The purpose of this Amendment No. 1 (this
“Amendment”) to Cono Italiano, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012,
filed with the Securities and Exchange Commission on April 16, 2013 (the “Form 10-K”), is (i) to furnish Exhibit 101
to the Form 10-K in accordance with Rule 405 of Regulation S-T; (ii) to correct certain scrivener’s errors and other disclosures
within the Annual Report; and (iii) include Exhibit 10.66, filed herewith.
Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
PART
I
Item
1. Business.
Introduction
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 trading symbol changed to “CNOZ.” On August 10, 2009, the Company
conducted a one-for-sixty reverse stock split.
The
Company identified Cono Italiano, Inc., a Delaware corporation (“Cono Italiano (Delaware)”), as a business venture
that would be suitable for the Company’s future operations. On November 12, 2009, the Company entered into agreements with
the shareholders of Cono Italiano (Delaware) pursuant to which the Company acquired all of the issued and outstanding shares of
the Cono Italiano (Delaware) and now operate Cono Italiano (Delaware) as a wholly-owned subsidiary of our Company.
Our
principal business address is 10 Main Street, Keyport, NJ 07735 and our telephone number is (877) 330-2666.
Our
Business
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 (the “Board”) determined
that it was in our 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 (who is now the Chief Executive Officer of the Company and a member of the 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 effective as of June 4, 2009.
Pursuant
to 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
June 22, 2009, Lara Mac entered into a Management Services Agreement with the Company (the “Management Services Agreement”).
Pursuant to the Management Services Agreement, Lara Mac would render to the Company consulting and other advisory services in
relation to developing strategic plans for inception of operations, corporate management, the operations of the Company, strategic
planning, domestic and international marketing and sales, financial advice, including, without limitation, advisory and consulting
services in relation to the selection and retention of candidates for senior management of the Company and its subsidiaries, prospective
strategic alliance partners, preparing acquisition growth plans, identifying prospective merger and acquisition candidates, developing
value propositions for the Company and acquisition candidates, analyzing financial implications of potential transactions, advising
on negotiations regarding terms and conditions of transactions, outlining and managing due diligence issues and due diligence
processes, introductions to prospective customers, selection of investment bankers or other financial advisors or consultants,
and advice with respect to the capital structure of the Company, equity participation plans, employee benefit plans and other
incentive arrangements for certain key executives of the Company (collectively, the “Services”).
In
exchange for the Services, Lara Mac received 9,553,377 shares of the Company’s common stock (these 9,553,377 shares were
issued prior to the Company’s one-for-sixty reverse stock split, and accordingly, Lara Mac’s ownership of 14,553,377
shares was reduced to 242,557 shares pursuant to such reverse stock split). The parties to the Management Services Agreement also
agreed that Lara Mac may render other services beyond the scope of activities which the parties contemplate as part of the Services,
as to which Lara Mac shall be entitled to separate compensation that shall be negotiated in good faith by the parties on a case-by-case
basis.
The
Company identified Cono Italiano (Delaware), as a business venture that would be suitable for the Company’s future operations.
On November 12, 2009, the Company entered into agreement with the shareholders of Cono Italiano (Delaware), pursuant to which
the Company acquired all of the issued and outstanding shares of the Cono Italiano (Delaware) and we will now operate Cono Italiano
(Delaware) as a wholly-owned subsidiary of our Company. As an inducement to the shareholders of Cono Italiano (Delaware) to enter
into the exchange described above, Lara Mac agreed to the cancellation of these 242,557 shares of the Company’s common stock
and termination of the Management Services Agreement.
Cono
Italiano (Delaware)
In
March 2006, Cono Italiano LLC, a New Jersey limited liability company, entered into an agreement with Kono Italia S.R.L., an Italian
company doing business as “Pizza Hands.” Kono Italia S.R.L. owns the designs, recipes and technology for the “Pizza
Cono,” a food product for quick service restaurants consisting of a cone shaped pizza dough. Cono Italiano (Delaware), as
the successor to Cono Italiano, LLC, holds a distribution agreement for North America from Kono Italia S.R.L. in Italy. This distribution
agreement grants the licensee an exclusive license to exploit this product in the United States, Canada and Mexico for a twenty-five
(25) year term. The product is patented in the United States and Europe as is the cone production machine which is proprietary.
In 2007, Cono Italiano, LLC introduced the product into the North American market by building an alliance with Center Plate, a
food service provider to stadiums and arenas throughout North America. At the present time, the Company has no contractual agreements
with Center Plate.
Cono
Italiano (Delaware) was formed through the merger of Cono Italiano LLC, a New Jersey limited liability company, and Janex International,
Inc., a Delaware corporation, on January 14, 2008. The combined entity changed its name to “Cono Italiano, Inc.” on
that date.
Cono
Italiano is licensed to distribute a food product called the “Pizza Cono.” This Pizza Cone is designed to be a drip
free, spill free cone-shaped pizza made of a proprietary dough and filled with freshly selected ingredients. The Company intends
that the Pizza Cone will be distributed through the fast food market (the fast food market is generally defined as restaurants
selling food and drinks for immediate consumption either on the premises in designated eating areas, or for consumption elsewhere).
The Pizza Cone will be distributed to quick-service restaurants, take aways, mobile and street vendors, and leisure locations.
These establishments include typical fast food chains, supermarkets, convenience stores, entertainment facilities and sports arenas.
In addition, the Pizza Cone is sold at stores that sell frozen packaged products for use at home.
On
July 9, 2008, Cono Italiano (Delaware) entered into a distribution and licensing agreement (the “Distribution Agreement”)
with Pino Gelato, Inc., a South Carolina corporation presently involved in retail sales of Italian gelato and sales of franchises
for the sale of gelato (“Pino Gelato”). Under the terms of the Distribution Agreement, we granted to Pino Gelato,
Inc. the rights in the United States, Canada and Mexico to sell and distribute our products through immediate consumption retail
channels, such as a restaurant, snack bar, kiosk, or other similar setting. The Distribution Agreement included the right to market
Pizza Cones and establish Pizza Cone and Pino Gelato Cafes. Cono Italiano (Delaware) received $100,000 in cash in consideration
for such Distribution Agreement. As an inducement to buy the distribution and franchise rights by Pino Gelato, the Company issued
375,000 shares of the Company’s common stock to Pino Gelato. The Distribution Agreement was terminated on December 22, 2010.
Cono Italiano (Delaware) now directly retains the distribution rights regarding the sale of products, both for sale to retail
channels and on a wholesale basis to stores that sell frozen packaged products.
