FORWARD LOOKING STATEMENT INFORMATION
Certain statements made in this Quarterly Report on Form 10-Q involve known and
unknown risks, uncertainties and other factors that may cause our actual
results, performance, or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. You can identify these statements by the fact that
they do not relate strictly to historical or current facts, and use words such
as "anticipate," "believe," "estimate," "expect," "forecast," "may," "should,"
"plan," "project," "will" and other words of similar meaning. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Our plans and objectives are
based, in part, on assumptions involving judgments with respect to, among other
things, future economic, competitive and market conditions, technological
developments related to business support services and outsourced business
processes, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this Quarterly Report on Form 10-Q will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
statements included herein particularly in view of the current state of our
operations, the inclusion of such information should not be regarded as a
statement by us or any other person that our objectives and plans will be
achieved. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the factors set forth under the headings "Business" and "Risk
Factors" within our Annual Report on Form 10-K for the fiscal year ended June
30, 2021, as well as the other information set forth herein.
OVERVIEW
The Nighttime Snack Problem and Opportunity
What you eat before bed matters.
Nightfood is pioneering the category of sleep-friendly nighttime snacking.
Research indicates that humans are biologically hard-wired to load up on sweets
and fats at night. Loading a surplus of calories (fuel) into the body before the
long nightly fast is believed to be an outdated survival mechanism from our
hunter-gatherer days. Unfortunately, while modern consumers know this type of
consumption isn't necessary for survival, willpower also weakens at night, so
consumers are more likely to succumb to these unhealthy nighttime cravings for
excess "survival calories".
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As a result, over 85% of adults report snacking regularly between dinner and
bed, resulting in an estimated 700 million nighttime snack occasions weekly, and
an annual spend on night snacks of over $50 billion. Because of our hard-wired
evolutionary preferences for calorie-dense choices that increase the odds of
short-term survival, the most popular nighttime snacks are ice cream, cookies,
chips, and candy. These are all understood to be generally unhealthy. They can
also impair sleep quality.
And, because these cravings are biologically hardwired, we believe such
significant consumer spend on unhealthy nighttime snacking options will
continue. And the actual consumption of unhealthy snacks at night is expected to
remain a pattern and a problem for a significant portion of the population. We
believe it's a problem that demands a solution.
In recent years, billions of dollars of consumer spend have shifted to
better-for-you versions of consumers' favorite snacks. But we do not believe any
of those products were nutritionally formulated to support better sleep.
Nightfood snacks are not only formulated to be better-for-you, but they're also
formulated by sleep experts and nutritionists to provide a better nutritional
foundation for sleep.
Almost half of all snacking takes place between dinner and bed. Nutrition is an
important part of sleep-hygiene because what one eats at night impacts sleep.
Recent industry surveys indicated that most modern consumers have begun to seek
functional benefits from their snacks, and most consumers would also prefer
better sleep.
As the pioneers of the nighttime snacking category, Nightfood accepts the
responsibility to educate consumers and build the awareness required to grow the
nighttime segment of the overall snack market. Along with that responsibility
comes the opportunity to be the category king. We envision a future where
nighttime specific, sleep-friendly snacks comprise a multi-billion-dollar
segment of the estimated $150 billion American snack market.
Management believes significant latent consumer demand exists for better
nighttime snacking options, and that a new consumer category, consisting of
nighttime specific snacks, is set to emerge in the coming years. This belief is
supported by research from major consumer goods research firms such as IRI
Worldwide, and Mintel, who identified nighttime specific foods and beverages as
one of the "most compelling and category changing trends" for 2017 and beyond.
In recent years, CEO's and other executives from major consumer goods
conglomerates such as Nestle, PepsiCo, Mondelez, and Kellogg's have commented on
nighttime snack habits and patterns and alluded to the opportunity that might
exist in solving this problem for consumers.
