ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET
INFORMATION
Our
common stock is quoted on the OTCQB Market under the symbol NGTF.
The
following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as
reported by the OTCMarkets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
The
last reported price was $0.1461 on October 12, 2020.
Period
Ending June 30, 2020
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High
|
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Low
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September
30, 2019
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|
$
|
0.59
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|
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$
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0.28
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|
December 31, 2019
|
|
|
0.36
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|
|
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0.20
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|
March 31, 2020
|
|
|
0.44
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|
|
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0.16
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|
June 30, 2020
|
|
|
0.28
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|
|
|
0.17
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|
|
|
|
|
|
|
|
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Period
Ending June 30, 2019:
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|
|
|
|
|
|
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September 30, 2018
|
|
$
|
0.42
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|
|
$
|
0.25
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|
December 31, 2018
|
|
|
0.36
|
|
|
|
0.16
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|
March 31, 2019
|
|
|
0.92
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|
|
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0.17
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June 30, 2019
|
|
|
0.77
|
|
|
|
0.30
|
|
HOLDERS
The
approximate number of stockholders of record at June 30, 2020 was 210, and as of October 12, 2020 it was 209. The number of
stockholders of record does not include beneficial owners of our common stock, whose shares are held in the names of various dealers,
clearing agencies, banks, brokers and other fiduciaries. The Company ordered a “NOBO list” report in February 2020
from Broadridge Financial Solutions. The list showed that there were 5,048 unique beneficial owners of NGTF stock as of February,
2020.
DIVIDEND
POLICY
No
dividends have ever been declared by the Board of Directors on our common stock. Our losses do not currently indicate the ability
to pay any cash dividends, and we do not have the intention of paying cash dividends on our common stock in the foreseeable future.
RECENT
SALES OF UNREGISTERED SECURITIES
In
the year ending June 30, 2020, no shares were issued to any investor for cash. In the year ending June 30, 2019, 84,389 shares
were issued to an investor for $50,000 in caseh (at $.59 per share). No underwriter participated in the foregoing transactions,
and no underwriting discounts or commissions were paid, nor was any general solicitation or general advertising conducted. The
securities bear a restrictive legend and stop transfer instructions are noted on our stock transfer records. These shares were
issued in offerings under Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended. In the
year ended June 30, 2020, the company also compensated vendors and consultants with 1,385,990 shares in lieu of payment of $308,768,
along with the issuance of 580,666 shares in lieu of interest payments of $88,762. These issuances were exempt from registration
under section 4(1) of the Securities Act as sales by an issuer not involving a public offering. During the year ended June 30,
2019, the company compensated vendors and consultants with 483,808 shares in lieu of payment of $345,656, along with the issuance
of 667,959 shares in lieu of interest payments of $95,805.
During
the year ended June 30, 2020, we issued 6,056,168 shares of common stock as consideration for the conversion of debt with a fair
value of $961,000 to one investment entity. These issuances were exempt from registration under Section 4 (1) of the Securities
Act of 1933, as amended, as transactions by an issuer not involving any public offering. During the year ended June 30,
2019, the Company issued 281,957 shares for certain accounts payable liabilities valued at $63,850 and issued 400,000 shares of
stock related to Mr. Folkson executing warrants valued at $120,000. These issuances were exempt from registration under Section
4 (1) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
As
of June 30, 2020 and 2019, we had no compensation plans under which our equity securities were authorized for issuance.
PENNY
STOCK REGULATION
Shares
of our common stock have been and will likely continue to be subject to rules adopted the SEC that regulate broker-dealer practices
in connection with transactions in “penny stocks.” Penny stocks are generally equity securities with a price of less
than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided
that current price and volume information with respect to transactions in those securities is provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules,
deliver a standardized risk disclosure document prepared by the SEC, which contains the following:
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●
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a description of
the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
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●
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a description of
the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with
respect to violation to such duties or other requirements of securities’ laws;
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|
|
|
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●
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a brief, clear,
narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the
significance of the spread between the “bid” and “ask” price;
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●
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a toll-free telephone
number for inquiries on disciplinary actions;
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●
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definitions of significant
terms in the disclosure document or in the conduct of trading in penny stocks; and
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●
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such other information
and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation.
