UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarter ended: June 30, 2013

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from ___________ to____________

 

Commission File Number: 000-51388

 

CONO ITALIANO, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		84-1665042
(State or other jurisdiction of incorporation)		(IRS Employer I.D. No.)

 

10 Main Street

Keyport, NJ 07735

(Address of principal executive offices and Zip Code)

 

(877) 330-2666

(Registrant’s telephone number, including area code)

 

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 past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer	[  ]		Accelerated filer	[  ]
Non-accelerated filer	[  ]		Smaller reporting company	[X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of November 4, 2013, there were 110,002,165 shares outstanding of the registrant’s common stock.

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
		3
Item 1.	Financial Statements.
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	9
Item 4.	Controls and Procedures.	9
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.	10
Item 1A.	Risk Factors.	10
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.	10
Item 3	Defaults Upon Senior Securities.	10
Item 4.	Mining Safety Disclosures.	10
Item 5.	Other Information.	10
Item 6.	Exhibits.	10
Signatures		11

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

FINANCIAL REPORTS

AT

JUNE 30, 2013

 

 

CONO ITALIANO, INC.

(A DEVELOMENT STAGE COMPANY)

(A NEVADA Corporation)

Keyport, New Jersey

 

TABLE OF CONTENTS

 

Unaudited Consolidated Balance Sheets at June 30, 2013 and December 31, 2012	F-1
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012 and the Period from Inception (March 2, 2006) Through June 30, 2013	F-2
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012 and the Period from Inception (March 2, 2006) Through June 30, 2013	F-3
Notes to Consolidated Financial Statements	F-4 - F-16

 

 

CONO ITALIANO, INC

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

UNAUDITED CONSOLIDATED BALANCE SHEETS
		June 30, 2013				December 31, 2012
ASSETS
Cash and Cash Equivalents		$	1,781			$	30,562
Accounts Receivable, Net of Allowance for Doubtful Accounts of $2,440 and $2,440, respectively			7,867				2,465
Packaging Inventory			16,000				—
Due from Related Party			—				16,937
Prepaid Expenses			—				46,000
Deferred Equity Financing Costs			—				84,591
Deferred Note Payable Issuance Costs - Net of Accumulated Amortization of $32,604 and $39,125, respectively			—				6,521
Total Current Assets			25,648				187,076
Property and Equipment - Net of Accumulated Depreciation of $99,744 and $96,010, respectively			163,804				167,537
Other Assets
Equipment Deposit			20,000				20,000
Total Assets		$	209,452			$	374,613
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts Payable		$	157,695			$	135,508
Accrued Expenses			138,098				145,446
Accrued Legal Expense			220,269				199,269
Accrued Interest - Officer			—				59,834
Accrued Compensation - Officers			337,500				225,000
Convertible Notes Payable, Net of Unamortized Discount of $-0- and $2,193, respectively			297,988				295,795
Due to Officer			769,317				767,317
Derivative Liability			24,876				35,592
Total Current Liabilities			1,945,743				1,863,761
Stockholders’ Deficit
Common Stock - $.001 Par; 150,000,000 Shares Authorized, 110,002,165 and 107,233,087 Shares Issued and Outstanding			110,002				107,233
Additional Paid-In-Capital			1,578,370				1,406,125
Deficit Accumulated During Development Stage			(3,424,663	)			(3,002,506	)
Total Stockholders’ Deficit			(1,736,291	)			(1,489,148	)
Total Liabilities and Stockholders’ Deficit		$	209,452			$	374,613

 

The accompanying notes are an integral part of these financial statements.

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
																		Period From
																		Date of Inception
		For the Three Months Ended								For the Six Months Ended								(March 2, 2006)
		June 30,								June 30,								Through
		2013				2012				2013				2012				June 30, 2013
Sales		$	11,199			$	61,426			$	26,008			$	61,426			$	182,987
Cost of Sales			10,822				46,478				28,376				46,478				155,412
Gross Profit (Loss)			377				14,948				(2,368	)			14,948				27,575
Expenses
Selling and Direct			23,180				36,000				84,486				36,000				596,693
Compensation Expense			56,250				56,250				112,500				112,500				757,505
General and Administrative			122,025				100,972				185,874				159,710				1,777,264
Interest Expense			34,181				14,737				47,645				21,875				165,859
Loss on Impairment of License Right			—				—				—				—				130,505
Loss (Gain) on Derivative Liability			15,509				—				(10,716	)			—				24,876
Gain on Disposal of Assets			—				—				—				—				(464	)
Total Expenses			251,145				207,959				419,789				330,085				3,452,238
Net Loss for the Period		$	(250,768	)		$	(193,011	)		$	(422,157	)		$	(315,137	)		$	(3,424,663	)
Loss per Share - Basic and Diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted Average Common Shares Outstanding			110,002,165				102,393,527				109,651,158				101,232,688

 

The accompanying notes are an integral part of these financial statements.

