UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended:
Or
For the Transition Period from ___________ to____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | 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 12b-2 of the Exchange Act). Yes ☐ No
At
June 12, 2024, the issuer had
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. | 33 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 41 |
| Item 4. | Controls and Procedures | 41 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 43 |
| Item 1A. | Risk Factors. | 43 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 43 |
| Item 3. | Defaults Upon Senior Securities. | 43 |
| Item 4. | Mine Safety Disclosures. | 43 |
| Item 5. | Other Information. | 43 |
| Item 6. | Exhibits. | 44 |
| Signatures | 45 | |
i
Nightfood Holdings, Inc.
Item 1. Financial Statements
1
Nightfood Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, | June 30, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Acquisition costs secured by promissory note | ||||||||
| Indefinite lived intangible assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities - related party | ||||||||
| Convertible notes payable - net of discounts | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A Stock, $ | ||||||||
| Series B Stock, $ | ||||||||
| Series C Stock, $ | ||||||||
| Series D Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months Ended March 31, | For the nine months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues, net of slotting and promotion | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Cost of product sold | ||||||||||||||||
| Advertising and promotional | ||||||||||||||||
| Selling, general and administrative expense | ||||||||||||||||
| Professional fees | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense - debt | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense – financing cost | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on debt extinguishment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Deemed dividend on Series B Preferred Stock | ( | ) | ||||||||||||||
| Net income (loss) attributable to common shareholders | ( | ) | ( | ) | ( | ) | ||||||||||
| $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
For the three and nine months ended March 31, 2024, and 2023
| Common Stock | Preferred Stock (*) | Additional Paid in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance, June 30, 2023 | $ | - | $ | | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Common stock issued as financing cost | ||||||||||||||||||||||||||||
| Issuance of warrants | ||||||||||||||||||||||||||||
| Warrants issued associated with Promissory Notes | ||||||||||||||||||||||||||||
| Warrants issued as financing cost | ||||||||||||||||||||||||||||
| Deemed dividends associated with warrant related dilutive adjustments | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, September 30, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Shares issued as consulting fee | ||||||||||||||||||||||||||||
| Warrants issued as financing cost | ||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, December 31, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Warrants exercise, cashless | ( | ) | ||||||||||||||||||||||||||
| Business acquisition | ||||||||||||||||||||||||||||
| Financing cost associated with modification to convertible notes | ||||||||||||||||||||||||||||
| Deemed dividends associated with warrant related dilutive adjustments | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Preferred Stock A | Preferred Stock B | Preferred Stock C | Preferred Stock D | Preferred Stock | ||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | Shares | Par Value | Par Value | ||||||||||||||||||||||||||||
| Balance, June 30, 2023 | | - | - | | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||||||||||
| Shares issued for amended convertible note | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
For the three and nine months ended March 31, 2024, and 2023
| Common Stock | Preferred Stock A | Preferred Stock B | Additional Paid in | Deferred | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | Capital | Compensation | Deficit | Equity | |||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | | $ | | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||||||||||
| Common stock from conversion | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Discount on issuance of convertible notes | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued and dilutive warrant adjustment as financing cost | ||||||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with related dilutive warrant adjustments | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | ||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Common stock from conversion | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Warrants exercise cashless | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Units issued under Regulation A offering | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued as financing cost | ||||||||||||||||||||||||||||||||||||||||
| Vested warrants for services | ||||||||||||||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued and dilutive warrant adjustment as financing cost | ||||||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with related dilutive warrant adjustments | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||||||||||||||
| Vested warrants for services | ||||||||||||||||||||||||||||||||||||||||
| Common stock from conversion | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Units issued under Regulation A offering | ||||||||||||||||||||||||||||||||||||||||
| Warrants exercise in cash | ||||||||||||||||||||||||||||||||||||||||
| Warrants exercise cashless | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued under Forbearance and Exchange Agreement | ||||||||||||||||||||||||||||||||||||||||
| Warrants exchange to common stock | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Discount on issuance of convertible notes | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued as financing cost associated with convertible notes | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued as financing cost under common stock purchase warrant | ||||||||||||||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Warrants issued and dilutive warrant adjustment as financing cost | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Deemed dividends associated with related dilutive warrant adjustments | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Nightfood Holdings, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For Nine Months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations activities: | ||||||||
| Warrants issued for services | ||||||||
| Warrants issued for financing cost | ||||||||
| Stock issued for services | ||||||||
| Stock issued for financing costs | ||||||||
| Amortization of debt discount | ||||||||
| Loss on extinguishment of convertible note | ||||||||
| Financing cost due to conversion price adjustments | ||||||||
| Consulting fee due to conversion price adjustments | ||||||||
| Financing cost due to default | ||||||||
| Impairment of inventory | ||||||||
| Write down of other current assets | ||||||||
| Change in operating assets and liabilities | ||||||||
| Change in accounts receivable | ||||||||
| Change in inventory | ( | ) | ( | ) | ||||
| Change in other current assets | ( | ) | ||||||
| Change in accounts payable | ||||||||
| Change in relate party payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash advanced to Future Hospitality Ventures Holdings Inc. before business combination | ( | ) | ||||||
| Acquisition costs secured by promissory notes | ( | ) | ||||||
| Net cash used by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of units under Reg A | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from related party | ||||||||
| Proceeds from the issuance of debt, net | ||||||||
| Repayment to convertible notes | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid For: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Summary of Non-Cash Investing and Financing Information: | ||||||||
| Warrants and returnable warrants issued for financing cost | $ | $ | ||||||
| Stock issued for financing costs | $ | $ | ||||||
| Common stock issued for preferred stock conversions | $ | $ | ||||||
| Deemed dividend associated with preferred B stock and dilutive warrant adjustments | $ | $ | ||||||
| Debt and warrant discounts related to convertible notes | $ | $ | ||||||
| Preferred stock C issued per acquisition | $ | $ | ||||||
| Preferred stock A valuation per acquisition | $ | $ | ||||||
| Preferred stock D issued under convertible note amended | $ | $ | ||||||
| Principal increased under convertible note amended | $ | $ | ||||||
| Granted interest increased under convertible note amended | $ | $ | ||||||
| Acquisition cost under Promissory note acquired under business acquisition | $ | $ | ||||||
6
Nightfood Holdings, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Going Concern
Nightfood Holdings, Inc. (“we”, “us”, “the Company” or “Nightfood”) is a Nevada corporation incorporated on -October 16, 2013, to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York corporation from its sole shareholder, Sean Folkson. For the reporting period, all of our operations were being conducted through subsidiary Nightfood, Inc. We are also the sole shareholder of MJ Munchies, Inc., currently revoked in the State of Nevada, which owns certain intellectual property, but does not have any operations as of the period covered by these financial statements.
On February 2, 2024, the Company closed the acquisition of Future Hospitality Ventures Holdings Inc. (“FHVH” or “Future Hospitality”), a Nevada corporation and a new entrant in the Robots-as-a-Service (RaaS) space from Mr. Lei Sonny Wang, who concurrently became the Chief Executive Officer (“CEO”) of Nightfood and a member of the Company’s board of directors. Under the leadership of Mr. Wang, Future Hospitality has secured distribution agreements with industry-leading manufacturers United Robotics Group Americas, Inc. and Botin Innovations, Inc. and is in the process of negotiating several additional supply opportunities.
Our corporate address is 520 White Plains Road – Suite 500, Tarrytown, New York 10591 and our telephone number is 866-291-7778. We maintain web sites at www.nightfood.com, www.RoboOp365.com, along with several additional web properties. Any information that may appear on those web sites should not be deemed to be a part of this report.
The Company’s fiscal year end is June 30.
