NightFood Holdings, Inc 10-K for FY2024
NightFood Holdings, Inc. (NGTFD)
About this 10-K
NightFood Holdings, Inc filed this 10-K on December 27, 2024, covering the fiscal year ended June 30, 2024 (FY2024).
Headline figures
Fiscal year ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $89.27K
- down 33.1% from $133.41K a year earlier
- Net loss
- $3.24M
- compared with a net loss of $6.07M a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.07 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the fiscal year ended
For the transition period from _______ to _______.
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
Registrant’s Principal Office
Registrant’s telephone number, including area code:
(
Securities to be registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(b)
of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
No
The aggregate market value of the registrant’s
common stock, par value $0.0001 per share (“Common Stock”), held by non-affiliates, computed by reference to the price at
which the Common Stock was last sold as of December 31, 2023, the last business day of the registrant’s most recently completed
second fiscal quarter, was approximately $
The number of shares of the registrant’s Common Stock outstanding
as of December 27, 2024 was
TABLE OF CONTENTS
i
PART I
Cautionary Note Regarding Forward-Looking Information
Certain statements made in this Annual Report involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, technological developments related to business support services and outsourced business processes, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings “Business”.
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Item 1. Business.
General Development of Business
Nightfood Holdings, Inc. (“we”, “us”, “NGTF”, “the Company” or “Nightfood”) is a Nevada corporation incorporated on October 16, 2013, to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York corporation from its sole shareholder, Sean Folkson. We are also the sole shareholder of MJ Munchies, Inc., currently revoked in the State of Nevada, which owns certain intellectual property, but does not have any operations as of the period covered by these financial statements.
On February 2, 2024, the Company closed the acquisition of Future Hospitality Ventures Holdings Inc. (“FHVH” or “Future Hospitality”), a Nevada corporation and a new entrant in the Robots-as-a-Service (RaaS) space from Mr. Lei Sonny Wang, who concurrently became the Chief Executive Officer (“CEO”) of Nightfood and a member of the Company’s board of directors. Under the leadership of Mr. Wang, as of the time of this filing, Future Hospitality has secured distribution agreements with Next Robots, Inc. (formally Botin Innovations, Inc.) and one other U.S.-based global manufacturer which has not yet been named publicly and is in the process of negotiating and exploring additional supplier relationships.
Description of Business
Present Operations
Future Hospitality dba RoboOp365 launched in California shortly before California’s April foodservice and hospitality minimum wage increase which received significant media coverage. Future Hospitality provides artificial intelligence (AI) enabled robotic solutions that we believe deliver critical efficiencies, cost savings, and enhanced consumer experience in hospitality and food service.
Management believes that incorporating Future Hospitality’s advanced AI-enabled robotic solutions positions the Company at the forefront of innovation in the hospitality sector at this critical point in time. We believe our success in this area can open new avenues for growth and efficiency across our portfolio. Our customers can benefit from plug-and-play, AI-enabled automation which integrates easily and seamlessly into traditional restaurants, hotels, health care facilities, school cafeterias and other food service operations. There are exponential benefits for customers with a portfolio of locations, which is the market segment we are initially targeting.
Subsidiary Nightfood, Inc. has encountered quality and logistics challenges with its current copacker. The company is exploring selling other products in other categories and is seeking a new copacker for its cookie business.
Products and Services
Future Hospitality:
Products:
The Company believes it is revolutionizing the hospitality industry with plug-and-play robotics and automation solutions designed to enhance service efficiency and consistency.
Regular national media coverage highlights the ongoing labor crisis in California, which is creating massive upheaval across the industry. With minimum wage increased to $20, many long-standing businesses have been forced to shut down. Others are actively looking to invest in automation solutions that will allow them to remain viable now and into the future.
Future Hospitality offers two key robotics solutions via the Robots-as-a-Service (“RaaS”) business model, which can transform both front-end and back-end operations within the hospitality industry.
| 1. | Front-End Solutions: The serving robot, an advanced front-end solution, works alongside wait staff to ensure faster and more reliable service. These sever robots help streamline service delivery, enhancing guest experiences by minimizing wait times and reducing human errors. |
| 2. | Back-End Solutions: Smart cooking bots provide game-changing back-end solutions to support chefs in high-volume environments. The advanced kitchen assistant ensures consistent food quality and enables even inexperienced staff to prepare delicious meals quickly, addressing critical challenges in busy kitchens. |
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In recent months, Future Hospitality has been actively showcasing the capabilities of its service robots and automated systems to various regional restaurant franchises, assisted living facilities, hotels, and hospital operators. These demonstrations have sparked significant interest among industry leaders seeking to solve service inconsistency, labor shortages, and ongoing staffing replacement costs.
Future Hospitality is in active discussions with several organizations interested in implementing these automation solutions at scale in their day-to-day operations.
The website for Future Hospitality is www.roboop365.com
Market Trends
In an era where the gig economy reshapes labor dynamics, minimum wages rise, and labor disputes intensify, the food service industry stands at a crucial crossroads. Service robots, such as our cutting-edge culinary assistants, are not just a nod to the future—they are a robust solution to today’s burgeoning challenges.
| ● | Tackling Gig Economy Challenges: The gig economy has revolutionized the workforce, offering flexibility but also introducing unpredictability in staffing. Service robots provide a constant, reliable presence, mitigating the fluctuations and uncertainties inherent in a gig-based labor force. |
| ● | Addressing Rising Minimum Wage Concerns: As minimum wages climb, the financial strain on food service operations intensifies. Service robots offer a one-time investment that delivers ongoing returns, alleviating the pressure of rising labor costs. |
| ● | Navigating Labor Disputes: Disputes and disagreements within the workforce can lead to disruptions and financial losses. Service robots operate with consistent efficiency, eliminating the potential for labor disputes and ensuring uninterrupted service excellence. |
| ● | Solving the 100% Staff Turnover Dilemma: The food service industry often grapples with high employee turnover rates, leading to recurring recruitment and training expenses. Service robots, with their enduring presence, eradicate the turnover turmoil, providing a stable and dependable solution. |
| ● | Reducing Staff Training Costs: Training new staff is an ongoing expense in the food service sector. Service robots, once programmed, require no further training, offering a straightforward, cost-effective alternative to the continuous cycle of training and retraining staff. |
| ● | Minimizing Job-Related Injuries: In a bustling kitchen or service area, the risk of job-related injuries is ever-present. Service robots are designed to operate safely alongside human coworkers, reducing the likelihood of injuries and associated costs. |
Marketing
The Company is not currently earning significant revenue associated with its operations in the Robots-as-a-Service (RaaS) space.
Competition
Certain companies are manufacturers and distributors of service robotics with distribution in the US which is our current target market.
We face competition from certain manufacturers and distributors and their downline distributors who are our main competition.
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Government Regulations
In the United States, the National Institute of Standards and Technology has developed a framework for ensuring the safety and reliability of robotics technology. The framework provides guidelines for developing, deploying, and operating robots in various applications.
The United States has been a leader in the robotics industry for several decades. The country is home to some of the world’s largest and most successful robotics companies, such as Boston Dynamics, iRobot, and Kiva Systems. The US government has also recognized the potential of robotics to drive economic growth and improve efficiency and has implemented policies to support the development of the robotics industry.
One of the most significant initiatives in the US is the National Robotics Initiative (NRI), launched in 2011. The NRI collaborates with several government agencies, including the National Science Foundation and the Department of Defense. It aims to support the development of robotics technology across various industries. The initiative provides funding for research and development in manufacturing, healthcare, and transportation.
In addition to the NRI, the US government has also implemented policies to support the growth of the robotics industry. For example, the Department of Labor has launched the “Robotics Apprenticeship Program” to provide training and education programs for workers in the robotics industry. The program aims to address the skills gap in the industry and ensure that workers have the skills they need to remain competitive in the workforce.
Nightfood, Inc.
Products
We currently market three flavors of Nightfood cookies Prime-Time Chocolate Chip, Date Night Cherry Oat and Snoozerdoodle. Compared to traditional cookies, Nightfood cookies feature less sugar, less fat, fewer calories, more protein, more prebiotic fiber, and contain added inositol and vitamin B6.
The most widely consumed nighttime snacks are cookies, chips, candy, and ice cream. Our goal is to offer consumers sleep-friendly versions of each of those snack formats as well as others.
Subsidiary Nightfood, Inc. has encountered quality and logistics challenges with its current copacker. The company is exploring selling other products in other categories and is seeking a new copacker for its cookie business.
Market Trends
Research indicates that humans are biologically hard-wired to load up on sweets and fats at night. Loading a surplus of calories (fuel) into the body before the long nightly fast is believed to be an outdated survival mechanism from our hunter-gatherer days. Unfortunately, while modern consumers know this type of consumption isn’t necessary for survival, willpower also weakens at night, so consumers are more likely to succumb to these unhealthy nighttime cravings for excess “survival calories”.
As a result, over 90% of adults report snacking regularly between dinner and bed (according to SleepFoundation.org), resulting in an estimated 1 billion nighttime snack occasions weekly in the United States, and an annual spend on night snacks of over $60 billion. Because of our hard-wired evolutionary preferences at night for calorie-dense foods which increased the odds of short-term survival for our ancestors, the most popular nighttime snacks are ice cream, cookies, chips, and candy. These are all understood to be generally unhealthy. They can also impair sleep quality.
Marketing
Through the fiscal years ended June 30, 2024, and 2023, the Company generated revenues from sales generated in operating subsidiary Nightfood, Inc. and the sale of ice-cream and cookie products to customers and distributors using (i) Nightfood.com on the Shopify eCommerce platform (Direct to Consumer); and (ii) third party distributors. Sales focus in the most recent quarter, ended June 30, 2024, has shifted entirely to direct-to-consumer as the Company is focused on its newly developed cookie products. Wholesale ice-cream production and sales have been discontinued and might resume if and when direct-to-consumer scale is achieved.
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The Company considers its performance obligations satisfied upon shipment of the purchased products to the customer with respect to sales processed by third party fulfilment centers and retail locations, and delivery of the product for sales made to distributors or direct to end user via eCommerce portals.
Due to the nature of Nightfood’s products, the Company does not accept returns of its snacks. Refunds to consumers are issued under certain circumstances, but product returns are not typically accepted.
Competition
The nutritional/snack food business is highly competitive and includes such participants as companies like Mondelez, Nestle S.A., Hershey’s, Hormel, Kraft/Heinz, Kellogg’s, Ferrero, Campbell Soup Company, Utz, General Mills, Mars, The Simply Good Foods Company, Wells Enterprises, Froneri, Unilever, Hostess, PepsiCo, Post Holdings, and more. Many of these competitors have well-established names and products.
In 2019, Nestle announced interest in the nighttime snacking space with the introduction of a candy-type product called GoodNight. In 2020, Pepsi announced the launch of a “relaxation” drink called Driftwell. Moreover, in 2021, Unilever announced they had initiated a year-long research study to identify how nutrition could be used to improve sleep, through impact on the gut microbiome. In September 2021, the Chief Medical Officer of Pepsi stated that Pepsi researchers were examining how foods and beverages affect neurochemical pathways, and that the company was interested in how this research could be used to impact sleep. In 2023, Post Holdings, maker of well-known cereals such as Grape Nuts, HoneyComb, and Fruity and Cocoa Pebbles, launched a cereal called Sweet Dreams which targets the nighttime snack occasion.
Government Regulations
United States
Since e-commerce food businesses are not regulated as traditional food manufacturers based on the current Code of Federal Regulations (CFR), these models are regulated under the “honor system.” Companies self-report to their local authorities and, in most cases, are regulated under their local food code jurisdictions.
The U. S. Food and Drug Administration (FDA) publishes the Food Code, a model that assists food control jurisdictions at all levels of government by providing them with a scientifically sound technical and legal basis for regulating the retail and food service segment of the industry (restaurants and grocery stores and institutions such as nursing homes).
FDA regulates all foods and food ingredients introduced into or offered for sale in interstate commerce, with the exception of meat, poultry, and certain processed egg products regulated by the U.S. Department of Agriculture (USDA).
The Human Foods Program (HFP), works with FDA field offices to ensure that the nations’ food supply (except meat, poultry and some egg products, which are regulated by USDA) is safe, sanitary, wholesome, and honestly labeled and that cosmetic products are safe and properly labeled.
Personnel
Nightfood Holdings, Inc. has one employee, Lei Sonny Wang, its CEO.
Nightfood, Inc. has no employees. Sean Folkson has a consulting agreement with the Company. Functions within the company such as sales, marketing, production, distribution, sales, accounting, public relations, and more are primarily conducted through vendor and consultant relationships.
Future Hospitality has no employees. Functions within the company such as business development, supplier partnership development, marketing, public relations, and sales management are overseen by Sonny Wang who is working with independent sales agents specializing in restaurants, senior care facilities, and hotel services.
Should we be successful in executing our business plan, we anticipate hiring additional employees in key roles to assist with various company functions. However, we also expect to continue to strategically outsource when appropriate to enable growth without unnecessary expense and overhead.
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Intellectual Property
We own the domain Nightfood.com as well as many other relevant domains such as late-night-snack.com, nighttimesnack.com, and nighttimesnacking.com, as well as Nightfood.us, Nightfood.net, TryNightfood.com, GetNightfood.com, NiteFood.com, TryNightfood.com, and BuyNightfood.com. We also own the toll-free number 888-888-NIGHT.
Nightfood’s formulae and recipes are proprietary, and we have non-disclosure agreements with our suppliers.
The Registrant also owns the domain HalfBaked.com.
Recent Developments
As of November 11, 2024, FHVH onboarded a new customer currently in a 30-day trial phase for its Robot-as-a-Service solution. Following the trial, the customer will transition to a monthly RaaS subscription.
On September 10, 2024, the Company announced the closing of its strategic all-stock acquisition of SWC Group Inc., doing business as CarryoutSupplies.com (“CarryOut” as of September 4, 2024. CarryOut is a leading wholesaler and distributor of custom takeout packaging for the foodservice industry, with traditional, biodegradable and compostable options. Subsequently, on December 10, 2024 the Company, Future Hospitality Ventures Holdings, Inc., SWC Group, Inc., and Sugarmade, Inc. entered into and amendment (the “Amendment”) which modified certain terms of the Share Exchange Agreement dated September 4, 2024 (the “Agreement”).
The Amendment modifies the method for calculating the number of shares to be issued under the Agreement. Under the revised terms, the share issuance will be determined based on the 90-day Volume Weighted Average Price (VWAP) of the Company’s common stock as of December 4, 2024.
As of the date of this report the transaction had not yet closed. This acquisition will mark a significant step in the Company’s growth and Nasdaq-uplist strategy, as previously disclosed in November 2023.
Founded in 2004, CarryOut has served more than 7,000 food services accounts, specializing in providing packaging solutions such as ice cream cups, coffee cups, lids and utensils to small and medium-sized foodservice businesses including restaurants, cafes, ice cream parlors, tea houses and yogurt shops. Despite facing significant challenges during the COVID-19 pandemic, CarryOut rebounded in 2023 with $2 million in revenue and is projecting 20% growth in 2024.
The acquisition of CarryOut offers numerous strategic benefits to the Company, enhancing operational efficiencies, expanding its customer base and bolstering its product offerings. This integration allows for:
| ● | Expanded Product Offerings: With CarryOut’s extensive packaging solutions now under the Company’s umbrella, the Company can better serve existing customers and enter new markets by offering a comprehensive range of products across its subsidiaries. |
| ● | Synergistic Growth Opportunities: By aligning CarryOut’s network of small and medium-sized foodservice operators with our Company offerings, the Company anticipates new opportunities for cross-promotion, including the introduction Future Hospitality’s service robotics solutions to restaurants.. |
| ● | Operational Efficiencies: This acquisition will streamline back-office operations across the Company’s subsidiaries, including the consolidation of accounting services, shared legal resources, interchangeable staffing and a more unified management team. These synergies are expected to improve human and capital resource allocation, driving down overall costs. |
Item 1A. Risk Factors
Smaller reporting companies are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments
None
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Item 1C. Cybersecurity
To meet our business objectives, we rely on both internal information technology (IT) systems and networks, and those of third parties and their vendors, to process and store sensitive data, including confidential research, business plans, financial information, intellectual property, and personal data of ours and our customers that may be subject to legal protection, and promote the continuity of our Company’s business operations. In the ordinary course of our business, we receive, process, use, store, and share digitally certain data, including user data as well as confidential, sensitive, proprietary, and personal information.
Maintaining the integrity and availability of our IT systems and this information, as well as appropriate limitations on access and confidentiality of such information, is important to our operations and business strategy. We plan to develop and implement information securities policies and incident response plans to evaluate, identify, and handle material risks associated with cybersecurity threats.
There can be no assurances that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, complied with or are effective in protecting our systems and information.
As of the date of this report, we are not aware of any cybersecurity incidents, that have had a materially adverse effect on our operations, business, results of operations, or financial condition.
Item 2. Properties
Our corporate address is 520 White Plains Road – Suite 500, Tarrytown, New York 10591 and our telephone number is 866-291-7778.
We do not own any real estate.
Future Hospitality Ventures Holdings, Inc. rents office space at 177 E Colorado Blvd Ste 200, Pasadena, CA 91105 and CarryoutSupplies.com leases office and warehouse space at 20529 E. Walnut Drive N., Walnut, CA 91789.
Item 3. Legal Proceedings
There are no current, past, pending or threatened legal proceedings or administrative actions either by or against the issuer that could have a material effect on the issuer’s business, financial condition, or operations.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
a) Market Information
Our common stock is currently quoted on the OTC market “QB” 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 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 $0.0121 on November 19, 2024.
| Period Ending June 30, 2024 | High | Low | ||||||
| September 30, 2023 | $ | 0.0425 | $ | 0.0122 | ||||
| December 31, 2023 | 0.0425 | 0.01 | ||||||
| March 31, 2023 | 0.028 | 0.0105 | ||||||
| June 30, 2024 | 0.035 | 0.0075 | ||||||
| Period Ending June 30, 2023: | ||||||||
| September 30, 2022 | $ | 0.21 | $ | 0.12 | ||||
| December 31, 2022 | 0.19 | 0.0805 | ||||||
| March 31, 2023 | 0.135 | 0.0675 | ||||||
| June 30, 2023 | 0.0925 | 0.0186 | ||||||
b) Holders
On June 30, 2024, there are approximately 267 holders of record of our common stock. The number of stockholders of record does not include thousands of beneficial owners of our common stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
c) Dividends
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.
d) Securities Authorized for Issuance Under Equity Compensation Plans
No equity compensation plan or agreements under which our common stock is authorized for issuance has been adopted during the fiscal years ended June 30, 2024 and 2023.
e) Recent Sales of Unregistered Securities
During the Fiscal Year ended June 30, 2023:
| ● | The Company issued 3,333,333 shares of common stock for services with a fair value of $50,000. |
| ● | The Company issued 300,000 shares of common stock for services with a fair value of $7,800. |
| ● | The Company issued 686,106 shares of common stock for cashless exercise of 1,818,182 stock purchase warrants. |
| ● | The Company issued an aggregate of 532,859 shares of its common stock for services valued at $77,110. |
| ● | The Company issued 2,469,697 shares of its common stock as financing cost valued at $104,515. |
| ● | The Company issued an aggregate of 6,549,128 shares of its common stock for cashless exercise of 4,928,260 original issued stock purchase warrants. |
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| ● | The Company sold 467,950 units at $0.50 per unit, consisting with 1,871,800 shares of common stock under its Regulation A+ Offering. The Company received net proceeds of $229,729. |
| ● | The Company issued 3,800,000 shares of its common stock in exchange for the return of 10,869,566 returnable warrants. |
| ● | The Company issued 2,750,000 shares of its common stock in exchange for the return of 2,750,000 stock purchase warrants. |
| ● | Holders of the B Preferred converted 1,310 shares of Series B Preferred Stock into 6,550,000 shares of its common stock. |
| ● | The Company issued an aggregate of 5,750,000 shares of its common stock for cash exercise of 5,750,000 original issued stock purchase warrants. The Company received net proceeds of $276,066. |
| ● | The Company issued 1,500,000 shares of common stock as consideration for convertible debt in the principal amount of $16,088 and in the accrued interest payable of $33,907, with a fair value of $91,500. |
During the Fiscal Year ended June 30, 2024:
| ● | The Company issued 3,333,333 shares of common stock for services with a fair value of $50,000. |
| ● | The Company issued 300,000 shares of common stock for services with a fair value of $7,800. |
| ● | The Company issued 686,106 shares of common stock for cashless exercise of 1,818,182 stock purchase warrants. |
| ● | The Company issued 1,000,000 shares of common stock as consideration for convertible debt in the accrued interest payable of $31,250 and transfer agent fee of $1,750, with a fair value of $16,400. |
Subsequent to the Fiscal Year ended June 30, 2024
| ● | The Company issued 50,000 shares of its common stock as part of a debt settlement arrangement with a vendor. |
f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
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:
| ● | a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; | |
| ● | 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; | |
| ● | 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; | |
| ● | a toll-free telephone number for inquiries on disciplinary actions; | |
| ● | definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and | |
| ● | such other information and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation. |
Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:
| ● | the bid and offer quotations for the penny stock; | |
| ● | the compensation of the broker-dealer and its salesperson in the transaction; |
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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 | |
| ● | 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 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Report. All monetary figures are presented in U.S. dollars, unless otherwise indicated.