As
part of Cono Italiano (Delaware)’s marketing strategy, Cono Italiano (Delaware) paid $8,500 in September 2008 to develop
retail packaging and conducted a photo shoot for the product in October 2008 at a cost of $1,500.
Since
March 2009, Cono Italiano (Delaware)’s marketing and distribution efforts have also included giving free samples of its
product away at the Indianapolis Speedway, presenting the product to potential distributors at a trade show, and selling the product
at an Italian festival in Indianapolis.
In
July 2008, the Company’s Chief Executive Officer, Mitchell Brown and Ramona Fantini of Pino Gelato, formed a manufacturing
entity, Edesia Emprise, LLC, to produce and manufacturer the “Cones.” Mitchell Brown transferred his ownership interests
in Edesia Emprise, LLC to his father, Gene Brown, later that month. The Company contracted with a third party manufacturer for
this project in January of 2009, and cancelled such agreement in October of 2009.
On
November 11, 2009, Cono Italiano (Delaware) and Edesia Emprise, LLC entered into a Master Manufacturing Agreement (the “Master
Manufacturing Agreement”). Pursuant to this Master Manufacturing Agreement, Edesia Emprise, LLC will produce the Company’s
Pizza Cono product. Cono Italiano (Delaware) has agreed to pay Edesia Emprise, LLC the costs of production plus fifteen percent
(15%) of revenue.. This Master Manufacturing Agreement has a five (5) year term and will automatically renew unless cancelled
by one of the parties pursuant to its terms. This Master Manufacturing Agreement is exclusive within the United States. Edesia
Emprise, LLC may either produce this product directly or through a subcontractor. On December 8, 2009, the Company was advised
that Edesia Emprise had entered into its first subcontract agreement with Sunrise Baking Acquisition Company, based in Brooklyn,
New York.
On
November 9, 2009, Cono Italiano (Delaware) entered into a Commitment Letter, pursuant to which, one of our shareholders, Lara
Mac, has agreed to provide financing to Cono Italiano, Inc., with such funds as the Board 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. It was agreed that the notes would 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 December 31, 2012, the agreement was still in effect and no funds have been borrowed.
Distribution
The
Company intends to contact food distributors who sell to the restaurant community to distribute the product. The Company will
seek to develop relationships with independent commissioned sales representatives throughout the country to sell and market the
product to the retail community and specialty customers. The Pizza Cones and empanadas will be targeted at a substantial number
of potential customers, including quick service restaurants, take aways, mobile and street vendors, and leisure locations such
as typical fast food chains, supermarkets, convenience stores, entertainment facilities, and sports arenas. The Company therefore
does not anticipate depending on a single or a few major customers.
Cono
Italiano’s marketing and distribution efforts have also included giving free samples of its product away at the Indianapolis
Speedway, presenting the product to potential distributors at a trade show, and selling the product at an Italian festival in
Indianapolis.
The
Company entered into a manufacturing and partnership agreement with Interstate Caterers (“Interstate”) located in
South Plainfield, New Jersey. Interstate will manufacture all products related to Cono Italiano in their state of the art, newly
constructed facility, which complies with United States Department of Agriculture regulations. Cono will provide certain manufacturing
equipment to Interstate to include ovens,proprietary machines to package and manufacture Pizza Cono and Empanadas. The revenue
will be shared based on net profit after all expenses. Interstate will receive 3.5 million shares restricted for up to a 5-year
period. This agreement can be modified at any given time to ensure all revenue and profits are being shared accordingly and equally.
The Company’s pizza cones
and empanadas are being sold in the hot food and fresh food departments of several Shop Rite stores. Such products are ordered
on a weekly basis, as the Company awaits approval for all Shop Rite stores to offer these products.
Competitive
Position
Cono
Italiano is a relatively new company introducing a new product into the market place for quick service pizza. The market in the
United States for quick service pizza is large, highly fragmented and intensely competitive. There are no assurances that the
product will be generally accepted.
We
intend to do business under our new business model in highly competitive markets. There are many competitors, some of which are
significantly larger, that have access to much more important resources or capital than us, or have established reputations among
potential customers. We may not be able to compete effectively against other industry participants.
Raw
Materials
The
raw materials used in production of the Pizza Cones include readily available food products which are purchased in bulk by third
party contract bakers. All raw materials are supplied by the third party contract bakers pursuant.
Compliance
with Government Regulations
At the present time, Cono Italiano does not
need and has not requested government approval on any products and services. Cono Italiano and its third party contract bakers
are responsible for operation of production facilities which make our Pizza Cones and fillings, and they are subject to various
federal state, and local laws, including various health sanitation, fire, and safety standards and may be subject to licensing
and regulations by a number of governmental authorities.
Research
and Development
The
recipe for the cone is proprietary, developed by Cono Italiano, Inc. using various ingredients and a patented machine to create
and form the cone-shaped shell. The filling content for the cones are proprietary recipes designed specifically for the cone to
be drip-free and spill-free and to be baked in a microwave high efficiency oven or traditional oven. Our recipes are developed
by an Italian food designer to add a European taste to the pizza.
Compliance
with Environmental Laws
The
costs and effects of compliance with federal, state and local environmental laws have not been material to our business from inception
through the date of this Report.
Intellectual
Property
Our
success and ability to compete are dependent, in part, upon our ability to establish and adequately protect our intellectual property
rights. We intend to rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements
to establish and protect our proprietary rights. We expect to license certain proprietary rights from third parties. We also intend
to protect our proprietary rights, in part, through the terms of license agreements and by confidentiality agreements with our
employees, consultants, customers and others.
Employees
As
of the date hereof, the Company has three (3) officers, Mitchell Brown (our Chief Executive Officer), Alex J. Kaminski (our Chief
Financial Officer and Treasurer) and Steve Savage (our Secretary). We have no other employees at this time.
Where
You Can Find More Information
We
currently maintain an internet website at http://www.conoitaliano.com.
The
Company is and expects to remain a “reporting company.” We will therefore be required to continue to file annual,
quarterly and other filings with the U.S. Securities and Exchange Commission (the “SEC”). Members of the public may
read and copy any materials which we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Members of the public may obtain additional information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements,
as well as other information regarding issuers that file electronically with the SEC. This site is located at http://www.sec.gov.
You
may also request a copy of our filings at no cost, by writing or telephoning us at:
Cono
Italiano, Inc.
10
Main Street
Keyport,
NJ 07735
Telephone:
877-330-2666
Attn:
Mitchell Brown
Chief
Executive Officer
Item
1A. Risk Factors.