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. No certainty of continuation can be stated. |
| ● | The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. For the nine months ended March 31, 2024, the Company had an operating and net loss of $ |
| ● | The Company has limited available cash resources and we do not believe our cash on hand will be sufficient to fund our operations and growth throughout calendar year 2024 or adequate to satisfy our immediate or ongoing working capital needs. We are currently in default with respect to the terms of several of our convertible notes payable. |
| The Company is continuing to seek to raise capital through the sales of its common stock, preferred stock and/or convertible notes, as well as potentially the exercise of outstanding warrants, to finance the Company’s operations, of which it can give no assurance of success. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. Additionally, management is investing in the acquisition of additional revenue generating assets through the issuance of debt and/or equity to further assist the Company’s growth initiatives. As of March 31, 2024 we have advanced proceeds totaling $ |
| ● | Because the Company has limited sales, no certainty of continuation can be stated. The Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. In addition, the Company will receive the proceeds from its outstanding warrants as, if and when such warrants are exercised for cash. 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 the products and services of its subsidiaries to sustain 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. |
7
2. Summary of Significant Accounting Policies
Management is responsible for the fair presentation of the Company’s financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP).
Interim Financial Statements
These unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2024, and 2023, respectively, reflect all adjustments including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.
These interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal years ended June 30, 2023 and 2022, respectively, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 filed with the United States Securities and Exchange Commission on October 13, 2023. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited consolidated financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the three and nine months ended March 31, 2024 are not necessarily indicative of results for the entire year ending June 30, 2024.
Use of Estimates
| ● | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used in the determination of depreciation and amortization, the valuation for non-cash issuances of common stock, and the website, income taxes and contingencies, valuing convertible 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 $ |
Business Combinations
| ● | The Company accounts for business combinations using the purchase method of accounting. The purchase method requires the Company to determine the fair value of all acquired assets, including identifiable intangible assets and all assumed liabilities. The total cost of acquisitions is allocated to the underlying identifiable net assets, based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and the utilization of independent valuation experts, and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items. |
8
Goodwill and Intangibles
| ● | Goodwill represents the excess of the purchase price over the fair market value of the net assets (including intangibles) acquired on February 2, 2024 respectively and includes the value of indefinite lived intangible assets resulting from noncontractual customer relationships. The Company has implemented the Business Combinations Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other. Goodwill is is deemed to have an indefinite life. Goodwill and indefinite life intangible assets are not amortized but are subject to, at a minimum, annual impairment tests. The Company expenses costs to maintain or extend intangible assets as incurred. |
The Company reviews intangible assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. There were no impairments for the periods presented.
The Company tests goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. There were no goodwill impairments for the periods presented.
Long-Lived Assets
| ● | The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. 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. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. The Company had no long-lived asset impairments as of March 31, 2024 and June 30, 2023. |
Inventories
| ● | Inventories 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 loss on write down of inventory during the period spoilage is incurred as a part of selling, general and administrative expenses The Company has no minimum purchase commitments with its vendors. During the three and nine months ended March 31, 2024 the Company wrote down inventory balances by $ |
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 recorded advertising costs of $ |
9
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 accounts for revenue in accordance with Accounting Standards Updated (“ASU”) ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”). The Company recognizes revenue in accordance with ASC 606, the core principle of which is 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 to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Through the nine months ended March 31, 2024 and 2023, the Company generated revenues from sales generated in operating subsidiary Nightfood, Inc. and the sale of ice-cream and cookie products to customers and distributors using (i) Nightfood.com on the Shopify eCommerce platform (Direct to Consumer); and (ii) third party distributors. Sales focus in the most recent quarter ended March 31, 2024 has shifted entirely to direct-to-consumer as the Company is focused on its newly developed cookie products. Wholesale ice-cream production and sales have been discontinued, and might resume if and when direct-to-consumer scale is achieved. The Company considers its performance obligations satisfied upon shipment of the purchased products to the customer with respect to sales processed by third party fulfilment centers and retail locations, and delivery of the product for sales made to distributors or direct to end user via eCommerce portals. 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. Due to the nature of Nightfood’s products, the company does not accept returns of its snacks. Refunds to consumers are issued under certain circumstances, but product returns are not typically accepted.
The Company is not currently earning any revenue associated with its operations in the Robots-as-a-Service (RaaS) space, although product demonstrations have begun and Management believes revenues will begin soon.
Disaggregated Revenues
The Company currently is earning revenues from a single product line with sales of its cookie products through subsidiary Nightfood, Inc. and therefore has not presented disaggregated revenues.
10
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, 2024 and June 30, 2023, the Company did not have any uninsured cash deposits. |
Deemed Dividend – Series B Preferred Stock Warrants :
Each
share of the Company’s Series B Preferred Stock, par value $
The
value of the deemed dividend was approximately $
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. |
Equity Issuance Costs
| ● | The 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
| ● | 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 interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. |
Stock Settled Debt
| ● | In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. |
Stock-Based Compensation
| ● | 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 718, “Equity Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees. |
11
Customer Concentration
| ● | In each of the three- and the nine-month periods ended March 31, 2024, the Company had
During the three months ended March 31, 2023, the Company had one customer account for approximately |
Vendor Concentration
| ● | In the three- and nine-month periods ended March 31,2024, |
Receivables Concentration
| ● | As of March 31, 2024, the Company had receivables due from nine customers. One accounted for |
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. |
At March 31, 2024 and June 30, 2023, the Company had no outstanding derivative liabilities.
12
Income/Loss Per Share
| ● | In 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 three and nine months ended March 31, 2024 and 2023 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. |
Reclassification
| ● | The Company may occasionally 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 flows. |
Recent Accounting Pronouncements
| ● | In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires incremental disclosures related to a public entity’s reportable segments. Required disclosures include, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount for other segment items (which is the difference between segment revenue less segment expenses and less segment profit or loss) and a description of its composition, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The standard also permits disclosure of more than one measure of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are evaluating the impact of adopting ASU 2023-07on our financial statements. |
| ● | In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). ASU 2023-09 is effective for fiscal years beginning after December 15, 2025. We are evaluating the impact of adopting ASU 2023-09 on our financial statements. |
| ● | In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate Related Disclosures for Investors, which requires registrants to disclose climate-related information in registration statements and annual reports. The new rules would be effective for annual reporting periods beginning in fiscal year 2025. However, in April 2024, the SEC exercised its discretion to stay these rules pending the completion of judicial review of certain consolidated petitions with the United States Court of Appeals for the Eighth Circuit in connection with these rules. We are evaluating the impact the adoption of this rule, if any, on our financial statements. |
13
3. Business Combination
Acquisition of Future Hospitality Ventures Holdings Inc.
On January 22, 2024, the Company, Future Hospitality Ventures Holdings Inc., a Nevada corporation, Sean Folkson as the holder of all issued and outstanding Series A Preferred Stock of NGTF (the “NGTF Series A Shareholder”) and Lei Sonny Wang, the sole shareholder of FHVH (the “FHVH Shareholder”) entered into a share exchange agreement (the “Exchange Agreement”) whereby NGTF agreed to acquire FHVH through a share exchange (the “Exchange”) whereby FHVH became a wholly-owned subsidiary of NGTF.
Pursuant
to the Exchange Agreement, the FHVH Shareholder exchanged all
The Exchange Agreement was subject to certain closing conditions and contained customary representations, warranties and covenants. The consummation of the Exchange was conditioned upon, among other things: Sean Folkson resigning as the Chief Executive Officer of NGTF, continuing to serve as the President of Nightfood, Inc. through December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur; and the appointment of Lei Sonny Wang as a director and Chief Executive Officer of NGTF. The parties at the time of the transaction were considered arm’s length and the exchange agreement was valued at fair market value at the time of the transaction.