Certain information contained in this MD&A includes “forward-looking statements.” Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition and results of operations, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our existing and proposed business, including many assumptions regarding future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will” “should,” “expect,” “intend,” “plan,” anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar terms, variations of such terms or the negative of such terms. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors. Although forward- looking statements, and any assumptions upon which they are based, are made in good faith, and reflect our current judgment, actual results could differ materially from those anticipated in such statements. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward- looking statements as a result of various risks, uncertainties and other factors
In light of these risks and uncertainties, and especially given the nature of our existing and proposed business, there can be no assurance that the forward-looking statements contained in this section and elsewhere in this Annual Report on Form 10-K will in fact occur. Potential investors should not place undue reliance on any forward- looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 2024 AND 2023
Revenue
For the fiscal years ended June 30, 2024, and 2023 we had gross sales of $89,639 and $182,856, respectively and net revenues (Net Revenues are defined as Gross Sales, less slotting fees, sales discounts, and certain other revenue reductions) of $367 and $49,450, respectively, and incurred operating expenses of $1,077,939 and $2,202,355 respectively. During the nine months ending March 31, 2024, the pivot from ice cream sales to direct-to-consumer sales of our cookies only commenced in the third quarter ending March 31, 2024. As we have shifted from product sales at retail and wholesale to direct to consumer, we do not expect to incur slotting fees in the future, unless we determine to introduce our current product offerings to a retail format.
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Costs and expenses
| For the fiscal years Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses | ||||||||
| Cost of product sold | 107,395 | 277,843 | ||||||
| Advertising and promotional | 56,664 | 144,859 | ||||||
| Selling, general and administrative expense | 175,190 | 838,413 | ||||||
| Professional fees | 738,690 | 941,240 | ||||||
| Total operating expenses | 1,077,939 | 2,202,355 | ||||||
For the fiscal years ended June 30, 2024 and 2023, cost of product sold decreased from $277,843 to $107,395. This is due to a decrease in the number of products sold as we shifted from product sales at retail and wholesale to direct to consumer.
For the fiscal years ended June 30, 2024 and 2023, advertising and promotional expenses decreased from $144,859 (2023) to $56,664 (2024). This decrease is largely due to us pausing advertising and promotional efforts with respect to our discontinued line of ice-cream products during the year. In addition, certain previously booked marketing expenditures during the fiscal year ended June 30, 2023, were reversed in the fiscal year ended June 30, 2024, upon non-provision of services resulting in a reduction to the overall costs in the current fiscal year.
For the fiscal years ended June 30, 2024, and 2023, selling, general, and administrative expenses decreased from $838,413 (2023) to $175,190 (2024). In fact the Company’s expenditures on selling, general and administrative costs was substantially reduced period over period, predominantly as a result of sizeable impairments to inventory of $416,701 during fiscal 2023 as compared to only $4,803 for the year ended June 30, 2024. The Company undertook impairments of its spoiled, damaged or unsaleable inventory in the year ended June 30, 2023 as the Company shifted from ice-cream sales to direct to consumer sales of cookie products.
For the fiscal years ended June 30, 2024, and 2023, professional fees decreased from $941,240 to $738,690. This includes legal fees, marketing consulting, accounting and auditor fees, and other paid consultants. The decrease is largely related to financing activities during the year ending June 30, 2023, including the filing of a registration statement and the fees that tend to accompany such transactions, a significant portion of which do not involve cash expenditures, but are tied to the valuation of shares and warrants issued to consultants, with no comparable expenses in fiscal year 2024.
Total operating expenses include those expenses associated with running the operating portion of our business (such as the manufacturing our snacks, advertising for our product, warehousing, freight, and the like plus the costs and expenses related to our newest acquisition in February 2024 of FVFH). It also includes certain cash and non-cash expenses incurred by us related to activities such as SEC compliance, fundraising activities, and maintaining our public entity in good standing. Our revenues and operations are currently limited, therefore expenses relating to financing and compliance activities make up a larger portion of our total expenses than they might in a larger company.
For the fiscal years ended June 30, 2024 and 2023, the loss from operations decreased from $2,202,355 (2023) to $1,077,939 (2024). As discussed above, the major components of this decrease was the reduction in advertising and marketing spend, a substantial reduction to professional fees and SGA expenses period over period, and a substantial write down of obsolete inventory in the year ended June 30, 2023 with no comparative impairments to inventory in the year ended June 30, 2024.
Other Income (Expense)
For the fiscal years ended June 30, 2024 and 2023, total other expenses decreased to $2,246,839 from $3,999,435. The majority of these expenses are related to accounting treatment applied to financing costs and debt and the amortization of debt discount. During the fiscal year ended June 30, 2024 we recorded amortization of debt discount of $638,194, loss on extinguishment of debt of $111,730, financing costs of $1,082,360. During the fiscal year ended June 30, 2023, we recorded amortization of debt discount of $1,265,893, financing costs of $2,199,273, a loss on extinguishment of debt of $361,500. These are not actual cash expenses but a function of the way certain financing activities are accounted for. Interest expenses totaled $432,154 and $172,769 and interest income was $17,599 and $0 in the fiscal years ended June 30, 2024 and 2023, respectively.
11
Net Loss
Our net loss in the fiscal year ended June 30, 2024 totaled $3,235,506 as compared to $6,068,384 in the fiscal year ended June 30, 2023. The decrease to the net loss is directly related to a substantial decrease in financing costs and amortization of debt discounts, as well as a decrease to our overall operating costs by approximately one-third.
Deemed Dividend
The Company has never declared dividends, however as set out below, during the fiscal year ended June 30, 2022 and 2021, upon issuance of a total of 335 and 4,665 shares of B Preferred, respectively, the Company recorded a deemed dividend as a result of beneficial conversion feature associated with the transaction.
In connection with certain conversion terms provided for in the designation of the B Preferred, pursuant to which each share of B Preferred is convertible into 5,000 shares of common stock and 5,000 warrants, the Company recognized a beneficial conversion feature upon the conclusion of the transaction in the amount of $4,431,387 through June 30, 2022. The beneficial conversion feature was treated as a deemed dividend, and fully amortized on the transaction date due to the fact that the issuance of the B Preferred was classified as equity.
During the years ended June 30, 2024 and June 30, 2023 the Company recorded an additional deemed dividend of $84,106 and $1,136,946 in relation to the B Preferred stock and downward price adjustments to certain warrants.
Customers
During fiscal 2024 our customers consist solely of customers purchasing Nightfood ice cream products, prior to the discontinuation of the line in fiscal 2024, and our current line of cookie products. These product sales are primarily of individual consumers purchasing Nightfood snacks via our website or via third party reseller platforms such as Tik Tok. In fiscal 2023 our customers consisted primarily of wholesale distributors of our ice cream pints for resale to hotels and supermarkets. In FY 2023, we had one customer that accounted for 42% of our Gross Sales. One other customer accounted for 29% and two others each accounted for between 7% and 10%. In the fiscal year ended June 30, 2024, we had no customers which accounted for more than 10% of gross sales.
Vendors
During the year ended June 30, 2024, one vendor accounted for approximately 70% of our cost of goods sold. During the year ended June 30, 2023, three vendors accounted for approximately 72% of our costs of goods sold.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2024, we had cash on hand of $148,294, receivables of $22,337, other current assets of $107,161 and inventory valued at $25,808.
Our cash on hand is not adequate to satisfy our working capital needs. We believe that our current capitalization structure, ongoing merger and acquisition activity, and our access to institutional capital will enable us to successfully secure the required financing to execute our development plans. In addition, we are currently working on acquisitions of additional revenue generating businesses to bolster our growth and strengthen our balance sheet.
As discussed above, the Company has limited available cash resources and we do not believe our cash on hand will be sufficient to fund our operations and growth through the balance of fiscal year 2024 and 2025, or adequate to satisfy our immediate or ongoing working capital needs. The Company is continuing to raise capital through the sale of its securities, including common stock, preferred stock, and debt (including convertible debt) to finance the Company’s operations, of which it can give no assurance of success. In addition, we will receive the proceeds from our outstanding warrants as, if and when such warrants are exercised for cash.
If we are unable to raise cash through the sale of our securities, we may be required to severely restrict or cease our operations.
Even if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be able to achieve a level of profitability from the sale of products and services of its subsidiaries to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Subsequent to June 30, 2024, we raised additional gross proceeds, net of original issuance discount, of $402,050 through the issuance of secured notes payable.
12
Since inception in January 2010 through June 30, 2024, we have generated an accumulated deficit of approximately $38,626,400. This accumulated deficit is not debt, and there is no obligation or liability associated with it. An accumulated deficit reflects a negative balance of retained earnings and an accumulation of historical losses over time, related to both operations and financing activities. It is not unusual for growing companies to have significant accumulated deficit, even after turning profitable. The Company’s accumulated deficit is a function of losses sustained over time, along with the costs associated with raising operating capital.
Assuming we raise additional funds and continue operations, it is expected we may incur additional operating losses during the course of fiscal year 2025 and possibly thereafter. We plan to continue to pay or satisfy existing obligation and commitments and finance our operations, as we have in the past, primarily through the sale of our securities and other forms of external financing until such time that we are able to generate sufficient funds from the sale of our products to finance our operations, of which we can give no assurance.
We anticipate deriving additional revenue from our subsidiaries in fiscal year 2025, but we cannot at this time quantify the amount. During the fiscal year ended June 30, 2024 we were successful in acquiring a new operating subsidiary in the Robots-as-a-Service (RaaS) space and expect to enhance our revenues through these operations in the coming months. In addition, we expect to successfully complete the acquisition of at least two additional operating companies in the first half of fiscal 2025 ending December 31, 2024.
Cash Flow from Operating Activities
During the fiscal year ended June 30, 2023, net cash used in operating activities was $1,203,995 compared to net cash used of $709,990 for the fiscal year ended June 30, 2024. This decrease in net cash used is largely due to the overall reduction in our operating and non-operating activities in the most recently completed fiscal year. During fiscal 2024, we reported increases to accounts payable and related party payables offset by a reduction in other current assets and accounts receivables, however, our non-cash expenses related to financing costs including costs of the issuance of stock and warrants in respect to financings and consulting services, as well as the amortization of debt discounts and inventory impairment charges were substantially reduced as compared to results from the year ended June 30, 2023.
Cash Flow from Investing Activities
During the fiscal year ended June 30, 2024, cash from investing activities included acquired cash from a business combination of $149,990 and prepaid acquisition costs secured by promissory notes of $297,880. There were no cash flows from investing activities in the fiscal year ended June 30, 2023.
Cash Flow from Financing Activities
During the fiscal year ended June 30, 2024, net cash of $1,252,805 was raised through the issuance of debt in the form of convertible notes and secured promissory notes. In the fiscal year ended June 30, 2023, our financing activities provided net cash of $976,467 and consisted of the issuance of debt in the form of convertible notes totaling $1,805,800 offset by repayments to debt of $1,375,128, proceeds from shares sold under our Reg A offering of $229,729, proceeds from the exercise of warrants of $276,066, and proceeds from a loan from a related party of $40,000.
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the Notes to our Financial Statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used in the determination of depreciation and amortization, the valuation for non-cash issuances of common stock, and the website, income taxes and contingencies, valuing convertible preferred stock for a “beneficial conversion feature” (“BCF”) and warrants among others.
13
Inventories
Inventories consisting of packaged food items and supplies are stated at the lower of cost (FIFO) or net realizable value, including provisions for spoilage commensurate with known or estimated exposures which are recorded as a loss on write down of inventory during the period spoilage is incurred as a part of selling, general and administrative expenses. The Company has no minimum purchase commitments with its vendors. During the fiscal year ended June 30, 2024 and 2023 the Company wrote down inventory balances by $4,803 and $416,701, as a result of damage, loss, spoilage, and obsolescence. Expenses related to inventory impairments are included in Selling, General and Administrative expenses on the Company’s statements of profit and loss.
Revenue Recognition
The Company accounts for revenue in accordance with Accounting Standards Updated (“ASU”) ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”). The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Through the fiscal years ended June 30, 2024 and 2023, the Company generated revenues from sales generated in operating subsidiary Nightfood, Inc. and the sale of ice-cream and cookie products to customers and distributors using (i) Nightfood.com on the Shopify eCommerce platform (Direct to Consumer); and (ii) third party distributors. Sales focus in the most recent quarter ended June 30, 2024 has shifted entirely to direct-to-consumer as the Company is focused on its newly developed cookie products. Wholesale ice-cream production and sales have been discontinued and might resume if and when direct-to-consumer scale is achieved. The Subsidiary considers its performance obligations satisfied upon shipment of the purchased products to the customer with respect to sales processed by third party fulfilment centers and retail locations, and delivery of the product for sales made to distributors or direct to end user via eCommerce portals. The Subsidiary has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. Due to the nature of Nightfood’s products, the company does not accept returns of its snacks. Refunds to consumers are issued under certain circumstances, but product returns are not typically accepted.
During the years ended June 30, 2024 and 2023, the Company has not earned any revenue associated with its operations in the Robots-as-a-Service (RaaS) space, although product demonstrations have begun and Management believes revenues will begin soon.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company’s accounts receivable consists entirely of invoices issued with respect to the sale of the Company’s snack goods. The Company applies the guidance of ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (“CECL”). At each reporting period the Company gathers information about its current bad debt reserve and write-off practices and loss methodology, in-scope assets, historical credit losses, and expected changes to business practices under CECL. Accounts receivables are stated at estimated net realizable value from the sale of products to customers. During fiscal 2024 a shift in product sales and customer type occurred when the Company changed its product focus from sales of ice cream products to established customers to sales of snack cookies to individual customers online. Commercial customers comprising the Company’s sales in fiscal 2023 typically were customers contracting with the Company on short-term projects with larger credit limits and overall, larger project sizes, resulting in limited potential for write-offs of receivable balances. The Company’s sales in fiscal 2024 were comprised predominantly of sales to individual customers who pay in advance for snack items.
The Company reviewed methods provided by the guidance and determined to use the loss-rate method in the CECL analysis for trade receivables. This loss-rate method was selected as there is reliable historical information available at each fiscal year end, and this historical information was determined to be representative of the Company’s current customers and billing practices.
Deemed Dividend – Series B Preferred Stock Warrants:
Each share of the Company’s Series B Preferred Stock, par value $0.001 per share (the “B Preferred” or “B Preferred Stock”) has a liquidation preference of $1,000 and has no voting rights except as to matters pertaining to the rights and privileges of the B Preferred. Each share of B Preferred is convertible at the option of the holder thereof into (i) 5,000 shares of the Registrant’s common stock (one share for each $0.20 of liquidation preference) (the “Conversion Shares”) and (ii) 5,000 common stock purchase warrants, expiring April 16, 2026 (the “Warrants”). The Warrants carried an initial exercise price of $0.30 per share. Subsequent financing events and debt extinguishment resulted in adjustments to the exercise price of all warrants created from conversion of B Preferred from $0.30 per share to approximately $0.10416 per share through June 30, 2024. The exercise price of these warrants can continue to adjust as the result of subsequent financing events and stock transactions. These adjustments can result in an exercise price that is either higher, or lower, than the price as of June 30, 2024.
The value of the deemed dividend was approximately $4.4 million as of June 30, 2022. During the year ended June 30, 2023 the Company recorded an additional deemed dividend of approximately $1.1 million in relation to the B Preferred stock and downward price adjustments to certain warrants. During the fiscal year ended June 30, 2024 the Company recorded a further deemed dividend of approximately $84,000 in relation to the B Preferred stock and downward price adjustments to certain warrants.
14
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.
Fair Value of Financial Instruments
Cash and Equivalents, Receivables, Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities. The carrying amounts of these items approximated fair value.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).
| Level 1 — | Valuations based on quoted prices for identical assets and liabilities in active markets. |
| Level 2 — | Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 — | Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. |
At June 30, 2024 and June 30, 2023, the Company had no outstanding derivative liabilities.
Recently Adopted Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires incremental disclosures related to a public entity’s reportable segments. Required disclosures include, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount for other segment items (which is the difference between segment revenue less segment expenses and less segment profit or loss) and a description of its composition, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The standard also permits disclosure of more than one measure of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are evaluating the impact of adopting ASU 2023-07on our financial statements.
In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). ASU 2023-09 is effective for fiscal years beginning after December 15, 2025. We are evaluating the impact of adopting ASU 2023-09 on our financial statements.
In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate Related Disclosures for Investors, which requires registrants to disclose climate-related information in registration statements and annual reports. The new rules would be effective for annual reporting periods beginning in fiscal year 2025. However, in April 2024, the SEC exercised its discretion to stay these rules pending the completion of judicial review of certain consolidated petitions with the United States Court of Appeals for the Eighth Circuit in connection with these rules. We are evaluating the impact the adoption of this rule, if any, on our financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
Disclosure in response to this Item is not required for a smaller reporting company.
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Item 8. Financial Statements and Supplementary Data.
The financial statements required by this Item 8 are included in this Annual Report beginning on page F-1.
TABLE OF CONTENTS
16
Nightfood Holdings, Inc.
Consolidated Financial Statements
For the years ended June 30, 2024 and 2023
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of NightFood Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NightFood Holdings, Inc. (“the Company”) as of June 30, 2024 and 2023, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended June 30, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and 2023 and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit, limited available cash resources and does not believe cash on hand will be sufficient to fund operations and growth. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Emphasis of a Matter – Restatement of Previously Issued Financial Statements
As discussed in Note 15 to the financial statements, the Company has restated its previously issued financial statements for the year ended June 30, 2023, to correct a number of transactions that were not previously recognized correctly. Our opinion on the financial statements as of June 30, 2023 and 2024 is not modified with respect to this matter.
F-1
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Business Combination – Refer to Note 3 to the financial statements.
Critical Audit Matter Description
As discussed in Note 3, in January 2024 the Company entered into a share exchange agreement whereby the Company agreed to acquire Future Hospitality Ventures Holdings, Inc. (FHVH) through a share exchange and FHVH became a wholly-owned subsidiary. We identified that the business combination as a critical audit matter because these valuations require significant judgement of management’s determination of valuation methodology in accordance with generally accepted accounting principles.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to evaluating the business combination included the following, among others:
| ● | We obtained and reviewed underlying share exchange agreements and performed analysis to determine the appropriateness of acquisition date fair value and disclosures in the financial statements. | |
| ● | We evaluated the relevance and reliability of management’s analysis and tested inputs related to valuation of purchase consideration paid and net assets acquired, including assumptions within specialist reports. |
We have served as the Company’s auditor since 2024.
December 27, 2024
F-2
Nightfood Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
| June 30, | June 30, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Acquisition costs secured by promissory note | ||||||||
| Indefinite lived intangible assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities - related party | ||||||||
| Convertible notes payable - net of discounts | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A Stock, $ | ||||||||
| Series B Stock, $ | ||||||||
| Series C Stock, $ | ||||||||
| Series D Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Nightfood Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For Fiscal Years Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues, net of slotting and promotion | $ | $ | ||||||
| Operating expenses | ||||||||
| Cost of product sold | ||||||||
| Advertising and promotional | ||||||||
| Selling, general and administrative expense | ||||||||
| Professional fees | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest income | ||||||||
| Interest expense - debt | ( | ) | ( | ) | ||||
| Interest expense – financing cost | ( | ) | ( | ) | ||||
| Amortization of debt discount | ( | ) | ( | ) | ||||
| Gain (loss) on debt extinguishment | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Net (Loss) | ( | ) | ( | ) | ||||
| Deemed dividend on Series B Preferred Stock | ||||||||
| Net income (loss) attributable to common shareholders | ( | ) | ( | ) | ||||
| Basic and diluted net loss per common share | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares of capital outstanding – basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Nightfood Holdings, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
| Common Stock | Preferred Stock(*) | Additional | Total Stockholders’ | |||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid in Capital | Accumulated Deficit | Equity (Deficit) | ||||||||||||||||||||||
| Balance, June 30, 2022 | $ | - | $ | | $ | $ | ( | ) | $ | |||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Units issued under Regulation A Offering | ||||||||||||||||||||||||||||
| Common stock from conversion | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued as financing cost | ||||||||||||||||||||||||||||
| Warrants exercise | ||||||||||||||||||||||||||||
| Common stock issued under Forbearance and Exchange Agreement | ||||||||||||||||||||||||||||
| Warrants exchange to common stock | ( | ) | ||||||||||||||||||||||||||
| Common stock issued under notice of conversion | ||||||||||||||||||||||||||||
| Issuance of warrants | ||||||||||||||||||||||||||||
| Warrants issued associated with Promissory Notes | ||||||||||||||||||||||||||||
| Warrants issued as financing cost | ||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | ||||||||||||||||||||||||||||
| Warrants dilutive adjustment as consulting fees | ( | ) | ( | ) | ||||||||||||||||||||||||
| Deemed dividends associated with warrants related dilutive adjustments | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued under notice of conversion | ||||||||||||||||||||||||||||
| Common stock issued for services | ||||||||||||||||||||||||||||
| Common stock issued as financing cost | ||||||||||||||||||||||||||||
| Warrants issued as consulting fee | ||||||||||||||||||||||||||||
| Warrants issued as financing cost | ||||||||||||||||||||||||||||
| Warrants issued associated with Promissory Notes | ||||||||||||||||||||||||||||
| Warrants exercise, cashless | ( | ) | ||||||||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||
| Shares issued for amended convertible note | ||||||||||||||||||||||||||||
| Deemed dividends associated with warrants related dilutive adjustments | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Preferred Stock A | Preferred Stock B | Preferred Stock C | Preferred Stock D | Preferred Stock | ||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | Shares | Par Value | Par Value | ||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | | $ | | - | - | $ | |||||||||||||||||||||||||||||
| Common stock from conversion | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||||||||||
| Shares issued for amended convertible note | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Nightfood Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For Fiscal Years Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations activities: | ||||||||
| Non-cash financing cost under contingent liability | ||||||||
| Non-cash financing cost under NFN | ||||||||
| Non-cash interest expense | ||||||||
| Interest income under acquisition note | ( | ) | ||||||
| Warrants issued for services | ||||||||
| Stock issued for services | ||||||||
| Stock issued for financing costs | ||||||||
| Amortization of debt discount | ||||||||
| Loss on extinguishment of convertible note | ||||||||
| Warrants and returnable warrants issued for financing costs | ||||||||
| Financing cost due to conversion price adjustments | ( | ) | ||||||
| Consulting fees incurred due to debt conversion price adjustments | - | |||||||
| Impairment of inventory | ||||||||
| Bad debt | ||||||||
| Change in operating assets and liabilities | ||||||||
| Change in accounts receivable | ||||||||
| Change in inventory | ( | ) | ( | ) | ||||
| Change in other current assets | ( | ) | ||||||
| Change in accounts payable | ||||||||
| Change in relate party payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash advanced to Future Hospitality Ventures Holdings Inc. before business combination | ( | ) | ||||||
| Acquisition costs secured by promissory notes | ( | ) | ||||||
| Net cash used by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of units under Reg A | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from related party | ||||||||
| Proceeds from the issuance of debt, net | ||||||||
| Repayment to convertible notes | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid For: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Summary of Non-Cash Investing and Financing Information: | ||||||||
| Warrants and returnable warrants issued for financing cost | $ | $ | ||||||
| Stock issued for financing costs | $ | $ | ||||||
| Common stock issued for preferred stock conversions | $ | $ | ||||||
| Deemed dividend associated with preferred B stock and dilutive warrant adjustments | $ | $ | ||||||
| Debt and warrant discounts related to convertible notes | $ | $ | ||||||
| Preferred stock C issued per acquisition | $ | $ | ||||||
| Preferred stock D issued under convertible note amended | $ | $ | ||||||
| Principal increased under convertible note amended | $ | $ | ||||||
| Granted interest increased under convertible note amended | $ | $ | ||||||
| Acquisition cost under Promissory note acquired under business acquisition | $ | $ | ||||||
| Principal increased as financing cost | $ | $ | ||||||
| Common stock issued to settle principal | $ | $ | ||||||
| Common stock issued to settle interest payable | $ | $ | ||||||
| Common stock issued for transfer agent fee | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Nightfood Holdings, Inc.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Going Concern
Nightfood Holdings, Inc. is a Nevada corporation incorporated on -October 16, 2013, to acquire all of the issued and outstanding shares of Nightfood, Inc., a New York corporation from its sole shareholder, Sean Folkson. We are also the sole shareholder of MJ Munchies, Inc., currently revoked in the State of Nevada, which owns certain intellectual property, but does not have any operations as of the period covered by these financial statements.
