The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
Description of
Business
|
Nightfood Holdings, Inc. (the “Company”)
is a Nevada Corporation organized October 16, 2013 to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York
Corporation from its sole shareholder, Sean Folkson. All of its operations are conducted by its two subsidiaries: Nightfood,
Inc. (“Nightfood”) and MJ Munchies, Inc. (“Munchies”). Nightfood’s business model is to manufacture and
distribute snack products specifically formulated for nighttime snacking to help consumers satisfy nighttime cravings in a better, healthier,
more sleep friendly way. Management believes Nightfood is the first brand to achieve mainstream distribution of snacks focused on
better sleep, and expects the category of “sleep-friendly” snacking to become an important segment of the total snacking
market in coming years. Munchies has acquired a portfolio of intellectual property around the brand name Half-Baked, and intends to license
said IP to operators in the cannabis edibles space and other related spaces.
|
●
|
The Company’s
fiscal year end is June 30.
|
|
●
|
The Company currently
maintains its corporate address in Tarrytown, New York.
|
|
2.
|
Summary of Significant
Accounting Policies
|
|
●
|
Management is
responsible for the fair presentation of the Company’s financial statements, prepared
in accordance with U.S. generally accepted accounting principles (GAAP).
|
Interim Financial Statements
These unaudited condensed consolidated
financial statements for the three and nine months ended March 31, 2021 and 2020, respectively, reflect all adjustments including normal
recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position, results of operations
and cash flows for the periods presented in accordance with the accounting principles generally accepted in the United States of America.
These interim unaudited condensed
consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes
thereto for the years ended June 30, 2020 and 2019, respectively, which are included in the Company’s June 30, 2020 Annual Report
on Form 10-K filed with the United States Securities and Exchange Commission on October 13, 2020. 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, 2021 are not necessarily indicative of results for the entire year ending
June 30, 2021.
We made certain reclassifications
to prior period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect
on our condensed consolidated statement of financial position, results of operations or cash flows.
Use of Estimates
|
●
|
The preparation
of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates are used in the determination
of depreciation and amortization, the valuation for non-cash issuances of common stock, and
the website, income taxes and contingencies, valuing convertible notes for BCF and derivative
liability, among others.
|
Cash and Cash Equivalents
|
●
|
The Company classifies
as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various
instruments with original maturities of three months or less at the time of purchase. The
Company places its cash and cash equivalents on deposit with financial institutions in the
United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000
for substantially all depository accounts. The Company from time to time may have amounts
on deposit in excess of the insured limits.
|
Fair Value of Financial Instruments
|
●
|
Statement of financial
accounting standard FASB Topic 820, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values of financial instruments. The carrying
amounts reported in the statements of financial position for assets and liabilities qualifying
as financial instruments are a reasonable estimate of fair value.
|
Inventories
|
●
|
Inventories consisting
of packaged food items and supplies are stated at the lower of cost (FIFO) or net realizable
value, including provisions for spoilage commensurate with known or estimated exposures which
are recorded as a charge to cost of sales during the period spoilage is incurred. The Company
has no minimum purchase commitments with its vendors.
|
Advertising Costs
|
●
|
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 $316,483 and $673,814 for the nine months ended
March 31, 2021 and 2020, respectively. The Company recorded advertising costs
of $64,158 and $470,820 for the three months ended March 31, 2021 and 2020, respectively.
|
Income Taxes
|
●
|
The Company has
not generated any taxable income, and, therefore, no provision for income taxes has been
provided.
|
|
●
|
Deferred income
taxes are reported for timing differences between items of income or expense reported in
the financial statements and those reported for income tax purposes in accordance with FASB
Topic 740, “Accounting for Income Taxes”, which requires the use of the asset/liability
method of accounting for income taxes. Deferred income taxes and tax benefits are recognized
for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases, and for
tax loss and credit carry-forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The Company provides for deferred taxes
for the estimated future tax effects attributable to temporary differences and carry-forwards
when realization is more likely than not.
|
|
●
|
A valuation allowance
has been recorded to fully offset the deferred tax asset even though the Company believes
it is more likely than not that the assets will be utilized.
|
|
●
|
The Company’s
effective tax rate differs from the statutory rates associated with taxing jurisdictions
because of permanent and temporary timing differences as well as a valuation allowance.
|
Revenue Recognition
|
●
|
The Company generates
its revenue by selling its nighttime snack products wholesale to retailers and wholesalers.
|
|
●
|
All sources of
revenue are recorded pursuant to FASB Topic 606 Revenue Recognition, to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. This includes
a five-step framework that requires an entity to: (i) identify the contract(s) with a customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations in the contract,
and (v) recognize revenue when the entity satisfies a performance obligation. In addition,
this revenue generation requires disclosure of the nature, amount, timing, and uncertainty
of revenue and cash flows arising from contracts with customers.
|
|
●
|
The Company offers
sales incentives through various programs, consisting primarily of advertising related credits.