Our Scientific Advisors
Nightfood has established a highly credentialed Scientific Advisory Board
consisting of sleep and nutrition experts to drive product formulation decisions
and provide consumer confidence in the brand promise. The first member of this
advisory board was Dr. Michael Grandner, Director of the Sleep and Health
Research Program at the University of Arizona. Dr. Grandner has been conducting
research on the link between nutrition and sleep for over fifteen years, and he
believes improved nighttime nutritional choices can improve sleep, resulting in
many short and long-term health benefits. In March of 2018, the Company added
Dr. Michael Breus to their Scientific Advisory Board. Dr. Breus, known to
millions as The Sleep Doctor™, is believed to be the Nation's most trusted
authority on sleep. He regularly appears in the national media to educate and
inform consumers so they can sleep better and lead happier, healthier, more
productive lives. In July, 2018, we completed our Scientific Advisory Board with
the addition of Lauren Broch, Ph.D, M.S. Dr. Broch is a sleep therapist and
former Director of Education & Training at the Sleep-Wake Disorders Center at
Weill Cornell Medical College. Dr. Broch also has a master's degree in human
nutrition. This combination allows her to play an important role in the
formulation of Nightfood snacks. These experts work with Company management to
ensure Nightfood products deliver on their nighttime-appropriate, and
sleep-friendly promises.
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Our Products
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.
Nightfood ice cream was introduced in 2019 and received significant media and
industry coverage. We won the 2019 Product of the Year Award in the ice cream
category in a Kantar innovation survey of over 40,000 consumers. We also won
both the Best New Ice Cream and Best New Dairy Dessert awards at the World Dairy
Innovation Awards.
The product received media coverage in outlets such as The Today Show, Oprah
Magazine, The Rachael Ray Show, Food Network Magazine, The Wall Street Journal,
USA Today, The Washington Post, Fox Business News, and many others.
Compared to regular ice cream, Nightfood is formulated to contain less sugar,
less fat, fewer calories, more tryptophan, more protein, more prebiotic fiber,
more vitamin B6, more calcium, magnesium, and zinc.
Nightfood ice cream is currently available in nine flavors. These are Full Moon
Vanilla, Midnight Chocolate, Cold Brew Decaf, After Dinner Mint Chip, Milk &
Cookie Dough, Cherry Eclipse, Bed and Breakfast, Cookies n' Dreams, and Pickles
For Two. Management recently made the decision to discontinue Pickles For Two
and is currently evaluating temporarily reducing the number of ice cream pint
SKUs in production to focus on the top-selling flavors for hotel distribution.
Nightfood mini-cookies were introduced in September, 2022. Our Prime-Time
Chocolate Chip cookies are in limited hotel distribution and available for sale
on our website. Our two newer flavors of cookies, Snoozerdoodle and Date Night
Cherry Oat, are expected to be produced in December 2022. Our cookies offer
similar nutritional benefits when compared to conventional cookies as our ice
cream does when compared to conventional ice cream. Nightfood cookies feature
less sugar, less fat, fewer calories, more protein, more prebiotic fiber, and
contain added inositol and vitamin B6.
Sleep-friendly versions of additional popular nighttime snack formats are
anticipated to be introduced in 2023 and beyond, subject to available funds and
interest from our hotel partners and customers. Our development roadmap includes
chips, single-serve ice cream novelties, candy, and more. Based on conversations
with hotel decision-makers, Nightfood management believes certain hotels are
seeking to have sleep-friendly snacks available in their lobby shops in multiple
formats, so that, whatever snack format a guest might be in the mood for on any
given night, there would be a sleep-friendly version available for them,
alongside the traditional legacy brands such as Haagen Dazs and Chips Ahoy.
Each new Nightfood snack format would be expected to deliver sleep-friendly
snacking in a way that is appropriate for that format. For example, Nightfood
chips would not necessarily contain significantly more tryptophan than other
brands of chips but would be expected to be more sleep-friendly in other ways.
The Competitive Landscape
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, 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.
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Such interest expressed in the link between nutrition and sleep, and the
nighttime snack occasion, by some of the largest food and beverage companies in
the world, indicates to us that the opportunity we're pursuing is both
financially and strategically significant.