On February 2, 2024, the Company closed the acquisition of Future Hospitality Ventures Holdings Inc. (“FHVH” or “Future Hospitality”), a Nevada corporation and a new entrant in the Robots-as-a-Service (RaaS) space from Mr. Lei Sonny Wang, who concurrently became the Chief Executive Officer of Nightfood and a member of the Company’s board of directors. Under the leadership of Mr. Wang, as of the time of this filing, Future Hospitality has secured distribution agreements with Next Robot, Inc. (formally Botin Innovations, Inc.) and one other U.S.-based global manufacturer which has not yet been named publicly and is in the process of negotiating and exploring additional supplier relationships.
Our corporate address is 520 White Plains Road – Suite 500, Tarrytown, New York 10591 and our telephone number is 866-291-7778. We maintain web sites at www.nightfoodholdings.com, www.nightfood.com, www.RoboOp365.com, along with several additional web properties. Any information that may appear on those web sites should not be deemed to be a part of this report.
The Company’s fiscal year end is June 30.
Going Concern
| ● | The Company’s financial statements are prepared using generally accepted accounting principles, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. No certainty of continuation can be stated. |
| ● | The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. For the fiscal year ended June 30, 2024, the Company had an operating and net loss
of $ |
| ● | The Company has limited available cash resources and we do not believe our cash on hand will be sufficient to fund our operations and growth throughout fiscal year 2025 or adequate to satisfy our immediate or ongoing working capital needs. We are currently in default with respect to the terms of several of our convertible notes payable. |
| The Company is continuing to seek to raise capital through the sales of its common stock, preferred stock and/or convertible notes, as well as potentially the exercise of outstanding warrants, to finance the Company’s operations, of which it can give no assurance of success. Management has devoted a significant amount of time to the raising of capital from additional debt and equity financing. However, the Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. Additionally, management is investing in the acquisition of additional revenue generating assets through the issuance of debt and/or equity to further assist the Company’s growth initiatives. As of June 30, 2024 we have advanced proceeds totaling $ |
| ● | Because the Company has limited sales, no certainty of continuation can be stated. The Company’s ability to continue as a going concern is dependent upon raising additional funds through debt and equity financing and generating revenue. In addition, the Company will receive the proceeds from its outstanding warrants as, if and when such warrants are exercised for cash. There are no assurances the Company will receive the necessary funding or generate revenue necessary to fund operations. |
| ● | Even if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be able to achieve a level of profitability from the sale of the products and services of its subsidiaries to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. |
F-7
2. Summary of Significant Accounting Policies
Management is responsible for the fair presentation of the Company’s financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP).
Use of Estimates
| ● | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used in the determination of depreciation and amortization, the valuation for non-cash issuances of common stock, and the website, income taxes and contingencies, valuing convertible preferred stock for a “beneficial conversion feature” (“BCF”) and warrants among others. |
Cash and Cash Equivalents
| ● | The Company classifies as cash and cash equivalents amounts on deposit in the banks and cash temporarily in various instruments with original maturities of three months or less at the time of purchase. The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $ |
Business Combinations
| ● | The Company accounts for business combinations using the purchase method of accounting. The purchase method requires the Company to determine the fair value of all acquired assets, including identifiable intangible assets and all assumed liabilities. The total cost of acquisitions is allocated to the underlying identifiable net assets, based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and the utilization of independent valuation experts, and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates and asset lives, among other items. |
Goodwill and Intangibles
| ● | Goodwill represents the excess of the purchase price over the fair market value of the net assets (including intangibles) acquired on February 2, 2024 respectively and includes the value of indefinite lived intangible assets resulting from noncontractual customer relationships. The Company has implemented the Business Combinations Topic of the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other. Goodwill is deemed to have an indefinite life. Goodwill and indefinite life intangible assets are not amortized but are subject to, at a minimum, annual impairment tests. The Company expenses costs to maintain or extend intangible assets as incurred. |
The Company reviews intangible assets for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. We measure the recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. There were no impairments for the periods presented.
The Company tests goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. There were no goodwill impairments for the periods presented.
Long-Lived Assets
| ● | The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. The Company had no long-lived asset impairments as of June 30, 2024 and June 30, 2023. |
F-8
Inventories
| ● | Inventories consisting of packaged food items and supplies are stated at the lower of cost (FIFO) or net realizable value, including provisions for spoilage commensurate with known or estimated exposures which are recorded as a loss on write down of inventory during the period spoilage is incurred as a part of selling, general and administrative expenses. The Company has no minimum purchase commitments with its vendors. During the fiscal year ended June 30, 2024 and 2023 the Company wrote down inventory balances by $ |
Advertising Costs
| ● | Advertising costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations. Although not traditionally thought of by many as “advertising costs”, the Company includes expenses related to graphic design work, package design, website design, domain names, and product samples in the category of “advertising costs”. The Company recorded advertising costs of $ |
Income Taxes
| ● | The Company has not generated any taxable income, and, therefore, no provision for income taxes has been provided. Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with FASB Topic 740, “Accounting for Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss and credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not. |
| ● | A valuation allowance has been recorded to fully offset the deferred tax asset even though the Company believes it is more likely than not that the assets will be utilized |
| ● | The Company’s effective tax rate differs from the statutory rates associated with taxing jurisdictions because of permanent and temporary timing differences as well as a valuation allowance. |
Revenue Recognition
The Company accounts for revenue in accordance with Accounting Standards Updated ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”). The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Through the fiscal years ended June 30, 2024, and 2023, the Company generated revenues from sales generated in operating subsidiary Nightfood, Inc. and the sale of ice-cream and cookie products to customers and distributors using (i) Nightfood.com on the Shopify eCommerce platform (Direct to Consumer); and (ii) third party distributors. Sales focus in the most recent quarter ended June 30, 2024, has shifted entirely to direct-to-consumer as the Company is focused on its newly developed cookie products. Wholesale ice-cream production and sales have been discontinued and might resume if and when direct-to-consumer scale is achieved. The Subsidiary considers its performance obligations satisfied upon shipment of the purchased products to the customer with respect to sales processed by third party fulfilment centers and retail locations, and delivery of the product for sales made to distributors or direct to end user via eCommerce portals. The Subsidiary has made a policy election to treat shipping and handling as costs to fulfill the contract, and as a result, any fees received from customers are included in the transaction price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost of sales for amounts paid to applicable carriers. Due to the nature of Nightfood’s products, the company does not accept returns of its snacks. Refunds to consumers are issued under certain circumstances, but product returns are not typically accepted.
F-9
Disaggregated Revenues
The Company is currently earning revenues from a single product line with sales of its cookie products through subsidiary Nightfood, Inc. and therefore has not presented disaggregated revenues.
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 June 30, 2024 and June 30, 2023, the Company did not have any uninsured cash deposits.
Deemed Dividend – Series B Preferred Stock Warrants:
Each share of the Company’s Series B Preferred
Stock, par value $
The value of the deemed dividend was approximately
$
Debt Issue Costs
| ● | The Company may pay debt issue costs in connection with raising funds through the issuance of debt whether convertible or not or with other consideration. These costs are recorded as debt discounts and are amortized over the life of the debt to the statement of operations. |
Equity Issuance Costs
| ● | The Company accounts for costs related to the issuance of equity as a charge to Paid in Capital and records the equity transaction net of issuance costs. |
Original Issue Discount
| ● | If debt is issued with an original issue discount, the original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized over the life of the debt to the statement of operations as interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. |
Stock Settled Debt
| ● | In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. |
F-10
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 fiscal 2024 our customers consist primarily of individual product purchases via our website or via third party reseller sites such as Tik Tok. In fiscal 2023 our customers consisted primarily of distributors that sell snack products to hotels and supermarkets. In the year ended June 30, 2023, we had one customer that accounted for 42% of our Gross Sales. One other customer accounted for |
Vendor Concentration
| ● | During the year ended June 30, 2024, one vendor accounted for approximately |
Receivables Concentration
| ● | As of June 30, 2024, the Company had receivables due from nine customers. One accounted for |
Fair Value of Financial Instruments
| ● | Cash and Equivalents, Receivables, Other Current Assets, Short-Term Debt, Accounts Payable, Accrued and Other Current Liabilities. |
| ● | The carrying amounts of these items approximated fair value. |
| ● | Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). |
| Level 1 — | Valuations based on quoted prices for identical assets and liabilities in active markets. |
| Level 2 — | Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 — | Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. |
At June 30, 2024 and June 30, 2023, the Company had no outstanding derivative liabilities.
Income/Loss Per Share
| ● | In accordance with ASC Topic 260 – Earnings Per Share, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock had been issued and if the additional shares of common stock were dilutive. Potential common stock consists of the incremental common stock issuable upon convertible notes, stock options and warrants, and classes of shares with conversion features. The computation of basic loss per share for the fiscal years ended June 30, 2024 and 2023 excludes potentially dilutive securities because their inclusion would be antidilutive. As a result, the computations of net loss per share for each period presented is the same for both basic and fully diluted losses per share. |
F-11
| Restatement of Previously Issued Financial Statements |
Our Consolidated Balance Sheet as of June 30, 2023 and our Consolidated Statements of Operations, Consolidated Statements of Shareholders’ Equity (Deficit) and our Consolidated Statements of Cash Flows for the fiscal year ended June 30, 2023 has been restated for errors made with regard to inventory impairment, allowance for doubtful accounts, cash balances, accounts payable and accrued liabilities, interest expense with respect to certain default provisions in promissory notes past maturity and certain other accounts including costs of goods sold, professional fees and advertising and promotional expenses. Refer to Note 15 herein.
Reclassification
| ● | The Company may occasionally make certain reclassifications to prior period amounts to conform with the current year’s presentation. Such reclassifications would not have a material effect on its consolidated statement of financial position, results of operations or cash flows. |
Recent Accounting Pronouncements
| ● | In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires incremental disclosures related to a public entity’s reportable segments. Required disclosures include, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount for other segment items (which is the difference between segment revenue less segment expenses and less segment profit or loss) and a description of its composition, the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The standard also permits disclosure of more than one measure of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We are evaluating the impact of adopting ASU 2023-07on our financial statements. |
| ● | In December 2023, the FASB issued Accounting Standards Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). ASU 2023-09 is effective for fiscal years beginning after December 15, 2025. We are evaluating the impact of adopting ASU 2023-09 on our financial statements. |
| ● | In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate Related Disclosures for Investors, which requires registrants to disclose climate-related information in registration statements and annual reports. The new rules would be effective for annual reporting periods beginning in fiscal year 2025. However, in April 2024, the SEC exercised its discretion to stay these rules pending the completion of judicial review of certain consolidated petitions with the United States Court of Appeals for the Eighth Circuit in connection with these rules. We are evaluating the impact the adoption of this rule, if any, on our financial statements. |
3. Business Combination
Acquisition of Future Hospitality Ventures Holdings Inc.
On January 22, 2024, the Company, Future Hospitality Ventures Holdings Inc., a Nevada corporation, Sean Folkson as the holder of all issued and outstanding Series A Preferred Stock of NGTF (the “NGTF Series A Shareholder”) and Lei Sonny Wang, the sole shareholder of FHVH (the “FHVH Shareholder”) entered into a share exchange agreement (the “Exchange Agreement”) whereby NGTF agreed to acquire FHVH through a share exchange (the “Exchange”) whereby FHVH became a wholly-owned subsidiary of NGTF.
Pursuant to the Exchange Agreement, the FHVH Shareholder
exchanged all
The Exchange Agreement was subject to certain closing conditions and contained customary representations, warranties and covenants. The consummation of the Exchange was conditioned upon, among other things: Sean Folkson resigning as the Chief Executive Officer of NGTF, continuing to serve as the President of Nightfood, Inc. through December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur; and the appointment of Lei Sonny Wang as a director and Chief Executive Officer of NGTF. The parties at the time of the transaction were considered arm’s length and the exchange agreement was valued at fair market value at the time of the transaction.
F-12
The aforementioned agreements closed on February 2, 2024 (“Valuation Date”).
| Consideration Paid – Fair Value | ||||||||
| Stock issued: | ||||||||
| Number of Series C Preferred Stock: | ||||||||
| Fair value of Series A Preferred Stock | $ | |||||||
| Fair value of Series C Preferred Stock | ||||||||
| Total consideration | $ | |||||||
The fair value of the Series C Preferred shares issued was determined
as of the Valuation Date using the Market Approach to arrive at an indication of market value by using quoted market prices of the common
shares. The valuation utilized the Company stock price and the historical volatility of the Company. The Series C Preferred shares’
fair value is based on the conversion value adjusted for the restriction period (6 months) and lack of marketability using a Finnerty
Put analysis and was determined to be $
| Tangible assets acquired: | ||||
| Cash | $ | |||
| Other current assets | ||||
| Accounts payable | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Total assets acquired and liability assumed | ( | ) | ||
| Indefinite-lived intangible assets (noncontractual customer relationships) | ||||
| Total Net asset acquired | $ |
As of June 30, 2024, no impairment of the Company’s goodwill was required. The purchase accounting for the acquisition remains incomplete as management continues to gather and evaluate information about circumstances that existed as of the acquisition date. Measurement period adjustments will be recognized prospectively. The measurement period is not to exceed 12 months from the respective dates of acquisition.
4. Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company’s accounts receivable consists entirely of invoices issued with respect to the sale of the Company’s snack goods. The Company applies the guidance of ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (“CECL”). At each reporting period the Company gathers information about its current bad debt reserve and write-off practices and loss methodology, in-scope assets, historical credit losses, and expected changes to business practices under CECL. Accounts receivables are stated at estimated net realizable value from the sale of products to customers. During fiscal 2024 a shift in product sales and customer type occurred when the Company changed its product focus from sales of ice cream products to established customers to sales of snack cookies to individual customers online. Commercial customers comprising the Company’s sales in fiscal 2023 typically were customers contracting with the Company on short-term projects with larger credit limits and overall, larger project sizes, resulting in limited potential for write-offs of receivable balances. The Company’s sales in fiscal 2024 were comprised predominantly of sales to individual customers who pay in advance for snack items.
The Company reviewed methods provided by the guidance
and determined to use the loss-rate method in the CECL analysis for trade receivables. This loss-rate method was selected as there is
reliable historical information available at each fiscal year end, and this historical information was determined to be representative
of the Company’s current customers and billing practices. Defaults of accounts receivable have remained immaterial in each of fiscal
2024 and 2023 and therefore the Company has not recorded an allowance for credit losses. The Company wrote off $
5. Inventories
| ● |
| June 30, 2024 | June 30, 2023 | |||||||
| Inventory: Finished Goods | $ | $ | ||||||
| Inventory: Ingredients | ||||||||
| Inventory: Packaging | ||||||||
| Total Inventory | $ | $ | ||||||
Inventories are stated at the lower of cost or
net realizable value. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory
based on its assessment of market conditions and the products’ relative shelf life. Write-downs and write-offs are charged to loss
on inventory write down. During the fiscal years ended June 30, 2024 and 2023 the Company wrote down inventory balances totaling $
F-13
6. Other current assets
| June 30, 2024 | June 30, 2023 | |||||||
| Other Current Assets | ||||||||
| Prepaid interest expenses | $ | $ | ||||||
| Prepaid Professional fees | ||||||||
| Other prepaid expenses | ||||||||
| Deposits with vendors | ||||||||
| TOTAL | $ | $ | ||||||
7. Acquisition Costs Secured with Line of Credit Agreements
| Funds provided to acquisition target 1 under LOC (“LOC 1”) | $ | |||
| Funds provided to acquisition target 2 under LOC (“LOC 2”) | ||||
| Interest receivable under LOC agreements | ||||
| Total | $ |
LOC 1
LOC 1 provides that acquisition target 1 may draw
down advances of up to $
As of June 30, 2024, $
LOC 2
LOC 2 provides that acquisition target 2 may draw
down advances of up to $
As of June 30, 2024, $
8. Accounts Payable and Accrued liabilities
| June 30, 2024 | June 30, 2023 | |||||||
| Interest Payable | $ | $ | ||||||
| Accounts payable | ||||||||
| TOTAL | $ | $ | ||||||
9. Debt
| ● | Convertible Notes Payable |
Convertible Notes Issued on December 10, 2021
On December 10, 2021, the Company entered into
a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited and institutional investors
(the “Purchasers”) for the purchase and sale of an aggregate of: (i) $
F-14
The Warrants were initially exercisable at $
In connection with Securities Purchase Agreement,
the Company issued to the Placement Agent (as defined below), an aggregate of
Spencer Clarke Holdings LLC (“Placement
Agent”) acted as the placement agent, in connection with the sale of the securities pursuant to the Securities Purchase Agreement.
Pursuant to an engagement agreement entered into by and between the Company and the Placement Agent, the Company agreed to pay the Placement
Agent a cash commission of $
The gross proceeds received from the Offering
were approximately $
On or around September 23, 2022, as a result of
certain new financing agreements entered into by the Company, as consideration to the Holders, the Company issued to each Holder a common
stock purchase warrant for the purchase of
The Company was required to pay to the Purchasers on December 10, 2022, as extended to December 29, 2022 (as so extended, the “Maturity Date”) all remaining principal and accrued and unpaid interest on the Maturity Date (the “Owed Amount”) and the failure to so pay the Owed Amount on the Maturity Date is an event of default. The Owed Amount was not paid by the Company in accordance with the terms of the Notes. Subsequent to December 31, 2022 the Company entered into a forbearance agreement with the Purchasers as set out below.
Forbearance and Exchange Agreement
On February 4, 2023, the Company entered into a Forbearance and Exchange Agreement (the “Forbearance Agreement”) with the Purchasers from the Securities Purchase Agreement dated December 10, 2021.
Pursuant to the Forbearance Agreement as amended, among other things:
| ● |
| ● | The Purchasers shall not convert the Notes so long as an event of default pursuant to the Forbearance Agreement has not occurred. |
| ● | The Company purchased and retired the Returnable Warrants from the Purchasers, in exchange for the Company issuing to each of the Holders |
| ● | The Purchasers agreed not to transfer the Exchange Shares prior to September 24, 2023, subject to certain exceptions, including that the Company shall have the right to redeem all or any portion of the Exchange Shares from each Purchaser by paying an amount in cash to such Purchaser equal to $ |
F-15
| ● | Each Purchaser agrees to forbear from exercising its rights against the Company under its respective Note until and unless the occurrence of any of the following events: (a) the failure of the Company to make a scheduled payment pursuant to the Forbearance Agreement, subject to a five day right to cure; (b) the failure of the Company to observe, or timely comply with, or perform any other covenant or term contained in the Forbearance Agreement, subject to a ten day right to cure; (c) the Company or any subsidiary of the Company commences bankruptcy and/or any insolvency proceedings; or (d) the delivery of any notice of default by Mast Hill Fund, L.P. (“Mast Hill”) to the Company with respect to indebtedness owed to Mast Hill by the Company. |
The Company evaluated all of the associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.