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
										Period From
										Date of Inception
										(March 2, 2006)
										Through
For the Six Months Ended June 30,		2013				2012				June 30, 2013
Cash Flows from Operating Activities
Net Loss for the Period		$	(422,157	)		$	(315,137	)		$	(3,424,663	)
Adjustments to Reconcile Net Loss for the Period to Net Cash Flows Used in Operating Activities:
Amortization of Deferred Note Payable Issuance Costs			6,521				13,042				58,619
Amortization of Debt Discount			2,193				4,386				13,156
Bad Debt Expense			16,937				—				19,377
Depreciation			3,733				27,717				113,957
Amortization of Deferred Equity Financing Costs			84,591								84,591
Common Stock Issued in Exchange for Services			60,000				36,000				1,001,823
Expense to Prior Owners			—				—				350,520
Imputed Interest on Officer’s Loan			34,529				—				34,529
Loss on Impairment of License Right			—				—				130,505
Loss (Gain) on Derivative Liability			(10,716	)			—				24,876
Gain on Disposal of Assets			—				—				(464	)
Common Stock Issued in Lieu of Rent Expense			—				—				36,000
Changes in Assets and Liabilities:
Accounts Receivable			(5,402	)			(42,556	)			(10,307	)
Prepaid Expenses			46,000				—				27,328
Packaging Inventory			(16,000	)							(16,000	)
Accounts Payable			22,187				44,549				(2,271	)
Accrued Expenses			2,380				6,160				71,495
Accrued Compensation - Officers			116,416				112,500				341,416
Accrued Legal Expense			21,000				9,301				158,105
Accrued Interest			7,007				17,163				113,630
Deferred Revenues			—				—				75,818
Net Cash Flows Used In Operating Activities			(30,781	)			(86,875	)			(797,960	)
Cash Flows from Investing Activities
Proceeds from Sale of Asset			—				—				5,000
Acquisition of Cash in Reorganization			—				—				916
Purchase of Property and Equipment			—				(80,009	)			(267,300	)
Net Cash Flows Used In Investing Activities			—				(80,009	)			(261,384	)
Cash Flows from Financing Activities
Bank Overdraft			—				(3,348	)			—
Cash Proceeds from Issuance of Debt			—				27,698				250,000
Repayment of Debt			—				(6,873	)			—
Cash Proceeds from Convertible Note Payable			—				250,000				27,698
Cash Paid for Deferred Equity Financing Costs			—				—				(27,698	)
Cash Paid for Issuance of Deferred Note Payable			—				(34,125	)			(34,125	)
Cash Proceeds from Sale of Stock			—				75,000				339,870
Cash Received (Paid to) from Related Party - Net			—				(30,000	)			48,063
Due to Officer - Net			2,000				45,342				457,317
Net Cash Flows Provided By Financing Activities			2,000				323,694				1,061,125
Net Change in Cash and Cash Equivalents			(28,781	)			156,810				1,781
Cash and Cash Equivalents - Beginning of Period			30,562				—				—
Cash and Cash Equivalents - End of Period		$	1,781			$	156,810			$	1,781
Supplemental Non-Cash Investing and Financing Activities:
Acquisition of Accounts Payable in Reorganization		$	—			$	—			$	210,132
Acquisition of Notes Payable in Reorganization		$	—			$	—			$	47,988
Deemed Distribution		$	—			$	—			$	312,000
Expenses Paid by Related Party		$	—			$	5,000			$	5,000
Common Stock Issued (Retired) for Prepaid Expenses		$	—			$	—			$	105,828
Common Stock Issued to Relieve Accounts Payable		$	—			$	—			$	3,500
Common Stock Issued for Note Payable Conversion		$	—			$	—			$	202,547
Common Stock Issued for Related Party Payable		$	—			$	—			$	70,000
Accrued Interest Forgiven by Officer		$	63,750			$	—			$	63,750
Shares Issued to Relieve Stock Payable		$	16,735			$	—			$	16,735
Cash Paid During the Period for:
Interest		$	—			$	—			$	—
Income Taxes		$	—			$	—			$	—

 

The accompanying notes are an integral part of these financial statements.

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note A

-

The Company

 

Merger and Recapitalization

 

The Company was incorporated in the State of Nevada on September 9, 2004, as Arch Management Services Inc. A change of control of the Company occurred on June 5, 2006 and the Company changed its name from “Arch Management Services Inc.” to “Tiger Ethanol International Inc.” on November 24, 2006. On February 11, 2008 the Company changed its name to “Tiger Renewable Energy Ltd.” Another change of control of the Company occurred on June 4, 2009. On August 10, 2009 the Company changed its name to “Cono Italiano, Inc.” and its symbol changed to CNOZ.

 

The Company was previously party to a joint venture named Xinjiang Yajia Distillate Company Limited (the “Venture”) to produce ethanol in the People’s Republic of China. The Company’s board of directors determined that it was in the Company’s best interest to initiate a withdrawal from the ethanol business as of January 31, 2009 and assess alternative businesses.

 

On June 4, 2009 an Affiliate Stock Purchase Agreement (the “Stock Purchase Agreement”) was entered into by and between Gallant Energy International Inc. (“Gallant”), the owner of 5,000,000 shares of the Company’s common stock (prior to the Company’s one for sixty reverse stock split) and Lara Mac Inc. (“Lara Mac”), an entity controlled by Mitchell Brown (now the Chief Executive Officer of the Company and a member of the Company’s Board of Directors). Pursuant to the Stock Purchase Agreement, Gallant sold all of its 5,000,000 shares of the Company’s common stock to Lara Mac. The Gallant transaction with Lara Mac resulted in a change in control of the largest voting block of the Company effective as of June 4, 2009.

 

Under the terms of the Stock Purchase Agreement, the Board appointed five individuals to fill vacancies on the Board. These new directors commenced their service on June 19, 2009. The Board also appointed four new officers of the Company.

 

On August 10, 2009, the Company conducted a one for sixty reverse stock split. As of that date, all of the existing outstanding common stock of the Company have been consolidated such that existing stockholders will hold one share of post-split common stock for every sixty shares owned prior to the reverse split. All fractional shares resulting from the reverse stock split have been rounded up to the next whole share.

 

Janex International Inc. was formed on July 6, 2007, in the State of Delaware. On January 8, 2008 Janex International Inc., changed its name to Cono Italiano, Inc (Delaware).

 

Cono Italiano, LLC (Cono, LLC) was formed on June 27, 2007 as a limited liability company in the State of New Jersey. Cono, LLC had no operations and its primary assets were the license rights to manufacture, market, and distribute “pizza cono”, a unique pizza style food product.

 

- continued -

 

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note A

-

The Company - continued

 

Merger and Recapitalization

 

In March 2007, the license rights held by the individual founders of Cono, LLC were sold to The Total Luxury Group (TLG), an unrelated entity. On January 8, 2008 the license rights were transferred to Mitchell Brown for the total consideration of $312,000. The transfer of Cono, LLC (which includes the license rights) was effected in settlement of an obligation due to Mitchell Brown by TLG.

 

On January 14, 2008, Cono, LLC was sold to Cono, Inc. (Delaware) for the total consideration of $426,000. In exchange for the 100% interest in Cono, LLC, the sole member of the LLC received 6,000,000 shares of Cono, Inc. (Delaware) valued at $114,000 and was issued a promissory note for $312,000. Mitchell Brown is also a principal stockholder in Cono, Inc. (Delaware).