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Prior
to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:
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●
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the bid and offer
quotations for the penny stock;
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●
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the compensation
of the broker-dealer and its salesperson in the transaction;
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|
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●
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the number of shares
to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market
for such stock; and
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|
|
|
|
●
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monthly account
statements showing the market value of each penny stock held in the customer’s account.
|
In
addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the
broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive
the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have
the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules.
Holders of shares of our common stock may have difficulty selling those shares because our common stock will probably be subject
to the penny stock rules.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The
following discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction
with our audited financial statements and related notes thereto included elsewhere in this report.
OVERVIEW
We
caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe the
assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate,
and as a result, the forward-looking statements based on those assumptions could be incorrect. In light of these and other uncertainties,
you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in
any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements
to reflect future events or circumstances. Some of the factors that may cause actual results, developments and business decisions
to differ materially from those contemplated by such forward-looking statements include the following:
We
are a snack development, marketing and distribution company relying on our unique products, positioning, and team to develop and
market nutritional/snack foods that are appropriate for evening snacking.
Our
first product was the Nightfood nutrition bar, manufactured in two flavors (Cookies n’ Dreams, and Midnight Chocolate Crunch).
Management chose to discontinue manufacturing and distribution of Nightfood nutrition bars in the 2nd half of calendar
2019 to ensure additional resources available for the ice cream rollout, which Management believes offers a larger and more compelling
market opportunity.
Management
does envision the Nightfood brand ultimately as a “platform brand”, meaning future offerings would not necessarily
all remain within the ice cream category. Possibilities exist to expand the product line into additional snack formats that are
popular with consumers at night, including things like cookies, chips, and other formats. Additionally, future reintroduction
of the Nightfood nutrition bar also remains a possibility.
During
calendar 2018, the Company began development of Nightfood ice cream. Having seen the success in the marketplace of “better-for-you”
ice cream brands such as Halo Top, Enlightened, and others, Management believes consumers will be receptive to a line of ice cream
that has some similar nutritional benefits to those newly successful brands, in addition to a sleep-friendly nutritional profile
that is more appropriate for nighttime consumption.
With
our team of sleep experts, and a leading ice cream research and development team, eight flavors of Nightfood ice cream were developed
and bought to market, with the initial production run occurring in January 2019. Nightfood is unique among all other known products
in the market in that our ice cream was developed with better sleep in mind. Knowing millions of Americans eat ice cream before
bed on any given night, Management tasked our team of sleep and nutrition experts with formulating an ice cream that would be
more appropriate for nighttime consumption, while delivering better taste and texture than what is currently found in the other
“better-for-you” brands.
Compared
to regular ice cream, Nightfood is formulated with less fat, less sugar, fewer calories, plus certain minerals, digestive enzymes,
and amino acids recommended by our sleep experts.
In
early February of 2019, it was announced that Nightfood had won the 2019 Product of the Year Award in the ice cream category in
a Kantar innovation survey of over 40,000 consumers. In June of 2019, it was announced that Nightfood won both the Best New Ice
Cream and Best New Dairy Dessert awards at the World Dairy Innovation Awards.
Nightfood
has secured distribution in divisions of some of the largest supermarket chains in the country, and has received media coverage
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 more media outlets.
We
believe that over the next several years, a subset of consumers will shift their night snacking behavior towards snacks that are
formulated to be more “sleep friendly” compared to what is currently being consumed by much of the population. As
research continues to explore the links between nutrition and sleep, and consumers continue to seek healthier snacks in general,
we expect a “nighttime nutrition” or “sleep-friendly snacking” category to emerge within the marketplace.