In accordance with ASC 470- Debt, the Company first allocated the cash proceeds to the loan and the warrants on a relative fair value basis, secondly, the proceeds were allocated to the beneficial conversion feature.
| Principal ($) | Stock-settled Debt ($) | Debt Discount ($) | Net Value ($) | |||||||||||||
| Balance at June 30, 2021 | ||||||||||||||||
| Convertible notes payable issued during fiscal year ended June 30, 2022 | ||||||||||||||||
| Debt discount associated with new convertible notes | ( | ) | ( | ) | ||||||||||||
| Conversion price adjusted from $ | ( | ) | ||||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||
| Cash repayment | ( | ) | ( | ) | ||||||||||||
| Gain on extinguish of portion of principal | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ||||||||||||||||
| Penalty | ||||||||||||||||
| Conversion price change | ||||||||||||||||
| Under forbearance Agreement: | ( | ) | ( | ) | ||||||||||||
| Cash repayment | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2023 | ||||||||||||||||
| $ | ||||
| Loss on conversion price change in December 31, 2022 | ||||
| Stock settled debt | ( | ) | ||
| Financing charges due to returnable warrants issued | ||||
| Principal increased due to penalty | ||||
| Loss on extinguishment | $ |
| For twelve months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Amortization | $ | $ | ||||||
| Interest on the convertible notes | ||||||||
| Total | $ | $ | ||||||
During the fiscal years ended June 30, 2023 and
2022, the Company paid $
F-16
Mast Hill Promissory Notes (MH Notes)
| (a) | Promissory Notes Issued on September 23, 2022 |
On September 23, 2022, the Company entered
into a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal sum of $
As a result of the transaction, the Purchasers
triggered their “most favored nation” clause which resulted in the Company entering into an MFN Amendment Agreement (the “MFN
Agreement”) with the Purchasers (ref: Convertible Notes Issued on December 10, 2021 above) pursuant to which the Purchasers exercised
their options under the most-favored nation terms contained in their existing transaction documents with the Company. Pursuant to the
MFN Agreement, among other things, (a) the Company issued to each of the Purchasers
The Company paid to J.H. Darbie & Co., Inc.
$
The proceeds received by the Company from the
Offering, net of the original issue discount, fees and costs including legal fees of $
On May 2, 2023, a debtholder converted $
| (b) | Promissory Notes Issued on February 5, 2023 |
On February 5, 2023, the Company entered into
a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $
The Company paid to J.H. Darbie & Co., Inc.
$
| (c) | Promissory Notes Issued on February 28, 2023 |
On February 28, 2023, the Company entered into
a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $
F-17
The Company paid to J.H. Darbie & Co., Inc.
$
On June 20, 2024, a debtholder converted a total
of $
| Fair market value of | $ | |||
| Interest payable | ( | ) | ||
| Transfer agent fee | ( | ) | ||
| ( | ) | |||
| Gain on extinguishment | $ | ( | ) |
| (d) | Promissory Notes Issued on March 24, 2023 |
On March 24, 2023, the Company entered into a
Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $
The Company paid to J.H. Darbie & Co., Inc.
$
| (e) | Promissory Notes Issued on April 17, 2023 |
On April 17, 2023, the Company entered into a
Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $
The Company paid to J.H. Darbie & Co., Inc.
$
F-18
| (f) | Promissory Notes Issued on June 1, 2023 |
On June 1, 2023 the Company entered into a Securities
Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $
The Company paid to (a) J.H. Darbie & Co.,
Inc.
| (g) | Promissory Notes Issued on October 6, 2023 |
On October 6, 2023 the Company entered into a
Securities Purchase Agreement and issued and sold to Mast Hill, a Secured Promissory Note (the “Note”) in the principal amount
of $
The Note contains restrictions on the Company’s ability to (a) incur additional indebtedness, (b) make distributions or pay dividends, (c) redeem, repurchase or otherwise acquire its securities, (d) sell its assets outside of the ordinary course, (e) enter into certain affiliate transactions, (f) enter into 3(a)(9) Transactions or 3(a)(10) Transactions (each as defined in the Note), or (g) change the nature of its business.
Commencing as of the Effective Date, and until such time as the Note is fully converted or repaid, the Company shall not effect or enter into an agreement to effect any Variable Rate Transaction (as defined in the Purchase Agreement).
The Purchase Agreement contains customary representations and warranties made by each of the Company and Mast Hill. It further grants to Mast Hill certain rights of participation and first refusal, and certain most-favored nation rights, all as set forth in the Purchase Agreement. Further the Note is subject to the terms of certain previously executed Security, Pledge and Guarantee agreements discussed above in 7(f).
The Company paid to Spencer Clarke LLC a cash
fee of $
F-19
| (h) | Promissory Notes Issued on November 17, 2023 |
On November 17, 2023 the Company entered into
a Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $
The Company paid to Spencer Clarke LLC a cash
fee of $
| (i) | Promissory Notes Issued on December 6, 2023 |
On December 6, 2023 the Company entered into a
Securities Purchase Agreement and issued and sold to Mast Hill, a Promissory Note in the principal amount of $
The Company paid to Spencer Clarke LLC a cash
fee of $
| (j) | Promissory Notes Issued on January 24, 2024 |
On January 24, 2024 the Company entered into a
Securities Purchase Agreement, and issued and sold to Mast Hill a Promissory Note in the principal amount of $
| (k) | Promissory Notes Issued on March 13, 2024 |
On March 13, 2024, the Company entered into a
Securities Purchase Agreement, and issued and sold to Mast Hill a Promissory Note in the principal amount of $
| (l) | Promissory Notes Issued on May 9, 2024 |
On May 9, 2024, the Company consummated transactions
pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) dated as of May 5, 2024 (the “Effective Date”)
and issued and sold to Mast Hill Fund, L.P., a Promissory Note (the “Note”) in the principal amount of $
F-20
Fourth Man, LLC Promissory Notes (Fourth Man Notes)
| (a) | Promissory Notes Issued on June 29, 2023 |
On June 29, 2023, the Company the Company entered
into a Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth Man”), a Promissory Note (the “Note”)
in the principal amount of $
The Company paid to J.H. Darbie & Co., Inc.
$
The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.
| (b) | Promissory Notes Issued on August 28, 2023 |
On August 28, 2023, the Company entered into a
Securities Purchase Agreement and issued and sold to Fourth Man, LLC (“Fourth Man”), a Promissory Note (the “Note”)
in the principal amount of $
The Company paid to J.H. Darbie & Co., Inc.
$
The maturity date of the Note is the 12-month anniversary of the Effective Date, and is the date upon which the principal amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.
Amendment to Fourth Man Promissory Notes.
On February 1, 2024, Fourth Man and NGTF entered
into a letter agreement whereby Fourth Man agreed to amend that certain promissory note in the principal amount of $
| $ | ||||
| Loss on extinguishment | $ |
The Company evaluated all of these associated financial instruments in accordance with ASC 815 Derivatives and Hedging. Based on this evaluation, the Company has determined that no provisions required derivative accounting.
F-21
In accordance with ASC 470- Debt, the proceeds of issuance is first allocated among the convertible instrument and the other detachable instruments based on their relative fair values.
| Principal $ | Debt Discount $ | Net Value $ | ||||||||||
| Balance at June 30, 2022 | ||||||||||||
| Promissory notes payable issued | ||||||||||||
| Principal increased due to MNF (September 23, 2022 Note) | ||||||||||||
| Principal converted to common stock | ( | ) | ( | ) | ||||||||
| Debt discount associated with Promissory notes | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ||||||||||||
| Balance at June 30, 2023 | ( | ) | ||||||||||
| Promissory notes payable issued | ||||||||||||
| Promissory notes amended | ||||||||||||
| Debt discount associated with Promissory notes | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ||||||||||||
| Balance at June 30, 2024 | $ | $ | ( | ) | $ | |||||||
| For twelve months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Amortization | $ | $ | ||||||
| Interest on the convertible notes | ||||||||
| Total | $ | $ | ||||||
As of June 30, 2024 and June 30, 2023, the interest
payable was $
As a result of dilutive issuances during the period
the exercise price of all of the aforementioned convertible notes has been reset subsequent to the period to $
10. Capital Stock Activity
Common Stock
The Company is authorized to issue Two Hundred
Million (
F-22
On October 24, 2022, the Company launched
a Tier 2 offering pursuant to Regulation A (also known as “Regulation A+”) with the intent to raise capital through an equity
crowdfunding campaign. The Company is offering (this “Offering”) up to
| ● | The Company had |
During the Fiscal Year ended June 30, 2024:
| ● | The Company issued |
| ● | The Company issued |
| ● | The Company issued |
| ● | The Company issued |
During the Fiscal Year ended June 30, 2023:
| ● | The Company issued |
| ● | The Company issued |
| ● | The Company issued |
| ● | The Company issued an aggregate of |
| ● | The Company issued |
| ● | The Company issued an aggregate of |
| ● | The Company sold |
| ● | The Company issued |
| ● | The Company issued | |
| ● | Holders of the B Preferred converted | |
| ● | The Company issued an aggregate of | |
| ● | The Company issued |
F-23
Preferred Stock
| ● | The Company had |
| ● | The Company had |
| ● | The Company had |
| ● | The Company had |
Series A Preferred Stock
The Company is authorized to issue
During the fiscal year ended June 30, 2024 the
former holder of the
The Company had
Series B Preferred Stock
In April 2021, the Company designated
During the fiscal years ended June 30, 2023 and
2022, the Company sold
During the fiscal year ended June 30, 2023, holders
of the B Preferred converted
The Company had
Series C Preferred Stock
On January 26, 2024, NGTF filed a Certificate
of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”), which
established
On February 7, 2024, the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C Preferred Stock”) of Nightfood Holdings, Inc. (“NGTF”) was amended (the “Amended Series C COD”) by revising Section G to include a provision for adjustments for reverse stock splits. Pursuant to the Amended Series C COD, if the corporation at any time combines its outstanding shares of common stock into a smaller number of shares, then the number of shares of common stock issuable upon conversion of the Series C Preferred Stock pursuant to Section G(a) shall be proportionately decreased. No other changes were made.
F-24
The Company issued
The Company had
Series D Preferred Stock
On February 7, 2024, NGTF filed a Certificate
of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D COD”), which
established
The Company issued
The Company had
Dividends
The Company has never declared dividends, however
as set out below, during the fiscal year ended June 30, 2022 and 2021, upon issuance of a total of
In connection with certain conversion terms provided
for in the designation of the B Preferred, pursuant to which each share of B Preferred is convertible into
11. Warrants
The following is a summary of the Company’s outstanding common stock purchase warrants.
During the fiscal year ended June 30, 2022, holders
of the Company’s B Preferred converted
During the fiscal year ended June 30, 2022,
During the fiscal year ended June 30, 2022, the
Company entered into a warrant agreement with one of the Company’s Directors issuing
During the fiscal year ended June 30, 2022, the
Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up Agreement”), with Mr.
Folkson, issuing
During the fiscal year ended June 30, 2023, holders of the Company’s
B Preferred converted
F-25
During the fiscal year ended June 30, 2023 the Company issued a cumulative
During the fiscal year ended June 30, 2023, the
Company issued an aggregate of
During the fiscal year ended June 30, 2023, the
Company entered into a warrant agreement with one of the Company’s Directors for the issuance of
During the fiscal year ended June 30, 2023, the
Company entered into an Agreement For Shareholder Lock-Up And Acquisition of Warrants (the “Lock-Up Agreement”), with Mr.
Folkson, issuing
During the fiscal year ended June 30, 2023, the
Company issued
During the fiscal year ended June 30, 2023, the Company issued an aggregate
of
During the fiscal year ended June 30, 2023, the Company issued
During the fiscal year ended June 30, 2023, under
the terms of a Warrant Exchange Agreement, among other agreements, SC exchanged an aggregate of
During the fiscal year ended June 30, 2024, the
Company issued cumulative
F-26
During the fiscal year ended June 30, 2024,
During the fiscal year ended June 30, 2024, a
total of
During the fiscal year ended June 30, 2024, a
total of
| Exercise Price | June 30, 2023 | Issued | Repricing | Exercised | Others | Cancelled | Expired | Redeemed | June 30, 2024 | |||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||||
| $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||||
| $ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||||||||||||||
| ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
Returnable Warrants
A cumulative total of
During the fiscal year ended June 30, 2023, the Company issued cumulative
Any expense related to such warrants will be recorded in a future reporting
period and only in the event the Company defaults on certain debt obligations. These returnable warrants were initially valued using the
Black Scholes model with a volatility of between
F-27
12. Commitments and Contingencies:
| ● | The Company has entered into certain consulting agreements which carry commitments to pay advisors and consultants should certain events occur. An agreement is in place with one Company Advisor that calls for total compensation over the four-year Advisor Agreement of |
| ● | On July 7, 2023, the Company entered into a Letter of Engagement with Spencer Clarke LLC (“SC”). Under the terms of the agreement SC was retained to act as the Company’s “Exclusive” Placement Agent in connection with any Capital/Debt Raise, warrant exercise, (“Financings”) and for any Sale, Joint Venture, Merger, Acquisition or transaction (“M&A Transactions”) or any other financially structured corporate activity, collectively (“Corporate Finance Activity”). On signing of the agreement, the Company issued
| |
| ● | Sean Folkson has a consulting agreement entered into on February 2,
2024 and effective as of December 1, 2023 and runs through December 31, 2024. The agreement contains the potential for cash
and equity bonuses should Nightfood, Inc. achieve certain revenue milestones. The Cash Performance Bonus shall be equal to |
| ● | Shares and warrants issuable for directors’ fees: As set out in Note 13 below, the Company has accrued total compensation for directors in the amount of $ |
| ● | Litigation: From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. |
13. Related Party Transactions
| June 30, 2024 | June 30, 2023 | |||||||
| Sean Folkson consulting fees payable | $ | $ | ||||||
| Directors’ fees payable | ||||||||
| Accrued compensation payable with shares and warrants (unissued) | ||||||||
| Lei Sonny Wang consulting fees payable | ||||||||
| Sean Folkson loan (principal $ | ||||||||
| Lei Sonny Wang, reimbursable expenses | ||||||||
| Total related party payable | $ | $ | ||||||
F-28
Twelve Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Sean Folkson | $ | $ | ||||||
| Directors’ fees and compensation for non-employee directors | ||||||||
| Lei Sonny Wang | ||||||||
| Total fees under professional fees | $ | $ | ||||||
On February 2, 2024, Sean Folkson resigned as chief executive officer of NGTF and Lei Sonny Wang was appointed Chief Executive Officer and a director.
Agreements with Mr. Folkson
Sean Folkson has a consulting agreement (the “Consulting Agreement”)
entered into on February 2, 2024 and effective as of December 1, 2023 and runs through December 31, 2024 Pursuant to the Consulting Agreement,
Mr. Folkson will (1) continue to serve as a director of NGTF, subject to shareholder approval, for no less than the company’s first
twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur, during which time both NGTF and its board of directors
(the “Board”) will use its best effort to maintain Mr. Folkson’s directorship and (2) will serve as president of Nightfood,
Inc. until December 31, 2024, which may date be extended. Mr. Folkson will receive cash and equity compensation as a director commensurate
with the compensation received by other directors. Unless either party provides the other written notice at least 45 days before the end
of the Consulting Agreement’s term of its intention to terminate, then the Consulting Agreement will renew automatically for one-year
terms. The Consulting Agreement can be terminated for cause without notice. Upon termination of the Consulting Agreement for any reason,
Mr. Folkson will receive NGTF common stock with a market value equal to $
In exchange for his services, Mr. Folkson will
receive a minimum annual salary of $
Agreements with Mr. Wang
In connection with Mr. Lei Sonny Wang’s appointment as chief
executive officer, NGTF and Mr. Wang entered into an employment agreement effective as of February 2, 2024 (the “Employment Agreement”).
Pursuant to the Employment Agreement, Mr. Wang will serve his initial term beginning February 2, 2024 (the “Effective Date”)
ending on the earlier of (i) the one-year anniversary of the Effective Date or (ii) the termination of the Employment Agreement (the “Initial
Term”). The Initial Term will be automatically extended for additional one-year terms (each a “Renewal Term”), unless
NGTF or Mr. Wang provides the other with notice, at least 30 days prior to the expiration of the current term, of its desire not to renew
the Employment Agreement. For his services, Mr. Wang will receive an annual base salary of $
F-29
The Employment Agreement may be terminated with or without cause by NGTF and may be terminated with or without good reason by Mr. Wang. If NGTF terminates the agreement for cause, then NGTF will (i) pay Mr. Wang any unpaid Base Salary, benefits and any unreimbursed expenses within 10 days after the termination date; (ii) any unvested portion of equity granted to Mr. Wang through any agreement, including restricted stock awards, will be automatically forfeited; and (iii) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. If NGTF terminates the agreement without cause, then NGTF will (i) pay Mr. Wang any Base Salary or other amounts accrued and any unreimbursed expenses incurred within 10 days following the termination date; (ii) pay Mr. Wang a lump sum equal to the Base Salary that would have been paid to Mr. Wang for the remainder of the Initial Term or Renewal Term within 10 days of the termination; (iii) any grant of equity made to Mr. Wang, to the extent not vested, will automatically vest; and (iv) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. Should Mr. Wang terminate the Employment Agreement with good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated without cause. If Mr. Wang terminates the Employment Agreement without good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated with cause.
With regards to intellectual property, Mr. Wang has agreed that any work product resulting from the Employment Agreement will be the sole and exclusive property of NGTF and has irrevocably assigned all right, title and interest worldwide in and to any work product to NGTF. NGTF may also sublicense any work product resulting from the Employment Agreement.
14. Income Tax
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Statutory U.S. federal rate | ( | )% | ( | )% | ||||
| State income taxes (net of federal tax benefit) | ( | )% | ( | )% | ||||
| Permanent differences | % | % | ||||||
| Valuation allowance | ( | )% | ( | )% | ||||
| % | % | |||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry-forwards | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
At June 30, 2024 the Company had estimated U.S.
federal net operating losses of approximately $
The Company may not be able to utilize the net
operating loss carryforwards for its US income taxes in future periods should it experience a change in ownership as defined in Section
382 of the Internal Revenue Code (“IRC”). Under section 382, should the Company experience a more than
F-30
As of June 30, 2024 and 2023 the Company had not performed an analysis to determine if the Company was subject to the provisions of Section 382. The Company is subject to U.S. federal income tax including state and local jurisdictions. Currently, no federal or state income tax returns are under examination by the respective taxing jurisdictions.
The Company’s accounting policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company has not accrued interest for any periods.
The Company has not filed its federal and state income tax returns for the fiscal years ended June 30, 2024, 2023, 2022, 2021, 2020, 2019, 2018, 2017, and 2016, however it believes due to the reported losses there is no material liability outstanding.
15. Restatement of Fiscal Year 2023 Financial Statements
During the current year ended June 30, 2024, management identified a number of transactions that appeared to have been processed incorrectly in the prior fiscal period ended June 30, 2023. The impact of these transactions spanned various accounting topics, but were predominantly related to (1) insufficient impairment testing and provisions for impairment relative to inventory as of the year ended June 30, 2023, resulting in an overstatement of inventory as of the original report date, (2) timing of recognition of liabilities upon default of certain promissory notes in accordance with certain financing agreements resulting in an understatement of certain liabilities, and (3) certain other posting errors impacting cash, accounts receivable and accounts payable. In assessing whether the identified adjustments should be processed as prior period errors or recognized in the current period, management considered whether the facts that gave rise to the adjustments existed in prior years, or whether those events only arose due to information that came to light in the current year. The 2023 consolidated Annual Financial Statements and the consolidated statement of financial position as at June 30, 2023 have been restated to correct the prior period errors. A brief explanation of errors is provided below, following which an analysis is included of the financial impact on the affected financial statement line items:
| June 30, 2023 (as reported) | Adjustment | Note | June 30, 2023 Restated | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash and cash equivalents | $ | $ | (1) | $ | ||||||||||||
| Accounts receivable | ( | ) | (1) | |||||||||||||
| Inventory | ( | ) | (2) | |||||||||||||
| Other current assets | ||||||||||||||||
| Total current assets | ( | ) | ||||||||||||||
| Total assets | $ | $ | ( | ) | $ | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable and accrued liabilities | ( | ) | (1) | |||||||||||||
| Accounts payable and accrued liabilities - related party | ||||||||||||||||
| Convertible notes payable - net of discounts | (3) | |||||||||||||||
| Total current liabilities | ||||||||||||||||
| Total liabilities | ||||||||||||||||
| Stockholders’ equity (deficit) | ||||||||||||||||
| Series A Stock, $ | ||||||||||||||||
| Series B Stock, $ | ||||||||||||||||
| Common stock, $ | ||||||||||||||||
| Additional paid in capital | ||||||||||||||||
| Accumulated deficit | ( | ) | ( | ) | (1)~(3) | ( | ) | |||||||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ( | ) | $ | |||||||||||
F-31
| June 30, 2023 (As reported) | Adjustment | June 30, 2023 Restated | ||||||||||||||
| Revenues, net of slotting and promotion | $ | $ | $ | |||||||||||||
| Operating expenses | ||||||||||||||||
| Cost of product sold | ( | ) | (1) | |||||||||||||
| Advertising and promotional | ( | ) | (1) | |||||||||||||
| Selling, general and administrative expense | (2) | |||||||||||||||
| Professional fees | ( | ) | (1) | |||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense - debt | ( | ) | ( | ) | (1) | ( | ) | |||||||||
| Interest expense – financing cost | ( | ) | ( | ) | (3) | ( | ) | |||||||||
| Amortization of debt discount | ( | ) | ( | ) | ||||||||||||
| Gain (loss) on debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Adjustments
The following is a description of the areas in which the errors were identified and for which we made correcting adjustments to our June 30, 2023 Consolidated Financial Statements. The associated income tax expense or benefit has also been corrected.
| (1) |
| (2) |
| (3) |
F-32
16. Subsequent Events
On July 22, 2024, the Company and Fourth Man,
LLC (“Noteholder”) entered into a letter agreement to amend that certain promissory note in the principal amount of $
During the period beginning on July 23, 2024,
and continuing through the new maturity date of
On September 10, 2024, the Company announced the closing of its strategic all-stock acquisition of SWC Group Inc., doing business as CarryoutSupplies.com (“CarryOut”). CarryOut is a leading wholesaler and distributor of custom takeout packaging for the foodservice industry, with traditional, biodegradable and compostable options. Subsequently, on December 10, 2024 the Company, Future Hospitality Ventures Holdings, Inc., SWC Group, Inc., and Sugarmade, Inc. entered into and amendment (the “Amendment”) which modified certain terms of the Share Exchange Agreement dated September 4, 2024 (the “Agreement”). The Amendment modifies the method for calculating the number of shares to be issued under the Agreement. Under the revised terms, the share issuance will be determined based on the 90-day Volume Weighted Average Price (VWAP) of the Company’s common stock as of December 4, 2024. As of the date of this report the transaction had not yet closed.
