants to receive cash and stock bonuses for directly assisting the Company in hitting certain operational milestones, such as national television publicity, achieving revenues of $500,000 monthly, $1,000,000 monthly, and $3,000,000 quarterly.

 

CEO Sean Folkson has a consulting agreement which will reward him with 1,000,000 warrants at a strike price of $.50 when the Company records its first quarter with revenues over $1,000,000, and an additional 3,000,000 warrants with a $.50 strike price when the Company records its first quarter with revenues over $3,000,000.

 

F-17

 

 

15. Related Party Transactions

During the third quarter of Fiscal Year 2015, Mr. Folkson began accruing a consulting fee of $6,000 per month which the aggregate of $24,000 is reflected in professional fees for the three month period ended March 31, 2019 and reflected in the accrued expenses – related party with a balance of $45,974 and $197,974 at March 31, 2019 and June 30, 2018, respectively.

 

On December 8, 2017, Mr. Folkson purchased Warrants to acquire up to 80,000 additional shares of NGTF stock at a strike price of $.20, and with a term of three (3) years from the date of this agreement. Mr. Folkson acquired these Warrants at a cost of $.15 per warrant, which resulted in a reduction in the accrued consulting fees due him by $12,000. During the second quarter Mr. Folkson purchased 400,000 shares of stock at a strike price of $0.30 per share, valued at $120,000 which was charged to his accrual. In addition, during the nine months ended March 31, 2019, Folkson had been paid $36,000 against his total accrued balance to date.

 

    In addition, the Company made bonuses available to Folkson upon the Company hitting certain revenue milestones of $1,000,000 in a quarter and $3,000,000 in a quarter.   Achieving those milestones would earn Folkson warrants with a $.50 strike price which must be exercised within 15 days of the respective quarterly or annual filing

 

   

On February 4, 2019, the Company entered into a “Lock-Up” Agreement with Folkson whereby Folkson has agreed to not transfer, sell, or otherwise dispose of any shares of his NGTF stock during the next twelve months.

 

As part of this agreement, Folkson received warrants to acquire 400,000 shares of NGTF common stock at an exercise price of $.30 per share. All warrants carry a twelve month term and a cashless provision, and will expire if not exercised within the twelve month term. Folkson may not transfer, sell, or otherwise dispose of these warrants at any time, as there are no transfer rights provided for in the Agreement.

 

16. Subsequent Events On May 6, 2019, the Registrant completed the issuance of a total of 63,750 shares to two consultants and 30 brand ambassadors.
       
    ●  On April 29, 2019 the Company entered into a convertible promissory note and security purchase agreement dated and funded April 29, 2019, in the amount of $208,000. The lender was Eagle Equities, LLC.
       
    On April 29, 2019, the Registrant entered into a distribution and marketing partnership agreement with a direct-delivery retail partner.

   

F-18

 

 

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, 2018, as well as the other information set forth herein.

 

OVERVIEW

 

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

 

MJ Munchies, Inc. is a Nevada corporation formed in January of 2018 to exploit legally compliant opportunities in the CBD and marijuana edibles and related spaces. The Company intends to market some of these new products under the brand name “Half-Baked”. To date, this subsidiary and its operations have had a nominal impact on the financial statements contained herein.

 

Since inception, MJ Munchies has applied for U.S. Trademark protection for its brand of Half-Baked snacks, currently under development. The Company also applied for, and was granted, trademark protection in the state of California for the name Half-Baked for snacks containing THC. In addition, The Company acquired HalfBaked.com, and has secured other intellectual property in its portfolio, including a US Patent Application related to a proprietary ingredient it has developed for use in THC-infused edibles.

 

NightFood, Inc. is a snack company focused on manufacturing and distribution of Nightfood nighttime ice cream. The Nightfood ice cream national rollout began in the early part of calendar 2019. The Company secured distribution in multiple regional supermarket chains within four months of manufacturing its first pint.

 

On February 7, 2019, it was announced that the Nightfood ice cream line was voted best new ice cream of 2019 in a survey of over 40,000 consumers. Global market research giant Kantar conducted the survey, and the result was that Nightfood won the prestigious Product of the Year award. As announced in a recent news release, the benefits of this award include millions of dollars in publicity through national and regional media outlets, enhanced consumer perception, and stronger consumer trial at retail.