Nightfood competes based upon the unique characteristics and positioning of our
products and we expect to derive significant leverage from being the pioneer and
creator of the emerging night snack category. However, other companies,
including those with greater name recognition than us and greater resources may
seek to introduce products that directly compete with our products. Management
believes that if a competitor sought to develop a competing product, it could do
so and begin to establish retail distribution in 12-24 months.
Management speculates that entry into our category by one of the global players
would significantly benefit our Company by advancing the growth of the category
while also significantly increasing the strategic value of our brand and
distribution partnerships to the other global competitors. Such entrance into
our category by a global competitor would likely force the other global snack
players to enter the space, perhaps sooner than they're prepared for. We believe
that such a hypothetical situation would likely result in one or more suitors
looking to acquire the Nightfood brand to allow them to better and more quickly
compete in this potentially pivotal consumer category.
Based on the current acquisition climate in the consumer goods space, Management
believes that successful growth of the Nightfood snack line would likely bring
acquisition offers from potential competitors as quickly as it might actually
bring competition on the shelf from those same potential competitors. Management
has no knowledge or reason to believe that any of the large global food and
beverage companies are actively planning a launch of any new internal products
to compete in our category.
Leveraging Hotels
Management believes widespread distribution in the lobby shops of the world's
largest hotel chains will provide the Nightfood brand a unique and powerful
competitive advantage within the sleep-friendly nighttime snack category. In the
hotel vertical, the brand can be insulated from potential competition compared
to in the supermarket environment. In addition, deep and wide hotel penetration
could serve to entrench Nightfood as the leading brand within the category, with
a de-facto endorsement by the hotel industry serving as a distinct competitive
advantage for Nightfood when competing head-to-head with competitors in other
segments of the marketplace.
Independent sales data from multiple sources reinforces our belief that
Nightfood snacks can compete favorably with leading national brands within the
context of hotel lobby markets. The Company expects to be able to expand its
current hotel distribution based on that sales data and the overall wellness
trend that plays an important role in today's hospitality industry.
We believe the very nature of the hotel lobby shops, with small retail footprint
and limited selection, will afford Nightfood a protected position in that
high-margin vertical during the formative years of our category. Furthermore,
management believes widespread hotel rollout of Nightfood snacks will serve to
validate the concept of sleep-friendly nutrition and night snacks in the minds
of consumers, potentially accelerating the adoption of the Nightfood brand in
all relevant retail verticals.
DEVELOPMENT PLANS
The Company is focused on building the nighttime snack category by leveraging
the expanding distribution of its snack products through hotel lobby
marketplaces.
There are approximately 56,000 hotels in the United States. The five largest
hotel companies account for approximately half of those locations, distributed
among dozens of hotel chains. Those are (in alphabetical order) Choice Hotels,
Hilton Worldwide, InterContinental Hotels Group, Marriott International, and
Wyndham Hotels & Resorts.
Management is working directly with three of those five companies to establish
expansion and/or introduction of Nightfood snacks. Two of those companies have
executed corporate-level tests of Nightfood ice cream sales in some of their
hotel locations, and both have declared those tests successful.
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Hotel lobby shops continue to evolve in terms of size, product assortment, and
increased emphasis from hotel brands as a source of revenue and customer service
and satisfaction.
Management believes hotels have an obligation to support better sleep for their
guests at every touchpoint. Unfortunately, the most popular snacks in hotel
lobby shops tend to be both unhealthy, and disruptive to sleep quality.
With focus on sleep and wellness trending powerfully within the hospitality
vertical, Management believes sleep-friendly nighttime snacks will soon become
standard within the hotel industry, and that Nightfood will remain the leading
brand as the category matures.
As a result of our decision to focus on highly relevant and high-margin hotel
distribution, we have temporarily shifted our focus away from traditional
supermarket distribution. Management expects widespread hotel distribution to
generate significant incremental sales with higher gross and net margins than
the supermarket vertical, where slotting, advertising, and trade promotion
expenses make profitability more difficult to attain. More importantly, we
believe hotels are where our brand can thrive, even against the most popular
legacy brands in snacking.
