8-K: Nightfood Secures $1.175M Senior Debt with 15% Discount

Nightfood Holdings, Inc. has secured a new $1.175 million senior secured promissory note from Mast Hill Fund, L.P., providing $998,750 in net proceeds after a 15% original issue discount.

Summary

• Nightfood Holdings, Inc. (the "Company") entered into a Securities Purchase Agreement with Mast Hill Fund, L.P. (the "Investor") on January 10, 2026.
• The Company issued a senior secured promissory note with a principal amount of $1,175,000.00.
• The note was issued at an original issue discount (OID) of fifteen percent (15%), resulting in net proceeds to the Company of $998,750.00, with some amounts withheld for transaction-related expenses.
• The note matures twelve (12) months from the issue date (January 10, 2027) and bears interest at a rate of fifteen percent (15%) per annum.
• The interest rate will decrease to 5% during periods when the Common Stock is listed for trading on an Exchange.
• On January 9th of every calendar year after the Issue Date, the OID will increase by 10% of the total outstanding balance of the Note.
• The note is convertible into shares of the Company's common stock at a conversion price equal to the lesser of (i) $0.033 per share or (ii) 80% of the lowest closing price of the Common Stock during the five (5) Trading Days immediately preceding the conversion date, subject to adjustments.
• A beneficial ownership limitation of 4.99% of the outstanding common stock applies to conversions.
• In connection with the note, the Company also entered into Eleventh Amendments to its Security Agreement, Pledge Agreement, and Guarantee, incorporating the new note under these existing agreements.
• The securities were sold pursuant to an exemption from registration requirements under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D, with the Investor representing itself as an accredited investor.

Sentiment

Score: 2

Explanation: The sentiment is very negative due to the highly unfavorable terms of the debt financing, including a high interest rate, significant original issue discount, and extremely dilutive conversion provisions. The extensive and punitive covenants and default terms further restrict the Company's flexibility and increase financial risk for existing shareholders.

Positives

• The Company successfully secured $998,750.00 in net proceeds, providing immediate capital.
• The interest rate on the note decreases from 15% to 5% if the Common Stock is listed for trading on an Exchange, offering a potential reduction in financing costs under certain conditions.

Negatives

• The note carries a high annual interest rate of 15%, increasing the Company's debt servicing costs.
• A significant original issue discount of 15% means the Company received only $998,750.00 for a $1,175,000.00 principal amount.
• The conversion price mechanism, set at the lesser of $0.033 or 80% of the lowest closing price over five trading days, is highly dilutive to existing shareholders.
• The OID increases by 10% of the total outstanding balance annually, further increasing the effective cost of the debt.
• Upon an Event of Default, the Company must pay 150% of the outstanding principal and accrued interest, plus collection costs, which is a substantial penalty.
• The Holder has the option to adjust the conversion price to 50% of the then-effective conversion price upon an Event of Default, leading to even greater dilution.

Risks

• The Company faces significant dilution risk for existing shareholders due to the convertible nature of the note and the aggressive conversion price formula.
• A high interest rate of 15% and an annual 10% OID increase on the outstanding balance pose substantial debt servicing obligations.
• The note includes numerous restrictive covenants, such as prohibitions on incurring senior or pari passu indebtedness, paying dividends (except stock dividends), repurchasing stock, selling significant assets outside the ordinary course of business, and engaging in Variable Rate Transactions.
• Failure to maintain a market capitalization of at least $2,500,000 on any Trading Day constitutes an Event of Default.
• The Company is prohibited from entering into Section 3(a)(9) or 3(a)(10) transactions, with a liquidated damages charge of 25% of the outstanding principal balance (minimum $25,000) for non-compliance.
• Failure to comply with 1934 Act reporting requirements (subject to a 5-day cure period) or delisting/suspension of Common Stock trading are Events of Default.
• The Company must reserve a number of shares for conversion equal to four times the shares issuable upon full conversion, which could strain authorized share limits.
• Disclosure of material non-public information without a simultaneous Form 8-K filing incurs a penalty of $3,000 per day.
• An existing lawsuit (Jose Meija vs. Nightfood Inc.) regarding website accessibility, though expected to settle for $10,000-$16,000, represents an ongoing legal exposure.

Future Outlook

The filing does not provide explicit forward-looking statements or guidance beyond the terms and conditions of the debt financing and the Company's ongoing obligations under the various agreements. The Company's ability to meet its covenants and manage the dilutive effects of the convertible note will be critical for its future financial health.