 

Management is confident consumer demand exists for better nighttime snacking options, and that they are pioneering a new consumer category consisting of nighttime specific snacks. This confidence is supported by research from major consumer goods research firms such as IRI Worldwide, and Mintel, who identified nighttime specific foods and beverages as one of the “most compelling and category changing trends” for 2017 and beyond.

 

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

 

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

  

2

 

 

DEVELOPMENT PLANS

 

Eight flavors of Nightfood ice cream are currently available at retail. The research & development team has already begun working with the on additional flavors of ice cream and dairy-free options. These new products are expected to be available for sampling and presentation, along with all existing flavors, when most of the major supermarket chains hold their ice cream review period in September and October of this year.

 

In addition to the stated goal of securing distribution in 10,000 retail outlets by March 31, 2020, Nightfood recently entered into a partnership with goPuff, the world’s first digital convenience retailer. This partnership allows for Nightfood to market its ice cream directly to high-volume consumers who can then place an order through the goPuff website or app, and have their Nightfood delivered in under 30 minutes. Nightfood ice cream is currently available in goPuff markets such as Boston, Washington DC, Philadelphia, Baltimore, Chicago, and many others. Over the next several months, the joint roll-out plan would have Nightfood in additional markets such as Denver, Atlanta, Phoenix, Seattle, Portland, Austin, Houston, Dallas, Tampa, and many others.

 

Management believes this relationship will allow the brand to rapidly and efficiently scale consumer ad spend, which will directly drive revenue growth and facilitate additional traditional distribution opportunities with the largest retail chains in the nation.

 

MJ Munchies recently signed a Letter of Intent to enter into a licensing agreement with Global Consortium, Inc., a company currently in the business of manufacturing and distributing marijuana-infused edible products. Under this proposed agreement, Global Consortium would be granted the rights to manufacture and distribute products under Munchies’ Half-Baked™ mark. Global Consortium reported over $600,000 in sales in the quarter ending September 30, 2018 and reported selling over $2,000,000 in CBD products for 2018.  Subsidiary Infused Edibles has what is believed to be the broadest selection of infused product SKUs.  As of the date of this filing, the two Parties are working together to finalize and execute the licensing agreement.

 

INFLATION

 

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

 

SEASONALITY

 

Because management expects rapid growth in terms of both distribution and sales velocity in the coming months and years, we do not believe that our business will be seasonal to any material degree until full national penetration has been established.

 

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIOD ENDED

 

March 31, 2019 and March 31, 2018.

 

Certain income statement expenses discussed below, such as interest expense and change in derivative liability, are “non-cash expenses” that are exacerbated by the significant increase in the price of our common stock during the reporting quarter. Had our stock price remained flat or decreased during the quarter, with no changes to our operations, our revenues or other expenses, these financing-related expenses could have been closer to zero, or even have an income related P&L effect. As such, aspects of the losses discussed below do not directly reflect on the day-to-day operations of our business, and should not be viewed as an indication of what future income statements might look like as we scale our operations. We are confident operational profitability is attainable during the next few quarters through our operations prior to such adjustments.

  

3

 

 

For the three months ended March 31, 2019 and March 31, 2018 we had revenues of $159,575 and $27,732 respectively and incurred an operating loss of $294,174 and $654,485 respectively. The revenue increase is the result of sales of newly launched Nightfood ice cream to four distributors and our e-commerce partner. A result of this increase in sales is an increase in cost of goods sold from $16,378 for the three months ending March 31, 2018 to $74,443 for the three months ending March 31, 2019. Our income statement shows an increase in “Advertising and Promotional” from $30,459 for the three months ending March 31, 2018 to $105,277 for the three months ending March 31, 2019. It’s important to note that $72,000 of the $105,277 was for public relations and not what most would likely consider “advertising”. Paid advertising actually decreased from $19,742 for the quarter ending March 31, 2018 to $16,675 for the quarter ending March 31, 2019. Selling, general, and administrative expenses increased slightly from $125,561 for the three months ending March 31, 2018 to $127,775 for the three months ending March 31, 2019. This category includes expenses such as website design, freight, warehousing, shipping, public relations, product liability insurance, and research & development of new products.