Current Hotel Distribution
In May, 2022, one of the five global hotel companies mentioned in this section
launched Nightfood ice cream into one of their hotel chains, an extended-stay
hotel brand with approximately 500 properties in the United States. To date, our
pints are currently in approximately 300 - 350 of those properties, with more of
the properties adding our ice cream over time. In September, 2022, because of
our successful sales results across that first hotel chain, that company
notified management that Nightfood would begin to be introduced in two of their
additional chains, comprising over 3,000 additional properties. That
introduction was expected to begin in October, 2022, but has not yet begun as of
the date of this filing.
Nightfood is currently available in approximately 500 hotel lobby shops across
the United States. This includes select locations from leading national and
international hotel chains such as Holiday Inn Express, Fairfield Inn, Courtyard
by Marriott, Hyatt House, Staybridge Suites, Candlewood Suites, Springhill
Suites, and more.
Nightfood ice cream is available for hotels to purchase nationally through
Vistar, a leading national wholesale distributor serving the hospitality
vertical. Nightfood cookies are not yet in wholesale distribution, but it is
expected that the cookies will soon be available through one or more national
distributors that service the hotel industry.
Recent Hotel Sales Data
Impulsify is an industry leader in hotel marketplace intelligence, compiling
real-time proprietary retail sales data from millions of hotel retail
transactions rung into their point-of-sale solutions. Impulsify data was
analyzed for the months of September and October 2022, across the subset of 30
Impulsify-reporting hotels which sold both Nightfood and Haagen Dazs pints, and
no other brands. Nightfood captured 39% of the unit sales while Haagen Dazs
captured 61%. The average selling price for Haagen Dazs in those hotels was
$7.55 and Nightfood was $7.90.
A separate set of independent point-of-sale data, with zero overlap to the
previously mentioned data set, showed Nightfood outselling Ben & Jerry's and
Baskin Robbins pints in a controlled test which included more than 30 lobby
shops, across many popular hotel brands. Pints from all three brands were priced
at $8.50. Nightfood captured 43% of the total pint volume, Ben & Jerry's had
34%, and Baskin Robbins had 23%. This data was collected over nine weeks ending
October 31, 2022.
During the first six weeks of the test, ads for Nightfood were run in a segment
of the hotels. Surprisingly, Nightfood had stronger relative sales in the hotels
without ads. For the final three weeks, there were no ads for any of the brands
in any of the properties. With all ads removed, Nightfood's sales remained
constant while the other brands sales decreased. As a result, Nightfood's share
of overall pint sales surged from 40% in the first six weeks to 50% for the
final three weeks.
The conclusions drawn from the test were that ads for Nightfood ice cream pints
actually lifted sales of the more well-known competitors (which is not
uncommon), and that sleep-friendly Nightfood, without ads, was decisively the
top-selling pint for the entire test period.
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The Future
Management believes such strong sales results in hotels relative to
well-established, decades-old national brands will enable Nightfood to secure
additional hotel chain brand-level distribution arrangements for our
sleep-friendly snacks.
While the dollar value of ice cream sales in any individual hotel shop are
understood to be modest, Nightfood's strong relative sales data obtained over
recent months, and so quickly after our launch, affirms our belief that
sleep-friendly snacks can outsell legacy snack brands in the high-margin hotel
environment.
The Company anticipates adding new distribution in thousands of hotels in the
coming months through relationships it has established with some of the largest
companies in the world in the hospitality vertical. We have built what we
believe is a very valuable network and distribution infrastructure, which
includes global hospitality companies, group purchasing organizations, hotel
management groups, and distributors. Potential new distribution is anticipated
to include Nightfood ice cream pints and Nightfood cookies, as well as
additional Nightfood snack formats during calendar 2023.
As we add additional hotels and chains, we believe there will be added pressure
on the rest of the hotel industry to also offer sleep-friendly snacks or risk
falling behind in the eyes of wellness-conscious travelers.