On September 23, 2024, we raised additional gross
proceeds, net of original issuance discount, of $
On October 1, 2024 the Company announced that it has signed a Letter of Intent (LOI) to acquire Stratford Education Group Inc., doing business as the Los Angeles Cooking School. The Company’s relationship with Stratford at this time is that of a joint venture and the acquisition is now anticipated to complete in the second half of calendar 2025 to allow time for some financial and operational restructuring within Stratford prior to acquisition.
On November 27, 2024, the Board of Directors accepted the resignations of Dr. Thanuja Hamilton and Ms. Nisa Amoils from the Board, effective immediately.
Subsequent to the year ended June 30, 2024 Company issued
The Company has evaluated events for the period through the date of the issuance of these financial statements and determined that there are no additional events requiring disclosure.
F-33
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
On April 12, 2024, the Company dismissed GreenGrowth CPAs Inc. (“GreenGrowth”) as its independent registered public accountancy firm, and engaged Fruci & Associates II, PLLC as the Company’s new independent registered public accounting firm.
The board of directors of the Company, acting as the audit committee, approved the decision to change the Company’s independent accountants.
For the period from engagement with GreenGrowth on November 7, 2023 through April 12, 2024, the Company had no disagreements with GreenGrowth (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures. GreenGrowth did not issue any reports with respect to the fiscal year end for the Company as of April 12, 2024.
During the two most recent fiscal quarters and through April 12, 2024, the Company did not experience any reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K), except that management of the Company discussed with GreenGrowth the continued existence of material weaknesses in the Company’s internal control over financial reporting.
During the Company’s fiscal year ending June 30, 2023 and 2022, respectively, and through April 12, 2024, neither the Company nor anyone on the Company’s behalf consulted with GreenGrowth regarding any of the following:
(i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that GreenGrowth concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
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:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; |
17
| ● | 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 |
| ● | 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. |
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, 2024 due to the lack of full-time accounting and management personnel, and personnel with advanced knowledge of financial accounting. 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.
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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, 2024. 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, 2024, our internal control over financial reporting was not effective due to a lack of resources. In addition to those deficiencies noted above, management identified material weaknesses in our internal control over financial reporting for the fiscal year ended June 30, 2024 included an inability to complete a timely closing of financial reports, including gathering of the underlying data to create such reports, ineffective policies with respect to closing procedure and a lack of independent oversight with respect to our closing process.
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.
Item 9B.
On November 27, 2024, the Board of Directors accepted the resignations of Dr. Thanuja Hamilton and Ms. Nisa Amoils from the Board, effective immediately. The resignations were submitted to facilitate the allocation of two Board seats to SWC Group, Inc. (“SWC”) in connection with the Company’s recent acquisition of SWC. Neither Dr. Hamilton nor Ms. Amoils resigned due to any disagreement with the Company on any matter relating to its operations, policies, or practices.
On September 23, 2024, the Company entered into a Senior Secured Promissory Note (the “Mast Hill Note”) with Mast Hill. Under the terms of the Mast Hill Note, the Company received $402,050.00 in proceeds, which includes an original issue discount of $70,950.00, bringing the total principal amount to $473,000.00. The Mast Hill Note accrues interest at an annual rate of fifteen percent (15%), with a maturity date of September 23, 2025.
The Mast Hill Note includes a conversion feature whereby the principal amount and any accrued interest (including default interest, if applicable) may be converted into shares of the Company’s Common Stock at a conversion price of $0.033 per share, subject to adjustment as specified in the Mast Hill Note. Should any amount under the Mast Hill Note remain unpaid after the maturity date or upon a default, the Mast Hill Note stipulates a default interest rate of the lesser of twenty-four percent (24%) per annum or the maximum amount permitted by law. Interest, including any potential default interest, is calculated based on a 365-day year and actual days elapsed.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
19
PART III.
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth the name, age and position of each of our executive officers and directors as of the date of this report:
| Name | Age | Position | ||
| Lei Sonny Wang | 45 | Director, CEO, President, Secretary, Treasurer | ||
| Sean Folkson | 55 | Director | ||
| Thomas Morse | 55 | Director |
Background of Executive Officers and Directors
Lei Sonny Wang
Lei Sonny Wang, 44, founded and has served as chief executive officer of Future Hospitality Ventures Holdings Inc., a service robots distribution company to address operational inefficiencies in the hospitality industry, since October 28, 2023. On October 17, 2017, Mr. Wang established, and acted as executive director of, Intelligent Ventures Group Inc., which specializes in scaling and reviving California’s early-stage and distressed small businesses through turnkey management. On March 1, 2019, Mr. Wang joined Tri Cascade Inc. as the Executive Director of Business Development, an early-stage IoT device manufacturing and smart device development company focusing on deploying Outdoor Air Quality Monitor applications to address high-density urban air population concerns. On March 2, 2020, Mr. Wang joined Komfort IQ as the Chief Revenue Officer, an IoT startup enhancing energy efficiency in commercial office spaces by up to 60%. On January 5, 2022, Mr. Wang joined Retrofitek Inc., a startup distribution company innovating in the HVAC sector with energy-saving coating technologies, as the interim CEO. Mr. Wang studied Political Science at the University of California, Santa Barbara, and obtained degrees in Consumer Behavior and Business Administration from the University of North Texas. Mr. Wang’s history in managing, launching, and growing companies that address critical challenges uniquely positions him as a qualified board member. NGTF believes that Mr. Wang’s strategic vision, combined with his operational experience, will contribute to creative problem-solving, business development, fundraising, and overall management.
Sean Folkson
Sean Folkson was elected president, CEO and a director upon formation of the Company. Sean Folkson has been CEO and President of our subsidiary Nightfood, Inc., a New York corporation, since its formation in January 2010. From 2004 to 2009 he served as president of Specialty Equipment Direct, Inc. which is an online marketer of flooring maintenance equipment which he founded. In 1998 he founded AffiliatePros.com, Inc., a company engaged in assisting its clients with internet marketing which operated through 2008. Mr. Folkson received a B.A. in Business Administration with a concentration in marketing from S.U.N.Y Albany in 1991.
Thomas Morse
Mr. Morse was appointed as a director on August 16, 2021. Mr. Morse was co-founder and original President of 5-Hour Energy (Living Essentials, LLC) Mr. Morse has served as the manager of Liquid OTC LLC (doing business as LOL), a company specializing in functional candy and oral care products, since January 2011. In addition, he has served since August 2005 as the manager of Alina Healthcare Products, LLC, a consumer-packaged goods development and distribution company. From July 2014 through October 2019, Mr. Morse was the Founder and CEO of Strategy & Execution Inc., a consumer-packaged goods development and distribution company. From May 1999 through December 2005, Mr. Morse served as the President of Living Essentials LLC, the parent company of both 5-Hour Energy and Chaser. He was responsible for the development and launch of those brands, including implementation of sales & marketing strategies to build brands in new categories, the national retail rollout of the product lines, and the recruitment and development of the core management team. He holds a B.A. from Michigan State University with a major in accounting/business. The Company believes that Mr. Morse is qualified as a Board member of the Company because of his management, marketing and business development skills in the consumer goods industry, and his experience as founder of 5-Hour Energy.
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Term and Family Relationships
Our directors currently have terms which will end at our next annual meeting of the stockholders or until successors are elected and qualify, subject to their prior death, resignation or removal. Officers serve at the discretion of the Board of Directors.
No family relationships exist among our officers, directors and consultants.
Legal Proceedings
To the best of our knowledge, no officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management.
Code of Ethics
We have determined that due to our early stage of development and our small size, the present adoption of a code of ethics is not appropriate. If we grow we will adopt a suitable code of ethics.
CORPORATE GOVERNANCE
Board of Directors
During the fiscal year ended June 30, 2024, Mr. Lei Sonny Wang was appointed to our Board of Directors.
On November 27, 2024, the Board of Directors accepted the resignations of Dr. Thanuja Hamilton and Ms. Nisa Amoils from the Board, effective immediately. The resignations were submitted to facilitate the allocation of two Board seats to SWC Group, Inc. (“SWC”) in connection with the Company’s recent acquisition of SWC. Neither Dr. Hamilton nor Ms. Amoils resigned due to any disagreement with the Company on any matter relating to its operations, policies, or practices.
Committees
Our board of directors does not currently have an audit committee, compensation committee or nominating and corporate governance committee.
The board of directors does not have an audit committee financial expert. The board of directors has not yet recruited an audit committee financial expert to join the board of directors.
Director Independence
We use the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship, which, in the opinion of the Company’s Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | The director is, or at any time during the past three years was, an employee of the company; |
| ● | The director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of twelve consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
| ● | The director or a family member of the director is, or at any time during the past three years was, an executive officer of the company; |
| ● | The director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
| ● | The director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or |
| ● | The director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit. |
Under such definitions, as of June 30, 2024, Ms. Amoils, Dr. Hamilton and Mr. Morse were considered independent directors.
21
Section 16(a) Beneficial Ownership of Reporting Compliance
Section 16(a) of the Securities Exchange Act requires officers and directors, and persons who beneficially own more than ten (10%) percent of a class of equity securities registered pursuant to Section 12 of the Exchange Act, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the principal exchange upon which such securities are traded or quoted. Reporting Persons are also required to furnish copies of such reports filed pursuant to Section 16(a) of the Exchange Act with the Company.
Since the Company does not have securities registered under Section 12 of the Exchange Act, its directors and officers are not required to file Form 4 reports.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cash annual remuneration of our executive officers during our past two fiscal years:
| Name and Principal Position | Year(1) | Fees earned or paid in cash | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||||
| Sean Folkson,(2) | 2024 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 100,000 | |||||||||||||||||||
| Former CEO & Director | 2023 | $ | 72,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 4,800 | $ | 76,800 | |||||||||||||||||||
| Lei Sonny Wang | 2024 | $ | 50,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 50,000 | |||||||||||||||||||
| CEO(3) and Director | 2023 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||
| (1) | “2024” represents the fiscal year ended June 30, 2024 and “2023” represents the fiscal year ended June 30, 2023. |
| (2) | For the fiscal year ended June 30, 2023, Mr. Folkson invoiced $72,000 in cash compensation. On February 4, 2023 Mr. Folkson received a stock purchase warrant for the purchase of 400,000 shares at $0.30 for a term of one year valued at $4,800 which expired unexercised. On February 2, 2024 Mr. Folkson resigned as CEO. During the fiscal year ended June 30, 2024, Mr. Folkson invoiced cash compensation of $100,000. |
| (3) | Lei Sonny Wang was appointed CEO and director on February 2, 2024. Mr. Wang invoiced $50,000 as consulting fees for fiscal 2024. |
Outstanding Equity Awards
No grants of stock options or stock awards were made during the fiscal year ended June 30, 2023 and 2024 to our named executive officers other than stock awards as set out below under “Director Compensation”. We have no stock options outstanding.
Long Term Incentive Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We do not have any material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers.
Director Compensation
Starting in Fiscal Year 2022, we commenced paying our independent directors a cash fee of $3,000 on a quarterly basis. In addition, upon their appointment, each of our independent directors is entitled to an annual grant of either restricted stock or warrants to purchase common stock, based on the closing price of our common stock on the date of the grant. Accordingly, our independent directors were granted different amounts of securities depending on when they were appointed due to fluctuations in our stock price.
22
The following table below sets forth the compensation earned by our directors a for service on our Board of Directors during the years ended June 30, 2024 and 2023:
| Name | Fees earned or paid in cash $ | Stock Awards $ | Option Award $ | Non-Equity Incentive Plan Compensation $ | Nonqualified Deferred Compensation Earnings $ | All Other Compensation $ | Total $ | |||||||||||||||||||||
| 2024 | ||||||||||||||||||||||||||||
| Thanuja Hamilton, MD(5) | 12,000 | 16,000 | (1) | – | – | – | – | 28,000 | ||||||||||||||||||||
| Nisa Amoils(5) | 12,000 | – | – | – | – | 2,500 | (2) | 14,500 | ||||||||||||||||||||
| Thomas Morse | 12,000 | 16,000 | (1) | – | – | – | – | 28,000 | ||||||||||||||||||||
| Sean Folkson | 6,000 | 8,000 | (1) | – | – | – | – | 14,000 | ||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||||
| Thanuja Hamilton, MD(5) | 12,000 | 14,640 | (4) | – | – | – | – | 26,640 | ||||||||||||||||||||
| Nisa Amoils(5) | 12,000 | – | – | – | – | 10,500 | (3) | 22,500 | ||||||||||||||||||||
| Thomas Morse | 12,000 | 14,962 | (4) | – | – | – | – | 26,962 | ||||||||||||||||||||
| (1) | Represents cash value of unissued stock awards under terms of agreement for annual service as a director. Refer to ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
| (2) | Represents fair value of 100,000 5-year warrants issued October 1, 2023 which vest quarterly through June 30, 2024 and are exercisable at $0.0425 per share |
| (3) | Represents fair value of 100,000 5-year warrants issued October 1, 2022 which vest quarterly through June 30, 2023 and are exercisable at $0.1250 per share |
| (4) | Fair market value of common shares issued for $16,000 in stock awards issued for service in fiscal 2023 |
| (5) | Resigned effective November 27, 2024. |
Employment/Consulting Agreements
Folkson
On February 2, 2024, Mr. Folkson, NGTF and Nightfood, Inc. entered into a consulting agreement (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Folkson will (1) continue to serve as a director of NGTF, subject to shareholder approval, for no less than the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur, during which time both NGTF and its board of directors will use its best effort to maintain Mr. Folkson’s directorship and (2) will serve as president of Nightfood, Inc. until December 31, 2024, which may date be extended. Mr. Folkson will receive cash and equity compensation as a director commensurate with the compensation received by other directors. Unless either party provides the other written notice at least 45 days before the end of the Consulting Agreement’s term of its intention to terminate, then the Consulting Agreement will renew automatically for one-year terms. The Consulting Agreement can be terminated for cause without notice. Upon termination of the Consulting Agreement for any reason, Mr. Folkson will receive NGTF common stock with a market value equal to $125,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned as of the termination. Additionally, if the Consulting Agreement is terminated prior to December 31, 2024, then Mr. Folkson will be entitled to continue to receive his Base Salary from the termination date until December 31, 2024. If Mr. Folkson is removed as a director of NGTF earlier than one year after NGTF’s successful uplist to any national securities exchange, then he will receive NGTF common stock with a market value equal to $500,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned on the date he was removed from the Board.
In exchange for his services, Mr. Folkson will receive a minimum annual salary of $120,000, payable monthly. Mr. Folkson will be paid $6,000 per month of his Base Salary until NGTF completes a capital raise of not less than $1,000,000 or Nightfood, Inc. develops a monthly positive cash flow greater than $10,000. Until the Financial Conditions are met, any unpaid portion of the Base Salary will accrue. Nightfood, Inc. and NGTF have agreed that the entirety of the Base Salary will accrue between December 1, 2023 and February 29, 2024. The payments of $6,000 will begin on March 1, 2024. Upon meeting the Financial Conditions or successfully uplisting to NASDAQ, the parties will create a payment schedule to ensure payment of the full salary and accrued income within three to nine months, including $57,000 in consulting fees owed to Mr. Folkson as of November 1, 2023 pursuant to a consulting agreement dated December 27, 2021 between Mr. Folkson and NGTF. Mr. Folkson will be entitled to cash and equity bonuses based on certain conditions, beginning with the three-month period ending March 31, 2024 and quarterly thereafter. The cash bonus will equal 2% of Nightfood, Inc.’s revenues, including royalties, during the quarterly period, which will be paid no later than 15 days after the close of the quarterly period to which it relates. The equity bonus will be paid in any quarter where gross Nightfood, Inc. revenues exceed $250,000, commencing with the three-month period ending March 31, 2024 and quarterly thereafter. The equity bonus will be paid in NGTF common stock with a market value equal to 10% of gross quarterly revenues for the applicable period, based on the average closing price for the last 10 trading days. Such stock shall be deemed fully earned as of the last day of the applicable quarter and issued within 30 days of the end of the quarter. The cash and equity bonuses will be paid during the term of the Consulting Agreement and for 36 months afterward. Should NGTF sell all shares of Nightfood, Inc., its business, or any rights to any other party to manufacture, market, and distribute products under the Nightfood brand name, then Mr. Folkson will receive a cash bonus equal to 2% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received and an equity bonus equal to 10% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received (the “Sale Bonus”). The Sale Bonus will be paid with respect to any transaction during the term of the Consulting Agreement or that is consummated within 36 months thereafter.
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Wang
In connection with Mr. Lei Sonny Wang’s appointment as chief executive officer, NGTF and Mr. Wang entered into an employment agreement effective as of February 2, 2024. Pursuant to the Employment Agreement, Mr. Wang will serve his initial term beginning February 2, 2024 (the “Effective Date”) ending on the earlier of (i) the one year anniversary of the Effective Date or (ii) the termination of the Employment Agreement. The Initial Term will be automatically extended for additional one-year terms, unless NGTF or Mr. Wang provides the other with notice, at least 30 days prior to the expiration of the current term, of its desire not to renew the Employment Agreement. For his services, Mr. Wang will receive an annual base salary of $120,000, payable monthly beginning on the Effective Date. Until NGTF completes an additional two mergers and a capital raise in excess of $1,000,000 gross proceeds, or NGTF has financial capabilities to support the Base Salary, Mr. Wang will be paid $6,000 per month of the Base Salary, and the unpaid portion of the Base Salary will accrue.
The Employment Agreement may be terminated with or without cause by NGTF and may be terminated with or without good reason by Mr. Wang. If NGTF terminates the agreement for cause, then NGTF will (i) pay Mr. Wang any unpaid Base Salary, benefits and any unreimbursed expenses within 10 days after the termination date; (ii) any unvested portion of equity granted to Mr. Wang through any agreement, including restricted stock awards, will be automatically forfeited; and (iii) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. If NGTF terminates the agreement without cause, then NGTF will (i) pay Mr. Wang any Base Salary or other amounts accrued and any unreimbursed expenses incurred within 10 days following the termination date; (ii) pay Mr. Wang a lump sum equal to the Base Salary that would have been paid to Mr. Wang for the remainder of the Initial Term or Renewal Term within 10 days of the termination; (iii) any grant of equity made to Mr. Wang, to the extent not vested, will automatically vest; and (iv) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. Should Mr. Wang terminate the Employment Agreement with good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated without cause. If Mr. Wang terminates the Employment Agreement without good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated with cause.
With regards to intellectual property, Mr. Wang has agreed that any work product resulting from the Employment Agreement will be the sole and exclusive property of NGTF and has irrevocably assigned all right, title and interest worldwide in and to any work product to NGTF. NGTF may also sublicense any work product resulting from the Employment Agreement.
Termination of Employment
Other than disclosed herein, there are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the Summary Compensation Table set forth above that would in any way result in payments to any such person because of his or her resignation, retirement or other termination of such person’s employment with us.
Limits on Liability and Indemnification
We provide directors and officers insurance for our current directors and officers.
Our by-laws provide that our company shall indemnify its officers and directors to the fullest extent allowed by law for any liability including reasonable costs of defense arising out of any act or omission of any officer or director on behalf of the company to the full extent allowed by the laws of the State of Nevada and any amendment to Nevada law, whether effected by the Nevada Revised Statutes or judicial decision or otherwise, which allows for further indemnification of officers or directors after the date of our by-laws automatically adopted by our company without further act. Insofar as indemnification for liabilities under the Securities Act may be permitted to our directors, officers, and controlling persons under the foregoing provisions or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
Family Relationships
There are no family relationships among any of our executive officers or directors.
Board Composition
Our business and affairs are managed under the direction of our board of directors, one of whom is considered independent. Our current directors will continue to serve as directors until their resignation, removal or successor is duly elected.
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Involvement in Certain Legal Proceedings
As of the filing of this Annual Report on Form 10-K, there are no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to an evaluation of the ability or integrity of any of our directors, director nominees or executive officers.
Committees of Our Board of Directors
Our board of directors has not established any committees. We do not currently have an audit committee.
Code of Business Conduct and Ethics
We have not yet adopted a Code of Business Conduct and Ethics.
Risk and Compensation Policies
We have analyzed our compensation programs and policies to determine whether those programs and policies are reasonably likely to have a material adverse effect on us.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information in the following table sets forth the beneficial ownership of our shares of common stock as of December 27, 2024 by: (i) our officers and directors; (ii) all officers and directors as a group; (iii) each shareholder who beneficially owns more than 5% of any class of our voting securities, including those shares subject to outstanding options.
The number of shares beneficially owned by each person, director, director nominee, or named executive officer is determined under rules of the SEC; this information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares for which the individual has sole or shared voting power or investment power and also any shares with respect to which the person has the right to acquire sole or shared voting or investment power on or before February 25, 2025 (60 days after December 27, 2024) through the conversion of shares of convertible preferred stock or the exercise of any stock option, warrant or other right. The percentage of common stock beneficially owned is based on 128,957,407 shares issued and outstanding as of December 27, 2024. Unless we indicate otherwise, each person has sole investment and/or voting power with respect to the shares set forth in the following tables.