Our
business is subject to numerous risks. We caution you that the following important factors, among others, could cause our actual
results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings with the
SEC, press releases, communications with investors and oral statements. Any or all of our forward-looking statements in this and
in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make
or by known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those
anticipated in forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result
of new information, future events or otherwise. You are advised, however, to consult any further disclosure we make in our reports
filed with the SEC.
An
investment in our Company involves a substantial risk of loss. You should carefully consider the risks described below, before
you make any investment decision regarding our Company. Additional risks and uncertainties, including those generally affecting
the market in which we operate or that we currently deem immaterial, may also impair our business. If any such risks actually
materialize, our business, financial condition and operating results could be adversely affected. In such case, the trading price
of our common stock could decline.
The
following risk factors are not exhaustive and the risks discussed herein do not purport to be inclusive of all possible risks
but are intended only as examples of possible investment risks. To facilitate understanding of the various business risks applicable
to our Company and the strategic alliance companies through which we intend to operate our business during the foreseeable future,
the risk factors discussed herein address our Company together with the risks applicable to our operations that we intend to conduct
with our strategic alliance partners.
Risks
Related to Our Business
We
are a small company with a limited operating history and limited capital resources. We may not be able to raise additional capital
to grow and expand our business, which could materially and adversely affect the future of our business.
We
are a small company with a limited history, limited capital and limited operating resources. As of December 31, 2012, we had cash
and cash equivalents of $30,562. While we believe we will be able to meet the majority of our immediate needs for cash from revenues
(as the Company is spending minimal cash, and is not required to pay its suppliers until after orders are placed and delivered),
we will need additional capital to conduct business, grow and expand. The Company will need financing in the amount of approximately
$500,000 to conduct its operations as planned for next twelve months, including the securing of certain equipment required to
manufacture and distribute our products to retail vendors and other suppliers in our market.
The
terms and conditions of any financing which we may receive could have a material adverse effect on our business, results of operations,
liquidity and financial condition. Any investment in our shares is subject to the significant risk that we will not be able to
adequately capitalize our Company to enable us to continue to develop and implement our business model. Even if we are able to
raise adequate capital, the cost of such capital may be burdensome and may materially impair our ability to fully implement our
business plan.
Indebtedness
may burden us with high interest payments and highly restrictive terms which could adversely affect our business.
Should
we borrow money to implement our business plans, we would be burdened with interest payments. A significant amount of indebtedness
could increase the possibility that we may be unable to generate sufficient revenues to service the payments on indebtedness,
when due, including principal, interest and other amounts. Agreements made in connection with any borrowings may contain significant
restrictions and covenants that, among other things, could limit our ability to make investments, pay dividends or make distributions
to our shareholders, repurchase or redeem indebtedness, grant liens on our assets, enter into transactions with our affiliates,
merge or consolidate with other entities or transfer all or substantially all of our assets, and restrict the ability of our subsidiaries
to pay dividends or to make other payments to us.
Our
ability to comply with any restrictions and covenants related to indebtedness in the future is uncertain and would be affected
by the levels of cash flow from our operations and events or circumstances beyond our control. Our failure to comply with any
of restrictions and covenants under indebtedness financing could result in a default under those facilities, and could cause all
of our existing indebtedness to be immediately due and payable. If any of our indebtedness were to be accelerated, we may not
be able to repay our indebtedness or borrow sufficient funds to refinance it. Even if we were able to obtain new financing, it
may not be on commercially reasonable terms or on terms that are acceptable to us. If any of our indebtedness is in default for
any reason, our business, financial condition and results of operations could be materially and adversely affected. In addition,
complying with any restrictions and covenants may also cause us to take actions that are not favorable to our shareholders and
may make it more difficult for us to successfully execute our business plan and compete against companies that are not subject
to such restrictions and covenants.
We
may have to price our products and services at low margins which could adversely affect our business and any investment in our
company.
Even
if we are able to compete with our competitors, we may have to price our products and services at low gross margins in order to
gain market share. Competitive pricing pressures together with new or improved competing product introductions by our competitors
may adversely affect the average selling price of our products and services and force us to make downward adjustments. If we are
unable to offset price decreases by increasing our sales volumes or by adjusting our product offerings, our revenues and gross
margins would decline. To grow our business we generate revenues as soon as possible and thereafter continue to develop and introduce
new products, services and improvements. If we cannot maintain reasonable gross margins, our financial position may be harmed,
our stock price may decline and we may fail.
We
could have substantial difficulty addressing the challenges of rapid growth.
If
demand for our products increases rapidly, we will need to either increase our internal production capacity or implement additional
outsourcing. Success in developing and producing a limited volume of products does not guarantee that we will experience comparable
success in operations conducted on a larger scale. Modifying our procedures and facilities to adjust to increased demand may delay
delivery of our products. Production efficiencies, yields and product quality may decline as our Company expands over time. If
we are unable to meet the demand of our customers and deliver products quickly and cost effectively, customers may turn to our
competitors. The costs and risks associated with implementing new technologies, methods and processes, including the purchase
of new equipment, and any resulting delays, inefficiencies and loss of sales, could harm our results of operations.
We
expect that our anticipated future growth may strain our management, administrative, operational and financial infrastructure.
Failure of our ability to reasonably manage anticipated growth could materially and adversely affect our business.
We
anticipate that significant expansion of our present operations will be required to capitalize on market opportunities. This expansion
is expected to place a significant strain on our management, operational and financial resources. We expect to add a substantial
number of additional key personnel in the future, including key managerial employees who will have to be fully integrated into
our operations. In order to manage our growth, we will be required to continue to implement and improve our operational and financial
systems, to expand existing operations, to attract and retain superior management, and to train, manage and expand our employee
base. We cannot assure you that we will be able to effectively manage the expansion of our operations, that our systems, procedures
or controls will be adequate to support our operations or that our management will be able to successfully implement our business
plan. If we are unable to manage growth effectively, our business, financial condition and results of operations could be materially
and adversely affected.
Our
success will depend heavily on our management. If we fail to hire and retain qualified management and other key personnel, the
implementation of our business plan will be materially and adversely affected.
Our
performance is substantially dependent on the continued services and performance of our executive officers and other key personnel,
and our ability to retain and motivate our officers and key employees. Our future success also depends on our ability to identify,
attract, hire, train, retain and motivate other highly skilled technical, managerial and marketing personnel. Competition for
qualified personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel.
The failure to attract and retain our officers or the necessary technical, managerial and marketing personnel could have a material
adverse effect on our business, prospects, financial condition and results of operations.