American
consumers spend over $50 Billion annually on snacks consumed at night, and this figure continues to grow. A majority of adults
are trying to eat foods and snacks that they understand will prevent or manage health problems and 37% of consumers are willing
to pay more for foods with perceived health benefits. Moreover, industry data indicates that the most popular nighttime snack
choices include products and categories that are traditionally considered high in calories, and “unhealthy” options,
such as cookies, salty snacks (chips, pretzels, and popcorn), ice cream, and candy.
In
addition to consumer research giants Mintel and IRI supporting the idea that night-specific snacks represented an opportunity
for growth and innovation within the snack space, major consumer goods companies such as Nestle have also recently indicated they
believe there’s an emerging consumer need for snacks specifically for consumption before bed, and Pepsi announced in September
of 2020 that they intend to launch a new nighttime relaxation beverage called Driftwell.
Management
believes interest in the space from global food and beverage companies such as Nestle and PepsiCo represents early validation
for the category concept. While Management continues to iterate on products, distribution, and marketing, the team steadfastly
believes that nighttime nutrition is a billion dollar category in the making. Management believes the Nightfood brand can be the
pioneer and the leading brand in the night snacking category.
DEVELOPMENT
PLANS
With
Nightfood ice cream currently available in divisions of some of the largest supermarket chains in the United States, Management
is working to simultaneously secure additional distribution opportunities, while also nurturing revenue growth and consumer growth
in our existing points of distribution.
During
the course of calendar 2019, additional distribution relationships were established with regional ice cream distributors and non-traditional
retailers, with varying degrees of success. Management will continue to work within the industry to identify opportunities to
grow the Nightfood brand. In the future, outlets such as hotels, college campus bookstores, and other non-traditional outlets
could develop into relevant elements of our distribution mix as the brand continues to grow awareness and distribution infrastructure.
INFLATION
Inflation
can be expected to have an impact on our operating costs. A prolonged period of inflation could cause a general economic downturn
and negatively impact our results. However, the effect of inflation has been minimal over the past three years.
SEASONALITY
We
do not believe that our business will be seasonal to any material degree.
CORONAVIRUS
(COVID-19)
The
outbreak of the novel coronavirus (COVID-19), including the measures to reduce its spread, and the impact on the economy, cannot
fully be predicted. Early indications are that there are somewhat offsetting factors relating to the impact on our Company. Industry
data shows that supermarket sales remain up, with more people spending more time at home. Anecdotally and statistically, snacking
activity is also up. And, industry sales data also shows ice cream as one of the categories experiencing the largest increase
with year over year growth averaging over 30% through a series of five one-week periods between March 15 and April 12, 2020 according
to IRI data.
The
offsetting factors are the impact of the virus on the overall economy. Greater unemployment, recession, and other possible unforeseen
factors could also have an impact. Research indicates that consumers are less likely to try new brands during economic recession
and stress, returning to value and legacy brands.
With
consumers generally making fewer shopping trips, while buying more on those occasions and reverting back to more familiar brands,
certain brand-launch marketing tactics, such as in-store displays and product sampling, are either impaired or impermissible.
So, while overall night snacking demand is up, and consumer need/desire for better sleep is also stronger, driving consumer trial
and adoption has been more difficult and expensive during these circumstances.
From
both public statements, and recent exploratory meetings conducted between Nightfood Management and certain global food and
beverage conglomerates, it has been affirmed to Management that there is increased strategic interest in the nighttime
nutrition space as a potential high-growth opportunity due to recent declines in consumer sleep quality and increases in
at-home nighttime snacking.
We
have experienced no issues with supply chain or logistics. Order processing function has been perfectly normal to date, and our
manufacturers have assured us that their operations are “business as usual” as of the time of this filing.