 

The transaction was accounted for as a recapitalization of Cono, Inc. and Cono, LLC; as both companies were under common control. As such, the assets and liabilities of Cono, LLC were carried over to Cono, Inc. (Delaware) at the historical carrying values.

 

At the time of the sale of Cono, LLC to Cono, Inc. (Delaware), Cono LLC had a tangible net book value of $114,700. Since the assets and liabilities of Cono, LLC were recorded at their historical carrying amounts after the merger and recapitalization, the excess of the consideration paid of $426,000 over the carrying value of $114,700 had been recorded as a distribution to the stockholder.

 

On November 12, 2009 Cono Inc. (Delaware) entered into a share exchange agreement whereby Cono Inc. (Delaware) would exchange all of its common stock for the stock of Tiger Renewable Energy, Inc. (TRE) (a shell company) on a share for share basis. Prior to entering into the share exchange agreement, the principal stockholder of Cono Inc. (Delaware) became a stockholder of TRE, either through direct ownership or through an entity in which he controlled, effectively gaining control of TRE, and on August 10, 2009, TRE changed its name to Cono Italiano, Inc., a Nevada corporation. As an inducement for Cono (Delaware) to enter the share exchange agreement, TRE’s largest shareholder has agreed to the cancellation of 242,557 shares of Cono (Nevada) stock.

 

The exchange of shares between Cono Italiano, Inc., (Delaware) and Cono Italiano, Inc., (Nevada) was accounted for as a recapitalization of the Companies, as the majority stockholder of Cono Italiano, Inc. will be the majority stockholder of the surviving company. Pursuant to the accounting for a recapitalization, the historical carrying value of the assets and liabilities of Cono, Inc. (Nevada) will carry over to the surviving company.

 

Effective at the closing of the share exchange transactions, November 12, 2009, Cono (Delaware) became a wholly owned subsidiary of Cono (Nevada).

 

On December 13, 2011 the Board of Directors approved increasing the authorized shares of common stock from 100,000,000 to 150,000,000.

 

- continued -

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note A

-

The Company - continued

 

Scope of Business

 

The Company is licensed to distribute an innovative food product - a cone-shaped pizza called “Pizza Cono.” The product will be distributed into fast food market establishments which include typical fast food chains, supermarkets, convenience stores, entertainment facilities, and sports arenas. The Company’s focus will be the sale and management of licensing and distribution agreements with customers.

 

Note B

-

Summary of Significant Accounting Policies

 

All significant accounting policies can be viewed on the Company’s annual report filed with the Securities and Exchange Commission.

 

Any new significant accounting policies are listed below.

 

Inventory

 

Inventory is stated at the lower of cost or market, using the first-in, first-out method. The Company follows standard costing methods for manufactured products.

 

Derivative Instruments

 

All derivatives have been recorded on the balance sheet at fair value based on the lattice model calculation. These derivatives, which have reset provisions to the exercise price and conversion price if the Company issues equity or other derivatives at a price less than the exercise price set forth in such warrants, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

 

Lattice Valuation Model

 

The Company valued the conversion features in its outstanding convertible notes using a lattice valuation model, with the assistance of a valuation consultant. The lattice model values instruments based on a probability weighted discounted cash flow model. The Company uses the model to develop a set of potential scenarios. Probabilities of each scenario occurring during the remaining term of the instruments are determined based on management’s projections and the expert’s calculations. These probabilities are used to create a cash flow projection overt the term of the instruments and determine the probability that the projected cash flow will be achieved. A discounted weighted average cash flow for each scenario is then calculated and compared to the discounted cash flow of the instruments without the compound embedded derivative in order to determine a value for the compound embedded derivative.

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note C

-

Recently Issued Accounting Standards

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

 

Note D

-

Related Party Transactions

 

Due from Related Party

 

On July 14, 2008, (the date of Edesia’s inception), the Company entered into an operating agreement with Edesia Emprise, LLC to manufacture product for the Company. The CEO of the Company owned 50% of Edesia until July 21, 2008 when he transferred his interest to a relative. At the date of the transfer, Edesia had no assets or business operations.

 

Due from Related Party consists of monies advanced on behalf of Edesia Emprise, LLC.

 

The Company purchased manufacturing equipment on behalf of Edesia to be used by an unrelated entity for the production of the pizza cone products. The manufactured pizza cone products will be resold by Cono and its licensees. Production of the pizza cones under the agreement began in March 2009.

 

The advances are non-interest bearing and is due upon demand. Due from related party consists of the following:

 

			June 30, 2013				December 31, 2012
	Edesia Emprise, LLC		$	––			$	16,937

 

Due to Officer

 

Certain disbursements of the Company have been paid by an officer of the Company. The balance at June 30, 2013 and December 31, 2012 was $769,317 and $767,317 respectively. There are no established repayment terms. Interest expense for the six month periods ended June 30, 2013 and 2012 was $38,445 and $4,079. Since there is no formal agreement on repaying interest, interest has been imputed to Additional Paid in Capital. From December 31, 2009 through June 30, 2013 interest due to officer was calculated at the Applicable Federal Rate (AFR) ranging from 0.95% to 2.64%. Due to the AFR rate being considerably lower than the current market rate, the Company imputed interest at 9% in the amount of $34,529 through June 30, 2013 which was credited to Additional Paid in Capital. At June 30, 2013, the officer of the Company has forgiven all accrued interest computed through June 30, 2013, in the amount of $63,750.

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note E

-

Accrued Legal Expense

 

Accrued legal expense consists of legal services rendered to the Company in the ordinary course of business including SEC filings and the reverse merger. Accrued legal expense at June 30, 2013 and December 31, 2012 was $220,269 and $199,269, respectively.

 

Note F

-

Convertible Notes Payable

 

The Company had convertible debentures outstanding as follows:

 

	June 30, 2013		Outstanding Balance of Convertible Debenture				Unamortized Discount				Net of Principal and Unamortized Discount
	DT Crystal - Debenture		$	47,988			$	––			$	47,988
	TCA Global – Debenture			250,000				––				250,000
	Total Convertible Debentures		$	297,988			$	––			$	297,988
	December 31, 2012		Outstanding Balance of Convertible Debenture				Unamortized Discount				Net of Principal and Unamortized Discount
	DT Crystal - Debenture		$	47,988			$	––			$	47,988
	TCA Global – Debenture			250,000				2,193				247,807
	Total Convertible Debentures		$	297,988			$	2,193			$	295,795

 

On September 30, 2009, the Company entered into a note payable with DT Crystal Limited accruing interest at prime plus 3% annually which is due upon demand. The note is convertible at option of the holder into restricted stock of Cono (Nevada) based on the average bid closing price of the Company’s shares for 30 days before conversion, minus a 15% discount. At June 30, 2013 and December 31, 2012 accrued interest payable to DT Crystal was $11,247 and $19,240, respectively. The variable conversion price of this note agreement resulted in an embedded derivative liability.

