|Summary of Significant Accounting Policies
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).
The audited consolidated financial statements
include the accounts of Nightfood Holdings, Inc. and its wholly owned subsidiaries, NightFood, Inc. and MJ Munchies, Inc. The Company
consolidates all majority-owned and controlled subsidiaries in accordance with applicable standards. All material intercompany accounts
and balances have been eliminated in consolidation.
Use of Estimates
preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used in the determination
of depreciation and amortization, the valuation for non-cash issuances of common stock, and
the website, income taxes and contingencies, valuing convertible preferred stock for a “beneficial
conversion feature” (“BCF”) and warrants among others.
Cash and Cash Equivalents
|The Company classifies as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various instruments with original maturities of three months or less at the time of purchase. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits.
Fair Value of Financial Instruments
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.
consisting of packaged food items and supplies are stated at the lower of cost (FIFO) or
net realizable value, including provisions for spoilage commensurate with known or estimated
exposures which are recorded as a charge to cost of sales during the period spoilage is incurred.
The Company has no minimum purchase commitments with its vendors.
|Advertising costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations. Although not traditionally thought of by many as “advertising costs”, the Company includes expenses related to graphic design work, package design, website design, domain names, and product samples in the category of “advertising costs”. The Company recorded advertising costs of $166,656 and $596,331 for the fiscal years ended June 30, 2023 and 2022, respectively.
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.
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
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
Company generates its revenue by selling its nighttime snack products wholesale to retailers
and wholesalers. All sources of revenue are recorded pursuant to FASB Topic 606 Revenue Recognition,
to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods
or services. This includes a five-step framework that requires an entity to: (i) identify
the contract(s) with a customer, (ii) identify the performance obligations in the contract,
(iii) determine the transaction price, (iv) allocate the transaction price to the performance
obligations in the contract, and (v) recognize revenue when the entity satisfies a performance
obligation. In addition, this revenue generation requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
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
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.
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.
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.
reviewed ASC 606-10-32-25 which states “Consideration payable to a customer
includes cash amounts that an entity pays, or expects to pay, to the customer (or to other
parties that purchase the entity’s goods or services from the customer). Consideration
payable to a customer also includes credit or other items (for example, a coupon or voucher)
that can be applied against amounts owed to the entity (or to other parties that purchase
the entity’s goods or services from the customer). An entity shall account for consideration
payable to a customer as a reduction of the transaction price and, therefore, of revenue
unless the payment to the customer is in exchange for a distinct good or service (as described
in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the
consideration payable to a customer includes a variable amount, an entity shall estimate
the transaction price (including assessing whether the estimate of variable consideration
is constrained) in accordance with paragraphs 606-10-32-5 through 32-13.”
the consideration payable to a customer is a payment for a distinct good service, then in
accordance with ASC 606-10-32-26, the entity should account for it the same way that it accounts
for other purchases from suppliers (expense). Further, “if the amount of consideration
payable to the customer exceeds the fair value of the distinct good or service that the entity
receives from the customer, then the entity shall account for such an excess as a reduction
of the transaction price. If the entity cannot reasonably estimate the fair value of the
good or service received from the customer, it shall account for all of the consideration
payable to the customer as a reduction of the transaction price.”
ASC 606-10-32-27, if the consideration payable to a customer is accounted for as a reduction
of the transaction price, “an entity shall recognize the reduction of revenue
when (or as) the later of either of the following events occurs:
entity recognizes revenue for the transfer of the related goods or services to the customer.
entity pays or promises to pay the consideration (even if the payment is conditional on a
future event). That promise might be implied by the entity’s customary business practices.”
reviewed each arrangement to determine if each fee paid is for a distinct good or service
and should be expensed as incurred or if the Company should recognize the payment as a reduction
Company recognizes revenue upon shipment based on meeting the transfer of control criteria.
The Company has made a policy election to treat shipping and handling as costs to fulfill
the contract, and as a result, any fees received from customers are included in the transaction
price allocated to the performance obligation of providing goods with a corresponding amount
accrued within cost of sales for amounts paid to applicable carriers.
Concentration of Credit Risk
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 June 30, 2023 and June 30, 2022, the Company did not have any uninsured
Beneficial Conversion Feature
conventional convertible debt where the rate of conversion is below market value, the Company
records any BCF intrinsic value as additional paid in capital and related debt discount.
the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount
against the face amount of the respective debt instrument. The discount is amortized over
the life of the debt. If a conversion of the underlying debt occurs, a proportionate share
of the unamortized amounts is immediately expensed.