 

For the nine months ended March 31, 2019 and March 31, 2018 we had revenues of $296,434 and $136,458 respectively and incurred an operating loss of $1,000,549 and $1,522,326 respectively. The majority of the revenue increase is the result of sales of newly launched Nightfood ice cream to four distributors and our e-commerce partner. A result of this increase in sales is an increase in cost of goods sold from $101,807 for the nine months ending March 31, 2018 to $129,634 for the nine months ending March 31, 2019.

 

Professional fees decreased from $509,819 for the three months ending March 31, 2018 to $146,254 for the three months ending March 31, 2019. For the three months ended March 31, 2019 compared to the three months ended March 31, 2018, we also experienced changes in derivative liabilities from ($63,210) to $1,377,160 and interest expense from $346,390 to $539,352. For the three months ended March 31, 2019, the Company recorded other expenses of $0 compared to $416,608 for the three months ended March 31, 2018. This decrease is attributable to the fact that there was no need to restructure or consolidate debt in the current quarter. As a direct result of the prior successful consolidation, Management has been able to secure ongoing operating capital to launch new initiatives such as the Half-Baked line of cannabis edibles, and Nightfood ice cream, while minimizing dilution associated with the use of convertible notes from multiple lenders. Although no assurances can be given, management believes that the positive results of these efforts will lead to more efficient sources of capital, and allow the Company to grow operations and revenues in a meaningful way, ultimately increasing shareholder value.

 

“Advertising and Promotional” increased from $132,831 for the nine months ending March 31, 2018 to $285,700, with much of this increase accounted for by expenses related to the design and production set up costs for the new ice cream packaging, and public relations. Selling, general, and administrative expenses decreased from $441,545 for the nine months ending March 31, 2018 to $432,095 for the nine months ending March 31, 2019. Again, this category includes expenses such as website design, freight, warehousing, shipping, public relations, product liability insurance, and research & development of new products.

 

Professional fees decreased from $982,601 for the nine months ending March 31, 2018 to $449,554 for the nine months ending March 31, 2019. For the nine months ended March 31, 2019 compared to the nine months ended March 31, 2018, we also experienced changes in derivative liabilities from $187,255 to $596,033 and interest expense from $790,831 to $1,495,485. For the nine months ended March 31, 2019, the Company recorded other expenses of $779 compared to $1,068,386 for the nine months ended March 31, 2018. This decrease is attributable to the fact that there was no need to restructure or consolidate debt in the current fiscal year. As a direct result of the prior successful consolidation, Management has been able to secure ongoing operating capital to launch new initiatives such as the Half-Baked line of cannabis edibles, and Nightfood ice cream, while minimizing dilution associated with the use of convertible notes from multiple lenders. Although no assurances can be given, management believes that the positive results of these efforts will lead to more efficient sources of capital, and allow the Company to grow operations and revenues in a meaningful way, ultimately increasing shareholder value. 

 

4

 

 

Customers

 

For the three and nine month periods ending March 31, 2019, the majority of revenues resulted from wholesale sales of NightFood ice cream to wholesale distributors. As the Company has largely shifted away from direct-to-consumer e-commerce, and towards a wholesale approach for the national ice cream rollout, it is expected that future revenues will be more concentrated than in the past when the majority of revenue was from direct to consumer sales.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of March 31, 2019, we had cash on hand of $37,446, receivables of $85,604 and inventory value of $314,966.

 

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

 

With the recent excitement surrounding the national launch of Nightfood ice cream, Management continues to field overtures from more traditional equity capital sources. However, Management does not believe accepting equity capital at current valuations is in the best interest of shareholders, in light of the rapid growth in distribution and revenue that are expected in the coming months. Management has made suitors aware that it does intend to accept equity funding at acceptable valuations at some future point, and will use that capital to clear debt from the balance sheet, and fund ongoing expansion and growth.

 

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

 

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

 

Since our inception, we have sustained operating losses. During the three months ended March 31, 2019, we incurred a net loss of $2,210,586 compared to $1,359,802 for the three months ended March 31, 2018. Much of this loss is largely a function of the way certain financing activities are recorded, and does not represent actual operating losses.

 

During the nine months ended March 31, 2019, net cash used in operating activities was $1,051,922 compared to $1,437,247 for the nine months ended March 31, 2018. The majority of what shows as “net cash used in operating activities” is related to non-cash items associated with to the ongoing capitalization of the Company during the reporting period.