Industry Context

This financing arrangement, characterized by a high interest rate, significant original issue discount, and highly dilutive conversion terms, is typical for smaller, micro-cap companies that may have limited access to conventional financing sources. Such terms often reflect a higher perceived risk by lenders and can be indicative of a company in need of immediate capital for operations, growth, or to address existing liabilities, but at a substantial cost to equity holders. The extensive covenants and default provisions suggest a lender-friendly structure designed to protect the investor's position in a high-risk environment.

Comparison to Industry Standards

• The 15% annual interest rate and 15% original issue discount are significantly higher than typical corporate debt financing rates, even for high-yield bonds, indicating a very high-risk profile for Nightfood Holdings, Inc.
• The conversion price mechanism, set at the lesser of a fixed price ($0.033) or 80% of the lowest closing price over five trading days, is highly dilutive and more aggressive than standard convertible debt terms, which often use a premium to the current market price.
• The 10% annual increase in OID on the outstanding balance is an unusual and aggressive term, further increasing the effective cost of capital over time.
• The extensive list of Events of Default, including a minimum market capitalization requirement of $2.5 million and prohibitions on future Variable Rate Transactions, imposes significant restrictions on the Company's operational and financial flexibility, which is more stringent than typical debt covenants for established companies.
• The 150% default amount and the option for the Holder to adjust the conversion price to 50% of the then-effective price upon default are extremely punitive terms, rarely seen in standard corporate financing and indicative of a distressed or highly speculative lending scenario. No specific comparable companies or projects are mentioned in the filing to provide direct benchmarks.

Corporate Governance

Legal Proceedings

• A pending lawsuit, Jose Meija vs. Nightfood Inc., filed June 2, 2022, concerns the accessibility of the Nightfood.com website for visually impaired consumers. The Company believes this is part of a coordinated effort to extort settlements and expects to settle for between $10,000 and $16,000.

Related Party Transactions

• Jimmy Chan, CEO of Nightfood Holdings, Inc., is identified as the Pledgor in the Eleventh Amendment to the Pledge Agreement, indicating a personal pledge related to the Company's obligations to Mast Hill Fund, L.P.

Stakeholder Impact

• **Shareholders**: Face significant potential for dilution due to the highly unfavorable conversion terms of the note (lower of $0.033 or 80% of the lowest 5-day closing price). The high interest rate and OID also increase the Company's financial burden, potentially impacting profitability and future equity value.
• **Creditors**: The new note is a senior secured obligation, which means it has priority over existing and future unsecured indebtedness. This could negatively impact the recovery prospects of other unsecured creditors in a default scenario.
• **Company Management**: Will operate under stringent financial covenants and restrictions, limiting strategic flexibility in areas such as future capital raises, asset sales, and debt incurrence. Failure to comply with these covenants could trigger severe penalties and accelerate the debt.
• **Employees**: While not directly impacted by the debt terms, the Company's constrained financial position and operational restrictions could indirectly affect employee compensation, benefits, or job security if financial performance deteriorates.

Next Steps

• The Company must comply with the terms and covenants of the Securities Purchase Agreement, the Senior Secured Promissory Note, and the amended Security, Pledge, and Guarantee Agreements.
• The Company will need to manage the repayment or conversion of the $1,175,000.00 note by its maturity date of January 10, 2027.
• The Company is obligated to maintain its listing on the Principal Market and comply with 1934 Act reporting requirements.
• The Company must purchase director and officer insurance within 60 calendar days of the closing, with two years of tail coverage.

Key Dates

Recommendation

The terms of this senior secured promissory note are highly detrimental to existing shareholders. The 15% interest rate, 15% original issue discount, and particularly the conversion price mechanism (80% of the lowest closing price over five days) indicate severe dilution risk. The extensive list of restrictive covenants and events of default, including a 150% default amount, place the company in a precarious financial position. The requirement to maintain a $2.5 million market capitalization and prohibitions on future variable rate transactions further limit the company's flexibility. This financing structure suggests significant financial distress and a high likelihood of further value erosion for equity holders.

Keywords

Nightfood Holdings, NGTF, Mast Hill Fund, senior secured promissory note, debt financing, convertible debt, original issue discount, SEC filing, 8-K, dilution, corporate finance, capital raise, restrictive covenants