Beneficial Conversion Feature – Series
B Preferred Stock (deemed dividend):
Each share of the Company’s Series B Preferred
Stock, par value $0.001 per share (the “B Preferred” or “B Preferred Stock”) has a liquidation preference
of $1,000 and has no voting rights except as to matters pertaining to the rights and privileges of the B Preferred. Each share
of B Preferred is convertible at the option of the holder thereof into (i) 5,000 shares of the Registrant’s common stock (one share
for each $0.20 of liquidation preference) (the “Conversion Shares”) and (ii) 5,000 common stock purchase warrants, expiring
April 16, 2026 (the “Warrants”). The Warrants carried an initial exercise price of $0.30 per share. Subsequent financing
events and debt extinguishment resulted in adjustments to the exercise price of all warrants created from conversion of B Preferred from
$0.30 per share to approximately $0.1389 per share through June 30, 2023. The exercise price of these warrants can continue to adjust
as the result of subsequent financing events and stock transactions. These adjustments can result in an exercise price that is either
higher, or lower, than the price as of June 30, 2023.
Based on the guidance in ASC 470-20-20, on issuance date the Company
determined that a BCF existed, as the effective conversion price for the B Preferred at issuance was less than the fair value of the common
stock which the shares of B Preferred are convertible into. A BCF feature based on the intrinsic value of the date of issuances for the
B Preferred through June 30, 2022 was approximately $4.4 million. During the year ended June
30, 2023 the Company recorded an additional deemed dividend of approximately $1.1 million in relation to the B Preferred stock and downward
price adjustments to certain warrants.
Debt Issue Costs
Company may pay debt issue costs in connection with raising funds through the issuance of
debt whether convertible or not or with other consideration. These costs are recorded as
debt discounts and are amortized over the life of the debt to the statement of operations.
Equity Issuance Costs
Company accounts for costs related to the issuance of equity as a charge to Paid in Capital
and records the equity transaction net of issuance costs.
Original Issue Discount
debt is issued with an original issue discount, the original issue discount is recorded to
debt discount, reducing the face amount of the note and is amortized over the life of the
debt to the statement of operations as interest expense. If a conversion of the underlying
debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Stock Settled Debt
certain instances, the Company will issue convertible notes which contain a provision in
which the price of the conversion feature is priced at a fixed discount to the trading price
of the Company’s common shares as traded in the over-the-counter market. In these
instances, the Company records a liability, in addition to the principal amount of the convertible
note, as stock-settled debt for the fixed value transferred to the convertible note holder
from the fixed discount conversion feature.
Company accounts for share-based awards issued to employees in accordance with FASB ASC 718. Accordingly, employee share-based payment
compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite
service period. Additionally, share-based awards to non-employees are expensed over the period in which the related services
are rendered at their fair value. The Company applies ASC 718, “Equity Based Payments to Non-Employees”, with respect to
options and warrants issued to non-employees.
FY 2023, we had one customer that accounted for 42% of our Gross Sales. One other customer accounted for 29% and two others each accounted
for between 7% and 10%. In FY 2022, we had one customer that accounted for over 20% of our Gross Sales. Two other customers
each accounted for 16% and four others each accounted for between 8.5% and 9.9%
|During the year ended June 30, 2023 three vendors accounted
for approximately 72% of our costs of goods sold. In the year ended June 30, 2022, four vendors accounted for 92% of our costs of
goods sold, one of which individually accounted for 48% of all purchases.
of June 30, 2023, the Company had receivables due from nine customers, one of who accounted for over 56% of the outstanding balance.
Three of the others each accounted for between 10% and 14% of the outstanding balance. As of June 30, 2022, the Company had
receivables due from six customers, one of who accounted for over 59% of the outstanding balance. One of the remaining five accounted
for 13.5% of the outstanding balance and one accounted for 11% of the outstanding balance.
Income/Loss Per Share
accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar
to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that
would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive. Potential
common stock consists of the incremental common stock issuable upon convertible notes, stock options and warrants, and classes of shares
with conversion features. The computation of basic loss per share for the fiscal years ended June 30, 2023 and 2022 excludes potentially
dilutive securities because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period
presented is the same for both basic and fully diluted losses per share.
Company may make certain reclassifications to prior period amounts to conform with the current year’s presentation. Such
reclassifications would not have a material effect on its consolidated statement of financial position, results of operations or cash
Recent Accounting Pronouncements
August 2020, the FASB issued ASU 2020-06 to simplify the current guidance for convertible instruments and the derivatives scope exception
for contracts in an entity’s own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may
be settled in cash or shares and for convertible instruments. The update also provides for expanded disclosure requirements to increase
transparency. For SEC filers, excluding smaller reporting companies, this update is effective for fiscal years beginning after December
15, 2022 including interim periods within those fiscal years. The adoption of this guidance does not materially impact our financial
statements and related disclosures.
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not
believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial
position or results of operations.