The Company records certain advertising related credits with customers as a reduction to
revenue as no identifiable benefit is received in exchange for credits claimed by the customer.
|
|
●
|
The Company revenue
from contracts with customers provides that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services.
|
The Company incurs costs associated
with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities
and recognizes these costs at the same time that it recognizes the underlying product revenue. As this policy election is in line with
the Company’s previous accounting practices, the treatment of shipping and handling activities under FASB Topic 606 did not have
any impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
The adoption of ASC 606 did not result
in a change to the accounting for any of the Company’s revenue streams that are within the scope of the amendments. The Company’s
services that fall within the scope of ASC 606 are recognized as revenue as the Company satisfies its obligation to the customer.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers, which updates revenue recognition guidance relating to contracts with customers. This standard
states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is effective for
annual reporting periods, and interim periods therein, beginning after July 1, 2018. The Company adopted ASU 2014-09 and its related
amendments (collectively known as “ASC 606”) during the first quarter of fiscal 2019 using the full retrospective method.
Management reviewed ASC 606-10-32-25
which states “Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer
(or to other parties that purchase the entity’s goods or services from the customer). Consideration payable to a customer also
includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other
parties that purchase the entity’s goods or services from the customer). An entity shall account for consideration payable to a
customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct
good or service (as described in paragraphs 606-10-25-18 through 25-22) that the customer transfers to the entity. If the consideration
payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate
of variable consideration is constrained) in accordance with paragraphs 606-10-32-5 through 32-13.”
If the consideration payable to a
customer is a payment for a distinct good service, then in accordance with ASC 606-10-32-26, the entity should account for it the same
way that it accounts for other purchases from suppliers (expense). Further, “if the amount of consideration payable to the customer
exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for
such an excess as a reduction of the transaction price. If the entity cannot reasonably estimate the fair value of the good or service
received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.”
Under ASC 606-10-32-27, if the consideration
payable to a customer is accounted for as a reduction of the transaction price, “an entity shall recognize the reduction of
revenue when (or as) the later of either of the following events occurs:
|
a)
|
The entity
recognizes revenue for the transfer of the related goods or services to the customer.
|
|
b)
|
The entity pays
or promises to pay the consideration (even if the payment is conditional on a future event).
That promise might be implied by the entity’s customary business practices.”
|
Management reviewed each arrangement
to determine if each fee paid is for a distinct good or service and should be expensed as incurred or if the Company should recognize
the payment as a reduction of revenue.
The Company recognizes revenue upon
shipment based on meeting the transfer of control criteria. The Company has made a policy election to treat shipping and handling as
costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the
performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers.
Concentration of Credit Risk
|
●
|
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, 2021 and June 30, 2020, the Company did not have any uninsured cash
deposits.
|
Beneficial Conversion Feature
|
●
|
For conventional
convertible debt where the rate of conversion is below market value, the Company records
any “beneficial conversion feature” (“BCF”) intrinsic value as additional
paid in capital and related debt discount.
|
When the Company records a BCF, the
relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount
is amortized over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts
is immediately expensed.
Debt Issue Costs
|
●
|
The Company may
pay debt issue costs in connection with raising funds through the issuance of debt whether
convertible or not or with other consideration. These costs are recorded as debt discounts
and are amortized over the life of the debt to the statement of operations as amortization
of debt discount.
|
Original Issue Discount
|
●
|
If debt is issued
with an original issue discount, the original issue discount is recorded to debt discount,
reducing the face amount of the note and is amortized over the life of the debt to the statement
of operations as amortization of debt discount. If a conversion of the underlying debt occurs,
a proportionate share of the unamortized amounts is immediately expensed.
|
Valuation of Derivative Instruments
|
●
|
ASC 815 “Derivatives
and Hedging” requires that embedded derivative instruments be bifurcated and assessed,
along with free-standing derivative instruments such as warrants, on their issuance date
and measured at their fair value for accounting purposes. In determining the appropriate
fair value, the Company uses the Trinomial Tree option pricing formula. Upon conversion of
a note where the embedded conversion option has been bifurcated and accounted for as a derivative
liability, the Company records the shares at fair value, relieves all related notes, derivatives
and debt discounts and recognizes a net gain or loss on derivative liability under the line
item “change in derivative liability”.
|
Derivative Financial Instruments
|
●
|
The Company does
not use derivative instruments to hedge exposures to cash flow, market or foreign currency
risks. The Company evaluates all of its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives. For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and then is revalued at each reporting date, with changes
in fair value reported in the consolidated statement of operations. For stock based derivative
financial instruments, Fair value accounting requires bifurcation of embedded derivative
instruments such as conversion features in convertible debt or equity instruments, and measurement
of their fair value for accounting purposes. In determining the appropriate fair value, the
Company uses the Trinomial Tree option-pricing model. In assessing the convertible debt instruments,
management determines if the convertible debt host instrument is conventional convertible
debt and further if there is a beneficial conversion feature requiring measurement. If the
instrument is not considered conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial instruments.
|
Once determined, derivative liabilities
are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value from inception is
made quarterly and appears in results of operations as a change in fair market value of derivative liabilities.
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.
Customer Concentration
|
●
|
During the nine
months ended March 31, 2021, the Company had one customer account for approximately 37% of
the gross sales. One other customer accounted for approximately 23% of gross sales, and one
other customer accounted for over 11% of gross sales. During the nine months ended March
31, 2020, one customer accounted for approximately 45% of the gross sales.
|
During the three months ended March
31, 2021, the Company had one customer account for approximately 44% of the gross sales. During the three months ended March 31, 2020,
one customer accounted for approximately 36% of the gross sales while three other customers accounted for over 10% of gross sales.