 

On February 27, 2012, the Company entered into a security agreement with TCA Global Credit Master Fund, LP, a Cayman Islands limited partnership related to a $250,000 convertible promissory note issued by the Company in favor of TCA to acquire equipment and for operational expenses. The Security Agreement grants to TCA a continuing, first priority security interest in all of the Company’s assets, wheresoever located and whether now existing or hereafter arising or acquired.

 

- continued -

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note F

-

Convertible Notes Payable - continued

 

On February 27, 2012, the Company issued the Convertible Note in favor of TCA. The maturity date of the Convertible Note is February 27, 2013, and the Convertible Note bears interest at a rate of twelve percent (12%) per annum. Interest will accrue monthly but is due and payable upon maturity date of note. The Convertible Note is convertible into shares of the Company’s common stock at a price equal to ninety-five percent (95%) of the lowest daily volume weighted average price of the Company’s common stock during the five (5) trading days immediately prior to the date of conversion. The Convertible Note may be prepaid in whole or in part at the Company’s option without penalty. As of the date of this report, the convertible note has not been repaid, but the Company is negotiating a resolution.

 

The above Convertible Note contains an embedded derivative liability feature recorded as a debt discount in the amount of $13,157 which was expensed to interest expense over the term of the note. For the year ended December 31, 2012, $10,963 was expensed to interest expense resulting in a remaining debt discount of $2,193 which was expensed during the three months ended March 31, 2013. The note value, net of debt discount, was $250,000 at June 30, 2013. Accrued interest at June 30, 2013 and December 31, 2012 was $40,000 and $25,000, respectively.

 

As of the date of this report, the Company has not paid TCA the principal and accrued interest that was due on their convertible note on February 27, 2013. Due to circumstances surrounding the financing, the Company is in negotiations to fulfill their obligation.

 

Note G

-

Going Concern

 

The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has reported recurring losses from operations. As a result, there is an accumulated deficit of $3,424,663 at June 30, 2013.

 

The Company’s continued existence is dependent upon its ability to raise capital. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

Note H

-

Share Activity

 

Common Stock

 

During the year ended December 31, 2006, the Company issued 6,000,000 shares to Mitch Brown in exchange for license rights and equipment. These shares were valued at $165,000.

 

On January 14, 2008, Cono, LLC was sold to Cono, Inc. (Delaware) for the total consideration of $426,000. In exchange for the 100% interest in Cono, LLC, the sole member of the LLC received 6,000,000 shares of Cono, Inc. (Delaware) valued at $114,000 and was issued a promissory note for $312,000. Mitchell Brown is also a principal stockholder in Cono, Inc. (Delaware).

 

- continued -

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note H

-

Share Activity

 

Common Stock - continued

 

The transaction was accounted for as a recapitalization of Cono, Inc. and Cono, LLC; as both companies were under common control. As such, the assets and liabilities of Cono, LLC were carried over to Cono, Inc. (Delaware) at the historical carrying values.

 

At the time of the sale of Cono, LLC to Cono, Inc. (Delaware), Cono LLC had a tangible net book value of $114,700. Since the assets and liabilities of Cono, LLC were recorded at their historical carrying amounts after the merger and recapitalization, the excess of the consideration paid of $426,000 over the carrying value of $114,700 had been recorded as a distribution to the stockholder.

 

During the year ended December 31, 2008, the Company issued 44,250,000 shares to vendors in exchange for services. These shares were valued at $478,744 based on the closing price at the dates of grants.

 

During the year ended December 31, 2008, the Company issued 3,000,000 shares to prior owners for license rights. These shares were valued at $57,000 based on the per share value of the Cono LLC equity on January 14, 2008.

 

On November 12, 2009 Cono Inc. (Delaware) entered into a share exchange agreement whereby Cono Inc. (Delaware) would exchange all of its common stock for the stock of Tiger Renewable Energy, Inc. (TRE) (a shell company) on a share for share basis. Prior to entering into the share exchange agreement, the principal stockholder of Cono Inc. (Delaware) became a stockholder of TRE, either through direct ownership or through an entity in which he controlled, effectively gaining control of TRE, and on August 10, 2009, TRE changed its name to Cono Italiano, Inc., a Nevada corporation. As an inducement for Cono (Delaware) to enter the share exchange agreement, TRE’s largest shareholder has agreed to the cancellation of 242,557 shares of Cono (Nevada) stock.

 

On August 10, 2009, the Company conducted a one for sixty reverse stock split.

 

During the year ended December 31, 2009, the Company issued 262,000 shares for cash received in the amount of $64,870.

 

During the year ended December 31, 2009 the Company issued 500,000 shares for related party expense in the amount of $70,000 based upon the amount due to the related party.

 

During the year ended December 31, 2009, the Company issued 18,000,000 shares for a note payable conversion. These shares were valued at $18,000 based upon the note payable conversion agreement and therefore no gain or loss was recorded on conversion.

 

- continued -

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note H

-

Share Activity - continued

 

Common Stock

 

During the year ended December 31, 2009, the Company issued 7,616,428 shares to vendors in exchange for services. These shares were valued at $186,393 based on the closing price at the dates of grants.

 

During the year ended December 31, 2009 the Company’s stockholders’ equity was recapitalized to give effect to the shares received by the existing shareholders of the Company from the share exchange agreement with Tiger Renewable Energy Inc.

 

During the year ended December 31, 2009, the Company issued 10,000 shares to a vendor in exchange for services rendered to Tiger Renewable Energy and whose payables were assumed in the share exchange. These shares were valued at $3,500.

 

During the year ended December 31, 2010, the Company issued 125,000 shares to Pino Gelato, Inc. at a value of $75,816 as per the licensing agreement.