The aforementioned agreements closed on February 2, 2024.
| Consideration Paid – Fair Value | ||||||||
| Stock issued: | ||||||||
| Number of Series A Preferred Stock: | ||||||||
| Number of Series C Preferred Stock: | ||||||||
| Fair value of Series A Preferred Stock | $ | |||||||
| Fair value of Series C Preferred Stock | ||||||||
| Total consideration | $ | |||||||
| Tangible assets acquired: | ||||
| Cash | $ | |||
| Other current assets | ||||
| Accounts payable | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Total assets acquired and liability assumed | ( | ) | ||
| Indefinite-lived intangible assets (noncontractual customer relationships) | ||||
| Total Net asset acquired | $ |
14
As of March 31, 2024, no impairment of the Company’s goodwill was required. The purchase accounting for the acquisition remains incomplete as management continues to gather and evaluate information about circumstances that existed as of the acquisition date. Measurement period adjustments will be recognized prospectively. The measurement period is not to exceed 12 months from the respective dates of acquisition.
4. Accounts receivable
| ● | The Company’s accounts receivable arises primarily from the sale of the Company’s snacks. 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 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 accounts receivable allowances for March 31, 2024 and June 30, 2023. |
5. Inventories
| ● |
| March 31, 2024 | June 30, 2023 | |||||||
| Inventory: Finished Goods | $ | $ | ||||||
| Inventory: Ingredients | ||||||||
| Inventory: Packaging | ||||||||
| Total Inventory | $ | $ | ||||||
Inventories
are stated at the lower of cost or net realizable value. The Company periodically reviews the value of items in inventory and provides
write-downs or write-offs of inventory based on its assessment of market conditions and the products relative shelf life. Write-downs
and write-offs are charged to loss on inventory write down. During the nine months ended March 31, 2024 the Company wrote down inventory
balances totaling $
6. Other current assets
| March 31, 2024 | June 30, 2023 | |||||||
| Other Current Assets | ||||||||
| Prepaid interest expenses | $ | $ | ||||||
| Prepaid Professional fees | ||||||||
| Other prepaid expenses | ||||||||
| Deposits with vendors | ||||||||
| TOTAL | $ | $ | ||||||
7. Acquisition Costs Secured by Promissory Note
| Promissory note - acquisition target 1 | ||||
| Promissory note - acquisition target 2 |
The
amounts are secured by promissory notes bearing interest at
15
8. Accounts Payable and Accrued liabilities
March
31, 2024 | June 30, 2023 | |||||||
| Interest Payable | $ | $ | ||||||
| Accounts payable | ||||||||
| TOTAL | $ | $ | ||||||
9. Debt
| ● | Convertible Notes Payable |
Convertible Notes Issued on December 10, 2021
On
December 10, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain
accredited and institutional investors (the “Purchasers”) for the purchase and sale of an aggregate of: (i) $
The
Warrants were initially exercisable at $
In
connection with Securities Purchase Agreement, the Company issued to the Placement Agent (as defined below), an aggregate of
Spencer
Clarke Holdings LLC (“Placement Agent”) acted as the placement agent, in connection with the sale of the securities pursuant
to the Securities Purchase Agreement. Pursuant to an engagement agreement entered into by and between the Company and the Placement Agent,
the Company agreed to pay the Placement Agent a cash commission of $
The
gross proceeds received from the Offering were approximately $
16
On
or around September 23, 2022, as a result of certain new financing agreements entered into by the Company, as consideration to the Holders,
the Company issued to each Holder a common stock purchase warrant for the purchase of
The Company was required to pay to the Purchasers on December 10, 2022, as extended to December 29, 2022 (as so extended, the “Maturity Date”) all remaining principal and accrued and unpaid interest on the Maturity Date (the “Owed Amount”) and the failure to so pay the Owed Amount on the Maturity Date is an event of default. The Owed Amount was not paid by the Company in accordance with the terms of the Notes. Subsequent to December 31, 2022 the Company entered into a forbearance agreement with the Purchasers as set out below.
Forbearance and Exchange Agreement
On February 4, 2023, the Company entered into a Forbearance and Exchange Agreement (the “Forbearance Agreement”) with the Purchasers from the Securities Purchase Agreement dated December 10, 2021.
Pursuant to the Forbearance Agreement as amended, among other things:
| ● |
| ● | The Purchasers shall not convert the Notes so long as an event of default pursuant to the Forbearance Agreement has not occurred. |
| ● | The Company purchased and retired the Returnable Warrants from the Purchasers, in exchange for the Company issuing to each of the Holders |
| ● | The Purchasers agreed not to transfer the Exchange Shares prior to September 24, 2023, subject to certain exceptions, including that the Company shall have the right to redeem all or any portion of the Exchange Shares from each Purchaser by paying an amount in cash to such Purchaser equal to $ |
| ● | Each Purchaser agrees to forbear from exercising its rights against the Company under its respective Note until and unless the occurrence of any of the following events: (a) the failure of the Company to make a scheduled payment pursuant to the Forbearance Agreement, subject to a five day right to cure; (b) the failure of the Company to observe, or timely comply with, or perform any other covenant or term contained in the Forbearance Agreement, subject to a ten day right to cure; (c) the Company or any subsidiary of the Company commences bankruptcy and/or any insolvency proceedings; or (d) the delivery of any notice of default by Mast Hill Fund, L.P. (“Mast Hill”) to the Company with respect to indebtedness owed to Mast Hill by the Company. |
The Company evaluated all of the associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.
In accordance with ASC 470- Debt, the Company first allocated the cash proceeds to the loan and the warrants on a relative fair value basis, secondly, the proceeds were allocated to the beneficial conversion feature.
17
| Principal ($) | Stock-settled Debt ($) | Debt Discount ($) | Net Value ($) | |||||||||||||
| Balance at June 30, 2021 | ||||||||||||||||
| Convertible notes payable issued during fiscal year ended June 30, 2022 | ||||||||||||||||
| Debt discount associated with new convertible notes | ( | ) | ( | ) | ||||||||||||
| Conversion price adjusted from $ | ( | ) | ||||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||
| Cash repayment | ( | ) | ( | ) | ||||||||||||
| Gain on extinguish of portion of principal | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Penalty | ||||||||||||||||
| Conversion price change | ||||||||||||||||
| Under forbearance Agreement: | ( | ) | ( | ) | ||||||||||||
| Cash repayment | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2023 | ||||||||||||||||
| $ | ||||
| Loss on conversion price change in December 31, 2022 | ||||
| Stock settled debt | ( | ) | ||
| Financing charges due to returnable warrants issued | ||||
| Principal increased due to penalty | ||||
| Loss on extinguishment | $ |
| For the three months Ended March 31, | For the nine months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Amortization | $ | $ | $ | $ | ||||||||||||
| Interest on the convertible notes | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
During
the fiscal years ended June 30, 2023 and 2022, the Company recorded $
Mast Hill Promissory Notes (MH Notes)
| (a) | Promissory Notes Issued on September 23, 2022 |
On
September 23, 2022, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note
in the principal sum of $
18
As
a result of the transaction, the Purchasers triggered their “most favored nation” clause which resulted in the Company entering
into an MFN Amendment Agreement (the “MFN Agreement”) with the Purchasers (ref: Convertible Notes Issued on December 10,
2021 above) pursuant to which the Purchasers exercised their options under the most-favored nation terms contained in their existing
transaction documents with the Company. Pursuant to the MFN Agreement, among other things, (a) the Company issued to each of the Purchasers
The
Company paid to J.H. Darbie & Co., Inc. $
The
proceeds received by the Company from the Offering, net of the original issue discount, fees and costs including legal fees of $
On
May 2, 2023, a debtholder converted $
| (b) | Promissory Notes Issued on February 5, 2023 |
On
February 5, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the
principal amount of $
The
Company paid to J.H. Darbie & Co., Inc. $
| (c) | Promissory Notes Issued on February 28, 2023 |
On
February 28, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the
principal amount of $
19
The
Company paid to J.H. Darbie & Co., Inc. $
| (d) | Promissory Notes Issued on March 24, 2023 |
On
March 24, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal
amount of $
The
Company paid to J.H. Darbie & Co., Inc. $
| (e) | Promissory Notes Issued on April 17, 2023 |
On
April 17, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal
amount of $
The
Company paid to J.H. Darbie & Co., Inc. $
| (f) | Promissory Notes Issued on June 1, 2023 |
On
June 1, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal
amount of $
20
The
Company paid to (a) J.H. Darbie & Co., Inc.