Vendor Concentration
During the three-month period
ended March 31, 2021, no vendors accounted for more than 14% of our operating expenses. During the nine-month period ended March 31,
2021, no vendor accounted for more than 8% of our operating expenses.
During the three-month period
ended March 31, 2021, no vendors accounted for more than 9% of our operating expenses. During the nine-month period ended March 31,
2020 no vendor accounted for more than 8%.
Receivables Concentration
|
●
|
As of March 31,
2021, the Company had receivables due from eight customers. Five of which each
accounted for approximately 17-22% of the total balance. As of June 30, 2020, the Company
had receivables due from four customers, two of whom accounted for over 70% of the outstanding
balance. Two of the four accounted for approximately 30% of the total balance.
|
Income/Loss Per Share
|
●
|
Net income/loss
per share data for both the three and nine-month periods ending March 31, 2021 and 2020,
are based on net income/loss available to common shareholders divided by the weighted average
of the number of common shares outstanding. The Company does not present a diluted Earnings
per share as the convertible debt and interest that is convertible into shares of the Company’s
common stock would not be included in this computation, as the Company is generating a loss
and therefore these shares would be antidilutive.
|
Impairment of Long-lived Assets
|
●
|
The Company accounts
for long-lived assets in accordance with the provisions of FASB Topic 360, Accounting for
the Impairment of Long-Lived Assets. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to sell. Fair values are determined
based on quoted market value, discounted cash flows or internal and external appraisals,
as applicable.
|
During the period ended March 31,
2021 and 2020, Management determined and impaired $-0- and $-500,000-, respectively as impairment on intangible asset
Reclassification
The Company may make certain reclassifications to prior
period amounts to conform with the current year’s presentation. These reclassifications did not have a material effect on its consolidated
statement of financial position, results of operations or cash flows.
Recent Accounting Pronouncements
ASU No. 2019-12, Simplifying the Accounting for Income
Taxes
In December 2019, the FASB issued
ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The ASU is intended to enhance and simplify aspects of the income tax accounting
guidance in ASC 740 as part of the FASB's simplification initiative. This guidance is effective for fiscal years and interim periods
within those years beginning after December 15, 2020 with early adoption permitted. The Company will adopt this ASU on January 31, 2021
and does not expect there to be a material impact on our Consolidated Financial Statements.
In March 2020, the FASB issued ASU
2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
This guidance provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting
to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”)
and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. This ASU is applied prospectively
and becomes effective immediately upon the transition from LIBOR. The Company’s secured credit facility agreement references LIBOR,
which is expected to be discontinued as a result of reference rate reform. The Company expects to adopt the guidance upon transition
from LIBOR, but does not believe the adoption will have a material effect on its consolidated financial statements.
In August 2020, the FASB issued ASU
2020-06 to simplify the current guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s
own equity. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and
for convertible instruments. The update also provides for expanded disclosure requirements to increase transparency. For SEC filers,
excluding smaller reporting companies, this update is effective for fiscal years beginning after December 15, 2021 including interim
periods within those fiscal years. For all other entities, this Update is effective for fiscal years beginning after December 15, 2023,
including interim periods therein. The Company believes the adoption of this guidance will not materially impact our financial statements
and related disclosures.
The Company will continue to monitor
these emerging issues to assess any potential future impact on its financial statements.
|
●
|
The Company’s
financial statements are prepared using generally accepted accounting principles, which contemplate
the realization of assets and liquidation of liabilities in the normal course of business.
Because the business is new and has limited operating history and relatively few sales, no
certainty of continuation can be stated.
|
|
●
|
The accompanying
consolidated financial statements have been prepared assuming the Company will continue as
a going concern. For the nine months ended March 31, 2021, the Company had a net loss of
$3,453,142 (comprised of operating loss of $1,379,102 and other expenses of $2,074,040, most
of which is comprised of changes in derivative liability and amortization of Beneficial Conversion
Features related to convertible note financing and changes in the share price of the common
stock), negative cash flow from operations of $876,638 and accumulated deficit of $21,084,264.
|
Subsequent to the end of the quarter,
the Company completed a financing round of $4,500,000, consisting of $3,000,000 in cash and the rollover of $1,500,000 of previously
existing convertible debt. As of the time of this filing, the Company is debt free.
The Company believes it has sufficient
cash on hand to operate for the next several quarters. We do not believe our cash on hand will be adequate to satisfy our long-term working
capital needs. We believe that our current capitalization structure, combined with ongoing increases in distribution, revenues, and market
capitalization, will enable us to successfully secure required financing to continue our growth.
Because the business has limited operating
history and sales, no certainty of continuation can be stated. Management has devoted a significant amount of time in the raising of
capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern will again be
dependent upon raising additional funds through debt and equity financing and generating revenue. There are no assurances the Company
will receive the necessary funding or generate revenue necessary to fund operations long-term.
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 for one year from the date the financials are issued. 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.
|
●
|
The outbreak of
the novel coronavirus (COVID-19), including the measures to reduce its spread, and the impact
on the economy, cannot fully be understood and identified. Indications to date 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 while consumers are reporting a decrease
in sleep quality and sleep satisfaction. Industry sales data also showed 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, and the impact that a down economic period can have on consumer behavior, including trial of new
brands. Greater unemployment, recession, and other possible unforeseen factors are shown to have an impact. Research indicates that consumers
are less likely to try new brands during economic recession and stress, returning to the legacy brands they’ve known for decades.