 

During the nine months ended March 31, 2019, net cash aggregating $1,040,928 was provided by financing activities, compared to $1,431,219 for the nine months ended March 31, 2018.

 

From our inception in January 2010 through March 31, 2019, we have generated an accumulated deficit of approximately $11,803,311, compared to $8,620,714 from inception through June 30, 2018. Assuming we raise additional funds and continue operations, we expect to incur additional operating losses during the next one to two quarters and possibly thereafter. We plan to continue to pay or satisfy existing obligation and commitments and finance our operations, as we have in the past, primarily through the sale of our securities and other forms of external financing until such time that we are able to generate sufficient funds from the sale of our products to finance our operations, of which we can give no assurance.

 

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

 

As of February 8, 2017, we entered into two agreements with Black Forest, an Equity Purchase Agreement (the “EPA”) and a Registration Rights Agreement (the “RRA”). The two agreements were filed as exhibits to the Registrant’s Current Report on Form 8-K dated February 8, 2017, and this Registration Statement was filed in order for us to fulfill our obligations under the RRA. The following summary is qualified in its entirety by reference to such exhibits to our Form 8-K. On August 24, 2017, the Company issued its first and, to date, only “put notice” to Black Forest and delivered Black Forest 264,085 shares of common stock in exchange for $30,000.

  

5

 

 

We intend to rely on the sale of stock in private placements, and the issuance of new debt, to fund our operations. If we are unable to raise cash through the sale of our stock, we may be required to severely restrict our operations. The Company has received several tranches of capital from a friendly institutional investor, who has been our primary source of capital for the last 20 months. We expect this investor to continue to fund ongoing operations, as well as the development and launch of new products and intellectual property for Nightfood and MJ Munchies.

 

Effective May 6, 2015, the Company entered into a consulting agreement with Sean Folkson. The agreement was retroactive to January 1st, 2015. In exchange for services provided to the Company by Folkson, the Company agreed to pay Folkson $6,000 monthly. This compensation expense started accruing on January 1, 2015. On June 6, 2018, The Company and Folkson agreed to an extension of the agreement, which would run from July 1, 2018 through June 30, 2019. The monthly compensation remained at $6,000 in monthly consulting fees. This new Agreement also contained additional compensation in the form of bonuses which will be earned by Folkson when the Company reports its first quarter with revenues in excess of $1,000,000. Folkson will earn an additional bonus when the Company reports its first quarter with revenues in excess of $3,000,000. Upon the filing of the first quarter with revenues in excess of $1,000,000, Folkson shall earn 1,000,000 warrants with a strike price of $.50. Upon the filing of the first quarter with revenues in excess of $3,000,000, Folkson shall earn 3,000,000 warrants with a strike price of $.50.

 

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

 

On February 4, 2019, the Company entered into a “Lock-Up” Agreement with Folkson whereby Folkson has agreed to not transfer, sell, or otherwise dispose of any shares of his NGTF stock during the next twelve months.

 

As part of this agreement, Folkson received warrants to acquire 400,000 shares of NGTF common stock at an exercise price of $.30 per share. All warrants carry a twelve month term and a cashless provision, and will expire if not exercised within the twelve month term. Folkson may not transfer, sell, or otherwise dispose of these warrants at any time, as there are no transfer rights provided for in the Agreement.

 

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

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate past judgments and our estimates, including those related to allowance for doubtful, 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, 2018, describe the significant accounting estimates and policies used in preparation of our consolidated financial statements. There were no significant changes in our critical accounting estimates during the nine months ended March 31, 2019.

 

OFF BALANCE SHEET ARRANGEMENTS

 

None.

  

6

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

No report required.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

 

We carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report because we did not document our Sarbanes-Oxley Act Section 404 internal controls and procedures.

 

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

 

Changes in internal controls over financial reporting

 

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

 

Limitations on the Effectiveness of Controls

 

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

  

7

 

  

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

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

 

ITEM 1A. RISK FACTORS.

 

Not required for smaller reporting companies.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

Exhibit   Exhibit Description
     
31.1   Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
     
32.1   Section 1350 certification of Chief Executive Officer
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

  

8

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NightFood Holdings, Inc.
     
Dated: May 14, 2019 By: /s/ Sean Folkson
    Sean Folkson,
Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)

 

 

9