| (g) | Promissory Notes Issued on October 6, 2023 |
On
October 6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Secured Promissory Note
(the “Note”) in the principal amount of $
The Note contains restrictions on the Company’s ability to (a) incur additional indebtedness, (b) make distributions or pay dividends, (c) redeem, repurchase or otherwise acquire its securities, (d) sell its assets outside of the ordinary course, (e) enter into certain affiliate transactions, (f) enter into 3(a)(9) Transactions or 3(a)(10) Transactions (each as defined in the Note), or (g) change the nature of its business.
Commencing as of the Effective Date, and until such time as the Note is fully converted or repaid, the Company shall not effect or enter into an agreement to effect any Variable Rate Transaction (as defined in the Purchase Agreement).
The Purchase Agreement contains customary representations and warranties made by each of the Company and Mast Hill. It further grants to Mast Hill certain rights of participation and first refusal, and certain most-favored nation rights, all as set forth in the Purchase Agreement. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).
The
Company paid to Spencer Clarke LLC a cash fee of $
21
| (h) | Promissory Notes Issued on November 17, 2023 |
On
November 17, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the
principal amount of $
The
Company paid to Spencer Clarke LLC a cash fee of $
| (i) | Promissory Notes Issued on December 6, 2023 |
On
December 6, 2023 the Company entered into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the
principal amount of $
The
Company paid to Spencer Clarke LLC a cash fee of $
| (j) | Promissory Notes Issued on January 24, 2024 |
On
January 24, 2024 the Company entered into a Securities Purchase Agreement, and issued and sold to Mast Hill a Promissory Note in the
principal amount of $
| (k) | Promissory Notes Issued on March 13, 2024 |
On
March 13, 2024, the Company entered into a Securities Purchase Agreement, and issued and sold to Mast Hill a Promissory Note in the principal
amount of $
22
Fourth Man, LLC Promissory Notes (Fourth Man Notes)
| (a) | Promissory Notes Issued on June 29, 2023 |
On
June 29, 2023, the Company the Company entered into a Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth
Man”), a Promissory Note (the “Note”) in the principal amount of $
The
Company paid to J.H. Darbie & Co., Inc. $
The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.
| (b) | Promissory Notes Issued on August 28, 2023 |
On
August 28, 2023, the Company entered into a Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth Man”),
a Promissory Note (the “Note”) in the principal amount of $
The
Company paid to J.H. Darbie & Co., Inc. $
The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.
Amendment to Fourth Man Promissory Notes.
On
February 1, 2024, Fourth Man and NGTF entered into a letter agreement whereby Fourth Man agreed to amend that certain promissory note
in the principal amount of $
The Company evaluated all of these associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.
In accordance with ASC 470- Debt, the proceeds of issuance is first allocated among the convertible instrument and the other detachable instruments based on their relative fair values.
23
| Principal $ | Debt Discount $ | Net Value $ | ||||||||||
| Balance at June 30, 2022 | ||||||||||||
| Promissory notes payable issued | ||||||||||||
| Principal converted to common stock | ( | ) | ( | ) | ||||||||
| Debt discount associated with Promissory notes | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ||||||||||||
| Balance at June 30, 2023 | ( | ) | ||||||||||
| Promissory notes payable issued | ||||||||||||
| Promissory notes amended | ||||||||||||
| Debt discount associated with Promissory notes | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ||||||||||||
| Balance at December 31, 2023 | $ | $ | ( | ) | $ | |||||||
Interest expenses associated with above convertible notes are as follows:
| For the three months Ended March 31, | For the nine months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Amortization | $ | $ | $ | $ | ||||||||||||
| Interest on the convertible notes | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As
of March 31, 2024 and June 30, 2023, the interest payable was $
| $ | ||||
| Loss on extinguishment | $ |
As
a result of dilutive issuances during the period the exercise price of all of the aforementioned convertible notes has been reset subsequent
to the period to $
10. Capital Stock Activity
Common Stock
The
Company is authorized to issue Two Hundred Million (
24
On
October 24, 2022, the Company launched a Tier 2 offering pursuant to Regulation A (also known as “Regulation A+”) with
the intent to raise capital through an equity crowdfunding campaign. The Company is offering (this “Offering”) up to
| ● | The Company had |
| ● | The Company had |
| During the nine months ended March 31, 2024: |
| ● | The Company issued |
| ● | The Company issued |
| ● | The Company issued |
During the nine months ended March 31, 2023:
| ● | The Company issued an aggregate of |
| ● | The Company issued |
| ● | The Company issued an aggregate of |
| ● | The Company issued |
| ● | The Company issued |
| ● | The Company sold |
| ● | During the nine months ended March 31, 2023, holders of the B Preferred converted |
25
Preferred Stock
Series A Preferred Stock
The
Company is authorized to issue
During
the quarter ended March 31, 2024 the former holder of the
The
Company had
Series B Preferred Stock
In
April 2021, the Company designated
During
the fiscal years ended June 30, 2023 and 2022, the Company sold
During
the fiscal year ended June 30, 2023, holders of the B Preferred converted
The
Company had
Series C Preferred Stock
On
January 26, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock
(the “Series C COD”), which established
On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made.
The
Company issued
26
The
Company had
Series D Preferred Stock
On
February 7, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock
(the “Series D COD”), which established
The
Company issued
The
Company had
Dividends
The
Company has never declared dividends, however as set out below, during the fiscal year ended June 30, 2022 and 2021, upon issuance of
a total of
In
connection with certain conversion terms provided for in the designation of the B Preferred, pursuant to which each share of B Preferred
is convertible into
11. Warrants
The following is a summary of the Company’s outstanding common stock purchase warrants.