Unless otherwise indicated, the address for each person listed below is:
c/o Nightfood Holdings, Inc.,
520 White Plains Road – Suite 500,
Tarrytown, NY 10691.
| Title of Class | Name and address of owner | Amount owned | Percent of class | |||||||
| Series A Preferred | Sonny Lei Want | 1,000 | (1) | |||||||
| Common | Sean Folkson | 17,270,087 | (2) | 13.40 | % | |||||
| Common | Tom Morse | 1,110,349 | (3) | * | ||||||
| All officers and directors as a group (3 persons) | 18,380,436 | 14.25 | % | |||||||
| * | Less than 1%. |
| (1) | Shares of Series A Preferred Stock have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1). Excluded from total for common stock owned by officers and directors as a group. |
| (2) | Includes 493,443 shares with respect to director’s services in fiscal 2024 which are issuable but remain unissued as of report date. |
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Changes in Control
Our management is not aware of any arrangements which may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K other than as set out below in Item 13 - Transactions with Related Parties, where Mr. Lei Sonny Wang, became the Company’s controlling shareholder as a result of a transaction whereunder our former controlling shareholder, Mr. Sean Folkson, transferred 1,000 shares of the Company’s Series Super Voting A Preferred stock to Mr. Wang concurrent with the Company’s acquisition of Future Hospitality Ventures Holdings Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
We consider “related party transactions” to be transactions between our Company and (i) a director, officer, director nominee or beneficial owner of greater than five percent of our stock; (ii) the spouse, parents, children, siblings or in-laws of any person named in (i); or (iii) an entity in which one of our directors or officers is also a director or officer or has a material financial interest.
Our Board of Directors is vested with the responsibility of evaluating and approving any potential related party transaction, unless a special committee consisting solely of independent directors is appointed by the Board of Directors. We do not have any formal policies or procedures for related party transactions.
Director Independence
We have two independent directors, Dr. Thanuja Hamilton and Thomas Morse.
Transactions with Related Parties
On January 22, 2024, the Company, Future Hospitality Ventures Holdings Inc., a Nevada corporation, Sean Folkson as the holder of all issued and outstanding Series A Preferred Stock of NGTF (the “NGTF Series A Shareholder”) and Lei Sonny Wang, the sole shareholder of FHVH (the “FHVH Shareholder”) entered into a share exchange agreement (the “Exchange Agreement”) whereby NGTF agreed to acquire FHVH through a share exchange (the “Exchange”) whereby FHVH became a wholly-owned subsidiary of NGTF.
Pursuant to the Exchange Agreement, the FHVH Shareholder exchanged all 1,000 shares of common stock, $0.001 par value per share, of FHVH (the “FHVH Common Stock”) owned by him to NGTF for: (i) all 1,000 issued and outstanding shares of NGTF’s Series Super Voting A Preferred Stock held by the NGTF Series A Shareholder, and (ii) an aggregate of 13,333 newly issued shares of NGTF’s Series C Convertible Preferred Stock, each of which shall convert into 6,000 shares of common stock at $0.025 per share (the “Series C Preferred Stock”, and together with the Series A Super Voting Preferred Stock, the “NGTF Exchange Shares”). In addition, the conversion terms of the Super Voting A Preferred Stock were concurrently amended by replacing Section 1 to alter the voting structure of the Series A Preferred Stock. Pursuant to the Amended Series A Certificate of Designation, the shares of Series A Preferred Stock will have a number of votes equal to (i) the number of votes then held or entitled to be made by all other equity securities of NGTF plus (ii) one (1).
The Exchange Agreement was subject to certain closing conditions and contained customary representations, warranties and covenants. The consummation of the Exchange was conditioned upon, among other things: Sean Folkson resigning as the Chief Executive Officer of NGTF, continuing to serve as the President of Nightfood, Inc. through December 31, 2024, which may be extended, and continuing to serve as a director of NGTF through, at a minimum, the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur; and the appointment of Lei Sonny Wang as a director and Chief Executive Officer of NGTF. The parties at the time of the transaction were considered arm’s length and the exchange agreement was valued at fair market value at the time of the transaction.
The total consideration for the transaction is valued at $1,304,437 and aforementioned agreements closed on February 2, 2024.
Sean Folkson has a consulting agreement entered into on February 2, 2024 and effective as of December 1, 2023 and runs through December 31, 2024. The agreement contains the potential for cash and equity bonuses should Nightfood, Inc. achieve certain revenue milestones. The Cash Performance Bonus shall be equal to 2% of gross Nightfood, Inc. revenues, paid quarterly. The Equity Performance Bonus shall be paid in any quarter where gross Nightfood, Inc. revenues exceed $250,000 and shall be paid in stock equal to 10% of the gross quarterly revenues for the bonus period, based on the average closing priced for the last 10 trading days.
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On February 2, 2024, Mr. Folkson, NGTF and Nightfood, Inc. entered into a consulting agreement (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Folkson will (1) continue to serve as a director of NGTF, subject to shareholder approval, for no less than the company’s first twelve (12) months on the NASDAQ Capital Market should a successful uplisting occur, during which time both NGTF and its board of directors will use its best effort to maintain Mr. Folkson’s directorship and (2) will serve as president of Nightfood, Inc. until December 31, 2024, which may date be extended. Mr. Folkson will receive cash and equity compensation as a director commensurate with the compensation received by other directors. Unless either party provides the other written notice at least 45 days before the end of the Consulting Agreement’s term of its intention to terminate, then the Consulting Agreement will renew automatically for one-year terms. The Consulting Agreement can be terminated for cause without notice. Upon termination of the Consulting Agreement for any reason, Mr. Folkson will receive NGTF common stock with a market value equal to $125,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned as of the termination. Additionally, if the Consulting Agreement is terminated prior to December 31, 2024, then Mr. Folkson will be entitled to continue to receive his Base Salary from the termination date until December 31, 2024. If Mr. Folkson is removed as a director of NGTF earlier than one year after NGTF’s successful uplist to any national securities exchange, then he will receive NGTF common stock with a market value equal to $500,000 based on the average closing price for the last 10 trading days, which stock will be deemed fully earned on the date he was removed from the Board.
In exchange for his services, Mr. Folkson will receive a minimum annual salary of $120,000, payable monthly. Mr. Folkson will be paid $6,000 per month of his Base Salary until NGTF completes a capital raise of not less than $1,000,000 or Nightfood, Inc. develops a monthly positive cash flow greater than $10,000. Until the Financial Conditions are met, any unpaid portion of the Base Salary will accrue. Nightfood, Inc. and NGTF have agreed that the entirety of the Base Salary will accrue between December 1, 2023 and February 29, 2024. The payments of $6,000 will begin on March 1, 2024. Upon meeting the Financial Conditions or successfully uplisting to NASDAQ, the parties will create a payment schedule to ensure payment of the full salary and accrued income within three to nine months, including $57,000 in consulting fees owed to Mr. Folkson as of November 1, 2023 pursuant to a consulting agreement dated December 27, 2021 between Mr. Folkson and NGTF. Mr. Folkson will be entitled to cash and equity bonuses based on certain conditions, beginning with the three-month period ending March 31, 2024 and quarterly thereafter. The cash bonus will equal 2% of Nightfood, Inc.’s revenues, including royalties, during the quarterly period, which will be paid no later than 15 days after the close of the quarterly period to which it relates. The equity bonus will be paid in any quarter where gross Nightfood, Inc. revenues exceed $250,000, commencing with the three-month period ending March 31, 2024 and quarterly thereafter. The equity bonus will be paid in NGTF common stock with a market value equal to 10% of gross quarterly revenues for the applicable period, based on the average closing price for the last 10 trading days. Such stock shall be deemed fully earned as of the last day of the applicable quarter and issued within 30 days of the end of the quarter. The cash and equity bonuses will be paid during the term of the Consulting Agreement and for 36 months afterward. Should NGTF sell all shares of Nightfood, Inc., its business, or any rights to any other party to manufacture, market, and distribute products under the Nightfood brand name, then Mr. Folkson will receive a cash bonus equal to 2% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received and an equity bonus equal to 10% of the sale price and/or any royalties earned by NGTF or Nightfood, Inc. payable by NGTF in cash or as a percentage of any securities received (the “Sale Bonus”). The Sale Bonus will be paid with respect to any transaction during the term of the Consulting Agreement or that is consummated within 36 months thereafter.
In connection with Mr. Lei Sonny Wang’s appointment as chief executive officer, NGTF and Mr. Wang entered into an employment agreement effective as of February 2, 2024. Pursuant to the Employment Agreement, Mr. Wang will serve his initial term beginning February 2, 2024 (the “Effective Date”) ending on the earlier of (i) the one year anniversary of the Effective Date or (ii) the termination of the Employment Agreement. The Initial Term will be automatically extended for additional one-year terms, unless NGTF or Mr. Wang provides the other with notice, at least 30 days prior to the expiration of the current term, of its desire not to renew the Employment Agreement. For his services, Mr. Wang will receive an annual base salary of $120,000, payable monthly beginning on the Effective Date. Until NGTF completes an additional two mergers and a capital raise in excess of $1,000,000 gross proceeds, or NGTF has financial capabilities to support the Base Salary, Mr. Wang will be paid $6,000 per month of the Base Salary, and the unpaid portion of the Base Salary will accrue.
The Employment Agreement may be terminated with or without cause by NGTF and may be terminated with or without good reason by Mr. Wang. If NGTF terminates the agreement for cause, then NGTF will (i) pay Mr. Wang any unpaid Base Salary, benefits and any unreimbursed expenses within 10 days after the termination date; (ii) any unvested portion of equity granted to Mr. Wang through any agreement, including restricted stock awards, will be automatically forfeited; and (iii) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. If NGTF terminates the agreement without cause, then NGTF will (i) pay Mr. Wang any Base Salary or other amounts accrued and any unreimbursed expenses incurred within 10 days following the termination date; (ii) pay Mr. Wang a lump sum equal to the Base Salary that would have been paid to Mr. Wang for the remainder of the Initial Term or Renewal Term within 10 days of the termination; (iii) any grant of equity made to Mr. Wang, to the extent not vested, will automatically vest; and (iv) both parties’ rights and obligations will cease, other than rights or obligations that arose prior to the termination date or in connection with the termination. Should Mr. Wang terminate the Employment Agreement with good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated without cause. If Mr. Wang terminates the Employment Agreement without good reason, then he will be entitled to the benefits payable to him as if the Employment Agreement had been terminated with cause.
Other than the above transactions, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 Regulation S-K. The Company is currently not a subsidiary of any company.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Prior Audit Firm
On October 11, 2023, Nightfood Holdings, Inc. was informed that our independent registered accounting firm since April 2022, Gries & Associates, LLC (“Gries”) had sold its business to GreenGrowth CPAs.
On November 7, 2023, the Company engaged and executed an agreement with GreenGrowth, as the Company’s new independent accountant to replace Gries.
On April 12, 2024, the Company terminated GreenGrowth as the Company’s auditor.
Current Audit Firm
On April 12, 2024, the Company engaged Fruci & Associates II, PLLC (“Fruci”) to serve as our independent registered public accounting firm for the fiscal year ending June 30, 2024. Fruci has served as our independent registered public accounting firm since April 12, 2024.
Fees Billed to the Company in fiscal year 2024 and 2023
The following table sets forth the fees billed to us by our principal auditor, Fruci, and our former principal auditor, for professional services rendered during the fiscal year ended June 30, 2024, and our former principal auditors, Gries & Associates, LLC and Greengrowth CPA’s for professional services rendered during the fiscal years ended June 30, 2023:
| June 30, 2024 | June 30, 2023 | |||||||
| Audit fees(1) | $ | 57,000 | $ | 35,000 | ||||
| Audit related fees(2) | - | - | ||||||
| Tax fees(3) | - | - | ||||||
| All other fees | - | - | ||||||
| Total fees | $ | 57,000 | $ | 35,000 | ||||
| (1) | Audit Fees — Audit fees consist of fees billed for the audit of our annual financial statements and the review of the interim consolidated financial statements. |
| (2) | Audit-Related Fees — These consisted principally of the aggregate fees related to audits that are not included Audit Fees. |
| (3) | Tax Fees — Tax fees consist of aggregate fees for tax compliance and tax advice, including the review and preparation of our tax returns. |
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PART IV.
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
Our financial statements as set forth in the Index to Consolidated Financial Statements attached hereto commencing on page F-1 are hereby incorporated by reference.
(b) Exhibits
The following exhibits, which are numbered in accordance with Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by reference herein.
EXHIBIT INDEX
29
| * | Filed herewith |
| ++ | Indicates a management contract or compensatory plan. |
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NIGHTFOOD HOLDINGS, INC. | ||
| Date: December 27, 2024 | By: | /s/ Lei Sonny Wang |
| Lei Sonny Wang | ||
| Chief Executive Officer and Director | ||
| (Principal Executive Officer) | ||
| Date: December 27, 2024 | By: | /s/ Lei Sonny Wang |
| Lei Sonny Wang | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Lei Sonny Wang | Chief Executive Officer and Director | December 27, 2024 | ||
| Lei Sonny Wang | (Principal Executive Officer) | |||
| /s/ Lei Sonny Wang | Chief Financial Officer, Treasurer and Director | December 27, 2024 | ||
| Lei Sonny Wang | (Principal Financial and Accounting Officer) | |||
| /s/ Sean Folkson | Director | December 27, 2024 | ||
| Sean Folkson | ||||
| /s/ Thomas Morse | Director | December 27, 2024 | ||
| Thomas Morse |
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Exhibit 10.19
Fourth Man, LLC
21520 Yorba Linda Blvd., Suite G PMB 335
Yorba Linda, CA 92887
July 22, 2024
Nightfood Holdings, Inc.
520 White Plains Road, Suite 500
Tarrytown, NY 10591
To whom it may concern:
Reference is made to that certain promissory note in the principal amount of $65,000.00 issued on June 29, 2023, as amended February 1, 2024 (“Note”) and that certain promissory note in the principal amount of $60,000.00 issued on August 28, 2023, as amended February 1, 2024 (“Subsequent Note”) by Nightfood Holdings, Inc., a Nevada corporation (the “Company”) to Fourth Man, LLC, a Nevada limited liability company (the “Holder”). Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Note.
This letter shall serve as notice that the Holder and the Company agreed to amend the Note effective as of July 23, 2024 (the “Effective Date”), to remove the right to the adjustment to the Conversion Price during the period beginning on the Effective Date and continuing through the new Maturity Date of January 23, 2025 (the “Effective Period”), under Section 1.6(e) of the Note solely with respect to the Holder’s ability to adjust the Conversion Price of the Note to the price per share specified in Section 3.21 of the Subsequent Note (the “Affected Adjustment”). In addition, this letter shall serve as notice that the Holder and the Company agreed to amend the Subsequent Note effective as of the Effective Date, to remove the right to the adjustment to the Conversion Price during the Effective Period solely with respect to the Affected Adjustment.
For the avoidance of doubt, the aforementioned sentence shall not limit any of Holder’s other rights under Section 1.6(e) of the Note or Subsequent Note, including but not limited to during the Effective Period. For the avoidance of doubt, the Holder shall have the right to the Affected Adjustment after the Effective Period.
In exchange for the Holder’s execution of this letter, the Holder and the Company agree (i) to increase the total outstanding principal and accrued interest of the Note (the “Note Total Balance”) by 10% of the Note Total Balance on the Effective Date, (ii) to increase the total outstanding principal and accrued interest of the Subsequent Note (the “Subsequent Note Total Balance”) by 10% of the Subsequent Note Total Balance on the Effective Date, and (iii) that the Company shall issue 1,667 shares of the Company’s Series D convertible preferred stock to the Holder as soon as practicable after the execution of this letter but in no event later than August 30, 2024, or this amendment is null and void.
The Holder and Company further agree that, prior to the expiration of the Effective Period, the Company may request a three-month extension of the Effective Period to April 23, 2025, and the Holder shall not unreasonably withhold its approval.
This letter shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the Note and Subsequent Note, as applicable. Except as specifically modified hereby, all of the provisions of the Note and Subsequent Note, which are not in conflict with the terms of this letter, shall remain in full force and effect. By signing below, the parties hereby consent and agree to the aforementioned limited waiver.
| Very truly yours, | |||
| FOURTH MAN, LLC | |||
| By: | |||
| Name: | Edward Reese | ||
| Title: | Manager | ||
| AGREED AND ACKNOWLEDGED: | |||
| NIGHTFOOD HOLDINGS, INC. | |||
| By: | |||
| Name: | Lei Sonny Wang | ||
| Title: | Chief Executive Officer | ||
Exhibit 10.21
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: $473,000.00 | Issue Date: September 23, 2024 |
| Actual Amount of Purchase Price: $402,050.00 |
SENIOR SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, NIGHTFOOD HOLDINGS, INC., a Nevada corporation (hereinafter called the “Borrower” or the “Company”) (Trading Symbol: NGTF), hereby promises to pay to the order of MAST HILL FUND, L.P., a Delaware limited partnership, or registered assigns (the “Holder”), in the form of lawful money of the United States of America, the principal sum of $473,000.00, which amount is the $402,050.00 actual amount of the purchase price (the “Consideration”) hereof plus an original issue discount in the amount of $70,950.00 (the “OID”) (subject to adjustment herein) (the “Principal Amount”) and to pay interest on the unpaid Principal Amount hereof at the rate of fifteen percent (15%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise, as further provided herein. The maturity date shall be twelve (12) months from the Issue Date (the “Maturity Date”), and is the date upon which the Principal Amount, the OID, as well as any accrued and unpaid interest and other fees, shall be due and payable.
This Note may not be prepaid or repaid in whole or in part except as otherwise explicitly set forth herein.
Any Principal Amount or interest on this Note which is not paid when due shall bear interest at the rate of the lesser of (i) twenty four percent (24%) per annum and (ii) the maximum amount permitted by law from the due date thereof until the same is paid (“Default Interest”). Interest and Default Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.
All payments due hereunder (to the extent not converted into shares of common stock, $0.001 par value per share, of the Borrower (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day.
Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated as of the Issue Date, pursuant to which this Note was originally issued (the “Purchase Agreement”). As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. As used herein, the term “Trading Day” means any day that shares of Common Stock are listed for trading or quotation on the Principal Market (as defined in the Purchase Agreement), provided, however, that if the Common Stock is not then listed or quoted on any Principal Market, then any business day.
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
1
The following terms shall also apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right, at any time on or following the date that an Event of Default (as defined in this Note) occurs under this Note, to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any Default Interest) into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified, at the Conversion Price (as defined below) determined as provided herein (a “Conversion”), by submitting to the Borrower or Borrower’s transfer agent a Notice of Conversion (as defined in this Note) by e-mail dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time; provided, however, that notwithstanding anything to the contrary contained herein, the a Holder shall not have the right to convert any portion of this Note, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s affiliates (the “Affiliates”), and any other Persons (as defined below) acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1.1, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Holder is solely responsible for any schedules required to be filed in accordance therewith. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1.1, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding at the time of the respective calculation hereunder. “Person” and “Persons” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof. The limitations contained in this paragraph shall apply to a successor holder of this Note. The number of Conversion Shares to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower or Borrower’s transfer agent by the Holder in accordance with the terms of this Note; provided that the Notice of Conversion is submitted by e-mail to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the Principal Amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such Principal Amount at the Interest Rate to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2).
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1.2 Conversion Price.
(a) Calculation of Conversion Price. The per share conversion price into which Principal Amount and interest (including any Default Interest) under this Note shall be convertible into shares of Common Stock hereunder as further described in this Note (the “Conversion Price”) shall equal $0.033, subject to adjustment as provided in this Note. If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price. Holder shall be entitled to deduct $1,750.00 from the conversion amount in each Notice of Conversion to cover Holder’s fees associated with each Notice of Conversion. All such Conversion Price determinations are to be appropriately adjusted for any stock dividend, stock split, stock combination, rights offerings, reclassification or similar transaction that proportionately decreases or increases the Common Stock. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to the immediately preceding sentence shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. “Common Stock Equivalents” means any securities of the Company or the Company’s subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
1.3 Authorized and Reserved Shares. The Borrower covenants that at all times until the Note is satisfied in full, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of a number of Conversion Shares equal to the number of Conversion Shares issuable upon the full conversion of this Note (assuming no payment of Principal Amount or interest) at the time of such calculation (taking into consideration any adjustments to the Conversion Price as provided in this Note) multiplied by (ii) four (4) (the “Reserved Amount”); provided that for purposes of this Section 1.3, the Company and the Holder agree and acknowledge that the aforementioned formula in Section 1.3(b) of this Note shall only be in effect on and after the date that is six (6) calendar months after the Issue Date. The Borrower represents that upon issuance, the Conversion Shares will be duly and validly issued, fully paid and non-assessable. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Conversion Shares or instructions to have the Conversion Shares issued as contemplated by Section 1.4(f) hereof, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates or cause the Company to electronically issue shares of Common Stock to execute and issue the necessary certificates for the Conversion Shares or cause the Conversion Shares to be issued as contemplated by Section 1.4(f) hereof in accordance with the terms and conditions of this Note.
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1.4 Method of Conversion.
(a) [Intentionally Omitted].