Our
dependence on management creates risks. The loss of our experienced officers and key employees could materially and adversely
affect our ability to professionally manage our business.
Our
plan for success is dependent, in large part, on the active participation of our executive officers. The loss of their services
would materially and adversely affect our business and future success. We do not have key-man life insurance in effect at the
present time. Should any of our key employees die or become incapacitated, we may not be able to replace them in a timely or cost
effective manner which could materially and adversely harm our business, financial condition and results of operations.
We
may be sued for infringing on the intellectual property rights of others.
Third
parties may claim that we are infringing on their intellectual property rights. We may violate the rights of others without our
knowledge. If a litigant establishes that we are infringing its intellectual property rights, or that our intellectual property
rights are invalid, we may be forced to change our products, services, or manufacturing processes, and such changes may be expensive
or impractical. We may then be forced to seek royalty or license agreements from such litigant. If we are unable to agree on acceptable
terms, we may be required to discontinue the sale of key products or halt other aspects of our operations. In addition, we may
also be liable for significant financial damages for a violation of intellectual property rights. Any adverse result related to
violation of third party intellectual property rights could materially and adversely harm our business, financial condition and
results of operations. Even if intellectual property claims brought against us are without merit, they may result in litigation
which could be costly and time consuming, and may divert our management and key personnel from operating our business.
We
may be exposed to tax audits, which could be expensive for the Company and time consuming for management.
At
the present time, the Company is not in compliance with its obligation to file income tax returns, however, the Company intends
to remediate this non-compliance in the immediate future. Our U.S. federal and state tax returns may be audited by the U.S. Internal
Revenue Service (the “IRS”). An audit may result in the challenge and disallowance of deductions claimed by us. Further,
an audit could lead to an audit of one or more of our investors and ultimately result in attempts to adjust investors’ tax
returns with respect to items unrelated to us. We are unable to guarantee the deductibility of any item that we acquire. We will
claim all deductions for federal and state income tax purposes which we reasonably believe that we are entitled to claim. In particular,
we will elect to treat as an expense for tax purposes all interest, management fees, taxes and insurance. The IRS may disallow
any of the various elements used in calculating our expenses, thereby reducing federal income tax benefits of an investment. To
the extent that any challenge or disallowance is raised in connection with a tax return filed by an individual shareholder, the
cost of any audit and/or litigation resulting there from would be born solely by the affected shareholder. In the event the IRS
should disallow any of our deductions, the directors, in their sole discretion, will decide whether to contest such disallowance.
No assurance can be given that in the event of such a contest the deductions would be sustained by the courts. If the disallowance
of any deductions results in an underpayment of tax, investors could also be responsible for interest on the under payments.
Securities
compliance may be expensive and time consuming for our management.
Compliance
with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated
thereunder, including, the Sarbanes-Oxley Act of 2002 and related requirements will be costly and will place a significant burden
on our management. At the present time, the Company has only a limited history of operating with the internal controls and procedures
required of a public company. Previously, the Company’s accounting predecessor, Janex International, Inc. (the Delaware
entity which later changed its name to Cono Italiano, Inc. and was acquired by the Company) was registered with the SEC. However,
on March 23, 2009, the SEC took action under Section 12(j) of the Exchange Act and revoked that entity’s registration because
it was seriously delinquent in its mandatory reporting obligations. Should the Company fail to make its filings with the SEC in
a timely manner, its registration could be revoked as well.
Management
is required to conduct an annual evaluation of our internal control over financial reporting and include a management report on
our internal control over financial reporting. We cannot assure you that measures we have taken, or future measures we may take,
will enable us to provide accurate and timely financial reports, particularly if we are unable to hire additional personnel in
our accounting and financial department, or if we lose personnel in this area. Any failure to maintain an effective system of
internal controls, or any other problems with our financial systems or internal controls, could result in delays or inaccuracies
in reporting financial information or failure to comply with SEC reporting and other regulatory requirements. Any of these situations
could adversely affect our business and stock price.
Estimates
must be made in connection with the preparation of our financial reports. If changes must be made to financial reports, we could
be adversely affected.
We
follow accounting principles generally accepted in the United States in preparing our financial statements. As part of this work,
we must make many estimates and judgments which affect the value of the assets and liabilities, contingent assets and liabilities,
and revenue and expenses reported in our financial statements. We believe that our estimates and judgments are reasonable and
we make them in accordance with our accounting policies based on information available at the time. However, actual results could
differ from our estimates and this could require us to record adjustments to expenses or revenues that could be adversely material
to our financial position and results of operations.
A
significant percentage of our Common Stock is owned by a single investor, Mitchell Brown, our Chief Executive Officer and a member
of our Board of Directors, which may lead to the Company taking actions which conflict with other shareholders.
Our
Chief Executive Officer, Mr. Mitchell Brown, owns directly 30,100,000 shares of the Company’s common stock directly, and
has sole voting power and sole power of disposition over all 6,000,000 shares of the Company’s common stock owned by Lara
Mac Inc. Thus Mr. Brown controls the voting of approximately 32.82% of our issued and outstanding shares. This concentration of
ownership and control could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control
of us, or could otherwise delay or prevent a change in control transaction or other business combination, which could in turn
have an adverse effect on the market price of our common shares. As long as this concentration of ownership persists, it is unlikely
that any other holder or group of holders of our common shares will be able to affect the way we are managed or the direction
of our business. The interests of the control group of shareholders could conflict with the interests of other shareholders. In
addition, we may adopt amendments to our organizational documents and applicable state law which have anti-takeover provisions
that could delay or prevent a change in control of our company.
We
will indemnify our officers and directors which could cause our capital resources to be used to defend and settle claims or legal
actions against them.
Our
bylaws provide that we shall indemnify any and all of our present or former directors and officers for expenses incurred in connection
with the defense of any action relating to their services. Costs, charges and expenses (including attorneys’ fees) incurred
by such person in defending a civil or criminal proceeding shall be paid by the Company in advance upon receipt of an undertaking
to repay all amounts advanced if it is ultimately determined that the person is not entitled to be indemnified by the Company
as authorized by the bylaws, and upon satisfaction of other conditions required by current or future legislation. To the extent
that a director has been successful in defense of any proceeding, the Nevada Revised Statutes provide that he shall be indemnified
against reasonable expenses incurred in connection therewith. These provisions may limit the ability of our stockholders to recover
damages against our directors through legal proceeding or otherwise.