We believe that consumers seeing our snacks in some of the most trusted hotel
chains in the United States will drive awareness not only of our brand, but of
the fact that what one eats before bed matters. We believe broad acceptance of
this key consumer insight will help bring the nighttime snacking category to
life.
In addition to revenue growth, increased awareness, and operating profitability,
Management believes that national hotel distribution of its sleep-friendly
nighttime snacks will provide the foundation on which the nighttime snack
category can be built.
The primary goal of the company is to successfully develop and nurture the
nighttime snack category.
Management believes that success in attaining this goal will create significant
value for shareholders, as it would likely result in Nightfood not only being
the category pioneer, but also establishing a position from which Nightfood can
remain the dominant brand in this potential multi-billion dollar consumer
category.
INFLATION
Inflation can be expected to have an impact on our operating costs. Similar to
many other industries, we have recently seen increases in the cost of certain
ingredients and packaging materials. Such increases will either result in lower
gross margins or necessitate an increase in our wholesale pricing. A prolonged
period of inflation could cause a general economic downturn and negatively
impact our results.
SEASONALITY
With a focus on distribution of our snacks in hotels over the next 1-2 years
before we envision revisiting a focus on supermarkets, a certain amount of
seasonality is expected. As U.S. hotel occupancy has a history of peaking in
June and July, with occupancy rates approximately 10% above the average, it is
possible that we will experience an increase in sales related to that occupancy
peak.
As an early-stage and growing brand, with a product mix that is expected to
include a variety of snacks such as ice cream, cookies, chips, candy, and more,
the full impact of seasonality on our business might not be fully understood for
several additional annual cycles.
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CORONAVIRUS (COVID-19)
The outbreak of the novel coronavirus (COVID-19), including the measures to
reduce its spread, and the impact on the economy, has still not been fully
predicted.
We have experienced minimal issues with supply chain and logistics, except that
there have been recent and significant increases in costs relating to freight
and packaging. Order processing function has been normal to date, and our
manufacturers have assured us that their operations are "business as usual" as
of the time of this filing.
It is possible that the impact of the pandemic could make it more difficult in
the future for the Company to access required growth capital, possibly rendering
us unable to meet certain debts and expenses.
It is impossible to know what the future holds with regard to the virus, both
for our company and in the broader sense. There are many uncertainties regarding
the current coronavirus pandemic, and the Company is closely monitoring the
impact of the pandemic on all aspects of its business, including how it will
impact its customers, vendors, and business partners. It is difficult to know if
the pandemic has materially impacted the results of operations, and we are
unable to predict the impact that COVID-19 will have on our financial position
and operating results due to numerous uncertainties. The Company expects to
continue to assess the evolving impact of the COVID-19 pandemic and intends to
make adjustments accordingly, if necessary.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2022 AND
2021.
For the three months ended September 2022 and 2021, we had Gross Sales of
$99,223 and $189,536, respectively and Net Revenues (Net Revenues are defined as
Gross Sales, less Slotting Fees, Sales Discounts, and certain other revenue
reductions) of $79,790 and $114,453, respectively, and incurred operating losses
of $558,607 and $833,675, respectively. Accounting standards require exclusion
on the income statement of Gross Sales made to a customer to whom the Company is
paying slotting fees (slotting fees are fees occasionally charged by retailers
and distributors to add a new product into their product assortment). In those
situations, the Gross Sales number is reduced, dollar for dollar, by the
slotting fees, until the total cost of the slotting is covered. These slotting
fees do not appear on the income statement as an expense. Rather, Slotting Fees,
along with Sales Discounts, are applied against Gross Sales, resulting in Net
Revenue, as shown below. The netting of Gross Sales against slotting and sales
discounts, as described and shown below, results in the Net Revenue number at
the top of the income statement. This is not a reflection of the amount of
product shipped to customers, but rather a function of the way certain sales are
accounted for when those sales are made to customers who are charging slotting
fees.