 

During the year ended December 31, 2010, the Company issued 10,000,000 shares to vendors in exchange for services. These shares were valued at $93,880 based on the closing price at the dates of grants.

 

During the year ended December 31, 2010, the Company issued 2,000,000 shares for a note payable conversion. These shares were valued at $184,547 based upon the note payable conversion agreement and therefore no gain or loss was recorded on conversion.

 

During the year ended December 31, 2011, the Company issued 3,325,000 shares to vendors in exchange for services. These shares were valued at $156,249 based on the closing price at the dates of grants.

 

During the year ended December 31, 2011, the Company issued 4,000,000 shares as per a stock subscription agreement entered into on July 11, 2011. Total value of the stock subscription agreement was $200,000 including 525,640 shares included in common stock subscribed.

 

On July 11, 2011 the Company signed a subscription agreement with an individual to purchase 4,525,640 shares of the Company’s common stock in four (4) installments of $50,000 each, totaling $200,000. As of December 31, 2011 all of the four installments had been received totaling $200,000. The Company has issued 4,000,000 shares of the 4,525,640 that were to be issued. 525,640 shares of common stock are due to the individual for his investment therefore, common stock subscribed is $526 at December 31, 2011. During the year ended December 31, 2012 the Company issued the individual the 525,640 shares due him under the subscription agreement and in accordance with this agreement since the individual was entitled to 4.9% of the outstanding shares of the Company at the date of the final issuance the individual received an additional 374,360 shares of common stock.

 

- continued -

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note H

-

Share Activity - continued

 

Common Stock

 

During the year ended December 31, 2011, the Company cancelled 3,280,000 shares returned from vendors for services not performed in the amount of $31,116.

 

During the year ended December 31, 2011, the Company issued 3,184,000 to prior owners in the amount of $93,520 based on the closing prices at the date of the grant.

 

During the year ended December 31, 2012, the Company issued 2,000,000 shares for cash received in the amount of $75,000.

 

During the year ended December 31, 2012, the Company issued 4,100,000 shares to vendors in exchange for services. These shares were valued at $141,000 based on the closing price at the dates of grants.

 

During the year ended December 31, 2012, the Company issued 998,099 shares to TCA in consideration for the Equity Facility fee. These shares were valued at $52,500 based on the closing document.

 

During the year ended December 31, 2012, the Company issued 900,000 shares to an investor in fulfillment of a stock subscription agreement.

 

On January 17, 2013, the Company issued 2,000,000 shares to MSU Canada, (a customer) as a selling incentive. These shares were valued at $60,000 at the date of the grant based on the closing price of the stock on the grant date.

 

On February 11, 2013, the Company issued 769,078 shares to TCA in exchange for equity financing in the amount of $16,735 as calculated after the nine month evaluation date. The shares were valued when contractually owed and accrued for at December 31, 2012. The related liability was relieved with the issuance.

 

Note I

-

Employment Contracts

 

On December 30, 2009 the Company entered into employment agreements with each of the officers serving the Company. The employment agreements contained the following provisions: (i) two-year terms with automatic renewal provisions unless notice is given by either party 30 days prior to renewal; (ii) commitment of a substantial portion of their professional time to the Company, consisting of 75% of their time for Mitchell Brown and 60% of their time for each of Alex Kaminski and Steve Savage; and (iii) and additional customary employment agreement terms and conditions. The officers have agreed that they will not receive any compensation for their services to the Company prior to January 1, 2012. At June 30, 2013 accrued compensation was $337,500. The compensation of the officers has been set as follows:

 

			Annual
	Officer		Salary
	Mitchell Brown, Chief Executive Officer		$	125,000
	Alex Kaminski, Chief Financial Officer and Treasurer		$	50,000
	Steve Savage, Secretary		$	50,000

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note J

-

Security Agreement

 

On February 27, 2012, the Company entered into an Equity Agreement with TCA. Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of a Registration Statement, TCA shall commit to purchase up to $1,500,000 of the Company’s common stock, par value $0.001 per share. The purchase price of the Shares under the Equity Agreement is equal to ninety-five percent (95%) of the lowest daily volume weighted average price of the Company’s common stock during the five (5) consecutive trading days after the Company delivers to TCA an Advance notice in writing requiring TCA to advance funds to the Company, subject to the terms of the Equity Agreement. At June 30, 2013, no shares had been purchased.

 

As further consideration for TCA entering into and structuring the Equity Facility, the Company paid to TCA a fee by issuing to TCA that number of shares of the Company’s common stock that equal a dollar amount of fifty-two thousand and five hundred dollars ($52,500) (the “Facility Fee Shares”). It is the intention of the Company and TCA that the value of the Facility Fee Shares shall equal $52,500. In the event the value of the Facility Fee Shares issued to TCA does not equal $52,500 after a nine month evaluation date, the Equity Agreement provides for an adjustment provision allowing for necessary action (either the issuance of additional shares to TCA or the return of shares previously issued to TCA to the Company’s treasury) to adjust the number of Facility Fee Shares issued. As of December 31, 2012, 998,099 shares of common stock have been issued as consideration for the Equity Facility fee. The nine month analysis concluded that the Company owes TCA 1,317,508 common shares in the amount equal to $32,091. As of June 30, 2013, 769,078 additional shares had been issued. A total of $84,591 is included in Deferred Equity Financing Costs at June 30, 2013 which will be netted against proceeds when shares are purchased pursuant to the Equity Agreement. This was expensed during the quarter ended June 30, 2013 since no funds have been derived from this agreement.

 

Note K

-

Derivative Liability

 

The Company evaluated their convertible note agreements pursuant to ASC 815 and ASC 820 and due to there being no minimum or fixed conversion price resulting in an indeterminate number of shares to be issued in the future, the Company determined an embedded derivative existed and ASC 815 applied for their convertible notes with a cumulative balance of $24,876 and $35,592 as of June 30, 2013 and December 31, 2012, respectively. The inputs used in the calculation included the following; volatility rates of 163% and 139% at June 30, 2013 and December 31, 2012, respectively, estimated default rate at 5% increasing by 1% per month to a maximum of 10%, capital raising events would occur with no resets for notes, holder of note would redeem based on availability of alternative financing 1% of time increasing 1% monthly to 20% and the holder would automatically convert the note at maturity if the registration was effective and the company was not in default.