During
the fiscal year ended June 30, 2022, holders of the Company’s B Preferred converted
During
the fiscal year ended June 30, 2022,
During
the fiscal year ended June 30, 2022, the Company entered into a warrant agreement with one of the Company’s Directors issuing
27
During
the fiscal year ended June 30, 2022, the Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up
Agreement”), with Mr. Folkson, issuing
During
the fiscal year ended June 30, 2023, holders of the Company’s B Preferred converted
During
the fiscal year ended June 30, 2023 the Company issued a cumulative
During
the fiscal year ended June 30, 2023, the Company issued an aggregate of
During
the fiscal year ended June 30, 2023, the Company entered into a warrant agreement with one of the Company’s Directors for the issuance
of
During
the fiscal year ended June 30, 2023, the Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up
Agreement”), with Mr. Folkson, issuing
During
the fiscal year ended June 30, 2023, the Company issued
During
the fiscal year ended June 30, 2023, the Company issued an aggregate of
During
the fiscal year ended June 30, 2023, the Company issued
28
During
the fiscal year ended June 30, 2023, under the terms of a Warrant Exchange Agreement, among other agreements, SC exchanged an aggregate
of
During
the nine months ended March 31, 2024, the Company issued cumulative
During
the three months ended September 30, 2023,
During
the nine months ended March 31, 2024, a total of
During
the nine months ended March 31, 2024, a total of
| Exercise Price | June 30, 2023 | Issued | Repricing | Exercised | Others | Cancelled | Expired | Redeemed | March 31, 2024 | |||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||||
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| ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
29
Returnable Warrants
A
cumulative total of
During
the fiscal year ended June 30, 2023, the Company issued cumulative
12. 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 |
| ● | Sean Folkson has a consulting agreement which went into effect on December 1, 2023 and runs through December 31, 2024. The agreement contains the potential for cash and equity bonuses should Nightfood, Inc. achieve certain revenue milestones. The Cash Performance Bonus shall be equal to |
| ● | Litigation: From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. |
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13. Related Party Transactions
| March 31, 2024 | June 30, 2023 | |||||||
| Sean Folkson consulting fees payable | $ | $ | ||||||
| Directors fees payable | ||||||||
| Accrued compensation payable with shares and warrants (unissued) | ||||||||
| Lei Sonny Wang consulting fees payable | ||||||||
| Sean Folkson loan (principal $ | ||||||||
| Lei Sonny Wang reimbursement expenses | ||||||||
| Total related party payable | $ | $ | ||||||
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Sean Folkson | $ | $ | $ | $ | ||||||||||||
| Directors fees and compensation | ||||||||||||||||
| Lei Sonny Wang | - | - | ||||||||||||||
| Total fees under professional fees | $ | $ | $ | $ | ||||||||||||
On February 2, 2024, Sean Folkson resigned as chief executive officer of NGTF and Lei Sonny Wang was appointed Chief Executive Officer and a director.
Agreements with Mr. Folkson
On
February 2, 2024, Mr. Folkson, NGTF and Nightfood, Inc. entered into a consulting agreement (the “Consulting Agreement”).
Pursuant to the Consulting Agreement, Mr. Folkson will (1) continue to serve as a director of NGTF, subject to shareholder approval,
for no less than the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur, during
which time both NGTF and its board of directors (the “Board”) will use its best effort to maintain Mr. Folkson’s directorship
and (2) will serve as president of Nightfood, Inc. until December 31, 2024, which may date be extended. Mr. Folkson will receive cash
and equity compensation as a director commensurate with the compensation received by other directors. Unless either party provides the
other written notice at least 45 days before the end of the Consulting Agreement’s term of its intention to terminate, then the
Consulting Agreement will renew automatically for one-year terms. The Consulting Agreement can be terminated for cause without notice.
Upon termination of the Consulting Agreement for any reason, Mr. Folkson will receive NGTF common stock with a market value equal to
$
In
exchange for his services, Mr. Folkson will receive a minimum annual salary of $
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Agreements with Mr. Wang
In
connection with Mr. Lei Sonny Wang’s appointment as chief executive officer, NGTF and Mr. Wang entered into an employment agreement
effective as of February 2, 2024 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. Wang will serve
his initial term beginning February 2, 2024 (the “Effective Date”) ending on the earlier of (i) the one year anniversary
of the Effective Date or (ii) the termination of the Employment Agreement (the “Initial Term”). The Initial Term will be
automatically extended for additional one-year terms (each a “Renewal Term”), unless NGTF or Mr. Wang provides the other
with notice, at least 30 days prior to the expiration of the current term, of its desire not to renew the Employment Agreement. For his
services, Mr. Wang will receive an annual base salary of $
The Employment Agreement may be terminated with or without cause by NGTF and may be terminated with or without good reason by Mr. Wang. If NGTF terminates the agreement for cause, then NGTF will (i) pay Mr. Wang any unpaid Base Salary, benefits and any unreimbursed expenses within 10 days after the termination date; (ii) any unvested portion of equity granted to Mr. Wang through any agreement, including restricted stock awards, will be automatically forfeited; and (iii) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. If NGTF terminates the agreement without cause, then NGTF will (i) pay Mr. Wang any Base Salary or other amounts accrued and any unreimbursed expenses incurred within 10 days following the termination date; (ii) pay Mr. Wang a lump sum equal to the Base Salary that would have been paid to Mr. Wang for the remainder of the Initial Term or Renewal Term within 10 days of the termination; (iii) any grant of equity made to Mr. Wang, to the extent not vested, will automatically vest; and (iv) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. Should Mr. Wang terminate the Employment Agreement with good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated without cause. If Mr. Wang terminates the Employment Agreement without good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated with cause.
With regards to intellectual property, Mr. Wang has agreed that any work product resulting from the Employment Agreement will be the sole and exclusive property of NGTF and has irrevocably assigned all right, title and interest worldwide in and to any work product to NGTF. NGTF may also sublicense any work product resulting from the Employment Agreement.
14. Subsequent Events
On
May 9, 2024, the Company consummated transactions pursuant to a Securities Purchase Agreement (the “Purchase Agreement”)
dated as of May 5, 2024 (the “Effective Date”) and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory
Note (the “Note”) in the principal amount of $
The Company has evaluated events for the period through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.
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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, 2023 as filed with the Securities and Exchange Commission (the “SEC”) on October 13, 2023, as well as the other information set forth herein.
OVERVIEW
Nightfood Holdings, Inc. is focused on identifying and exploiting explosive market trends within the hospitality, food services, and consumer goods sectors. By leading newly emerging categories and by identifying opportunities in markets undergoing transformational upheaval, our aim is to create upside potential unmatched in more mature markets.
In February 2024, we acquired recently formed Future Hospitality Ventures Holdings, Inc. (“Future Hospitality”) in an all-stock transaction. We’re in the process of acquiring two additional operating subsidiaries sectors, to add to the two subsidiaries currently in our portfolio: Nightfood, Inc. and Future Hospitality).
RECENT DEVELOPMENTS
On February 2, 2024, Nightfood Holdings, Inc. completed the acquisition of Future Hospitality Ventures Holdings Inc., a Nevada corporation, and its subsidiaries from Lei Sonny Wang, the sole shareholder of Future Hospitality. The acquisition of Future Hospitality was approved by the majority shareholder of the Company, Mr. Sean Folkson, and the board of directors. Pursuant to the Exchange Agreement, the Future Hospitality Shareholder exchanged all 1,000 shares of common stock, $0.001 par value per share, of Future Hospitality owned by him to NGTF for: (i) all 1,000 issued and outstanding shares of NGTF’s Series Super Voting A Preferred Stock held by the NGTF Series A Shareholder, and (ii) an aggregate of 13,333 newly issued shares of NGTF’s Series C Convertible Preferred Stock, each of which shall convert into 6,000 shares of common stock at $0.025 per share (the “Series C Preferred Stock”, and together with the Series A Super Voting Preferred Stock, the “NGTF Exchange Shares”). Under the terms of the agreement, Sean Folkson resigned as the Chief Executive Officer of NGTF, and continues to serve as the President of Nightfood, Inc. through at least December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur. Mr. Lei Sonny Wang was concurrently appointed a director and Chief Executive Officer of NGTF. Each of Mr. Folkson and Mr. Wang entered into compensation agreements for their services effective February 2, 2024.
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Lei Sonny Wang, 44, founded and has served as chief executive officer of Future Hospitality Ventures Holdings Inc., a service robots distribution company to address operational inefficiencies in the hospitality industry, since October 28, 2023. On October 17, 2017, Mr. Wang established, and acted as executive director of, Intelligent Ventures Group Inc., which specializes in scaling and reviving California’s early-stage and distressed small businesses through turnkey management. On March 1, 2019, Mr. Wang joined Tri Cascade Inc. as the Executive Director of Business Development, an early-stage IoT device manufacturing and smart device development company focusing on deploying Outdoor Air Quality Monitor applications to address high-density urban air population concerns. On March 2, 2020, Mr. Wang joined Komfort IQ as the Chief Revenue Officer, an IoT startup enhancing energy efficiency in commercial office spaces by up to 60%. On January 5, 2022, Mr. Wang joined Retrofitek Inc., a startup distribution company innovating in the HVAC sector with energy-saving coating technologies, as the interim CEO. Mr. Wang studied Political Science at the University of California, Santa Barbara, and obtained degrees in Consumer Behavior and Business Administration from the University of North Texas. Mr. Wang’s history in managing, launching, and growing companies that address critical challenges uniquely positions him as a qualified board member. NGTF believes that Mr. Wang’s strategic vision, combined with his operational experience, will contribute to creative problem-solving, business development, fundraising, and overall management.