In
addition to the indemnification provided for in the Company’s bylaws, we may enter into agreements to indemnify our directors
and officers. Under these agreements, we will be obligated to indemnify our directors and officers for expenses, attorneys’
fees, judgments, fines and settlement amounts incurred by any director or officer in any action or proceeding arising out of the
director’s or officer’s services as a director or officer of us, any of our subsidiaries or any other company or enterprise
to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract
and retain qualified individuals to serve as directors and officers.
If
our food products become contaminated, we may be subject to product liability claims, product recalls and increased scrutiny by
regulators, any of which could adversely affect our business.
Food
products like Pizza Cones are vulnerable to contamination leading to food-related illness. There is a risk that our products could
become contaminated and then ultimately consumed by purchasers. Purchasers who suffer, or claim to suffer, as a result of consuming
our products may sue us, and such suits could be expensive and time consuming for the Company and its management. While Cono Italiano
believes that it has adequate insurance to mitigate the potential risk of losses for product liability claims, such insurance
may prove to be insufficient.
A
decline in the economy may lead to a decline in demand for our products.
Should
the U.S. economy experience a further decline, demand for our product may not grow and may even decrease, and accordingly, our
ability to generate revenues may be impaired.
Increased
costs for the raw materials used to produce the Pizza Cone may reduce our profits.
The
Company is unable to predict the extent to which the raw materials used to produce the Pizza Cone may increase in the future.
Significant cost increase may substantially reduce our profits.
A
material disruption at our processing plant could seriously harm our financial condition and operating results.
In
the event that the processing plant at which our products are made was to be damaged due to natural disaster or disrupted by labor
disputes, the Company could experience difficulties in finding an alternative production location. Such difficult and delay could
impact the profitability of the Company.
Risks
Related To Investing In Our Common Shares
You
may have difficulty selling our common shares and may therefore lose all or a significant portion of your investment.
Our
common shares trades on the OTC Bulletin Board. The stock price may be volatile. The market price of our common shares may be
subject to wide fluctuations in response to several factors including the following:
|
●
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Our
ability to execute our business plan and significantly grow our business;
|
|
●
|
Increased
competition from competitors who offer competing products; and
|
|
●
|
Our
financial condition and results of operations.
|
As
a result, our shareholders may find it more difficult to obtain accurate quotations concerning the market value of the stock.
Shareholders also may experience greater difficulties in attempting to sell our common shares than if they were listed on a self-regulated
national stock exchange.
We
may need to raise additional capital. If we are unable to raise additional capital, our business may fail.
We
may need to raise additional capital to provide cash for our operations. The fact that we have generated only $122,985 in sales
during the twelve months ended December 31, 2012 and $0 in sales during the twelve months ended December 2011 may deter potential
investors from providing financing. Uncertainty regarding our ability to generate revenues may make it difficult for us to find
financing on acceptable terms. If we are unable to obtain adequate funding, we may not be able to successfully develop and market
our products and our business may fail. To secure additional financing, we may need to borrow money or sell more securities. Under
the current circumstances, we may be unable to secure additional financing on favorable terms, if available at all.
We
do not currently intend to pay dividends on our common stock and, consequently, the ability to achieve a return on your investment
in our common stock will depend on appreciation in the price of our common stock. If our common stock does not appreciate in value,
investors could suffer losses in their investment in our common stock.
We
do not expect to pay cash dividends on our common stock. Any future dividend payments are within the absolute discretion of our
Board and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements,
financial condition, contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable law and
other factors that our Board may deem relevant. We may not generate sufficient cash from operations in the future to pay dividends
on our common stock. As a result, the success of your investment in our common stock will depend on future appreciation in its
value. The price of our common stock may not appreciate in value or even maintain the price at which you purchased our shares.
If our common stock does not appreciate in value, investors could suffer losses in their investment in our common stock.
Because
the market for our common shares is limited, investors may not be able to resell their common shares. Investors should therefore
assume that any investment in our company will be illiquid for the foreseeable future.
Our
common shares trade on the Over-the-Counter-Bulletin-Board quotation system. Trading in our shares has historically been subject
to very low volumes and wide disparity in pricing. Investors may not be able to sell or trade their common shares because of thin
volume and volatile pricing with the consequence that they may have to hold your shares for an indefinite period of time.
There
are legal restrictions on the resale of the common shares offered, including penny stock regulations under the U.S. Federal Securities
Laws. These restrictions may adversely affect your ability to resell your stock.
We
anticipate that our common stock will continue to be subject to the penny stock rules under the Exchange Act. These rules regulate
broker/dealer practices for transactions in “penny stocks.” Penny stocks are generally equity securities with a price
of less than $5.00. The penny stock rules require broker/dealers to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer must also provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson
and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and
offer quotations and the broker/dealer and salesperson compensation information must be given to the customer orally or in writing
prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
The transaction costs associated with penny stocks are high, reducing the number of broker-dealers who may be willing to engage
in the trading of our shares. These additional penny stock disclosure requirements are burdensome and may reduce all of the trading
activity in the market for our common stock. As long as the common stock is subject to the penny stock rules, our shareholders
may find it more difficult to sell their shares.
Our
future sales of our common shares could cause our stock price to decline.
There
is no contractual restriction on our ability to issue additional shares. We cannot predict the effect, if any, that market sales
of our common shares or the availability of shares for sale will have on the market price prevailing from time to time. Sales
by us of our common shares in the public market, or the perception that our sales may occur, could cause the trading price of
our stock to decrease or to be lower than it might be in the absence of those sales or perceptions.
You
may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock which
could be materially adverse to the value of our common stock.
As
of April 12, 2013, we had 110,002,165 shares of our common stock issued and outstanding. We are authorized to issue up to 150,000,000
shares of common stock. Our Board may authorize the issuance of additional common or preferred shares under applicable state law
without shareholder approval. We may also issue additional shares of our common stock or other securities that are convertible
into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future private placements
of our securities for capital raising purposes or for other business purposes. Future sales of substantial amounts of our common
stock, or the perception that sales could occur, could have a material adverse effect on the price of our common stock. If we
need to raise additional capital to expand or continue operations, it may be necessary for us to issue additional equity or convertible
debt securities. If we issue equity or convertible debt securities, the net tangible book value per share may decrease, the percentage
ownership of our current stockholders may be diluted and such equity securities may have rights, preferences or privileges senior
or more advantageous to our common stockholders.
The
market price of our common stock may be volatile which could adversely affect the value of your investment in our common stock.
The
trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors.