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note K

-

Derivative Liability – continued

 

		Derivative Liability at December 31, 2012				Reclass from equity to derivative liability				Discount on debt with initial valuation								Settled to Additional Paid in Capital				Derivative Balances At June 30, 2013
DT Crystal - Debenture		$	2,842			$	––			$	––			$	(2,086	)		$	––			$	756
TCA Global – Debenture			32,750				––				––				(8,630	)							24,120
Total		$	35,592			$	––			$	––			$	(10,716	)		$	––			$	24,876

 

Note L

-

Commitments and Contingencies

 

On November 6, 2009, Cono Italiano (Delaware) entered into a Commitment Letter, pursuant to which, one of the Company’s shareholders, Lara Mac Inc., has agreed to provide financing to Cono Italiano, Inc., with such funds as the Company’s Board of Directors shall deem to be sufficient to maintain the Company’s ordinary course of business operations (the “Commitment Amount”). We may draw on the Commitment Amount in monthly tranches in accordance with our operating requirements as set forth in our business plan. The available Commitment Amount will be reduced by the aggregate cash proceeds received by the Company which are derived from the issuance of any equity securities and Company gross revenues. Draws on the Commitment Amount will be made on terms of unsecured notes, with interest set on each note as of the date of the draw at prime rate plus two percent per annum. The notes will mature and become repayable thirty calendar days after demand.

 

The Company will give Lara Mac Inc., customary representations and warranties regarding the good standing of our Company and status of progress in respect of our Company business plan prior to each draw on the Commitment Amount, and we will provide certifications and covenants regarding use of proceeds of each draw, which will be in customary forms reasonably requested by Lara Mac Inc., as determined by reference to similar lenders making similar loans to similar companies. Lara Mac Inc. will not be required to make any loans under the Commitment Amount to us if we are unable to make the representations, warranties, certifications or covenants, or if we are in breach of any previously given representations, warranties, certifications or covenants. If we breach any of the notes, the default rate will be 15% per annum and Lara Mac Inc. may seek recourse against our company for repayment of all of the notes. As of June 30, 2013, the agreement was still in effect and no funds have been borrowed.

 

- continued –

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note L

-

Commitments and Contingencies – continued

 

On September 7, 2011 the Company entered into a manufacturing agreement with Interstate Caterers for the purposes of manufacturing, producing and distributing “pizza cono”. As consideration for Interstate entering into the agreement, the Company agreed to issue 3,500,000 shares of its restricted common stock upon the execution of the agreement. As of December 31, 2012 the stock had been issued. As consideration for Interstate’s services under the agreement, Interstate will receive seventy percent (70%) of the difference between the sales price for the product less direct manufacturing costs for such product, regardless of whether the Company or Interstate initiated the sales of such product. In addition, the Company will lease to Interstate certain equipment to be used in the manufacture of the Cono products for $1.00 per year.

 

For the six months ended June 30, 2013 and the year ended December 31, 2012 the Company and Interstate have modified the consideration portion of what Interstate will receive. Interstate has agreed to forgo the 70% difference since sales of the product are in the initial phase in order to help the Company promote the product.

 

The term of the agreement is for a period of ten years commencing on September 7, 2011, the execution date of the agreement, and automatically renews for one additional ten-year period unless either the Company or Interstate provides the other notice of its intention to not renew at least thirty days prior to the end of the Initial Term. The agreement may be earlier terminated at any time by the mutual consent of the Company and Interstate. The Company may unilaterally terminate the agreement based on, among other things, Interstate’s non-performance in accordance with the Company’s specifications. In addition, Interstate indemnifies the Company against third party claims based on alleged product defects.

 

Note M

-

Fair Value of Financial Instruments

 

The Company has categorized its assets and liabilities recorded at fair value based upon the fair value hierarchy specified by GAAP. All assets and liabilities are recorded at historical cost which approximates fair value, and therefore, no items were valued according to these inputs.

 

The levels of fair value hierarchy are as follows:

 

●

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

 

●

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

 

●

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

 

- continued -

 

 

CONO ITALIANO, INC.

(A DEVELOPMENT STAGE COMPANY)

(A NEVADA CORPORATION)

Keyport, New Jersey

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note M

-

Fair Value of Financial Instruments - continued

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. All assets and liabilities aside from the derivative assets and liabilities are at cost which approximates fair value and there are not items that were required to be valued on a non-recurring basis.

 

The following liability was valued at fair value as of June 30, 2013 and December 31, 2012. No other items were valued at fair value on a recurring or non-recurring basis as of June 30, 2013 or December 31, 2012.

 

	June 30, 2013						Fair Value Measurements Using
			Carrying
			Value				Level 1				Level 2				Level 3				Total
	Derivative Liabilities		$	24,876			$	––			$	––			$	24,876			$	24,876
	Total						$	––			$	––			$	24,876			$	24,876
	December 31, 2012						Fair Value Measurements Using
			Carrying
			Value				Level 1				Level 2				Level 3				Total
	Derivative Liabilities		$	35,592			$	––			$	––			$	35,592			$	35,592
	Total						$	––			$	––			$	35,592			$	35,592

 

Note N

-

Subsequent Events

 

Effective July 31, 2013, Cono Italiano, Inc. (the “Company”) entered into an Investment Agreement (the “Investment Agreement”) with KVM Capital Partners (“KVM”), whereby the parties also agreed to enter into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the terms of the Investment Agreement, for a period of thirty-six (36) months commencing on the trading day immediately following date of effectiveness of the Registration Statement (as defined below), KVM shall commit to purchase up to $1,200,000 of the Company’s common stock, par value $0.001 per share (the “Shares”), pursuant to Puts (as defined below), covering the Registrable Securities (as defined below). The purchase price of the Shares under the Investment Agreement is equal to a twenty-two and one half (22.5%) percent discount to the average of the three lowest closing bids as calculated using the average of the three lowest closing bids during the last seven trading days after the Company delivers to KVM a Put notice in writing requiring KVM to purchase shares of the Company, subject to the terms of the Investment Agreement.

