ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2016, as well as the other information set forth herein.
OVERVIEW
We
are a snack development, marketing and distribution company relying on our unique products, unique product positioning, and our
marketing expertise to develop and market nutritional/snack foods that are appropriate for evening snacking. Our first product
is the NightFood nutrition bar, currently available in two flavors (Cookies n’ Dreams, and Midnight Chocolate Crunch).
DEVELOPMENT
PLANS
Longer-term, assuming that we have established
sufficient traction with our initial product, the NightFood nutrition bar, the company intends to evaluate opportunities to introduce
other nighttime specific snack products in the snack formats already popular with consumers such as cookies, chips, and ice cream.
We believe the nutritional profile of
any popular snack food can be evaluated and formulated for what we call “sleep-friendliness”, and therefore optimized
as a better nighttime snack option.
The Company
is also evaluating opportunities to acquire other companies in related spaces. In November 2016, the Company executed and delivered
a Plan of Reorganization Including Option to Acquire (the “Plan”) by and among the Company, Hook Group, LLC (“Hook”)
and Suffield Foods. LLC (“Suffield”). The Plan contemplates the Registrant acquiring an equity interest in and potentially
merging Hook and its subsidiary Suffield with and into a wholly owned subsidiary of the Company.
This
transaction has not closed as of the date of this filing.
INFLATION
Inflation
can be expected to have an impact on our operating costs. A prolonged period of inflation could cause a general economic downturn
and negatively impact our results. However, the effect of inflation has been minimal over the past three years.
SEASONALITY
We
do not believe that our business will be seasonal to any material degree
.
RESULTS
OF OPERATIONS FOR THE THREE AND SIX MONTH PERIOD ENDED DECEMBER 31, 2016 AND DECEMBER 31, 2015.
For
the three months ended December 31, 2016 and December 31, 2015 we had revenues of $8,043 and ($338) respectively and incurred
a net loss of $84,372 and $148,747 respectively. These losses were largely attributable to consulting fees and expenses related
to being a public company.
For
the six months ended December 31, 2016 and December 31, 2015, we had revenues of $10,507 and $21,155 respectively and incurred
a net loss of $158,538 and $285,193 respectively. These losses were largely attributable to consulting fees and expenses related
to being a public company.
Revenue
Our
net revenues for the three month period ended December 31, 2016 were $8,043 net of sales allowances and sales discounts compared
to ($338) for the three month period ended December 31, 2015.
Our
net revenues for the six month period ended December 31, 2016 were $10,507 net of sales allowances and sales discounts compared
to $21,155 for the six month period ended December 31, 2015.
Inventory
As
of December 31, 2016, we had approximately $110,095 worth of product and packaging in inventory, compared to $121,706 worth of
product in inventory as of June 30, 2016.
Operating
Expenses
Operating
expenses decreased by $55,727 for the three month period ended December 31, 2016, from $148,105 for the three month period ended
December 31, 2015. The decrease was primarily due to the decrease in paid advertising and other operating expenses related to
direct to consumer sales of our product.
Operating
expenses decreased by $142,024 for the six month period ended December 31, 2016, from $305,731 for the six month period
ended December 31, 2015. The decrease was primarily due to the decrease in paid advertising and other operating expenses
related to direct to consumer sales of our product.
Customers
For
the three and six month period ending December 31, 2016, the majority of revenues resulted from wholesale sales of NightFood to
distributors and retailers, as well as direct to consumer sales.
LIQUIDITY
AND CAPITAL RESOURCES
As
of December 31, 2016, we had cash on hand of $5,396, and inventory value of $110,095.
The
Company has limited available cash resources and we do not believe our cash on hand will be adequate to satisfy our ongoing working
capital needs. The Company is continuing to raise capital through private placement of our common stock to finance the Company’s
operations, of which it can give no assurance of success. However, we believe that our current capitalization structure, combined
with the continued expansion in distribution, will enable us to achieve successful financings to continue our growth. Because
the business is new and has limited operating history and relatively few sales, no certainty of continuation can be stated. Management
is taking steps to raise additional funds to address its operating and financial cash requirements to continue operations in the
next twelve months. 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 is dependent upon raising additional funds through
debt and equity financing and generating revenue. There are no assurances the Company will receive the necessary funding or generate
revenue necessary to fund operations.
Even
if the Company is successful in raising additional funds, the Company cannot give any assurance that it will, in the future, be
able to achieve a level of profitability from the sale of its products to sustain its operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on recoverability and reclassification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
Since
our inception, we have sustained operating losses. During the six months ended December 31, 2016, we incurred a net loss of $158,538
compared to $285,193 for the six months ended December 31, 2015.
During
the six months ended December 31, 2016, net cash used in operating activities was $29,633 compared to $220,684 for the six months
ended December 31, 2015.
During
the six months ended December 31, 2016, net cash aggregating $29,548 was provided by financing activities.
From
our inception in January 2010 through December 31, 2016, we have generated an accumulated deficit of approximately $2,624,342.
Assuming we raise additional funds and continue operations, we expect to incur additional operating losses during the remainder
of fiscal 2017 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.
On
November 25, 2016, the company entered into a material definitive agreement. On that date, the company executed and delivered
a Plan of Reorganization Including Option to Acquire (the “Plan”) by and among the Registrant, Hook Group, LLC (“Hook”)
and Suffield Foods. LLC (“Suffield”). The Plan contemplates the Registrant acquiring an equity interest in and potentially
merging Hook and its subsidiary Suffield with and into a wholly owned subsidiary of the Registrant. As of the date of this filing,
the agreement remains in effect, and the parties continue to work towards a closing.
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, 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, 2016,
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 December 31, 2016.
OFF
BALANCE SHEET ARRANGEMENTS
None.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such
information is accumulated and communicated to management, including the chief executive officer and chief financial officer,
to allow timely decisions regarding required disclosures.
We
carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer
and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as
of December 31, 2016. In designing and evaluating the disclosure controls and procedures, management recognizes that there are
inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation
described above, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures
were not effective as of the end of the period covered by this report because we did not document our Sarbanes-Oxley Act Section
404 internal controls and procedures.
As
funds become available to us, we expect to implement additional measures to improve disclosure controls and procedures such as
implementing and documenting our internal controls procedures.
Changes
in internal controls over financial reporting
There
was no change in our internal controls over financial reporting that occurred during the period covered by this report, which
has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Limitations
on the Effectiveness of Controls
A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The Company’s management, including its Principal Executive Officer and its Principal
Financial Officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud.
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 the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions
or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.