Some of the factors that may cause the market price of our common stock to fluctuate include:
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●
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Fluctuations
in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
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●
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Changes
in estimates of our financial results or recommendations by securities analysts;
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Failure
of any of our products to achieve or maintain market acceptance;
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●
|
Changes
in market valuations of similar companies;
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●
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Significant
products, contracts, acquisitions or strategic alliances of our competitors;
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●
|
Success
of competing products or services;
|
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●
|
Changes
in our capital structure, such as future issuances of securities or the incurrence of additional debt;
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●
|
Regulatory
developments;
|
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●
|
Litigation
involving our company, our general industry or both;
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|
Additions
or departures of key personnel;
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●
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Investors’
general perception of us; and
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●
|
Changes
in general economic, industry and market conditions.
|
Absence
of equity research reports or unfavorable reports could adversely affect the price of our stock.
The
trading market for our common shares will rely in part on the research and reports that equity research analysts publish about
us and the industry segments in which we operate. The public price of our publicly traded common shares could decline if one or
more securities analysts downgrades investment in our common shares or if those analysts issue other unfavorable commentary about
our industry or other major participants in our industry, or if they decline to publish reports about us. At the current time
there are no analysts providing coverage of the Company’s securities.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
Our
principal executive offices are located at 10 Main Street, Keyport, NJ 07735. We are not paying rent for this location, which
is being provided by our Chief Executive Officer at no expense. We believe that this property is adequate for our current and
immediately foreseeable operating needs. At the present time, we do not own any real estate. We do not have any policies regarding
investments in real estate, securities or other forms of property.
Item
3. 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
4. Mine Safety Disclosures.
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
The
following table and text sets forth the names and ages of all our directors and executive officers and our key management personnel
as of April 1, 2013. All of our directors serve until the next annual meeting of stockholders and until their successors are elected
and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of
the Board, and are elected or appointed to serve until the next Board meeting following the annual meeting of stockholders. Also
provided is a brief description of the business experience of each director and executive officer and the key management personnel
during the past five years and an indication of directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws.
Name
|
|
Age
|
|
Position
|
Mitchell
Brown
|
|
47
|
|
Chief
Executive Officer and Director
|
Alex
J. Kaminski
|
|
47
|
|
Chief
Financial Officer, Treasurer and Director
|
|
|
|
|
|
Steve
Savage
|
|
54
|
|
Secretary
and Director
|
Scott
Smith
|
|
46
|
|
Director
|
Mitchell
Brown, Chief Executive Officer and Director
Mr.
Brown was appointed Chief Executive Officer on June 4, 2009 and commenced serving as a director on June 19, 2009. From 2004 through
2007, Mr. Brown served as the President of Discount Direct, a marketing company which served various cell phone providers. From
2007 through the date hereof, Mr. Brown has served as the Chairman and Chief Executive Officer of Cono Italiano, Inc., a company
which has acquired the North American rights to sell certain food products.
Alex
J. Kaminski, Chief Financial Officer, Treasurer and Director
Mr.
Kaminski was appointed Treasurer of the Company on June 4, 2009. He commenced serving as Chief Financial Officer on June 22, 2009
and Director on June 19, 2009. Mr. Kaminski, 47, is a Certified Public Accountant. Since 1989, he has had his own practice. From
2002 to 2008 he served as the Chief Financial Officer and President of Basik Funding Inc. Since 2005, he has also served as the
President of Homestead Funding Group Inc.
Steve
Savage, Secretary and Director
Mr.
Savage commenced serving as Secretary and Director on June 19, 2009. For the past 5 years Mr. Savage has served as President and
owner of Ocean Consultants Inc. a Real Estate Investment company. The purpose of the business was to locate, purchase, remodel
and market various residential properties.
Scott
Smith, Director
Mr.
Smith commenced serving as a director on June 19, 2009. Since 1997, Mr. Smith, 46, has served as the owner and manufacturer’s
representative for S.J. Smith Distributors Inc. Since 2002, Mr. Smith has served as the Corporate Sales Manager for Ray Catena
Motor Car in Edison, NJ.
Family
Relationships
None
of the Company’s officers or directors have any family relationships with the Company’s other officers or directors
or persons nominated or chosen by the Company to become officers or directors.
Involvement
in Certain Legal Proceedings
During
the past five years no director, person nominated to become a director, executive officer, promoter or control person of the Company
has: (i) had any bankruptcy petition filed by or against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that time; (ii) been convicted in a criminal proceeding
or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) been subject to
any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking
activities; or (iv) been found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.
Item
11. Executive Compensation.
The
following table sets forth compensation for each of the past three fiscal years with respect to each person who served as Chief
Executive Officer of the Company and each of the four most highly-compensated executive officers of the Company who earned a total
annual salary and bonuses that exceeded $100,000 in any of the two preceding fiscal years.
Summary
Compensation Table
Name
and Principal
Position
|
|
Year
(1)(2)
|
|
Salary
($)
|
|
Stock
Awards ($)
|
|
Total
|
|
|
|
|
|
|
|
|
|
Mitchell Brown, Chief Executive Officer and
|
|
|
2012
|
|
|
|
125,000
|
|
|
|
0
|
|
|
|
125,000
|
|
Director (3)
|
|
|
2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph Masselli, former President
|
|
|
2012
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Chief Operating Officer and former Director (3)(4)
|
|
|
2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alex J. Kaminski, Chief Financial Officer,
|
|
|
2012
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
50,000
|
|
Treasurer and Director (3)
|
|
|
2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Savage, Secretary and Director (3)
|
|
|
2012
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
50,000
|
|
|
|
|
2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Officers serving
the Company prior to the acquisition of Cono Italiano (Delaware):
|
|
|
|
|
|
|
|
|
|
James Pak Chiu Leung former CEO,
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
former President, former Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
No
officers
earned
over
$100,000
in
any
of
the
three
preceding
fiscal
years,
other
than
as
set
forth
above.
|
(2)
|
|
The
Company’s
fiscal
year
previously
ended
on
January
31.
The
Company
changed
its
fiscal
year-end
from
November
30,
2006
to
January
31,
2007,
and
on
November
12,
2009
the
Company
changed
its
fiscal
year
end
to
December
31st.
The
2010
and
2009
fiscal
years
for
Mitchell
Brown,
Joseph
Masselli,
Alex
J.
Kaminski
and
Steve
Savage
refer
to
the
fiscal
years
ended
December
31,
2010
and
December
31,
2009.
The
2009
fiscal
year
for
Mr.
Leung,
Mr.
Clarke
and
Mr.
St-Pierre
refer
to
the
fiscal
years
ended
January
31,
2009.