 

The “Registrable Securities” include (i) the Shares and (ii) any shares of capital stock issued or issuable with respect to the Shares, if any, as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, which have not been (x) included in the Registration Statement that has been declared effective by the SEC, or (y) sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act of 1933, as amended.

 

As further consideration for KVM entering into and structuring the Investment Agreement, the Company shall pay to KVM a facility fee by issuing to KVM 1,000,000 shares of the Company’s common stock.

 

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This quarterly report on Form 10-Q and other reports filed by Cono Italiano, Inc. (“we,” “us,” “our,” or the “Company”), from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates

 

Plan of Operation

 

On September 7, 2011, we entered into a strategic manufacturing agreement (the “Agreement”) with Interstate Caterers and continue moving forward with the production and distribution of our frozen foods and Pizza Cono. Additionally, we recently added empanadas to our product line which we believe will increase our market for sales. We plan to fund the manufacturing process of these products through the use of private funding investors and resources from Interstate Caterers.

 

In November 2011, we, together with our manufacturing partner, completed construction on our USDA and FDA approved facility for our Pizza Cono and new line of frozen foods. Additionally, we purchased the balance of equipment required to produce our filled cones and frozen foods. This equipment will enable Cono Italiano, Inc., to produce a frozen cone filled with a variety of toppings by using an automated filling line. We expect to be the sole producer of frozen filled cones made in the United States with USDA and FDA approval. We believe this will provide us with an advantage over our competitors in the market place.

 

The Company plans to continue manufacturing and delivering its products to customers. We also plan to expand our USDA facility by adding machines to fill and manufacture our pizza cones and empanadas. We plan to secure through financing certain equipment required to manufacture and distribute our products to retail vendors and other suppliers in our market. These machines include a carton machine, which packages box the pizza cones and empanadas in boxes for retail, and a Flo Pack machine, which wraps pizza cones and empanadas in microwavable bags prior to being packaged. We expect to introduce additional flavors and new products to our product line in 2013.

 

 

Results of Operations

 

For the three months ended June 30, 2013 compared to the three months ended June 30, 2012

 

Revenues and Profit

 

In the three month period ended June 30, 2013, Cono Italiano had total revenue of $11,199 compared to total revenue of $61,426 for the same period in 2012. The decline in total revenue is attributable to one of the company’s larger customers going through a reorganization and another large customer’s order was effected then cancelled due to hurricane Sandy.

 

The Company’s gross profits for the three month period ended June 30, 2013, were $377, which was a decrease from $14,948 for the same period in 2012. The decline in gross profits is attributable to the decrease in revenues.

 

Expenses

 

For the three month period ended June 30, 2013, the Company’s selling expenses have been $23,180, compensation expenses have been $56,250, general and administrative expenses have been $122,025, interest expenses were $34,181 and loss on derivative liability was $15,509. This was an increase compared to the same period in 2012, in which selling expenses were $36,000, compensation expenses were $56,250, general and administrative expenses were $100,972, interest expenses were $14,737 and loss on derivative liability was $-0-. This increase is attributable to an increase in interest expense in order to calculate interest at a market rate, an overall increase in general and administrative expenses and an increase in loss on derivative liability.

 

Net Loss

 

The net loss for the three month period ended June 30, 2013 was $250,768, which was an increase from $193,011 for the same period in 2012. This increase is attributable to principally the decrease in revenues and increase in above mentioned expenses.

 

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012

 

Revenues and Profit

 

In the six month period ended June 30, 2013, Cono Italiano had total revenue of $26,008 compared to total revenue of $61,426 for the same period in 2012. The decline in total revenue is attributable to customer reorganizations and hurricane Sandy.

 

The Company’s gross profits for the six month period ended June 30, 2013, were $(2,368), which was a decrease from $14,948 for the same period in 2012. The decline in gross profits is attributable to the decline in revenues.

 

Expenses

 

For the six month period ended June 30, 2013, the Company’s selling expenses have been $84,486, compensation expenses have been $112,500, general and administrative expenses have been $185,874, interest expenses were $47,645 and gain on derivative liability was $10,716. This was an increase compared to the same period in 2012, in which selling expenses were $36,000, compensation expenses were $112,500, general and administrative expenses were $159,710, interest expenses were $21,875 and gain on derivative liability was $-0-. This increase is attributable to a $60,000 selling incentive paid to a distributor, miscellaneous general and administrative expenses and an increase to interest expense from using a market interest rate.

 

Net Loss

 

The net loss for the six month period ended June 30, 2013 was $422,157, which was an increase from $315,137 for the same period in 2012. This increase is attributable to the decline in revenues, an increase in selling expenses and the increase in general and administrative expenses.

 

 

Liquidity and Capital Resources

 

As of June 30, 2013, the Company did not have and continues to not have sufficient cash on hand to pay present obligations as they become due. In addition, due to current economic conditions and the Company’s related risks and uncertainties, there is no assurance that we will be able to raise additional capital on acceptable terms, if at all, to meet our current obligation over the next 12 months. Because of the foregoing, the Company’s auditors have expressed substantial doubt about our ability to continue as a going concern in their report included in our most recent 10-K.

 

Net cash used for operating activities for the six months ended June 30, 2013 and 2012, was $30,781 and $86,875, respectively.

 

As of June 30, 2013, Cono Italiano had $1,781 in cash and cash equivalents, as compared to $30,562 as of December 31, 2012. The main source of the Company’s cash has been loans from our Chief Executive Officer, Mitchell Brown, who is owed $769,317 as of June 30, 2013.

 

On November 9, 2009, Cono Italiano (Delaware) entered into a Commitment Letter, pursuant to which, one of our shareholders, Lara Mac Inc., has agreed to provide financing to Cono Italiano, Inc., with such funds as the Company’s Board of Directors shall deem to be sufficient to maintain the Company’s ordinary course of business operations (the “Commitment Amount”). Lara Mac is wholly owned by Mitch Brown, our Chief Executive Officer. We may draw on the Commitment Amount in monthly tranches in accordance with our operating requirements as set forth in our business plan. The available Commitment Amount will be reduced by the aggregate cash proceeds received by the Company which are derived from the issuance of any equity securities and Company gross revenues. Draws on the Commitment Amount will be made on terms of unsecured notes, with interest set on each note as of the date of the draw at prime rate plus two percent per annum. The notes will mature and become repayable thirty calendar days after demand. We will give Lara Mac customary representations and warranties regarding the good standing of our Company and status of progress in respect of our Company business plan prior to each draw on the Commitment Amount, and we will provide certifications and covenants regarding use of proceeds of each draw, which will be in customary forms reasonably requested by Lara Mac as determined by reference to similar lenders making similar loans to similar companies. Lara Mac will not be required to make any loans under the Commitment Amount to us if we are unable to make the representations, warranties, certifications or covenants, or if we are in breach of any previously given representations, warranties, certifications or covenants. If we breach any of the notes, the default rate will be 15% per annum and Lara Mac may seek recourse against our company for repayment of all of the notes. As of June 30, 2013, there had been no borrowings under the Commitment Letter.