While
the virus temporarily disrupted the category review schedules and sell-in process for certain supermarket decision-makers during
the spring and early summer, most major accounts seem to be back on schedule and are conducting business as usual with regard
to review cycles. Meetings are now conducted virtually, and product samples are shipped to decision-makers. While some retailers
told us they were limiting new item additions due to changes in consumer shopping behavior, others have confirmed that they view
the increase in at-home entertainment and night snacking as a plus for Nightfood products.
It
is possible that the fallout from the pandemic could make it more difficult in the future for the Company to access required growth
capital, possibly rendering us unable to meet certain debts and expenses.
It
is impossible to know what the future holds with regard to the virus, both for our company and in the broader sense. There are
many uncertainties regarding the current coronavirus pandemic, and the Company is closely monitoring the impact of the pandemic
on all aspects of its business, including how it will impact its customers, vendors, and business partners. It is difficult to
know if the pandemic has materially impacted the results of operations, and we are unable to predict the impact that COVID-19
will have on our financial position and operating results due to numerous uncertainties. The Company expects to continue to assess
the evolving impact of the COVID-19 pandemic and intends to make adjustments accordingly, if necessary.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.
On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation, deferred
compensation, fair valve of derivative liabilities and contingencies. We base our estimates on historical performance and on various
other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources.
We
believe the following accounting policies are our critical accounting policies because they are important to the portrayal of
our financial condition and results of operations and they require critical management judgments and estimates about matters that
may be uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported
financial condition and results of operations for future periods could be materially affected.
RESULTS
OF OPERATIONS
Fiscal
Year ended June 30, 2020 Compared to Fiscal Year ended June 30, 2019
Revenue
During
the year ended June 30, 2020, the Company sold approximately 260,000 pints of ice cream compared to approximately 63,000 pints
in the prior year, representing volume growth on ice cream pints of over 300%.For the year ended June 30, 2020, we had Net Revenues
of $241,673 on Gross Sales of $878,849 compared to the year ended June 30, 2019 when we had Net Revenues of $352,172 on Gross
Sales of $363,565, of which approximately $150,000 was related to sales of nutrition bars and approximately $205,000 was related
to sales of ice cream. While Gross Sales increased by 142%, Net Revenue decreased 31% year over year. This is due to $637,176
in revenue reductions resulting from slotting fee arrangements and consumer promotion activity. Net Revenues are reported as Gross
Sales less Slotting Fees and other contra-revenue accounts such as those related to manufacturers coupons, in-store specials (such
as 2 pints for $8), consumer rebate programs, and more.
Slotting
fees are fees customarily charged to brands by supermarkets and distributors to add a new product line into their product assortment.
For the year ended June 30, 2020, approximately $541,500 of Gross Sales were cancelled out due to slotting arrangements with retailers
and distributors.
In
situations where the Company has agreed to pay slotting and promotional fees to accounts (supermarkets, distributors, etc…),
the Gross Sales to those customers are reduced on the income statement by these amounts (along with other items, such as early
payment discounts), dollar for dollar, to arrive at a Net Revenue number. So, when these customers order product to put on their
shelves and sell to consumers, that revenue does not get booked even though the product is moving through the supply chain.
These
dollar for dollar reductions continue, on a customer-by-customer basis, for any and all sales to each slotting account until the
Gross Sales to these accounts exceed the total cost of these expenses, at which time the remaining Gross Sales amounts are reported
as Net Revenue.
These
slotting fees and other promotional expenses do not appear on the income statement as an expense. Rather, they are applied against
Gross Sales, resulting in Net Revenue, as shown below. The netting of Gross Sales against slotting and sales discounts, as described
and shown below, results in the Net Revenue number at the top of the income statement. This is not a reflection of the amount
of product sold by the Company and shipped to customers, but rather a function of the way certain sales are accounted for when
those sales are made to customers who are charging slotting fees.