FHVH is a new entrant in an explosive space: Robots-as-a-Service (RaaS). The up-and-coming global service robots market is projected to exceed $170 billion by 2030. Under the leadership of Mr. Wang, FHVH has secured distribution agreements with industry-leading manufacturers United Robotics Group and Botin Innovation and is in the process of negotiating several additional supply opportunities.
OPERATING SUBSIDIARIES
Nightfood, Inc. - The Nighttime Snack Problem and Opportunity
What you eat before bed matters.
Nightfood is pioneering the category of sleep-friendly nighttime snacking.
Research indicates that humans are biologically hard-wired to load up on sweets and fats at night. Loading a surplus of calories (fuel) into the body before the long nightly fast is believed to be an outdated survival mechanism from our hunter-gatherer days. Unfortunately, while modern consumers know this type of consumption isn’t necessary for survival, willpower also weakens at night, so consumers are more likely to succumb to these unhealthy nighttime cravings for excess “survival calories”.
As a result, over 90% of adults report snacking regularly between dinner and bed (according to SleepFoundation.org), resulting in an estimated 1 billion nighttime snack occasions weekly in the United States, and an annual spend on night snacks of over $60 billion. Because of our hard-wired evolutionary preferences at night for calorie-dense foods which increased the odds of short-term survival for our ancestors, the most popular nighttime snacks are ice cream, cookies, chips, and candy. These are all understood to be generally unhealthy. They can also impair sleep quality.
And, because these cravings are biologically hardwired, we believe modern unhealthy nighttime snacking behavior will continue to be a pattern and a problem for a significant portion of the population in developed nations around the world. We believe it’s a problem that demands a solution.
In recent years, billions of dollars of consumer spend have shifted to better-for-you versions of consumers’ favorite snacks. Nightfood snacks are not only formulated to be better-for-you, but they’re uniquely formulated by sleep experts and nutritionists to provide a better nutritional foundation for quality sleep.
A significant portion of total snack consumption takes place between dinner and bed. Nutrition is an important part of sleep-hygiene because what one eats at night impacts sleep. Industry surveys indicate that modern consumers seek functional benefits from their snacks, and most consumers would also prefer better sleep.
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As the pioneers of the nighttime snacking category, Nightfood accepts the responsibility to educate consumers and build the awareness required to grow the nighttime segment of the overall snack market. Along with that responsibility comes the opportunity to be the category king. We envision a future where nighttime specific, sleep-friendly snacks comprise a meaningful subsegment of the estimated $150 billion American snack market.
Management believes significant latent consumer demand exists for better nighttime snacking options, and that a new consumer category, consisting of nighttime specific snacks, is set to emerge in the coming years. This belief is supported by research from major consumer goods research firms such as IRI Worldwide, and Mintel, who identified nighttime specific foods and beverages as one of the “most compelling and category changing trends” for 2017 and beyond. In recent years, CEOs and other executives from major consumer goods conglomerates such as Nestle, PepsiCo, Mondelez, and Kellogg’s have commented on consumer nighttime snack habits and alluded to the opportunity that might exist in solving this problem for the marketplace.
Nightfood has established a highly credentialed Scientific Advisory Board consisting of sleep and nutrition experts to drive product formulation decisions and provide consumer confidence in the 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 fifteen 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. Dr. 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 Dr. 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 combination allows her to play an important role in the formulation of Nightfood snacks. These experts work with Company management to ensure Nightfood products deliver on their nighttime-appropriate, and sleep-friendly promises.
Compared to regular ice cream, Nightfood is formulated with more tryptophan, more vitamin B6, more calcium, magnesium, and zinc, more protein and more prebiotic fiber. Nightfood also contains less fat, less sugar, and fewer calories than traditional ice cream, and is lactose free.
Nightfood cookies offer similar nutritional benefits when compared to conventional cookies. They feature less sugar, less fat, fewer calories, more protein, more prebiotic fiber, and contain added inositol and vitamin B6.
Each new Nightfood snack format would be expected to deliver sleep-friendly snacking in a way that is appropriate for that format. For example, Nightfood chips would not necessarily contain significantly more tryptophan than other brands of chips but may be more sleep-friendly in other ways.
Nightfood has received media coverage for its sleep-friendly snacks in outlets such as The Today Show, Oprah Magazine, The Rachael Ray Show, Food Network Magazine, The Wall Street Journal, USA Today, The Washington Post, Fox Business News, and many other major media outlets.
The Company is in the process of launching a direct-to-consumer (“DTC”) initiative for Nightfood sleep-friendly cookies that Management believes has the potential to quickly scale, providing stability and a foundation from which to grow the Nightfood brand and the sleep-friendly snack category.
Because of the potential size and strategic importance of the nighttime-specific snack market, and the growing interest and understanding of the link between nutrition and sleep, potential exists for joint ventures with international food and beverage and wellness companies. In recent years, some of the largest food and beverage companies in the world have approached us to explore partnership opportunities. This includes Nestlé (with whom we completed a “test-and-learn” joint initiative in 2023) and others. Most recently, in January 2024, we were contacted by a leading international wellness brand which wanted to explore development of Nightfood branded snacks in a joint venture.
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Discussions surrounding such partnership opportunities remain ongoing, and shareholders should expect advancement of such initiatives to be predicated on successful Nightfood DTC scaling in mid-2024. DTC scaling could also allow us to evaluate additional opportunities in the hotel vertical.
During April of 2024, Nightfood, Inc. observed a significant increase in direct-to-consumer sales of its cookies resulting from its social media strategy, with TikTok being the primary sales driver. During the 30-day period from April 21, 2024 through May 20, 2024, Nightfood generated over $50,000 in unaudited net revenue from direct-to-consumer sales according to unaudited Shopify reporting, with over 80% of these sales occurring on the Nightfood.com website, and the balance occurring via TikTok Shop.
Future plans for the Nightfood brand include the introduction of sleep-friendly snacks in additional formats conducive to ecommerce, such as chips and candy, as well as retail distribution in supermarkets, hospitality, and other traditional and non-traditional channels.
Future Hospitality Ventures Holdings, Inc.
Future Hospitality is a new and well-positioned entrant in the burgeoning Robotics-as-a-Service (“RaaS”) sector. The global service robots’ market is projected to exceed $170 billion by 2030. With a focus on the RaaS opportunity across the United States, Future Hospitality launched in California, a labor market currently making national news due to significant upheaval from recent shifts in labor laws, minimum wage for food service workers, and high turnover rates that have forever burdened the foodservice and hospitality industry.
The United States is brimming with potential for growth, and we believe the RaaS landscape is poised for remarkable opportunities. At Future Hospitality, our mission is to leverage our resources to become a leading force in the commercialization of RaaS and Internet-of-Things (IoT) automation applications. Our vision is to create immense value for our customers and drive industry innovation, all while strategically expanding our market footprint.
Future Hospitality is not just aiming for growth; we're targeting significant revenues and profits to maximize shareholder value in this high-growth, high-margin industry. By pursuing organic growth and strategically accretive mergers and acquisitions, we're setting the stage for a future where Future Hospitality leads the charge in RaaS and IoT automation. Together, we'll redefine the industry and achieve extraordinary success.