These
individuals
were
not
compensated
thereafter.
|
(3)
|
|
To
date,
each
of
Mitchell
Brown,
Joseph
Masselli,
Alex
J.
Kaminski
and
Steve
Savage
have
not
been
paid
cash
compensation
by
either
the
Company
or
Cono
Italiano
(Delaware).
|
(4)
|
|
On
January
28,
2011,
Mr.
Masselli
was
relieved
of
his
position
as
the
Company’s
President
and
Chief
Operating
Officer.
On
March
15,
2011
Mr.
Masselli’s
service
as
a
member
of
the
Company’s
Board
of
Directors
terminated.
|
None
of the officers earned any bonus, restricted stock awards, LTIP Payouts or any other annual or long term compensation other than
the stock awards paid to each of Mr. Brown, Mr. Masselli and Mr. Savage by Cono Italiano (Delaware).
Outstanding
Equity Awards at Fiscal Year-End (1)
As of the
end of our most recent fiscal year, December 31, 2012, Mitchell Brown, our Chief Executive Officer and Director, Joseph Masselli,
our former President, Chief Operating Officer and Director, Alex J. Kaminski, our Chief Financial Officer, Treasurer and Director
and Steve Savage, our Secretary and Director have not been issued any options in the Company.
Options
were issued in connection with our August 10, 2009 1-for-60 stock split; however, none of such options were exercised during the
year ended December 31, 2012 and as of December 31, 2012 all of such options have expired.
Director
Compensation
The
persons who served as members of our board of directors, including executive officers, did not receive any compensation for services
as a director in either the fiscal year ended December 31, 2012 or the fiscal year ended December 31, 2011.
The
Company has employment agreements with each of Mitchell Brown, Alex Kaminski and Steve Savage, and formerly had an agreement with
Mr. Masselli. These directors will not be separately compensated for their service as directors, as they are also serving as officers
of the Company. The Company does not have an employment or other compensation agreement with Scott Smith, who was compensated
according to the schedule above. Mr. Smith, who will be serving only as a director and not as an officer will be paid a fee of
$18,000 per annum, which is presently being deferred.
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 material 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. The compensation of the officers has been set as follows:
Officer
|
|
Annual
Salary
|
Mitchell Brown, Chief Executive Officer
|
|
$
|
125,000
|
|
Alex Kaminski, Chief Financial Officer and Treasurer
|
|
$
|
50,000
|
|
Steve Savage, Secretary
|
|
$
|
50,000
|
|
It
has been agreed by the Company, Mr. Smith and Mr. Kaminski that pursuant to separate stock option agreements, Mr. Smith will be
granted options to purchase 2,000,000 shares of the Company’s common stock at $.01 per share and Mr. Kaminski will be granted
options to purchase 1,500,000 shares of the Company’s common stock at $.01 per share. At this time, these options have not
been granted, will vest in one year and will expire in three years.
Equity
Incentive Plan
On
October 5, 2006, the Company’s Board of Directors adopted the Company’s 2006 Equity Incentive Plan, which authorizes
the Company to issue options for the purchase of up to 2,000,000 shares of the Company’s common stock, pursuant to the terms
and conditions set forth therein. The Equity Incentive Plan authorizes the issuance of incentive stock options (ISO) and non-qualified
stock options (NQOs) to our employees, directors or consultants.
As
of December 31, 2012, there were -0- unexpired outstanding options under the Equity Incentive Plan.
2006
Equity Plan Administration
The
compensation committee is empowered to select those eligible persons to whom options shall be granted under the 2006 Equity Incentive
Plan; to determine the time or times at which each option shall be granted, whether options will be ISOs or NQOs and the number
of shares to be subject to each option; and to fix the time and manner in which each option may be exercised, including the exercise
price and option period, and other terms and conditions of options, all subject to the terms and conditions of the 2006 Equity
Incentive Plan. The compensation committee has sole discretion to interpret and administer the Plan, and its decisions regarding
the Plan are final.
2006
Equity Plan Option Pricing
Each
grant shall specify an option price per share, which shall be equal to or greater than the fair market value per share on the
grant date; provided that in the case of any incentive stock option granted to a person who on any given date owns, either directly
or indirectly (taking into account the attribution rules contained in Section 424(d) of the Code), stock possessing more than
10 percent of the total combined voting power of all classes of stock of the Company or any subsidiary, the option price shall
not be less than 110% of the fair market value of a share on the date of grant.
2006
Equity Plan Amendment and Termination
The
Plan may be amended from time to time by the Board, but no such amendment shall increase any of the limitations concerning the
shares or options available under the Plan, other than to reflect an adjustment made in accordance with Section 14 of the Plan
(i.e. dilution, enlargement of the rights of participants in the Plan), change the class of persons eligible to receive grants
of awards or the types of awards available under the Plan and increase the benefits to participants under the Plan, in any such
case without the further approval of the stockholders of the Company. The Board will also condition any amendment on the approval
of the stockholders of the Company if such approval is necessary with respect to the applicable listing or other requirements
of a national securities exchange or other applicable laws, policies or regulations, and the Board may condition any amendment
on the approval of the stockholders of the Company if such approval is deemed advisable to comply with such requirements.
The
Plan shall terminate on the tenth anniversary of the date upon which it is approved by the stockholders of the Company, and no
award shall be granted after that date.
Indemnification
Agreements
Through
its Indemnification Agreements, the Company agrees to indemnify directors and officers, to the extend provided for in the Agreement,
and to hold them harmless from and against, any losses or expenses at any time incurred by or assessed against them arising out
of or in connection with their work as a director, advisory director, Board Committee member, officer, employee or agent of the
Company or of an affiliate, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity
while serving as an officer or director of the Company or of an Affiliate, to the fullest extent permitted by law in as in effect
or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification.
Whistleblower
Procedures Policy
In
accordance with the requirements of Section 301 of the Sarbanes-Oxley Act of 2002, the Board of Directors the Company has adopted
this Whistleblower Procedures Policy, stating that all employees of the Company and its subsidiaries are strongly encouraged to
report any evidence of financial irregularities which they may become aware of, including those with respect to internal controls,
accounting or auditing matters. Under this Whistleblower Procedures Policy, the management of the Company shall promptly and periodically
communicate to all employees with access to accounting, payroll and financial information the means by which they may report any
such irregularities. In the event an employee is uncomfortable for any reason reporting irregularities to his or her supervisor
or other management of the Company, employees may report directly to any member of the Board of Directors of the Company. The
identity of any employee reporting under these procedures will be maintained as confidential at the request of the employee, or
may be made on an anonymous basis. Notice must be provided to all of the Company’s employees with access to accounting,
payroll and financial information in respect of these procedures.