The
following tables summarize Gross Sales for the years ended June 30, 2020 and 2019. Net Revenues are net of slotting fees (a onetime
fee charged by supermarkets in order to have the product placed on their shelves) and other items mentioned above.
|
|
Year
Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Gross sales
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|
$
|
878,849
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|
|
$
|
363,565
|
|
Less:
|
|
|
|
|
|
|
|
|
Slotting
fees
|
|
$
|
(541,500
|
)
|
|
$
|
-
|
|
Sales
discounts and other reductions
|
|
|
(95,676
|
)
|
|
|
(11,373
|
)
|
Net
Revenues
|
|
$
|
241,673
|
|
|
$
|
352,172
|
|
Operating
Expenses
Our operating expenses for the year ended
June 30, 2020 were $2,723,875 compared to $2,263,722 for the year ended June 30, 2019. Cost of product sold was $472,131, for
the year ended June 30, 2020 compared to $190,251 for the year ended June 30, 2019. This increase of 148% is due to the fact that
we sold almost 2.5x as much product to our supermarkets and distributors in Fiscal 2020 than in Fiscal 2019.
Our
income statement shows a decrease in “Advertising and Promotional” from $732,297 for the year ending June 30, 2019
to $403,639 for the year ending June 30, 2020. The Company booked approximately $194,800 in marketing and distribution partnerships
it determined would benefit operations for 2020 and beyond. Due to circumstances, including the global coronavirus pandemic, it
does not appear these certain distribution partnerships will be as beneficial to the Company as envisioned when entered. As a
result, the Company is reporting amortization of intangible assets of $500,000 and a one-time impairment expense of $500,000 in
March of 2020. In April, 2020, the Company successfully negotiated a Debt Incentive Agreement with a creditor to whom it owed
$731,118, most of which is in conjunction with this impaired asset. This Debt Incentive Agreement provides for the elimination
of the entire debt should the Company make payments prior to December 1, 2020 totaling $166,224 in cash, and approximately 4,000
pints of ice cream. Because this reduction in debt is conditional, the full $731,118 is currently included in the liabilities
section of our balance sheet, and full expense is reported on our income statement. Should the Company make the payments and retire
the debt successfully prior to December 1, 2020, the Company would realize a Gain on Extinguishment of Debt of approximately $560,000
for fiscal 2021.
Selling,
general and administrative expenses decreased to $406,072 for the year ending June 30, 2020 compared to $559,996 for the year
ending June 30, 2019. This includes items such as web hosting, web marketing services, freight, warehousing, shipping, product
liability insurance, travel, and research & development of new products. Professional fees decreased from $781,178 for the
year ending June 30, 2019 to $683,706 for the year ending June 30, 2020. This includes legal fees, marketing consulting, and accounting
and auditor fees.
For
the year ended June 30, 2020, interest expense was $441,422 compared to the year ended June 30, 2019 when we reported interest
expense of $179,028. For the year ended June 30, 2020, we recorded a loss on debt extinguishment upon note conversion of $395,781
compared to the year ended June 30, 2019 when we recorded a loss on debt extinguishment upon note conversion of $0. For the year
ended June 30, 2020, we recorded a change in fair value of derivative liability of ($858,774) compared to the year ended June
30, 2019 when recorded a change in fair value of derivative liability of 712,627. For the year ended June 30, 2020, we recorded
an amortization of beneficial conversion feature of $1,709,759 compared to the year ended June 30, 2019 when recorded an amortization
of beneficial conversion feature of $1,794,359. A significant portion of these losses recorded in both years stems from the accounting
treatment applied to financing activities.
Net
Loss
For
the year ended June 30, 2020, we had a net loss of $4,412,063 compared to the year ended June 30, 2019 when we had a net loss
of $4,598,343. A significant portion of the losses recorded in both years stems from the accounting treatment applied to financing
activities. Operating losses for the year ended June 30, 2020 were $2,723,875 and $1,911,550 for the year ended June 30, 2019.