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 in-store product sampling tables, 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 ongoing
exploratory meetings between Nightfood Management and experts from certain global food and beverage conglomerates, it has been affirmed
to Management that there is increased strategic interest in the nighttime nutrition space as a potential high-growth opportunity, partially
due to recent declines in consumer sleep quality and increases in at-home nighttime snacking.
We have experienced no major issues
with supply chain or logistics. Order processing function has been normal to date, and our manufacturers have assured us that their operations
are “business as usual” as of the time of this filing.
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.
More directly, COVID has impaired
Nightfood’s ability to execute certain in-store and out-of-store marketing initiatives. For example, since the inception of COVID,
the Company was unable to conduct in-store demonstrations and unable to participate in local pregnancy, baby expos, and health expos
that were originally intended to be part of our marketing mix.
Additionally, with more consumers
shopping online, both for delivery or at-store pickup, the opportunity for shoppers to learn about new brands at-shelf has been somewhat
diminished. Management is working to identify opportunities to build awareness and drive trial under these new circumstances.
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.
|
●
|
The Company’s
accounts receivable arise primarily from the sale of the Company’s ice cream. 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, 2021 and June 30, 2020, respectively.
|
|
●
|
Inventory consists
of the following at March 31, 2021 and June 30, 2020,
|
|
|
March 31,
2021
|
|
|
June 30,
2020
|
|
Finished goods – ice cream
|
|
$
|
194,205
|
|
|
$
|
195,817
|
|
Raw material – ingredients
|
|
|
83,416
|
|
|
|
26,309
|
|
Packaging
|
|
|
67,293
|
|
|
|
53,479
|
|
TOTAL
|
|
$
|
344,914
|
|
|
$
|
275,605
|
|
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.
|
●
|
Other current
assets consist of the following vendor deposits at March 31, 2021 and June 30, 2020. The
majority of this amount relates to deposits towards distribution and marketing partnerships.
|
|
|
March
31,
2021
|
|
|
June 30,
2020
|
|
Prepaid
advertising costs
|
|
$
|
222,186
|
|
|
$
|
398,045
|
|
Vendor
deposits – Other
|
|
$
|
29,526
|
|
|
$
|
40
|
|
TOTAL
|
|
$
|
251,712
|
|
|
$
|
398,085
|
|
Intangible
assets consist of the following at March 31, 2021 and June 30, 2020. The amount of the intangible assets represents fees and expenses
in connection with the development and launch of platforms used to track conversions, optimize ads, and scale online customer growth
through a hybrid distribution model.
|
|
March
31,
|
|
|
June 30,
2020
|
|
Intangible
assets
|
|
$
|
-
|
|
|
$
|
1,000,000
|
|
Amortization
of intangible assets
|
|
|
-
|
|
|
|
(500,000
|
)
|
Impairment
of intangible assets
|
|
|
-
|
|
|
|
(500,000
|
)
|
TOTAL
|
|
$
|
-
|
|
|
$
|
-
|
|
During
the quarter ending March 31, 2020, the Company determined it would be unable to generate sufficient traction from these digital assets.
The Company made the decision to stop utilizing the assets.
|
8.
|
Other Current
Liabilities
|
|
●
|
Other current
liabilities consist of the following at March 31, 2021 and June 30, 2020,
|
|
|
March 31,
2021
|
|
|
June 30,
2020
|
|
Accrued consulting fees – related party
|
|
$
|
9,974
|
|
|
$
|
9,974
|
|
Accrued interest
|
|
|
209,161
|
|
|
|
192,625
|
|
Accrued slotting fees
|
|
|
5,564
|
|
|
|
-
|
|
Other accrued expenses
|
|
|
66,480
|
|
|
|
|
|
TOTAL
|
|
$
|
291,179
|
|
|
$
|
202,599
|
|
|
●
|
Notes Payable
consist of the following at March 31, 2021,
|
On
April 30, 2018, the Company entered into a convertible promissory note and a security purchase agreement dated April 30, 2018, in the
amount of $225,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 30, 2019 and interest rate of 8% per
annum and are convertible at a price of 60% of the lowest closing bid price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $225,000 Notes was calculated using the Black-Scholes
pricing model at $287,174, with the following assumptions: risk-free interest rate of 2.24%, expected life of 1 year, volatility of 202%,
and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $225k Notes, a charge was
recorded to “Financing cost” for the excess of the fair value of the note, for a net charge of $62,174. As of March 31, 2021,
and June 30, 2020, the debt discount was $0.
On
February 14, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated February 14, 2019,
in the amount of $104,000. The lender was Eagle Equities, LLC. The notes have a maturity of February 14, 2020 and interest rate of 8%
per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a
penalty in association with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible
note qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the
$104,000 Notes was calculated using the Black-Scholes pricing model at $90,567, with the following assumptions: risk-free interest rate
of 2.53%, expected life of 1 year, volatility of 136%, and expected dividend yield of zero. Because the fair value of the note did not
exceed the net proceeds from the $104k Notes, no charge was recorded to “Financing cost” for the excess of the fair value
of the note. As of March 31, 2021, and June 30, 2020, the debt discount was $0 and $0, respectively. $50,000 of the note has been
successfully retired via conversion into shares during the year ended June 30, 2020 and $54,000 of the note has been successfully retired
via conversion into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted
for a loss on conversion of $36,242 included under line item “Loss on debt extinguishment upon note conversion, net”.