For the For the
three months three months
period ended period ended
September 30, September 30,
GROSS SALES 2022 2021
Gross product sales $ 99,223 $ 189,356
Less:
Slotting fees -
Sales discounts, promotions, and other reductions (19,253 ) (75,083 )
Net Revenues $ 79,970 $ 114,453The decrease in Gross Sales relative to the same period in 2021 was largely due
to the fact that we had fewer traditional supermarket points of distribution in
the current reporting period. Over time, we expect that anticipated hotel
expansion will more than offset the loss of these sales, resulting in higher
gross sales and net revenues in future quarters. Furthermore, the hotel sales
project to be significantly more profitable on a per unit basis, as sales are
expected to be conducted at full wholesale pricing, and line items such as
slotting, advertising, and price promotions project to be greatly reduced or
entirely eliminated in relation to hotel sales.
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For the three months ended September 30 2022 and 2021, Cost of Product Sold
increased to $125,121 from $124,874. The reason Cost of Product Sold increased
despite the decrease in gross sales is the result of significant freight cost
increases on a per unit basis. This is partly due to increases in gas prices
driving up freight costs in general, and also due to our average shipment being
smaller than for the same period last year. It is expected that as we add more
hotel points of distribution, our average order size will increase, and freight
as a percentage of sales will decrease substantially.
For the three months ended September 30 2022 and 2021, Advertising and
Promotional Expenses decreased from $305,016 to $37,166. This decrease is
largely due to a shift in distribution focus to the hotel vertical. Hotel
distribution is expected to deliver higher gross and net margins over time. One
significant driver of higher expected margins is the lack of need for
advertising and promotion spend in hotel distribution compared to the high
advertising and promotion expenses when trying to drive growth in traditional
retail and supermarket distribution.
With a focus on the hotel vertical, we expect advertising costs to remain
relatively low when compared to net revenues.
For the three months ended September 30, 2022 and 2021, Selling, General, and
Administrative expenses decreased from $275,372 to $126,343. The largest
component of this decrease was a decrease in investor relations expenses along
with decreases in storage and other warehouse expenses and research and
development expenses.
For the three months ended September 30, 2022 and 2021, Professional Fees
increased from $242,866 to $349,949. This increase was largely due to expenses
related to the preparation, filing, and qualification of our Tier 2 offering
pursuant to Regulation A plus expenses related to the debt financing closed on
September 23, 2022.
For the three months ended September 30, 2022 and 2021, Total Operating Expenses
decreased from $948,128 to $638,577. As discussed above, the major component of
this decrease was the reduction in advertising and marketing spend, which we
expect to be a pattern going forward while hotels remain the primary focus of
our distribution efforts.
Total Operating Expenses includes those expenses associated with running the
operating portion of our business (such as the manufacturing our snacks,
advertising for our product, warehousing, freight, and the like). It also
includes certain cash and non-cash expenses incurred by us related to activities
such as SEC compliance, fundraising activities, and maintaining our public
entity in good standing. Our revenues and operations are currently limited,
therefore expenses relating to financing and compliance activities make up a
larger portion of our total expenses than they might in a larger company. For
the three months ended September 30, 2022, our Total Operating Expenses were
$638,577. Of that, $274,598 is related to running our business operations, and
$363,979 is related to financing, compliance, and other non-operational
activities.
For the three months ended September 30, 2022 and 2021, Loss From Operations
decreased from $833,675 to $558,609. This decrease was due to the relatively
large decrease in operating expenses when compared to the smaller decrease in
net revenues. As with Total Operating Expenses, Loss From Operations includes
$363,979 of expenses that are classified as operating expenses, but are related
to non-operational activities. For the three months ended September 30, 2022,
the losses incurred from actual operating activities of the business were
$194,628.
For the three months ended September 30 2022 and 2021, Total Other Expenses
increased to $642,503 from $0. The majority of these expenses are related to
accounting treatment applied to debt and the amortization of debt discount of
$544,545. This is not an actual cash expense, but is a function of the way
certain financing activities are accounted for. This increase in Total Other
Expenses resulted in an increase in Net Loss to $1,201,110 for the period ending
September 30, 2022 compared to $833,675 for the period ending September 30,
2021. Of that total Net Loss of $1,201,110, losses incurred from actual
operating activities of the business were $194,628, and $1,006,482 was related
to other expenses such as interest, SEC compliance, and fundraising activities.