Customers
Our
customers consist primarily of supermarkets and entities that distribute ice cream products to supermarkets and other retail outlets.
In FY 2020, we had one customer that accounted for approximately 41% of our Gross Sales. Eight other customers each accounted
for between 3.7% and 9.7% of our Gross Sales. In FY 2019, two customers made up over 10% of Gross Sales.
Vendors
During
the year ended June 30, 2020 one vendor accounted for more than 10% of our operating expenses. During the year ended June 30,
2019, two vendors accounted for more than 10% of our operating expenses.
LIQUIDITY
AND CAPITAL RESOURCES
As
of June 30, 2020, we had cash on hand of $197,622, accounts receivable of $61,013, and inventory value of $275,605. As of June
30, 2019, we had cash on hand of $30,142, accounts receivable of $45,086, and inventory value of $406,439. The increase in accounts
receivable is due to an increase in overall sales activity relating to the expanded sales and distribution of Nightfood ice cream.
The decrease in inventory is due to production scheduling and inventory management. The Company has run multiple production runs
subsequent to June 30, 2020 and prior to the date of this filing to continue to meet customer demand, and has additional production
planned on an ongoing basis to continue to replenish inventory as existing product is used to fulfill customer orders.
During
the year ended June 30, 2019, we raised $50,000 through the private sale of our common stock. During the year period ended June
30, 2020, there were no private sales of common stock recorded.
As
of June 30, 2020, we had accounts payable of $1,286,149 compared to $496,809 on June 30, 2019. This increase is due primarily
to certain marketing partnerships, slotting fees, and inventory production. In April, 2020, the Company successfully negotiated
a Debt Incentive Agreement with a creditor to whom it owed $731,118. This Debt Incentive Agreement provides for the elimination
of the entire debt should the Company make payments prior to December 1, 2020 totaling $166,224 in cash, and approximately 4,000
pints of ice cream. Because this reduction in debt is conditional, the full $731.118 is currently included in the liabilities
section of our balance sheet. Should the Company make the payments and retire the debt during calendar 2020, the Company would
realize a Gain on Extinguishment of Debt of approximately $560,000 for Fiscal 2021.
GOING
CONCERN
Since
our inception, we have sustained operating losses. During the year ended June 30, 2020, we incurred a net loss of $4,412,063 and
had a total stockholders’ deficit of $4,481,147.
The
Company has limited available cash resources and we do not believe our cash on hand will be adequate to satisfy our ongoing working
capital needs as we continue to expand distribution. The Company is continuing to raise capital through private placement of our
common stock, debt, and the use of convertible debt to finance the Company’s operations, of which it can give no assurance
of success. However, we believe that our current capitalization structure, combined with the continued expansion of operations,
will enable us to achieve successful financings to continue our growth.
Even
if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be
able to achieve a level of profitability from the sale of its products to sustain its operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
During
the year ended June 30, 2020, net cash used in operating activities totaled $1,531,084 compared to $1,567,227 for the year ended
June 30, 2019
During
the year ended June 30, 2020 and, there was an outflow of $333,333 as part of investing activities. During the year ended
2019 respectively, there was not any net cash provided or expended relating to investing activities.
During
the year ended June 30, 2020, net cash aggregating $2,031,897 was provided by financing activities, which represents $2,028,000
from the issuance of convertible debt and $3,897 in new short-term debt related to a new line of credit the Company secured in
March during the initial phases of the COVID lockdowns. For
the year ended June 30, 2019, net cash aggregating $1,548,928 was provided by financing activities, which represents net proceeds
of $50,000 from private sales of our common stock including issuance of warrants, $1,602,005 from the issuance of convertible
debt ($102,077 of which was used to repay older debt), and required principal payments of $1,000 of our bank loan.
From
our inception in January 2010 through June 30, 2020, we have generated an accumulated deficit of approximately $17,631,122. Assuming
we raise additional funds and continue operations, it is expected we would incur additional operating losses during the course
of fiscal 2021 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.