On
April 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated April 29, 2019, in the
amount of $208,000. The lender was Eagle Equities, LLC. The notes have a maturity of April 29, 2020 and interest rate of 8% per annum
and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $208,000 Notes was calculated
using the Black-Scholes pricing model at $170,098, with the following assumptions: risk-free interest rate of 2.42%, expected life of
1 year, volatility of 118%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from
the $208k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31,
2021, and June 30, 2020, the debt discount was $0 and $0, respectively. $208,000 of the note has been successfully retired via conversion
into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a
loss on conversion of $109,561 included under line item “Loss on debt extinguishment upon note conversion, net”.
On
June 11, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated June 11, 2019, in the amount
of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of June 11, 2020 and interest rate of 8% per annum and are
convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is
then listed for the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association
with the remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative
accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated
using the Black-Scholes pricing model at $240,217, with the following assumptions: risk-free interest rate of 2.05%, expected life of
1 year, volatility of 16%, and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from
the $300k Notes, no charge was recorded to “Financing cost” for the excess of the fair value of the note. As of March
31, 2021 and June 30, 2020, the debt discount was $0 and $46,726, respectively. This note has been successfully retired via conversions
into shares during the nine months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for
a loss on conversion of $177,160 included under line item “Loss on debt extinguishment upon note conversion, net”.
On
July 5, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated July 5, 2019, in the amount
of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of July 5, 2020 and interest rate of 8% per annum and
are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock
is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our lender
has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance
with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model
at $239,759, with the following assumptions: risk-free interest rate of 1.98%, expected life of 1 year, volatility of 118%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020, the debt
discount was $0 and $2,627, respectively. This note has been successfully retired via conversions into shares during the nine
months ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $648,036
included under line item “Loss on debt extinguishment upon note conversion, net”.
On
August 8, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 8, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 8, 2020 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our
lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance
with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model
at $254,082, with the following assumptions: risk-free interest rate of 1.79%, expected life of 1 year, volatility of 113%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021, and June 30, 2020 the debt discount
was $0 and $26,452, respectively. This note has been successfully retired via conversions into shares during the nine months ended
March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $611,909 included
under line item “Loss on debt extinguishment upon note conversion, net”.
On
August 29, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated August 29, 2019, in the
amount of $300,000. The lender was Eagle Equities, LLC. The notes have a maturity of August 29, 2020 and interest rate of 8% per
annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common
Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default, our
lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is in compliance
with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $300,000 Notes was calculated using the Black-Scholes pricing model
at $234,052, with the following assumptions: risk-free interest rate of 1.75%, expected life of 1 year, volatility of 113%, and expected
dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $300k Notes, no charge was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021, and June 30, 2020 the debt
discount was $0 and $37,833.
On
September 24, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated September 24, 2019,
in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of September 24, 2020 and interest rate
of 8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $118,009, with the following assumptions: risk-free interest rate of 1.78%, expected life of 1 year, volatility of 113%,
and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020,
the debt discount was $0 and $27,482. This note has been successfully retired via conversions into shares during the nine months
ended March 31, 2021. The Company fair valued the notes as of conversion date and accounted for a loss on conversion of $126,735
included under line item “Loss on debt extinguishment upon note conversion, net”.
On
November 7, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated November 7, 2019, in
the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of November 7, 2020 and interest rate of
8% per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $121,875, with the following assumptions: risk-free interest rate of 1.58%, expected life of 1 year, volatility of 122%,
and expected dividend yield of zero. Because the fair value of the note did not exceed the net proceeds from the $150k Notes, no charge
was recorded to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020,
the debt discount was $0 and $43,074, respectively.
On
December 31, 2019, the Company entered into a convertible promissory note and a security purchase agreement dated December 31, 2019,
in the amount of $150,000. The lender was Eagle Equities, LLC. The notes have a maturity of December 31, 2020 and interest rate of 8%
per annum and are convertible at a price of 70% of the lowest trading price on the primary trading market on which the Company’s
Common Stock is then listed for the fifteen (15) trading days immediately prior to conversion. While this note is technically in default,
our lender has agreed, in writing, to forbear any additional interest or penalties relating to this default providing the Company is
in compliance with the remaining terms of the note. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $150,000 Notes was calculated using the Black-Scholes
pricing model at $189,172, with the following assumptions: risk-free interest rate of 1.59%, expected life of 1 year, volatility of 115%,
and expected dividend yield of zero. Because the fair value of the note exceeded the net proceeds from the $150k Notes, $39,172 was recorded
to “Financing cost” for the excess of the fair value of the note. As of March 31, 2021 and June 30, 2020, the debt
discount was $0 and $75,205, respectively.
On February 6, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated February 6, 2020, in the amount of $200,000. The lender was
Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at a price of
70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for the fifteen
(15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $200,000 Notes was calculated using the Black-Scholes
pricing model at $156,061, with the following assumptions: risk-free interest rate of 1.51%, expected life of 1 year, volatility of 113%,
and expected dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $94,064, respectively.