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid Principal Amount is so converted. The Holder and the Borrower shall maintain records showing the Principal Amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Holder shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid Principal Amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted Principal Amount of this Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower or Borrower’s transfer agent from the Holder of an e-mail of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) within two (2) Trading Day after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid Principal Amount and interest (including any Default Interest) under this Note, surrender of this Note). If the Company shall fail for any reason or for no reason to issue to the Holder on or prior to the Deadline a certificate for the number of Conversion Shares or to which the Holder is entitled hereunder and register such Conversion Shares on the Company’s share register or to credit the Holder’s balance account with DTC (as defined below) for such number of Conversion Shares to which the Holder is entitled upon the Holder’s conversion of this Note (a “Conversion Failure”), then, in addition to all other remedies available to the Holder, (i) the Company shall pay in cash to the Holder on each day after the Deadline and during such Conversion Failure an amount equal to 2.0% of the product of (A) the sum of the number of Conversion Shares not issued to the Holder on or prior to the Deadline and to which the Holder is entitled and (B) the closing sale price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such Conversion Shares to the Holder without violating this Section 1.4(d); and (ii) the Holder, upon written notice to the Company, may void all or any portion of such Notice of Conversion; provided that the voiding of all or any portion of a Notice of Conversion shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice. In addition to the foregoing, if on or prior to the Deadline the Company shall fail to issue and deliver a certificate to the Holder and register such Conversion Shares on the Company’s share register or credit the Holder’s balance account with DTC for the number of Conversion Shares to which the Holder is entitled upon the Holder’s exercise hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company, then the Company shall, within two (2) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other reasonable and customary out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Conversion Shares) or credit such Holder’s balance account with DTC for such Conversion Shares shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Conversion Shares or credit such Holder’s balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the closing sales price of the Common Stock on the date of exercise. Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing the Conversion Shares (or to electronically deliver such Conversion Shares) upon the conversion of this Note as required pursuant to the terms hereof.
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(e) Obligation of Borrower to Deliver Common Stock. At the time that the Holder submits the Notice of Conversion to the Borrower or Borrower’s transfer agent pursuant to the terms hereof, the Holder shall be deemed to be the holder of record of the Conversion Shares issuable upon such conversion, the outstanding Principal Amount and the amount of accrued and unpaid interest (including any Default Interest) under this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is sent to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time, on such date.
(f) Delivery of Conversion Shares by Electronic Transfer. In lieu of delivering physical certificates representing the Conversion Shares issuable upon conversion hereof, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Conversion Shares issuable upon conversion hereof to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
1.5 Concerning the Shares. The Conversion Shares issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the 1933 Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be the Legal Counsel Opinion (as defined in the Purchase Agreement)) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption, or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the Conversion Shares have been registered under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for the Conversion Shares that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S UNDER SAID ACT, OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
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The legend set forth above shall be removed and the Company shall issue to the Holder a certificate for the applicable Conversion Shares without such legend upon which it is stamped or (as requested by the Holder) issue the applicable Conversion Shares by electronic delivery by crediting the account of such holder’s broker with DTC, if, unless otherwise required by applicable state securities laws: (a) such Conversion Shares are registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Holder provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) of the Purchase Agreement) to the effect that a public sale or transfer of such Conversion Shares may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Holder agrees to sell all Conversion Shares, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Holder with respect to the transfer of Conversion Shares pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption, at the Deadline, notwithstanding that the conditions of Rule 144, Rule 144A, Regulation S, or other applicable exemption, as applicable, have been met, it will be considered an Event of Default under this Note.
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in this Note) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effectuate any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, at least thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
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(d) Purchase Rights. If, at any time when all or any portion of this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(e) Dilutive Issuance. Except for Exempt Issuances (as defined in this Note) and Reg A Issuances (as defined in this Note), if the Borrower, at any time while this Note or any amounts due hereunder are outstanding, issues, sells or grants (or has issued, sold or granted as of the Issue Date, as the case may be) any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues (or has sold or issued, as the case may be, or announces any sale, grant or any option to purchase or other disposition), any Common Stock or other securities convertible into, exercisable for, or otherwise entitle any person or entity the right to acquire, shares of Common Stock (including, without limitation, upon conversion of this Note, and any convertible notes or warrants outstanding as of or following the Issue Date), in each or any case at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Stock or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced, at the option of the Holder, to a price equal to the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or other securities are issued. By way of example, and for the avoidance of doubt, if the Company issues a convertible promissory note (including but not limited to a Variable Rate Transaction (as defined in the Purchase Agreement)), and the holder of such convertible promissory note has the right to convert it into Common Stock at an effective price per share that is lower than the then Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock), then the Holder has the right to reduce the Conversion Price to such Base Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock) in perpetuity regardless of whether the holder of such convertible promissory note ever effectuated a conversion at the Base Conversion Price. In the event of an issuance of securities involving multiple tranches or closings, any adjustment pursuant to this Section 1.6(e) shall be calculated as if all such securities were issued at the initial closing. “Exempt Issuance” means the issuance, vesting and/or exercise of options, warrants, restricted stock, restricted stock units or other common stock purchase rights issued (or to be issued) to employees, officers or directors of, or consultants or advisors to, the Company for compensatory purposes pursuant to any stock purchase plan, stock option plan, equity incentive plan or other plan or arrangement approved by the Board of Directors (or the Compensation Committee thereof) at any time. “Reg A Issuances” means an issuance of Common Stock (or units consisting of Common Stock and warrants) pursuant to an offering by the Company under Regulation A so long as the offering price of each share of Common Stock is equal to or greater than $0.10 (subject to adjustment for any stock split, stock combination, or other similar transactions; and for the avoidance of doubt, assuming any such warrants have no value), provided, however, that if an Event of Default (as defined in the Note) occurs at any time, then this Section 1.6(e) of this Note shall apply to each and every Reg A Issuance on or after the Issue Date as well as the exercise price of any common stock purchase warrants issued as part of a unit in connection with a Reg A Issuance.
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(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in Section 1.6 of this Note, the Borrower shall, at its expense and within one (1) business day after the occurrence of each respective adjustment or readjustment of the Conversion Price, compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. In addition, the Borrower shall, within one (1) business day after each written request from the Holder, furnish to such Holder a like certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. For the avoidance of doubt, each adjustment or readjustment of the Conversion Price as a result of the events described in Section 1.6 of this Note shall occur without any action by the Holder and regardless of whether the Borrower complied with the notification provisions in Section 1.6 of this Note.
1.7 [Intentionally Omitted].
1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the Conversion Shares covered thereby (other than the Conversion Shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies for the Borrower’s failure to convert this Note.
1.9 Prepayment. At any time prior to the date that an Event of Default occurs under this Note, the Borrower shall have the right, exercisable on three (3) Trading Days prior written notice to the Holder of the Note, to prepay the outstanding Principal Amount and interest then due under this Note in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be three (3) Trading Days from the date of the Optional Prepayment Notice (the “Optional Prepayment Date”). On the Optional Prepayment Date, the Borrower shall make payment of the amounts designated below to or upon the order of the Holder as specified by the Holder in writing to the Borrower. If the Borrower exercises its right to prepay the Note in accordance with this Section 1.9, the Borrower shall make payment to the Holder of an amount in cash equal to the sum of: (w) 100% multiplied by the Principal Amount then outstanding plus (x) accrued and unpaid interest on the Principal Amount to the Optional Prepayment Date plus (y) $750.00 to reimburse Holder for administrative fees.
If the Borrower delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Note as provided in this Section 1.9, then the Borrower shall forever forfeit its right to prepay any part of the Note pursuant to this Section 1.9.
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1.10 Repayment from Proceeds. If, at any time prior to the full repayment or full conversion of all amounts owed under this Note, the Company receives cash proceeds from any source or series of related or unrelated sources from the issuance of equity (excluding the conversion of outstanding warrants of the Company), debt or the issuance of securities pursuant to an Equity Line of Credit (as defined in this Note)) of the Borrower, the Borrower shall, within three (3) business days of Borrower’s receipt of such proceeds, inform the Holder of or publicly disclose such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply up to 50% of such proceeds to repay all or any portion of the outstanding Principal Amount and interest (including any Default Interest) then due under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. “Equity Line of Credit” shall mean any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its Common Stock to the investor or underwriter over an agreed period of time and at an agreed price or price formula (such Common Stock must be registered pursuant to a registration statement of the Company for the investor’s or underwriter’s resale). Notwithstanding the foregoing, this Section 1.10 of this Note shall not apply to any revenue from the sale of goods in the ordinary course.
ARTICLE II. RANKING AND CERTAIN COVENANTS
2.1 Ranking and Security. This Note shall be a senior secured obligation of the Borrower, with priority over all existing and future indebtedness of the Borrower, as provided in that certain Security Amendment (as defined in the Purchase Agreement) (the “Security Amendment”).
2.2 Other Indebtedness. In addition to all obligations under the Security Amendment, for so long as the Borrower shall have any obligation under this Note, the Borrower shall not (directly or indirectly through any Subsidiary or affiliate) incur or suffer to exist or guarantee any indebtedness that is senior to or pari passu with (in priority of payment and performance) the Borrower’s obligations hereunder, including but not limited to (a) all indebtedness of the Borrower for borrowed money or for the deferred purchase price of property or services, including any type of letters of credit, (b) all obligations of the Borrower evidenced by notes, bonds, debentures or other similar instruments, (c) purchase money indebtedness hereafter incurred by the Borrower to finance the purchase of fixed or capital assets, including all capital lease obligations of the Borrower which do not exceed the purchase price of the assets funded, (d) all guarantee obligations of the Borrower in respect of obligations of the kind referred to in clauses (a) through (c) above that the Borrower would not be permitted to incur or enter into, and (e) all obligations of the kind referred to in clauses (a) through (d) above that the Borrower is not permitted to incur or enter into that are secured and/or unsecured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured and/or unsecured by) any lien or encumbrance on property (including accounts and contract rights) owned by the Borrower, whether or not the Borrower has assumed or become liable for the payment of such obligation.
2.3 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock.
2.4 Restriction on Stock Repurchases and Debt Repayments. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares, or repay any pari passu or subordinated indebtedness of Borrower.
2.5 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent by the Holder to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
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2.6 Advances and Loans; Affiliate Transactions. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the Issue Date and which the Borrower has informed Holder in writing prior to the Issue Date, (b) in regard to transactions with unaffiliated third parties, made in the ordinary course of business or (c) in regard to transactions with unaffiliated third parties, not in excess of $100,000. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, repay any affiliate (as defined in Rule 144) of the Borrower in connection with any indebtedness or accrued amounts owed to any such party.
2.7 Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(10) Transaction while this note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than $25,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of a cash payment or added to the balance of this Note (under Holder’s and Borrower’s expectation that this amount will tack back to the Issue Date). This Section 2.7 shall not apply to the Company’s existing convertible notes issued prior to the Issue Date.
2.8 Preservation of Business and Existence, etc. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, (a) change the nature of its business; (b) sell, divest, change the structure of any material assets other than in the ordinary course of business; (c) enter into a Variable Rate Transaction; or (d) enter into any merchant cash advance transactions. In addition, so long as the Borrower shall have any obligation under this Note, the Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
2.9 Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.
2.10 Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note.
ARTICLE III. EVENTS OF DEFAULT
It shall be considered an event of default if any of the following events listed in this Article III (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the Principal Amount hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, or fails to fully comply with Section 1.10 of this Note (provided, however, that such failure to fully comply with Section 1.10 of this Note shall be subject to a five (5) calendar day cure period).
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3.2 Conversion and the Shares. The Borrower (i) fails to issue Conversion Shares to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, (ii) fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iii) fails to reserve the Reserved Amount at all times on and after the earlier of (i) the date that an Event of Default occurs under this Note and (ii) the date that is six (6) calendar months after the Issue Date, (iv) the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for two (2) Trading Days after the Holder shall have delivered a Notice of Conversion, and/or (v) fails to remain current in its obligations to its transfer agent (including but not limited to payment obligations to its transfer agent). It shall be an Event of Default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be added to the principal balance of the Note.
3.3 Breach of Agreements and Covenants. The Borrower breaches any material covenant, agreement, or other material term or condition contained in the Purchase Agreement, this Note, Irrevocable Transfer Agent Instructions, Warrant (as defined in the Purchase Agreement), or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made in the Purchase Agreement, this Note, Irrevocable Transfer Agent Instructions, Warrant, or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith shall be false or misleading in any material respect when made.
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.8 Failure to Comply with the 1934 Act. At any time after the date that is ten (10) calendar days after the Issue Date, the Borrower shall fail to comply with the reporting requirements of the 1934 Act (subject to a five Trading Day right to cure) and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act.
3.9 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.10 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.11 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
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3.12 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding unless the Borrower restates such financial statements within fifteen (15) calendar days after the date that the Borrower discloses its need to restate such financial statements in a filing with the Securities and Exchange Commission.
3.13 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.14 Cross-Default. The declaration of an event of default by any lender or other extender of credit to the Company under any notes, loans, agreements or other instruments of the Company evidencing any indebtedness of the Company (including those filed as exhibits to or described in the Company’s filings with the SEC), after the passage of all applicable notice and cure or grace periods.
3.15 Variable Rate Transactions. The Borrower consummates a Variable Rate Transaction at any time on or after the Issue Date.
3.16 Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.
3.17 Unavailability of Rule 144. If, at any time on or after the date that is six (6) calendar months after the Issue Date, the Holder is unable to obtain a standard “144 legal opinion letter” from an attorney in order to facilitate the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant to Rule 144.
3.18 Delisting, Suspension, or Quotation of Trading of Common Stock. If, at any time on or after the Issue Date, the Borrower’s Common Stock (i) is suspended from trading, (ii) halted from trading, and/or (iii) fails to be quoted or listed (as applicable) on a Principal Market.
3.19 Market Capitalization. The Borrower fails to maintain a market capitalization of at least $1,500,000 on any Trading Day, which shall be calculated by multiplying (i) the closing price of the Borrower’s common stock on the Trading Day immediately preceding the respective date of calculation by (ii) the total shares of the Borrower’s common stock issued and outstanding on the Trading Day immediately preceding the respective date of calculation.
3.20 Rights and Remedies Upon an Event of Default. Upon the occurrence of any Event of Default specified in this Article III, this Note shall become immediately due and payable, and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by 150% (collectively the “Default Amount”), as well as all costs, including, without limitation, legal fees and expenses, of collection, all without demand, presentment or notice, all of which hereby are expressly waived by the Borrower. Holder may, in Holder’s sole discretion, convert all or any portion of this Note (including the Default Amount) into Common Stock pursuant to the terms of this Note. Upon the occurrence of any Event of Default under this Note, the Holder may, in Holder’s sole discretion, adjust the Conversion Price to fifty percent of the Conversion Price then in effect at the time of such Event of Default under this Note (subject to adjustment as provided in this Note, including but not limited to appropriate adjustments for any stock dividend, stock split, stock combination, rights offerings, reclassification or similar transaction that proportionately decreases or increases the Common Stock). The Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
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ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Holder existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be transmitted by e-mail, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective upon delivery by e-mail, with accurate confirmation generated by the transmitting machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received). The addresses for such communications shall be:
If to the Borrower, to:
NIGHTFOOD HOLDINGS, INC.
520 White Plains Road, Suite 500
Tarrytown, NY 10591
Attention: Lei Sonny Wang
e-mail: Sonny@nightfoodholdings.com
If to the Holder:
MAST HILL FUND, L.P.
150 Grossman Drive, Suite 205
Braintree, MA 02184
e-mail: admin@masthillfund.com
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Neither the Borrower nor the Holder shall assign this Note or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Holder may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Holder or to any of its “affiliates”, as that term is defined under the 1934 Act, without the consent of the Borrower. Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
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4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
4.6 Governing Law; Venue; Attorney’s Fees. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts located in the State of Nevada or federal courts located in the State of Nevada. The Borrower hereby irrevocably waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED HEREBY. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The prevailing party in any action or dispute brought in connection with this the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby shall be entitled to recover from the other party its reasonable attorney’s fees and costs.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding Principal Amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. The Company and the Holder shall be bound by the applicable terms of the Purchase Agreement and the documents entered into in connection herewith and therewith.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any change in control or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
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4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
4.11 Construction; Headings. This Note shall be deemed to be jointly drafted by the Company and all the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.
4.12 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Company under this Note for payments which under the applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under the applicable law in the nature of interest that the Company may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by applicable law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the Issue Date, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Holder with respect to indebtedness evidenced by this the Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Holder’s election.
4.13 Severability. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law (including any judicial ruling), then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.
4.14 Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, Issue, Closing or Maturity Date, the closing bid price, or fair market value (as the case may be) or the arithmetic calculation of the Conversion Price or the applicable prepayment amount(s) (as the case may be), the Borrower or the Holder shall submit the disputed determinations or arithmetic calculations via electronic mail (i) within two (2) Trading Days after receipt of the applicable notice giving rise to such dispute to the Borrower or the Holder or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Borrower are unable to agree upon such determination or calculation within two (2) Trading Days of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Borrower or the Holder, then the Borrower shall, within two (2) Trading Days, submit (a) the disputed determination of the Conversion Price, the closing bid price, the or fair market value (as the case may be) to an independent, reputable investment bank selected by the Borrower and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, to an independent, outside accountant selected by the Holder that is reasonably acceptable to the Borrower. The Borrower shall cause at its expense the investment bank or the accountant to perform the determinations or calculations and notify the Borrower and the Holder of the results no later than two (2) Trading Days from the time it receives such disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation shall be binding upon all parties absent demonstrable error.
[signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer on September 23, 2024.
NIGHTFOOD HOLDINGS, INC.
| By: | |||
| Name: | Lei Sonny Wang | ||
|
|
Title: | Chief Executive Officer | |
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EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $ _______principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of NIGHTFOOD HOLDINGS, INC., a Nevada corporation (the “Borrower”), according to the conditions of the senior secured promissory note of the Borrower dated as of September 23, 2024 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
| ☐ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). | |
| Name of DTC Prime Broker: | ||
| Account Number: |
| ☐ |
The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
| Date of Conversion: | |||
| Applicable Conversion Price: | $ | ||
| Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Note: | |||
| Amount of Principal Balance Due remaining Under the Note after this conversion: |
| By: | |||
| Name: | |||
| Title: | |||
| Date: |
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Exhibit 10.22
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of September 23, 2024, by and between NIGHTFOOD HOLDINGS, INC., a Nevada corporation, with headquarters located at 520 White Plains Road, Suite 500, Tarrytown, NY 10591 (the “Company”), and MAST HILL FUND, L.P., a Delaware limited partnership, with its address at 150 Grossman Drive, Suite 205, Braintree, MA 02184 (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act;
B. Buyer desires to purchase from the Company, and the Company desires to issue and sell to the Buyer, upon the terms and conditions set forth in this Agreement, a senior secured promissory note of the Company, in the aggregate principal amount of $473,000.00 (as the principal amount thereof may be increased pursuant to the terms thereof, and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, in the form attached hereto as Exhibit A, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note;
C. In connection with the execution of this Agreement, the Company and the Buyer are also entering into that certain seventh amendment to the security agreement dated on or around June 1, 2023 (the “Security Amendment”), seventh amendment to the pledge agreement dated on or around June 1, 2023 (the “Pledge Amendment”), and seventh amendment to the guarantee agreement dated on or around June 1, 2023 (the “Guarantee Amendment”);
D. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of the Note as is set forth immediately below its name on the signature pages hereto.
NOW THEREFORE, in consideration of the foregoing and of the agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Buyer hereby agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer, and the Buyer agrees to purchase from the Company, the Note, as further provided herein. As used in this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday, or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
b. Form of Payment. On the Closing Date: (i) the Buyer shall pay the purchase price of $402,050.00 (the “Purchase Price”) for the Note, to be issued and sold to it at the Closing (as defined below), by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note, and (ii) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase Price. On the Closing, the Buyer shall withhold a non-accountable sum of $8,000.00 from the Purchase Price to cover the Buyer’s legal fees in connection with the transactions contemplated by this Agreement.
c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be on the date that the Purchase Price for the Note is paid by Buyer pursuant to terms of this Agreement.
d. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties (including via exchange of electronic signatures).
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2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company as of the Closing Date that:
a. Investment Purpose. As of the Closing Date, the Buyer is purchasing the Note (the Note, and shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (the “Conversion Shares”) shall collectively be referred to herein as the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, afforded the opportunity to ask questions of the Company regarding its business and affairs. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information regarding the Company or otherwise and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.
e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
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f. Transfer or Re-sale. The Buyer understands that (i) the sale or resale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel (which may be the Legal Counsel Opinion (as defined below)) that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144 or other applicable exemption, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged in connection with a bona fide margin account or other lending arrangement secured by the Securities, and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and the Buyer in effecting such pledge of Securities shall be not required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or otherwise.
g. Legends. The Buyer understands that until such time as the Note and Conversion Shares have been registered under the 1933 Act or may be sold pursuant to Rule 144, Rule 144A under the 1933 Act, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S, OR OTHER APPLICABLE EXEMPTION UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate or book entry statement for the applicable shares of Common Stock without such legend to the holder of any Security upon which it is stamped or (as requested by such holder) issue the applicable shares of Common Stock to such holder by electronic delivery by crediting the account of such holder’s broker with The Depository Trust Company (“DTC”), if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Buyer provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) hereof) to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption at the Deadline (as defined in the Note), it will be considered an Event of Default pursuant to Section 3.2 of the Note.
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h. Authorization; Enforcement. This Agreement has been duly and validly authorized by the Buyer and has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and except as may be limited by the exercise of judicial discretion in applying principles of equity.
3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer as of the Closing Date that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a), if attached hereto, sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note, and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note, and Conversion Shares by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note, as well as the issuance and reservation for issuance of the Conversion Shares issuable upon conversion of the Note) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, its shareholders, or its debt holders is required, (iii) this Agreement and the Note (together with any other instruments executed in connection herewith or therewith) have been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement, the Note and the other instruments documents executed in connection herewith or therewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms.
c. Capitalization; Governing Documents. As of September 23, 2024, the authorized capital stock of the Company consists of: 200,000,000 authorized shares of Common Stock, of which 128,957,407 shares were issued and outstanding, and 1,005,000 authorized shares of preferred stock, of which 1,000 shares of Series A preferred stock, 1,950 shares of Series B preferred stock, 13,333 shares of Series C convertible preferred stock, and 1,667 shares of Series D preferred stock were issued and outstanding. All of such outstanding shares of capital stock of the Company and the Conversion Shares are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement, other than as publicly announced prior to such date and reflected in the SEC Documents of the Company (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of any of the Securities. The Company has furnished or made available (which may be through the SEC Documents) to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.