Funds
on hand are not sufficient to fund our operations and we intend to rely on debt and the sale of stock in private placements to
increase liquidity and, we anticipate deriving additional revenue from product sales in fiscal 2021, but we cannot at this time
quantify the amount. If we are unable to raise cash through the sale of our stock, we may be required to severely restrict our
operations.
During
Fiscal Year 2020, the Company entered into convertible promissory notes with one lender with principal totaling $2,148,400. We
consider our relationship with this lender to be excellent. They have been providing financing for operations for over thirty-six
months, and have had conversion rights for over thirty-six months as well through acquisition of older debt. The lender has an
understanding of our capital needs for future operations, although no assurances can be given that they will continue to provide
the necessary capital needed for national distribution.
Effective
May 6, 2015, the Company entered into a consulting agreement with Sean Folkson. The agreement was retroactive to January 1st,
2015. In exchange for services provided to the Company by Folkson, the Company agreed to pay Folkson $6,000 monthly. This compensation
expense started accruing on January 1, 2015, and accrued on a monthly basis through June of 2020.
In
June of 2018, and again in June of 2019, the Company entered into updated consulting agreements with Folkson, which included a
modified compensation structure. Each new Consulting Agreement contained the identical cash compensation allowance of $6,000 monthly.
In addition, Folkson would earn Warrants with a strike price of $.50 or $1 when the Company hit certain revenue milestones. All
Warrants earned under Folkson’s current agreement would convert into restricted shares, shall carry a cashless provision,
and must be exercised within 90 days of the filing of the 10Q or 10K on which such revenues are reported.
In
December, 2017, Folkson elected to purchase 80,000 warrants to acquire shares of NGTF stock with a strike price of $.20 and a
term of 36 months. To acquire these warrants Folkson paid $.15 per warrant, totaling $12,000, treated as a $12,000 reduction to
the amount owed to Folkson. In November, 2018, Folkson exercised an existing warrant option and received 400,000 shares of our
common stock in exchange for a $120,000 reduction in the amount of accrued consulting fees he was owed. This activity resulted
in a decrease in related party accruals of $164,000.
OFF-BALANCE
SHEET TRANSACTIONS
We
currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect
on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources.
ITEM
9A. CONTROLS AND PROCEDURES
The
term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a, et seq.
) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the issuer’s Chief Executive Officer (principal executive officer and principal financial officer), or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
The
term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer’s
Chief Executive Officer, or persons performing similar functions, and effected by the issuer’s board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures
that:
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Pertain to the maintenance
of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the
issuer;
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Provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations
of management and directors of the issuer; and
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Provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets
that could have a material effect on the financial statements.
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Our
Chief Executive Officer does not expect that our disclosure controls and procedures or our internal controls over financial reporting
will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. 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 inherent limitations in all control systems, internal control over financial reporting may not prevent or detect misstatements,
and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
registrant have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Evaluation
of Disclosure Controls and Procedures. Our Chief Executive Officer is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based
on that evaluation, our chief executive officer concluded that our disclosure controls and procedures were not effective at June
30, 2020 due to the lack of accounting and management personnel, as well as insufficient funds to fully engage necessary legal
and compliance resources. We will consider hiring additional employees when we obtain sufficient capital.
Management’s
Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal control over financial reporting has been designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. GAAP.
Our
internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts
and expenditures are being made only in accordance with authorization of our management and directors; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have
a material effect on our financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial reporting at June 30, 2020. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control—Integrated Framework. Based on that assessment under those criteria, our management has determined that, at June
30, 2020, our internal control over financial reporting was not effective due to a lack of resources.
This
Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
to the exemption provided to issuers that are not “large accelerated filers” nor “accelerated filers”
under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes
in Internal Controls over Financial Reporting. There were no changes in the internal controls over our financial reporting
that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.