On February 26, 2020, the Company
entered into a convertible promissory note and a security purchase agreement dated February 26, 2020, in the amount of $187,000. The
lender was Eagle Equities, LLC. The notes have a maturity of February 6, 2021 and interest rate of 8% per annum and are convertible at
a price of 70% of the lowest trading price on the primary trading market on which the Company’s Common Stock is then listed for
the fifteen (15) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the
remittance amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting
and bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $187,000 Notes was calculated using the Black-Scholes
pricing model at $150,268, with the following assumptions: risk-free interest rate of 1.18%, expected life of 1 year, volatility of 118%,
and expected dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $0 and $99,218, respectively.
On April 30, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated April 30, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of April 30, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $128,369, with the following assumptions: risk-free interest rate of 0.16%, expected life of 1 year, volatility of 106%, and expected
dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $10,551 and $106,916, respectively.
On June 23, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated June 23, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of June 23, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $132,236, with the following assumptions: risk-free interest rate of 0.18%, expected life of 1 year, volatility of 108%, and expected
dividend yield of zero. As of March 31, 2021 and June 30, 2020, the debt discount was $30,432 and $129,700, respectively.
On August 12, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated August 12, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of August 12, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $126,029, with the following assumptions: risk-free interest rate of 0.13%, expected life of 1 year, volatility of 101%, and expected
dividend yield of zero. As of March 31, 2021, the debt discount was $46,269.
On October 13, 2020, the Company entered
into a convertible promissory note and a security purchase agreement dated October 13, 2020, in the amount of $205,700. This note carried
an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle Equities,
LLC. The notes have a maturity of October 13, 2021 and interest rate of 8% per annum and are convertible at a price of 78% of the lowest
closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty (20) trading
days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance amount, as there
is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and bifurcation under
ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes pricing model
at $126,471, with the following assumptions: risk-free interest rate of 0.13%, expected life of 1 year, volatility of 103.1%, and expected
dividend yield of zero. As of March 31, 2021, the debt discount was $67,913.
On December 21, 2020, the Company
entered into a convertible promissory note and a security purchase agreement dated December 21, 2020, in the amount of $205,700. This
note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle
Equities, LLC. The notes have a maturity of December 21, 2021 and interest rate of 8% per annum and are convertible at a price of 78%
of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty
(20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $121,112, with the following assumptions: risk-free interest rate of 0.09%, expected life of 1 year, volatility of 93.97%,
and expected dividend yield of zero. As of March 31, 2021, the debt discount was $87,931.
On February 22, 2021, the Company
entered into a convertible promissory note and a security purchase agreement dated December 21, 2020, in the amount of $205,700. This
note carried an Original Discount of 10% or $18,700 which was included in interest expense at the time of valuation. The lender was Eagle
Equities, LLC. The notes have a maturity of December 21, 2021 and interest rate of 8% per annum and are convertible at a price of 78%
of the lowest closing bid price on the primary trading market on which the Company’s Common Stock is then listed for the twenty
(20) trading days immediately prior to conversion. The note may be prepaid, but carries a penalty in association with the remittance
amount, as there is an accretion component to satisfy the note with cash. The convertible note qualifies for derivative accounting and
bifurcation under ASC 815, “Derivatives and Hedging.” The fair value of the $205,700 Notes was calculated using the Black-Scholes
pricing model at $139,381, with the following assumptions: risk-free interest rate of 0.09%, expected life of 1 year, volatility of 119,49%,
and expected dividend yield of zero. As of March 31, 2021, the debt discount was $125,252.
Below
is a reconciliation of the convertible notes payable as presented on the Company’s balance sheet as of March 31, 2021:
|
|
Principal
($)
|
|
|
Debt
Discount
($)
|
|
|
Net
Value
($)
|
|
Balance at June 30, 2019
|
|
|
1,748,000
|
|
|
|
(630,259
|
)
|
|
|
1,117,741
|
|
Convertible notes payable issued during fiscal year ended June 30, 2020
|
|
|
2,148,400
|
|
|
|
-
|
|
|
|
2,148,400
|
|
Notes converted into shares of common stock
|
|
|
(961,000
|
)
|
|
|
-
|
|
|
|
(961,000
|
)
|
Debt discount associated with new convertible notes
|
|
|
-
|
|
|
|
(1,684,711
|
)
|
|
|
(1,684,711
|
)
|
Amortization of debt discount
|
|
|
-
|
|
|
|
1,709,759
|
|
|
|
1,709,759
|
|
Balance at June 30, 2020
|
|
|
2,935,400
|
|
|
|
(605,211
|
)
|
|
|
2,330,189
|
|
Convertible notes payable issued during nine months ended March 31, 2021
|
|
|
822,800
|
|
|
|
-
|
|
|
|
822,800
|
|
Notes converted into shares of common stock
|
|
|
(1,312,000
|
)
|
|
|
-
|
|
|
|
(1,312,000
|
)
|
Debt discount associated with new convertible notes
|
|
|
-
|
|
|
|
(512,993
|
)
|
|
|
(512,993
|
)
|
Amortization of debt discount
|
|
|
-
|
|
|
|
787,216
|
|
|
|
787,216
|
|
True-up adjustment in debt discount and derivative liability
|
|
|
-
|
|
|
|
(37,360
|
)
|
|
|
(37,360
|
)
|
Balance at March 31, 2021
|
|
|
2,446,200
|
|
|
|
(368,348
|
)
|
|
|
2,077,852
|
|
Amortization
expense for the nine months ended March 31, 2021 and 2020, totaled $787,216 and $1,270,943, respectively and Amortization expense for
the three months ended March 31, 2021 and 2020, totaled $210,429 and $439,507 respectively.