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d. Issuance of Conversion Shares. The Conversion Shares are duly authorized and reserved for issuance (or will be reserved for issuance as provided in the Note) and, upon conversion of the Note in accordance with its terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
e. [Intentionally Omitted].
f. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect of the Conversion Shares to the Common Stock upon the conversion of the Note. The Company further acknowledges that its obligation to issue, upon conversion of the Note, the Conversion Shares in accordance with the terms thereof, are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
g. Ranking; No Conflicts. Once the Company pays the Final Settlement Payments (as defined in this Agreement), the Note shall have priority in payment and performance over all indebtedness of the Company and its Subsidiaries, as further provided in that certain Security Amendment entered into between the Company, the Subsidiaries, and the Buyer on the date of this Agreement, a form of which is attached hereto as Exhibit C. The Company represents and warrants that, once the Company pays the Final Settlement Payments, there will be no security interests in, or liens on, the Company’s assets except as created in favor of the Buyer under the Security Amendment. The execution, delivery and performance of this Agreement and the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, note, evidence of indebtedness, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities is subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect), or (iv) trigger any anti-dilution and/or ratchet provision contained in any other contract in which the Company is a party thereto or any security issued by the Company. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement and the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and, upon conversion of the Note, issue Conversion Shares. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Principal Market (as defined herein) and does not reasonably anticipate that the Common Stock will be delisted by the Principal Market in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The “Principal Market” shall mean the principal securities exchange or trading market where such Common Stock is listed or traded, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
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h. SEC Documents; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to March 31, 2024, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. The Company has never been a “shell company” as described in Rule 144(i)(1)(i).
i. Absence of Certain Changes. Since March 31, 2024, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
j. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. With the exception of a certain pending lawsuit filed June 2, 2022 titled Jose Meija vs. Nightfood Inc. regarding the accessibility of the Nightfood.com website for consumers with visual impairments, which the Company believes is part of a coordinated effort on behalf of certain law firms to use the Americans with Disabilities Act to extort settlements from companies that conduct commerce online, and which the Company has retained counsel and expects to settle for between $10,000 and $16,000, the SEC Documents contain a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
k. Intellectual Property. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
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l. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
m. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
n. Transactions with Affiliates. Except as disclosed in the SEC Documents or for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options described in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
o. Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’s purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
q. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
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r. No Brokers; No Solicitation. Except with respect to J. H. Darbie & Co., a registered broker-dealer (CRD#: 43520), the Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby. The Company represents and warrants that neither the Buyer nor its employee(s), member(s), beneficial owner(s), or partner(s) solicited the Company to enter into this Agreement and consummate the transactions described in this Agreement. The Company represents and warrants that neither the Buyer nor its employee(s), member(s), beneficial owner(s), or partner(s) is required to be registered as a broker-dealer under the Securities Exchange Act of 1934 in order to (i) enter into or consummate the transactions encompassed by this Agreement, Security Amendment, Pledge Amendment, Guarantee Amendment, the Note, and the related transaction documents entered into in connection herewith (the “Transaction Documents”), (ii) fulfill the Buyer’s obligations under the Transaction Documents, or (iii) exercise any of the Buyer’s rights under the Transaction Documents (including but not limited to the sale of the Securities).
s. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since March 31, 2024, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
t. Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
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u. Title to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(u), if attached hereto, or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.
v. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.
w. Internal Accounting Controls. Except as may be disclosed in the SEC Documents, the Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
y. Solvency. The Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature.
z. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
aa. No Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
bb. No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
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cc. Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
dd. Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
ee. Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.
ff. Breach of Representations and Warranties by the Company. The Company agrees that if the Company breaches any of the representations or warranties set forth in this Section 3 and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note.
4. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company shall use the proceeds for business development and expenses related to compliance and merger and ongoing acquisition activity, and not for any other purpose, including but not limited to (i) the repayment of any indebtedness owed to officers, directors or employees of the Company or their affiliates, (ii) any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with the Company’s currently existing operations), (iii) any loan, credit, or advance to any officers, directors, employees, or affiliates of the Company, or (iv) in violation or contravention of any applicable law, rule or regulation.
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d. Right of Participation and First Refusal.
(i) Other than arrangements that are in place or disclosed in SEC Documents prior to the date of this Agreement, from the date of this Agreement until the Note is extinguished in its entirety, the Company will not, (i) directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ debt, equity, or equity equivalent securities, including without limitation any debt, preferred shares or other instrument or security that is, at any time during its life and/or under any circumstances, convertible into, exchangeable, or exercisable for Common Stock (any such offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”) or (ii) enter into any definitive agreement with regard to the foregoing, in each case unless the Company shall have first complied with this Section 4(d).
(ii) The Company shall deliver to the Buyer an irrevocable written notice (the “Offer Notice”) of any proposed or intended Subsequent Placement, which shall (w) identify and describe the Subsequent Placement, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the securities in the Subsequent Placement to be issued, sold, or exchanged and (y) offer to issue and sell to or exchange with the Buyer at least one hundred percent (100%) of the securities in the Subsequent Placement (in each case, an “Offer”).
(iii) To accept an Offer, in whole or in part, the Buyer must deliver a written notice (the “Notice of Acceptance”) to the Company prior to the end of the fifth (5th) Trading Day (as defined in the Note) after the Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the amount that the Buyer elects to purchase (the “Subscription Amount”). The Company shall complete the Subsequent Placement and issue and sell the Subscription Amount to the Buyer upon terms and conditions (including, without limitation, unit prices and interest rates) set forth in the Offer Notice, unless a change to such terms and conditions is agreed to in writing between the Company and Buyer.
(iv) Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms or conditions of a Subsequent Placement at any time after the Offer Notice is given to Buyer (provided, however, that such modification or amendment to the terms or conditions cannot occur during any Offer Period), the Company shall deliver to the Buyer a new Offer Notice and the Offer Period of such new Offer shall expire at the end of the fifth (5th) Trading Day after the Buyer’s receipt of such new Offer Notice.
(v) Notwithstanding anything to the contrary herein, the terms and conditions of this Section 4(d) of this Agreement shall not apply to any of the following issuances of securities (collectively, the “Excluded Offerings”): (A) [reserved]; (B) pursuant to the issuance, vesting and/or exercise of options, warrants, restricted stock, restricted stock units or other common stock purchase rights issued (or to be issued) to employees, officers or directors of, or consultants or advisors to, the Company for compensatory purposes pursuant to any stock purchase plan, stock option plan, equity incentive plan or other plan or arrangement approved by the Board of Directors (or the Compensation Committee thereof) at any time; (C) pursuant to the exercise or conversion of preferred stock, options, warrants or any evidence of indebtedness, shares of capital stock (other than Common Stock) or other securities convertible into or exchangeable for Common Stock outstanding (or in the case of warrants underlying outstanding preferred stock, which may be issued and outstanding) as of the date hereof and as disclosed in the SEC Documents prior to the date hereof; (D) in connection with the acquisition of all or part of another entity by stock acquisition, merger, consolidation or other reorganization, or by the purchase of all or part of the assets of such other entity (including securities issued to persons formerly employed by such other entity and subsequently hired by the Company and to any brokers or finders in connection therewith); (E) in connection with strategic transactions approved by the Board of Directors (provided such transactions is not primarily for the purpose of raising capital); (F) to bona fide commercial partners, or lessors in connection with credit arrangements, equipment financings or similar transactions approved by the Board of Directors; (G) in connection with the Company’s acquisition, joint-venture, licensing or business transaction of intellectual property assets from any individuals or entities approved by the Board of Directors (provided such transactions is not primarily for the purpose of raising capital); (H) shares of Common Stock issued pursuant to equipment lease arrangements or financings from a bank approved by the Board of Directors of the Company; and (I) any units, shares of common stock, warrants or other securities issued or issuable pursuant to the Company’s Regulation A+ offering as the same may be amended from time to time, and any shares of Common Stock issuable upon conversion thereof (the “Reg A+ Offering”).
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e. Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Buyer in order to enforce any right or remedy under this Agreement, the Note and any document, agreement or instrument contemplated thereby. Notwithstanding any provision to the contrary contained in this Agreement, the Note and any document, agreement or instrument contemplated thereby, it is expressly agreed and provided that the total liability of the Company under this Agreement, the Note or any document, agreement or instrument contemplated thereby for payments which under applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under applicable law in the nature of interest that the Company may be obligated to pay under this Agreement, the Note and any document, agreement or instrument contemplated thereby exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Buyer with respect to indebtedness evidenced by this Agreement, the Note and any document, agreement or instrument contemplated thereby, such excess shall be applied by the Buyer to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Buyer’s election.
f. Restriction on Activities. Commencing as of the date first above written, and until the earlier of payment of the Note in full or full conversion of the Note, the Company shall not, directly or indirectly, without the Buyer’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; or (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business.
g. Listing. The Company will, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the Principal Market or any equivalent replacement exchange or electronic quotation system (including but not limited to the Pink Sheets electronic quotation system) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the Principal Market and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
h. Corporate Existence. The Company will, so long as the Buyer beneficially owns any of the Securities, maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading or quotation on the Principal Market, any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT.
i. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
j. Compliance with 1934 Act; Public Information Failures. For so long as the Buyer beneficially owns the Note or Conversion Shares, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act. During the period that the Buyer beneficially owns the Note, if the Company shall (i) fail for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) or (ii) if the Company has ever been an issuer described in Rule 144(i)(1)(i) or becomes such an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (each, a “Public Information Failure”) then, as partial relief for the damages to the Buyer by reason of any such delay in or reduction of its ability to sell the Securities (which remedy shall not be exclusive of any other remedies available pursuant to this Agreement, the Note, or at law or in equity), the Company shall pay to the Buyer an amount in cash equal to three percent (3%) of the Purchase Price on each of the day of a Public Information Failure and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the date such Public Information Failure is cured. The payments to which a holder shall be entitled pursuant to this Section 4(k) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (iii) the third business day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 5% per month (prorated for partial months) until paid in full.
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k. Acknowledgement Regarding Buyer’s Trading Activity. Until the Note is fully repaid or fully converted, the Buyer shall not effect any “short sale” (as such term is defined in Rule 200 of Regulation SHO of the 1934 Act) of the Common Stock which establishes a net short position with respect to the Common Stock.
l. Legal Counsel Opinions. Upon the request of the Buyer from to time to time, the Company shall be responsible (at its cost) for promptly supplying to the Company’s transfer agent and the Buyer a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Conversion Shares by the Buyer or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied by the delivery to the Company of customary representations letters to that effect and provided the Conversion Shares are not then registered under the 1933 Act for resale pursuant to an effective registration statement) or other applicable exemption (provided the requirements of such other applicable exemption are satisfied by the delivery to the Company of customary representations letters to that effect). In addition, the Buyer may (at the Company’s cost) at any time secure its own legal counsel to issue the Legal Counsel Opinion, and the Company will instruct its transfer agent to accept such opinion. The Company hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
m. Piggy-Back Registration Rights. The Company hereby grants to the Buyer the piggy-back registration rights set forth in Exhibit B hereto.
n. Most Favored Nation. So long as the Buyer owns any of the Securities, the Company shall not enter into any public or private offering of its securities (including securities convertible into shares of Common Stock) with any individual or entity (an “Other Investor”) that has the effect of establishing rights or otherwise benefiting such Other Investor in a manner more favorable in any material respect to such Other Investor (even if the Other Investor does not receive the benefit of such more favorable term until a default occurs under such other security) than the rights and benefits established in favor of the Buyer by this Agreement, the Note, and the related transaction documents unless, in any such case, the Buyer has been provided with such rights and benefits pursuant to a definitive written agreement or agreements between the Company and the Buyer. Notwithstanding anything to the contrary set forth in this Agreement, this Section 4(n) of this Agreement shall not apply to the issuance of Common Stock (or warrants if sold with the Common Stock as a component of units) pursuant to a Regulation A offering.
o. Subsequent Variable Rate Transactions. From the date hereof until such time as the Note is fully converted or fully repaid, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages. This Section 4(o) shall not apply to the Company’s existing obligations as of the date hereof, which are disclosed in the SEC Documents.
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p. Non-Public Information. Except as may be required pursuant to Section 4(d), the Company covenants and agrees that neither it, nor any other person acting on its behalf will provide the Buyer or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto the Buyer shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that the Buyer shall be relying on the foregoing covenant in effecting transactions in securities of the Company. Except as may be required pursuant to Section 4(d), to the extent that the Company delivers any material, non-public information to the Buyer without such Buyer’s consent, the Company hereby covenants and agrees that such Buyer shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or affiliates, not to trade on the basis of, such material, non- public information, provided that the Buyer shall remain subject to applicable law. To the extent that any notice provided, information provided, or any other communications made by the Company, to the Buyer, constitutes or contains material non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice or other material information with the SEC pursuant to a Current Report on Form 8-K. In. addition to any other remedies provided by this Agreement or the related transaction documents, if the Company provides any material non-public information to the Buyer without their prior written consent, and it fails to immediately (no later than that business day) file a Form 8-K disclosing this material non-public information, it shall pay the Buyer as partial liquidated damages and not as a penalty a sum equal to $3,000 per day beginning with the day the information is disclosed to the Buyer and ending and including the day the Form 8-K disclosing this information is filed.
q. D&O Insurance. In the event the Company does not so have as of the date hereof, within 60 calendar days of the Closing, the Company shall purchase director and officer insurance on behalf of the Company’s (including its subsidiary) officers and directors for a period of 18 months after the Closing with respect to any losses, claims, damages, liabilities, costs and expense in connection with any actual or threatened claim or proceeding that is based on, or arises out of their status as a director or officer of the Company. The insurance policy shall provide for two years of tail coverage.
r. Preferred Designation. Until the Note is extinguished in the entirety, the Company shall not designate any new classes of preferred stock or amend any existing classes of preferred stock without the written consent of the Buyer.
s. No Broker-Dealer Acknowledgement. Absent a final adjudication from a court of competent jurisdiction stating otherwise, the Company shall not to any person, institution, governmental or other entity, state, claim, allege, or in any way assert, that Buyer is currently, or ever has been, a broker-dealer under the Securities Exchange Act of 1934.
t. Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 4, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.3 of the Note.
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5. Transfer Agent Instructions. The Company shall issue irrevocable instructions to the Company’s transfer agent to issue certificates and/or issue shares electronically at the Buyer’s option, registered in the name of the Buyer or its nominee, upon conversion of the Note, the Conversion Shares, in such amounts as specified from time to time by the Buyer to the Company in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Company proposes to replace its transfer agent, the Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to the Company and the Company. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates or book entry shares shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Securities to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and/or this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within one (1) business day of each conversion of the Note. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to 144, Rule 144A, Regulation S, or other applicable exemption, the Company shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. Conditions to the Company’s Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and delivered the same to the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
7. Conditions to The Buyer’s Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement, the Security Amendment, the Guarantee Amendment, and the Pledge Amendment, and delivered the same to the Buyer.
b. The Company shall have delivered to the Buyer the duly executed Note in such denominations as the Buyer shall request and in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
d. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
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f. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
g. Trading in the Common Stock on the Principal Market shall not have been suspended by the SEC, FINRA or the Principal Market.
h. The Company shall have delivered to the Buyer resolutions adopted by the Company’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
8. Governing Law; Miscellaneous.
a. Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts located in the State of Nevada or in the federal courts located in the State of Nevada. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
b. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. A facsimile or .pdf signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile or .pdf signature. Delivery of a counterpart signature hereto by facsimile or email/.pdf transmission shall be deemed validly delivery thereof.
c. Construction; Headings. This Agreement shall be deemed to be jointly drafted by the Company and the Buyer and shall not be construed against any person as the drafter hereof. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement, the Note, or any other agreement or instrument delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby.
e. Entire Agreement; Amendments. This Agreement, the Note, and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement or any agreement or instrument contemplated hereby may be waived or amended other than by an instrument in writing signed by the Buyer.
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f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be transmitted by e-mail, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective upon delivery by e-mail, with accurate confirmation generated by the transmitting machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received). The addresses for such communications shall be:
If to the Company, to:
NIGHTFOOD HOLDINGS, INC.
520 White Plains Road, Suite 500
Tarrytown, NY 10591
Attention: Lei Sonny Wang
e-mail: Sonny@nightfoodholdings.com
If to the Buyer:
MAST HILL FUND, L.P.
150 Grossman Drive, Suite 205
Braintree, MA 02184
e-mail: admin@masthillfund.com
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyer. The Buyer may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, Principal Market or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, Principal Market (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
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m. Indemnification. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement or the Note, the Company shall defend, protect, indemnify and hold harmless the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of the Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.
n. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby, and to enforce specifically the terms and provisions hereof and thereof, without the necessity of showing economic loss and without any bond or other security being required.
o. Payment Set Aside. To the extent that the (i) Company makes a payment or payments to the Buyer hereunder, pursuant to the Note, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, or (ii) the Buyer enforces or exercises its rights hereunder, pursuant to the Note, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof (including but not limited to the sale of the Securities) are for any reason (i) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (ii) are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver, government entity, or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then (i) to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred and (ii) the Company shall immediately pay to the Buyer a dollar amount equal to the amount that was for any reason (i) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (ii) required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver, government entity, or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action).
p. Failure or Indulgence Not Waiver. No failure or delay on the part of the Buyer in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Buyer existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
| NIGHTFOOD HOLDINGS, INC. | |||
| By: | |||
| Name: | LEI SONNY WANG | ||
| Title: | CHIEF EXECUTIVE OFFICER | ||
| MAST HILL FUND, L.P. | |||
| By: | |||
| Name: | PATRICK HASSANI | ||
| Title: | CHIEF INVESTMENT OFFICER | ||
SUBSCRIPTION AMOUNT:
Principal Amount of Note: $473,000.00
Actual Amount of Purchase Price of Note: $402,050.00
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EXHIBIT A
FORM OF NOTE
[attached hereto]
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EXHIBIT B
PIGGY-BACK REGISTRATION RIGHTS
All of the Conversion Shares shall be deemed “Registrable Securities” subject to the provisions of this Exhibit B. All capitalized terms used but not defined in this Exhibit B shall have the meanings ascribed to such terms in the Securities Purchase Agreement to which this Exhibit is attached.
| 1. | Piggy-Back Registration. |
1.1 Piggy-Back Rights. If at any time on or after the date of the Closing the Company proposes to file any Registration Statement under the 1933 Act (a “Registration Statement”) with respect to any offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan or (iii) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities appearing on the books and records of the Company as such a holder as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of Registrable Securities as such holders may request in writing within three (3) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof (with the understanding that the Company shall file the initial prospectus covering the Buyer’s sale of the Registrable Securities at prevailing market prices on the same date that the Registration Statement is declared effective by the SEC).
1.2 Withdrawal. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 1.5 below.
1.3 The Company shall notify the holders of Registrable Securities at any time when a prospectus relating to such holder’s Registrable Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of such holder, the Company shall also prepare, file and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The holders of Registrable Securities shall not to offer or sell any Registrable Securities covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment.
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1.4 The Company may request a holder of Registrable Securities to furnish the Company such information with respect to such holder and such holder’s proposed distribution of the Registrable Securities pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the SEC in connection therewith, and such holders shall furnish the Company with such information.
1.5 All fees and expenses incident to the performance of or compliance with this Exhibit B by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the SEC, (B) with respect to filings required to be made with any trading market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) with respect to any filing that may be required to be made by any broker through which a holder of Registrable Securities intends to make sales of Registrable Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) 1933 Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Exhibit B and (vii) reasonable fees and disbursements of a single special counsel for the holders of Registrable Securities (selected by holders of the majority of the Registrable Securities requesting such registration) which shall in no event exceed $2,500 in fees. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any holder of Registrable Securities.
1.6 The Company and its successors and assigns shall indemnify and hold harmless the Buyer, each holder of Registrable Securities, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each individual or entity who controls the Buyer or any such holder of Registrable Securities (within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Exhibit B, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding the Buyer or such holder of Registrable Securities furnished to the Company by such party for use therein. The Company shall notify the Buyer and each holder of Registrable Securities promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Exhibit B of which the Company is aware.
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1.7 If the indemnification under Section 1.6 is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 1.6 was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 1.7 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 1.7, neither the Buyer nor any holder of Registrable Securities shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such party from the sale of all of their Registrable Securities pursuant to such Registration Statement or related prospectus exceeds the amount of any damages that such party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
[End of Exhibit B]
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EXHIBIT C
(see attached)
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Exhibit 21
NIGHTFOOD HOLDINGS, INC.
LIST OF SUBSIDIARIES
as at June 30, 2024
| Name | Jurisdiction of Formation | |
| Nightfood, Inc. | New York | |
| MJ Munchies, Inc.* | Nevada | |
| Future Hospitality Ventures Holdings Inc. | Nevada |
| * | Currently revoked in the State of Nevada |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lei Sonny Wang, certify that:
| 1. | I have reviewed this Form 10-K of NightFood Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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 principals; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| December 27, 2024 | By: | /s/ Lei Sonny Wang |
| Lei Sonny Wang | ||
| Chief Executive Officer | ||
| (Principal Executive, Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10-K of NightFood Holdings, Inc. for the fiscal year ended June 30, 2024, I, Lei Sonny Wang, Chief Executive Officer of NightFood Holdings, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
| 1. | Such Annual Report on Form 10-K for the fiscal year ended June 30, 2024 fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in such Annual Report on Form 10-K for the fiscal year ended June 30, 2024, fairly presents, in all material respects, the financial condition and results of operations of NightFood Holdings, Inc. |
| December 27, 2024 | By: | /s/ Lei Sonny Wang |
| Lei Sonny Wang | ||
| Chief Executive Officer | ||
| (Principal Executive, Financial and Accounting Officer) |