 

The following table summarizes total current assets, liabilities and working capital at June 30, 2013, compared to December 31, 2012.

 

		June 30, 2013 (unaudited)				December 31, 2012 (unaudited)				Increase/ (Decrease)
Current Assets		$	25,648			$	187,076				$ [161,428]
Current Liabilities		$	1,945,743			$	1,863,761			$	81,982
Working Capital Deficit		$	(1,920,095	)		$	(1,676,685	)		$	(243,410	)

 

As of June 30, 2013, we had a working capital deficit of $(1,920,095), as compared to a working capital deficit of $(1,660,340) as of December 31, 2012, a decrease of $264,240. Factors contributing to the decrease in this deficit include an increase in accrued compensation – officers in the amount of $112,500, an increase in accounts payable of $22,187, a increase in accrued legal expense of $21,000, a decrease in prepaid expenses of $66,000, a decrease in deferred equity financing costs of $84,591 and a decrease in due from related party of $16,937.

 

Current Liabilities consists of the following:

 

		June 30, 2013 Unaudited				December 31, 2012 Unaudited
Accounts payable and credit cards		$	157,695			$	135,508
Accrued Compensation - Officers			337,500				225,000
Convertible Debentures and Accrued Interest			349,235				292,228
Other Current Liabilities			1,101,313				1,211,025
Total current liabilities		$	1,945,743			$	1,863,761

 

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. Though we evaluate our estimates and assumptions on an ongoing basis, our actual results may differ from these estimates.

 

Accounts Receivable

 

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Customer accounts over 90 days old are considered delinquent. The carrying amount of accounts receivable are reduced by an allowance for doubtful accounts that reflects our Company’s best estimate of the amounts that will not be collected. The Company reviews outstanding accounts and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The Company provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of the individual accounts. Balances that are still outstanding after reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. The Company has assessed accounts receivable and determined that a reserve is necessary and at June 30, 2013 and December 31, 2012, the allowance for doubtful accounts was $2,440 and $2,440, respectively.

 

Revenue Recognition

 

The Company recognizes revenue when title, ownership and risk of loss pass to the customer. Transfer of title occurs and risk of ownership generally passes to a customer at the time of shipment or delivery, depending on the terms of the agreement with a particular customer. The sale price of the Company’s products is substantially fixed or determinable at the date of sale based on purchase orders generated by a customer and accepted by the Company. A customer is obligated to pay for products sold to it within a specified number of days from the date that title to the products is transferred to the customer. The Company’s standard terms are typically net 30 days from the transfer of title to the products to the customer. The Company typically expects payment from a customer within 30 to 45 days from the transfer of title to the products to a customer. Shipping and handling costs are charged to the customer and are included in revenue.

 

Customer Concentrations

 

Three customers accounted for approximately $21,849or 84%, of net sales for the six months ended June 30, 2013. Various other customers accounted for the remaining sales of $4,159 or 16%. All transactions were in United States dollars. There were no transaction gains or losses associated with sales transactions.

 

Recently Issued Accounting Standards

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

 

Stock-Based Compensation

 

Stock-based compensation related to non-employees is recognized as compensation expense in the accompanying consolidated statements of operations and is based on the fair value of the services received or the fair value of the equity instruments issued, whichever is more readily determinable. The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505, “Equity Based Payments to Non-Employees.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

 

Stock-based compensation related to employees and directors is recognized pursuant to the provisions of FASB ASC 718. FASB ASC 718 requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). FASB ASC 718 also requires measurement of the cost of employee services received in exchange for an equity award based upon the grant-date fair value of the award.

 

Off Balance Sheet Arrangements

 

The Company does not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

 

We did not have any operations which implicated market risk as of the end of the latest fiscal year. We intend to implement an analysis and assessment program which will on a regular basis determine exposures of the Company to future risks. We expect to report the results of all such quantitative and qualitative risk assessments prior to entering into any material agreements, and on a regular monthly and annual basis to our audit committee so that responsive risk management measures can be discussed and actions taken to the extent reasonably feasible. Inflationary factors in the future, such as increases in overhead costs, may adversely affect our operating results. A high rate of inflation in the future may have an adverse effect on our ability to manage selling, general and administrative expenses as a percentage of net revenues if our revenues do not increase with these increased costs.

 

Item 4: Controls and Procedures.

 

Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II: OTHER INFORMATION

 

Item 1: Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, 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 executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A: Risk Factors.

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2012, filed with the SEC on May 10, 2013.

 

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no other unregistered sales of the Company’s equity securities during the quarter ended June 30, 2013, other than those previously reported in a Current Report on Form 8-K.

 

Item 3: Defaults Upon Senior Securities

 

There were no defaults upon senior securities during the quarter ended June 30, 2013.

 

Item 4. Mining Safety Disclosures.

 

Not applicable.

 

Item 5: Other Information.

 

There is no other information required to be disclosed under this item which was not previously disclosed.

 

Item 6. Exhibits.

 

Exhibit No.		Description
31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*
32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

 

*		Filed herewith.
**		In accordance with Regulation S-T, the XBRL related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith not “filed”.

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

	CONO ITALIANO, INC.
	(Registrant)
Dated: November 7, 2013	By:	/s/ Mitchell Brown
	Name:	Mitchell Brown
	Title:	Principal Executive Officer
Dated: November 7, 2013	By:	/s/ Alex J. Kaminski
	Name:	Alex J. Kaminski
	Title:	Principal Financial Officer and Chief Accounting Officer