As of March 31, 2021 and June 30, 2020,
the unamortized portion of debt discount was $368,348 and $605,211, respectively.
Interest expense for the nine months ended
March 31, 2021 and 2020, totaled $267,640 and $82,952, respectively and interest expense for the three months ended March 31, 2021 and
2020, totaled $72,110 and $40,616, respectively.
As
of March 31, 2021 and June 30, 2020, the accrued interest related to convertible notes was $209,161 and $192,625, respectively.
Due to the variable conversion price
associated with some of these convertible promissory notes disclosed in Note 8 above, the Company has determined that the conversion
feature is considered a derivative liability for instruments which are convertible and have not yet been settled. The accounting treatment
of derivative financial instruments requires that the Company record the fair value of the derivatives on the date they are deemed to
be derivative liabilities.
During the nine month period ended
March 31, 2021, the Company recorded a change in fair value of derivative $887,301. The Company will measure the fair value of each derivative
instrument in future reporting periods and record the change based on the change in fair value.
Below
is a reconciliation of the derivative liability as presented on the Company’s balance sheet as of March 31, 2021:
|
|
|
|
Derivative liability as of June 30, 2020
|
|
$
|
1,590,638
|
|
Initial derivative liability accounted for convertible notes payable
issued during the period ended March 31, 2021
|
|
|
512,993
|
|
True-up adjustment in debt discount and derivative liability
|
|
|
37,360
|
|
Change in derivative liability during the period
|
|
|
887,301
|
|
Reclassify derivative liability associated
with Notes converted into loss on debt conversion account
|
|
|
(1,716,114
|
)
|
Balance at March 31, 2021
|
|
|
1,312,178
|
|
Change in derivative liability for the
nine months ended March 31, 20210 and 2020, totaled $887,301 and $(612,093), respectively and change in derivative liability for the
three months ended March 31, 2021 and 2020, totaled $1,096,709 and $(256,468), respectively.
As
of March 31, 2021 and June 30, 2020, the derivative liability related to convertible notes was $ 1,312,178 and $1,590,638, respectively.
On March 19, 2020,
the Company secured a $200,000 line of credit with Celtic Bank Corporation. This LOC has a “Flex Credit” component of calculating
interest, which means the interest rate on any draws taken against the LOC is set at the time of said draw. As of the date of this filing,
the Company has made one draw against the credit line for a gross amount of $5,000 (including proceeds and draw fees). As of March 31,
2021 nine payments had been made against this draw of approximately $368 each. Such payments will continue to be automatically deducted
from the corporate checking account until the draw and all fees have been paid in full. The Company may or may not choose to use this
line of credit for additional financing needs.
|
|
Mar
31,
2021
|
|
|
Dec
31,
2020
|
|
Line
of Credit
|
|
$
|
589
|
|
|
$
|
1,692
|
|
Total
borrowings
|
|
|
589
|
|
|
|
1692
|
|
Less:
current portion
|
|
|
589
|
|
|
|
1692
|
|
Long
term debt
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense for the nine months
ended March 31, 2021 and 2020, totaled $xx and $xx, respectively and interest expense for the three months ended March 31, 2021 and 2020,
totaled $xx and $xx, respectively.
|
12.
|
Capital Stock
Activity
|
|
●
|
The Company had
and 78,685,171 and 61,796,680
shares of its $0.001 par value common stock issued and outstanding as of March 31, 2021 and
June 30, 2020 respectively.
|
|
●
|
During the three
months ended March 31, 2021 the Company issued 9,543,308 shares in regards to debt and interest
being converted into stock valued at $843,818 Also during these three months the Company
issued 225,000 shares for services valued at $43,600. Further during these nine months the
Company accounted in additional paid in capital the warrants issued for services valued at
$xxxx and loss on fair value of shares upon conversion amounting to $xxxx.
|
During the nine months ended March
31, 2021 the Company issued 16,049,577 shares in regards to debt and interest being converted into stock valued at $1,467,274 also during
these nine months the Company issued 836,630 shares for services valued at $131,017. Further during these nine months the Company accounted
in additional paid in capital the warrants issued for services valued at $146,954 and loss on fair value of shares upon conversion amounting
to $xxxx.
The following is a summary of the
Company’s outstanding common stock purchase warrants. Of the 500,000 warrants shown below at an exercise price of $.15, these
warrants were issued as compensation for a four-year advisory agreement. 150,000 warrants vested on July 24, 2018, another 150,000
on July 24, 2019, another 150,000 vested on July 24, 2020, and the remaining 50,000 will vest on July 24, 2021, should advisor complete
the term of his engagement. These warrants were all accounted for in Fiscal 2020.
During the six months ended December
31, 2020 the Company entered into a warrant agreement with one of the Company’s vendors issuing 500,000 warrants at a strike price
of $0.50 having a term of five years. The Company valued these warrants using the Black Scholes model utilizing a 107.93% volatility
and a risk-free rate of 0.29%, respectively.
In exchange for the agreement to lock
up Mr Folkson’s Shares, Folkson received warrants to acquire 400,000 shares of NGTF stock on February 4, 2021, at a strike price
of $.30, and with a term of twelve (12) months from the date of that agreement. The Warrants include a provision for cashless exercise
and will expire if not exercised within the twelve month term. The Company valued these warrants using the Black Scholes model utilizing
a 107.93% volatility and a risk-free rate of 0.50%.