Customers
During the three months ended September 30, 2022, the Company had five customers
accounting for over 10% of gross sales. One of those accounted for approximately
29% of the gross sales and another accounted for approximately 22% of the gross
sales.
During the three months ended September 30, 2021, the Company had four customers
accounting for over 10% of gross sales. Two of those customers each accounted
for approximately 20% of the gross sales, one for 17% and one for 14%.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, we had cash on hand of $220,412, receivables of
$130,396 and inventory value of $433,188.
Our cash on hand is not adequate to satisfy our long-term working capital needs.
We believe that our current capitalization structure, combined with ongoing
increases in distribution, revenues, and market capitalization, will enable us
to successfully secure required financing to continue our growth.
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. We believe this offering, if we
successfully raise the maximum amount being offered, will enable us to eliminate
all corporate debt and operate the company until significant growth milestones
are achieved, perhaps including attaining profitability
Because the business has limited operating history and sales, no certainty of
continuation can be stated. Management has devoted a significant amount of time
in the raising of capital from additional debt and equity financing. However,
the Company's ability to continue as a going concern will again be dependent
upon raising additional funds through debt and equity financing, including our
Regulation A+ offering, and generating revenue. There are no assurances the
Company will receive the necessary funding or generate revenue necessary to fund
operations long-term.
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The Company cannot give any assurance that it will, in the future, be able to
achieve a level of profitability from the sale of its products to sustain its
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying financial statements do not
include any adjustments to reflect the possible future effects on recoverability
and reclassification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
Since our inception, we have sustained operating losses. During the three months
ended September 30, 2022, we incurred a net loss of $1,201,110 compared to
$833,675 for the three months ended September 30, 2021. The majority of our net
loss for this current reporting period is related to the way certain financing
activities were accounted for, and not related to losses from business
operations.
During the three months ended September 30, 2022, net cash used in operating
activities was $414,610 compared to net cash used of $878,394 for the three
months ended September 30, 2021. This decrease is largely due to an increase in
accounts payable and a decrease in the amount of stock issued for services for
the three months ended September 30, 2022 compared to the prior year.
We did not use any cash in investing activities, during the three months ended
September 30, 2022 or September 30, 2021.
During the three months ended September 30, 2021, net cash aggregating $354,145
was provided by financing activities, compared to $308,200 for the three months
ended September 30, 2021. In the three months ended September 30, 2021, our
financing activities consisted of sales of our Series B Preferred Stock. In the
three months ended September 30, 2022, our financing activities consisted of the
issuance of debt in the form of a twelve-month promissory note.
From our inception in January 2010 through September 30, 2022, we have generated
an accumulated deficit of approximately $29,648,030. This is not debt and this
is not an amount that needs to be paid out at any point in the future. 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 early-stage companies to have
significant accumulated deficit, even after turning profitable. Many large, fast
growing, and successful companies have reported accumulated deficits in recent
years, such as Warby Parker, The Honest Company, Beyond Meat, Roblox, Robinhood,
Sweetgreen, Oatly, Rivian, Celsius Holdings, Chobani, and Tesla. In our case,
like many of these others, an 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, we expect to incur
additional operating losses during the next two to four quarters and possibly
thereafter. We plan to continue to pay or satisfy existing obligations 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.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
is based on our unaudited condensed consolidated financial statements, which
have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these unaudited condensed consolidated financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an on-going basis, we evaluate past judgments and our
estimates, including those related to allowance for doubtful accounts, allowance
for inventory write-downs and write offs, deferred income taxes, provision for
contractual obligations and our ability to continue as a going concern. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Note 2 to the consolidated financial statements, presented in our Annual Report
on Form 10-K for the fiscal year ended June 30, 2022, describe the significant
accounting estimates and policies used in preparation of our consolidated
financial statements. There were no significant changes in our critical
accounting estimates during the three months ended September 30, 2022.
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