DEVELOPMENT PLANS
Our focus is on identifying and exploiting explosive market trends within the hospitality, food services, and consumer goods sectors. By leading newly emerging categories and by identifying opportunities in existing markets undergoing transformational upheaval, our aim is to create upside potential unmatched in more mature markets.
In November 2023, we announced our goal of building a portfolio of operating companies in these spaces to enhance stability and shareholder value through uplist to a senior exchange such as NASDAQ. The first acquisition in this process was completed in February 2024, when we acquired newly formed Future Hospitality in an all-stock transaction.
We are currently in the process of acquiring two additional operating companies which are expected to bring millions of dollars in assets and synergistic revenue under the Nightfood Holdings umbrella, should the acquisitions be successfully completed, which we anticipate. Our updated timeline targets have us completing these two acquisitions in July of 2024, with the goal of transitioning to the NASDAQ as soon as practicable thereafter.
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.
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SEASONALITY
We do not expect a significant seasonality impact on either Nightfood or Future Hospitality during the anticipated upcoming growth stages of either company. The full impact of seasonality on our businesses might not be fully understood for several additional annual cycles.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2024 AND 2023
Revenue
For the three months ended March 31, 2024 and 2023, we had Gross Sales of $1,491 and $15,217, respectively and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $1,352 and $10,605, respectively, and incurred operating expenses of $291,492 and $155,660 respectively. During the three months ended March 31, 2024 the pivot from ice cream sales to Direct-To-Consumer sales of our cookies had only just commenced. As we have shifted from retail distribution of Nightfood snacks to direct- to-consumer, we do not expect to incur slotting fees in the future until and unless we again begin distributing Nightfood product offerings through certain retail channels and partners.
Costs and expenses
For the three months Ended | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses | ||||||||
| Cost of product sold | 2,034 | 58,474 | ||||||
| Advertising and promotional | 6,453 | 38,960 | ||||||
| Selling, general and administrative expense | 162,022 | 155,076 | ||||||
| Professional fees | 120,983 | (96,850 | ) | |||||
| Total operating expenses | 291,492 | 155,660 | ||||||
For the three months ended March 31, 2024 and 2023, Cost of Product Sold decreased to $2,034 from $58,474. This is due to a decrease in the amount of product sold.
For the three months ended March 31, 2024 and 2023, Advertising and Promotional Expenses decreased from $38,960 to $6,453 as we paused advertising and promotional efforts during the current three month period.
For the three months ended March 31, 2024 and 2023, Selling, General, and Administrative expenses increased from $155,076 to $162,022. The increase was a direct result of inventory impairment charges of $105,455 in the current three months ended March 31, 2024. Selling, General, and Administrative expenses experienced a substantive decrease period over period as sales decreased period over period, along with associated costs.
For the three months ended March 31, 2024 and 2023, Professional Fees reflect an expense of $120,983 for the current three months ended March 31, 2024 as compared to a credit to professional fees of $96,850 in the three months ended March 31, 2023. The results reported in the three months ended March 31, 2023, reflecting a net credit to professional fees of $96,850 is the result of the repricing of certain consulting fees issued as warrants as part of a Forbearance and Exchange Agreement entered into with certain parties in February 2023 resulting in an adjustment to previously recorded consulting expenses in the period of $250,936.
Total Operating Expenses include those expenses associated with running the operating portion of our business (such as the manufacturing our snacks, advertising for our product, warehousing, freight, and the like). It also includes certain cash and non-cash expenses incurred by us related to activities such as SEC compliance, fundraising activities, and maintaining our public entity in good standing. Our revenues and operations are currently limited, therefore expenses relating to financing and compliance activities make up a larger portion of our total expenses than they might in a larger company. For the three months ended March 31, 2024 and 2023, Total Losses from Operations increased from $145,055 to $290,140. As discussed above, the major component of this increase was the increase to professional fees period over period and substantial inventory write-downs in the current period as we shift from ice-cream sales to cookie sales, offset by reductions to both costs of products sold and advertising and promotional costs.
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Other Income (Expense)
For the three months ended March 31, 2024 and 2023, Total Other Expenses totaled $379,579 as compared to other income of $1,130,948. The majority of these results are related to accounting treatment applied to financing costs, debt and the amortization of debt discount. During the three months ended March 31, 2024 we recorded interest expenses of $86,136, amortization of debt discounts of $165,113 and loss on debt extinguishment of $128,330. During the three months ended March 31, 2023 we recorded amortization of debt discount of $132,805, interest expenses of $40,758 and a loss on debt extinguishment of $392,459, offset by a gain from financing costs of $1,696,970 as a result of entry into a Forbearance and Exchange Agreement in February 2023 with certain parties which resulted in adjustments to prior recorded expenses.
Net Loss
Our net loss in the three months ended March 31, 2024 totaled $669,719 as compared to net income of $985,894 in the three months ended March 31, 2023. The change in results from net income in 2023 to a net loss in the current period in 2024 is directly related to adjustments to previously recorded expenses in the three months ended March 31, 2023 as a result of a certain Forbearance and Exchange Agreement entered into in February 2023 which required revaluation of various financing costs and share based consulting expenses, the impact of which resulted in a gain to financing costs in the three months ended March 31, 2023 of $1,696,970
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED MARCH 31, 2024 AND 2023
Revenue
For the nine months ended March 31, 2024 and 2023 we had Gross Sales of 11,159 and $152,864, respectively and Net Revenues (Net Revenues are defined as Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue reductions) of $736 and $48,920, respectively, and incurred operating expenses of $900,423 and $1,485,144 respectively. During the nine months ended March 31, 2024 the pivot from ice cream sales to Direct-To-Consumer sales of our cookies only commenced in the most recent quarter ending March 31, 2024. As we have shifted from product sales at retail and wholesale to direct to consumer, we do not expect to incur slotting fees in the future, unless we determine to introduce our current product offerings to a retail format.
Costs and expenses
For the
nine months Ended | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses | ||||||||
| Cost of product sold | 60,610 | 225,591 | ||||||
| Advertising and promotional | 6,044 | 129,295 | ||||||
| Selling, general and administrative expense | 375,470 | 385,711 | ||||||
| Professional fees | 458,299 | 744,547 | ||||||
| Total operating expenses | 900,423 | 1,485,144 | ||||||
For the nine months ended March 31, 2024 and 2023, Cost of Product Sold decreased from $225,591 to $60,610. This is due to a decrease in the amount of product sold.
For the nine months ended March 31, 2024 and 2023, Advertising and Promotional Expenses decreased from $129,295 to $6,044. This decrease is largely due to us pausing advertising and promotional efforts during the period. In addition, certain previously booked marketing expenditures during the nine months ended March 31, 2024, were reversed in the current nine month period, upon non-provision of services resulting in a reduction to the overall costs in the current nine months.
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For the nine months ended March 31, 2024 and 2023, Selling, General, and Administrative expenses decreased from $385,711 to $375,470.In fact the Company’s expenditures on Selling, General and Administrative costs was substantially reduced period over period, such reductions being offset in the nine months ended March 31, 2024 by a sizeable impairment to inventory in the period of $251,010,as the Company shifted from ice-cream sales to direct to consumer sales of cookie products.
For the nine months ended March 31, 2024 and 2023, Professional Fees decreased from $744,547 to $458,299. This decrease was largely due to reduced expenses in the current nine months ended March 31, 2024, as we did not have costs associated with the preparation, filing, and qualification of our Tier 2 offering pursuant to Regulation A, which received qualification from the SEC on October 25, 2022. In addition, we experienced a substantial decrease in professional consulting fees period over period as a result of the restructure of certain debt agreements.