The aggregate intrinsic value of the
warrants as of December 31, 2020 is $-0-.
|
|
|
Outstanding
at
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercise Price
|
|
|
June
30,
2020
|
|
|
Issued
/ (Exercised)
in 2020
|
|
|
Expired
|
|
|
December
31
2020
|
|
$
|
0.15
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.20
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
80,000
|
|
$
|
0.30
|
|
|
|
100,000
|
|
|
|
400,000
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.40
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
$
|
0.50
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
500,000
|
|
$
|
0.75
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
|
|
|
1,155,000
|
|
|
|
1,260,000
|
|
|
|
25,000
|
|
|
|
2,039,000
|
|
|
14.
|
Fair Value of
Financial Instruments
|
Cash and Equivalents, Receivables,
Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities.
The carrying amounts of these items
approximated fair value.
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC
Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement)
and the lowest priority to unobservable inputs (level 3 measurements).
Level 1—Valuations
based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations
based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.
Level 3—Valuations
based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants.
These valuations require significant judgment.
The application of the three levels
of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:
|
|
March,
31, 2021 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,312,178
|
|
|
$
|
1,312,178
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,312,178
|
|
|
$
|
1,312,178
|
|
|
|
June
30, 2020 Fair Value Measurements
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liabilities
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,590,638
|
|
|
$
|
1,590,638
|
|
Total
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
1,590,638
|
|
|
$
|
1,590,638
|
|
Management
considers all of its derivative liabilities to be Level 3 liabilities. At March 31, 2021 and June 30, 2020, respectively the Company
had outstanding derivative liabilities, including those from related parties of $1,312,178 and $1,590,638, respectively.
|
15.
|
Commitments and
Contingencies:
|
The Company has entered
into certain consulting agreements which carry commitments to pay advisors and consultants should certain events occur. An agreement
is in place with one Company Advisor that calls for total compensation over the four year Advisor Agreement of 500,000 warrants with
an exercise price of $.15 of which 450,000 have vested, should the advisor complete the entire term of the engagement, the remaining
50,000 warrants would vest on July 24, 2021. These warrants were all accounted for in Fiscal 2020.
CEO Sean Folkson has a
twelve-month consulting agreement which went into effect on February 4, 2021, which will reward him with bonuses earned of 1,000,000
warrants at a strike price of $.50 when the Company records its first quarter with revenues over $1,000,000, an additional 3,000,000
warrants with a $.50 strike price when the Company records its first quarter with revenues over $3,000,000, and an additional 3,000,000
warrants with a $1 strike price when the Company records its first quarter with revenues over $5,000,000. Folkson will also be awarded
warrants with a strike price of $.50 should the Company exceed $500,000 in non-traditional retail channel revenue during the Term
of the Agreement, and should the company enter into a product development or distribution partnership with a multi-national food &
beverage conglomerate during his Agreement. As of March 31, 2021, those conditions were not met and therefore nothing was accrued related
to this arrangement.
|
16.
|
Related Party
Transactions
|
|
●
|
During the third
quarter of Fiscal Year 2015, Mr. Folkson began accruing a consulting fee of $6,000 per month
which the aggregate of $18,000 is reflected in professional fees for the six month period
ended December 31, 2020 and reflected in the accrued expenses – related party with
a balance of $6,974 and $9,974 at March 31, 2021 and June 30, 2020, respectively.
|
On December 8, 2017, Mr.
Folkson purchased Warrants, at a cost of $.15 per Warrant, to acquire up to 80,000 additional shares of NGTF stock at a strike price
of $.20, and with a term of three (3) years from the date of said agreement. This purchase resulted in a reduction in the accrued consulting
fees due him by $12,000. During the second quarter 2019 Mr. Folkson purchased 400,000 shares of stock at a strike price of $0.30 per
share, valued at $120,000 which was charged to his accrual. During the nine months ended March 31, 2021, Folkson had been paid $51,000
against his total accrued balance to date and reflected in the accrued expenses – related party with a balance of $6,974 and $9,974
at March 31, 2021 and June 30, 2020, respectively.
|
●
|
In addition, the
Company made bonuses available to Folkson upon the Company hitting certain revenue milestones
of $1,000,000 in a quarter, $3,000,000 in a quarter, and $5,000,000 in a quarter. Achieving
those milestones would earn Folkson warrants with a $.50 and $1 strike price which would
need to be exercised within 90 days of the respective quarterly or annual filing. As of March
31, 2021, those conditions were not met and therefore nothing was accrued related to
this arrangement.
|
|
●
|
On April 14, 2021,
The Company successfully negotiated and retired a $731,118 payable for $20,000.
|
|
●
|
On April 19, 2021,
The Company closed a financing round of $4,500,000. This financing consisted of
$3,000,000 raised in cash, and the rollover of $1,500,000 of pre-existing convertible debt
into equity. This financing allowed the company to successfully retire all convertible
debt from the balance sheet. Over $1,400,000 of cash was infused into the Company
after debt payoff and transaction fees. As part of the settlement of the pre-existing debt, 1,200,000 shares of NGTF common stock were issued to Eagle
Equities.
|
|
●
|
On May 4, 2021,
The Company issued 72,288 shares to vendors and consultants for services provided.
|