Total Operating Expenses include those expenses associated with running the operating portion of our business (such as the manufacturing our snacks, advertising for our product, warehousing, freight, and the like). It also includes certain cash and non-cash expenses incurred by us related to activities such as SEC compliance, fundraising activities, and maintaining our public entity in good standing. Our revenues and operations are currently limited, therefore expenses relating to financing and compliance activities make up a larger portion of our total expenses than they might in a larger company.
For the nine months ended March 31, 2024 and 2023, the Loss from Operations decreased from $1,381,200 to $890,000. As discussed above, the major components of this decrease was the reduction in advertising and marketing spend, a substantial reduction to professional fees and SGA expenses period over period, offset by a substantial write down of obsolete inventory.
Other Income (Expense)
For the nine months ended March 31, 2024 and 2023, Total Other Expenses decreased to $1,704,215 from $3,394,278. The majority of these expenses are related to accounting treatment applied to financing costs, debt and the amortization of debt discount. During the nine months ended March 31, 2024 we recorded amortization of debt discount of $578,853, loss on extinguishment of debt of $128,330 and financing costs of $804,160. During the nine months ended March 31, 2023, we recorded amortization of debt discount of $1,162,257, financing costs of $1,813,940 and a loss on extinguishment of debt of $319,995. These are not actual cash expenses but a function of the way certain financing activities are accounted for. Interest expenses totaled $192,872 and $98,086 in the nine months ended March 31, 2024 and 2023, respectively.
Net Loss
Our net loss in the nine months ended March 31, 2024 totaled $2,594,215 as compared to $4,775,478 in the nine months ended March 31, 2023. The decrease to the net loss is directly related to a substantial decrease in financing costs and amortization of debt discounts, as well as a decrease to our overall operating costs by approximately one-third.
Customers
In each of the three- and the nine-month periods ended March 31, 2024, we had 1 customer which accounted for more than 10% of gross sales. During the three months ended March 31, 2023, the Company had one customer account for approximately 94% of the gross sales. During the nine months ended March 31, 2023, the Company had one customer account for approximately 34% of the gross sales. One other customer accounted for approximately 31% of gross sales, and two other customers accounted for between 10 and 12% of gross sales.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2024, we had cash on hand of $186,072, receivables of $25,657, other current assets of $187,225 and inventory valued at $35,842.
Our cash on hand is not adequate to satisfy our working capital needs. We believe that our current capitalization structure, ongoing merger and acquisition activity, and our access to institutional capital will enable us to successfully secure the required financing to execute our development plans. In addition, we are currently working on acquisitions of additional revenue generating businesses to bolster our growth and strengthen our balance sheet.
As discussed above, the Company has limited available cash resources and we do not believe our cash on hand will be sufficient to fund our operations and growth through the balance of fiscal year 2024 and 2025, or adequate to satisfy our immediate or ongoing working capital needs. The Company is continuing to raise capital through the sale of its securities, including common stock, preferred stock, and debt (including convertible debt) to finance the Company’s operations, of which it can give no assurance of success. In addition, we will receive the proceeds from our outstanding warrants as, if and when such warrants are exercised for cash.
If we are unable to raise cash through the sale of our securities, we may be required to severely restrict or cease our 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 products and services of its subsidiaries to sustain 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.
Subsequent to March 31, 2024, we raised additional gross proceeds, net of original issuance discounts, of $335,750 through the issuance of Secured Notes payable.
Since inception in January 2010 through March 31, 2024, we have generated an accumulated deficit of approximately $37,651,522. This accumulated deficit is not debt, and there is no obligation or liability associated with it. An accumulated deficit reflects a negative balance of retained earnings and an accumulation of historical losses over time, related to both operations and financing activities. It is not unusual for growing companies to have significant accumulated deficit, even after turning profitable. The Company’s accumulated deficit is a function of losses sustained over time, along with the costs associated with raising operating capital.
Assuming we raise additional funds and continue operations, it is expected we may incur additional operating losses during the course of fiscal year 2024 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.
We anticipate deriving additional revenue from our subsidiaries in fiscal year 2024, but we cannot at this time quantify the amount. During the quarter ended March 31, 2024 we were successful in acquiring a new operating subsidiary in the Robots-as-a-Service (RaaS) space, and expect to enhance our revenues through these operations in the coming months. In addition, we expect to successfully complete the acquisition of two additional operating companies prior to the close of fiscal 2024.
Cash Flow from Operating Activities
During the nine months ended March 31, 2023, net cash used in operating activities was $995,623 compared to net cash used of $449,180 for the nine months ended March 31, 2024. This decrease in net cash used is largely due to the overall reduction in our operating and non-operating activities in the most recently completed nine-month period. While we continue to report increases to accounts payable and other liabilities as well as non-cash expenses such as financing costs including costs of the issuance of warrants in respect to financings and services and the amortization of debt discounts, the overall size of the increase to our operating liabilities is substantially reduced to results reported in the nine months ended March 31, 2023.
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Cash Flow from Investing Activities
During the nine months ended March 31, 2024 cash from investing activities included acquired cash from a business combination of $149,990 and prepaid acquisition costs secured by promissory notes of $176,000. There were no cash flows from investing activities in the nine months ended March 31, 2024.
Cash Flow from Financing Activities
During the nine months ended March 31, 2024, net cash of $917,055 was raised through the issuance of debt in the form of convertible notes and secured promissory notes. In the nine months ended March 31, 2023, our financing activities provided net cash of $741,407, and consisted of the issuance of debt in the form of convertible notes totaling $1,443,750 offset by repayments to debt of $1,110,628, proceeds from shares sold under our Reg A offering of $229,719, proceeds from the exercise of warrants of $138,566, and proceeds from a loan from a related party of $40,000.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate past judgments and our estimates, including those related to allowance for doubtful accounts, allowance for inventory write-downs and write offs, deferred income taxes, provision for contractual obligations and our ability to continue as a going concern. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Note 2 to the consolidated financial statements, presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, 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 December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide this information.
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.
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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, 2024. 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 that evaluation, our chief executive officer concluded that our disclosure controls and procedures were not effective at March 31, 2024 due to the lack of full-time accounting and management personnel. We will consider hiring additional employees when we obtain sufficient capital.
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.
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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.
There were no sales of equity securities during the period covered by this Report that were not registered under the Securities Act and/or were not previously reported in a Current Report on Form 8-K filed by the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5.
Amendments to Articles of Incorporation
On January 26, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series A Super Voting Preferred Stock (the “Series A Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series A COD”) by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A COD, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1). No other changes were made.
Also on January 26, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”), which established 500,000 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series C COD. The shares of Series C Preferred Stock are convertible nine (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series C Preferred Stock. The shares of Series C Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series C Preferred Stock are not entitled to dividends.
On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made.
Also on February 7, 2024, NGTF filed a Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”), which established 100,000 shares of Series D Convertible Preferred Stock (the “Series D Preferred Stock”), par value of $0.001 per share, having such designations, rights and preferences as set forth in the Series D COD. The shares of Series D Preferred Stock are convertible six (6) months after issuance into common stock of NGTF at a rate of six thousand (6,000) shares of common stock for each share of Series D Preferred Stock. The shares of Series D Preferred Stock do not have voting rights and rank junior to the Series B Preferred Stock. The holders of Series D Preferred Stock are not entitled to dividends.
Changes to executive Management
On February 2, 2024, Mr. Sean Folkson resigned as CEO and Mr. Lei Sonny Wang was appointed CEO and to the Company’s board of directors.
Change of Independent Registered Public Accounting Firm
On April 12, 2024, the Company dismissed GreenGrowth CPAs Inc. as its independent registered public accountancy firm, and engaged Fruci & Associates II, PLLC as the Company’s new independent registered public accounting firm.
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ITEM 6. EXHIBITS.