Changes
in Control
As
of the date of filing of this Report, the Company is unaware of any arrangement which may result in a change in control.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The
following table sets forth, as of April 1, 2013, the total number of shares owned beneficially by the Company’s directors,
officers and key employees, and any person (including any group) who is known to the Company to be the beneficial owner of more
than five percent of any class of the Company’s voting securities. Except as otherwise indicated below, each person named
has sole voting and investment power with respect to the shares indicated. The percentage of ownership set forth below reflects
each holder’s ownership interest in the 110,002,165 shares of the Company’s common stock outstanding as of April 1,
2013.
Name
and Address of Beneficial
Owner
|
|
Shares
|
|
|
Options/
Warrants (1)
|
|
|
Total
(1)
|
|
|
Percentage
of
Shares
Outstanding (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five
Percent Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lara
Mac Inc.(2)
|
|
|
6,000,000
|
|
|
|
0
|
|
|
|
6,000,000
|
|
|
|
5.45
|
%
|
Executive
Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mitchell
Brown, Chief Executive Officer and Director (2)
|
|
|
30,100,000
|
|
|
|
0
|
|
|
|
30,100,000
|
|
|
|
27.36
|
%
|
Alex
J. Kaminski, Chief Financial Officer, Treasurer and Director
|
|
|
100,000
|
|
|
|
0
|
|
|
|
100,000
|
|
|
|
*
|
|
Steve
Savage, Secretary and Director
|
|
|
100,000
|
|
|
|
0
|
|
|
|
100,000
|
|
|
|
*
|
|
Scott
Smith, Director
|
|
|
100,000
|
|
|
|
0
|
|
|
|
100,000
|
|
|
|
*
|
|
All
officers and directors as group (4 persons)
|
|
|
36,400,000
|
|
|
|
0
|
|
|
|
36,400,000
|
|
|
|
33.09
|
%
|
* Less than
1%.
The mailing
address for each of the officers and directors is Cono Italiano, Inc., 10 Main Street, Keyport NJ 07735.
(1) Includes
options and warrants exercisable as of the date hereof or within 60 days hereafter. The Company is unaware of any pledges of any
shares, options or warrants by any of the individuals or entities listed above. The Company intends to make option grants to certain
officers and directors within the foreseeable future, however, no options or agreements pertaining to options have been granted
or entered into by the Company or such officers and directors as of the date hereof.
(2) Our
Chief Executive Officer Mr. Mitchell Brown has sole voting power and sole power of disposition over all 6,000,000 shares of Company
common owned by Lara Mac Inc. (in addition to 30,100,000 shares owned by Mr. Brown directly), and as such all such shares are
therefore deemed to be beneficially owned by Mr. Brown.
Potential
Changes in Control
To
the knowledge of management, there are no present arrangements or pledges of securities of the Company which may result in a change
in control of the Company.
Changes
in Control
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 and
Lara Mac Inc. (“Lara Mac”), an entity controlled by Mitchell Brown (who is 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. The compensation which Gallant received from
Lara Mac consisted of Lara Mac’s agreement to assure the payment of certain obligations of the Company in the amount of
$162,139 which shall be paid by the Company in due course. The Company is not a party to the Stock Purchase Agreement. The address
of Lara Mac is 10 Main Street, Keyport, NJ 07735.
In
addition, on June 22, 2009, the Company and Lara Mac entered into a Management Services Agreement. In exchange for the provision
of services as set forth therein, Lara Mac received 9,553,377 shares of the Company’s common stock. On November 6, 2009,
as additional inducement to the shareholders of Cono Italiano (Delaware) to enter into the Share Exchange Agreements, Lara Mac
Inc. agreed to the termination of the Management Services Agreement with Cono Italiano (Nevada) and cancellation of all Cono Italiano
(Nevada) shares previously issued to Lara Mac under the Management Services Agreement (242,557 shares of the Company’s common
stock as adjusted for the one-for-sixty reverse stock split).
After
giving effect to the Share Exchange, Mitchell Brown, both as an individual and through his control of Lara Mac, controls 36,100,000
shares of the Company’s common stock. These shares constitute 35.10% of the Company’s issued and outstanding shares
as of April 1, 2013.
Adverse
Interests
The
Company is not aware of any material proceeding to which any director, officer, or affiliate of the Company, or any owner of record
or beneficially of more than five percent of any class of the Company’s voting securities, or security holder is a party
adverse to the Company or has a material interest adverse to the Company.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
Lara
Mac Inc. Management Services Agreement
On
June 22, 2009, Lara Mac Inc., an entity controlled by Mitchell Brown, our Chief Executive Officer and a member of our Board of
Directors, entered into a Management Services Agreement with the Company (the “Management Services Agreement”). Pursuant
to the Management Services Agreement, Lara Mac would render to the Company consulting and other advisory services in relation
to developing strategic plans for inception of operations, corporate management, the operations of the Company, strategic planning,
domestic and international marketing and sales, financial advice, including, without limitation, advisory and consulting services
in relation to the selection and retention of candidates for senior management of the Company and its subsidiaries, prospective
strategic alliance partners, preparing acquisition growth plans, identifying prospective merger and acquisition candidates, developing
value propositions for the Company and acquisition candidates, analyzing financial implications of potential transactions, advising
on negotiations regarding terms and conditions of transactions, outlining and managing due diligence issues and due diligence
processes, introductions to prospective customers, selection of investment bankers or other financial advisors or consultants,
and advice with respect to the capital structure of the Company, equity participation plans, employee benefit plans and other
incentive arrangements for certain key executives of the Company (collectively, the “Services”). In exchange for the
Services, Lara Mac shall receive 9,553,377 shares of the Company’s common stock (the “Fee”). The value of the
restricted shares of common stock constituting the Fee is deemed to be $0.044 per share, which is equivalent to fifty percent
of the average closing trading price of the Company’s common stock during the ninety day period of February 27, 2009, through
May 27, 2009. Such time period is deemed to constitute an objective public capital market valuation of the Company’s stock
price, having an aggregate value of $410,666 (the “Issue Value”). The parties to the Management Services Agreement
also agreed that Lara Mac may render other services beyond the scope of activities which the parties contemplate as part of the
Services, as to which Lara Mac shall be entitled to separate compensation that shall be negotiated in good faith by the parties
on a case-by-case basis. In the event that the Company is not generating organic revenues (excluding interest and investment income)
as of the first anniversary of the date of the Management Services Agreement, then all of the Shares constituting the Fee shall
be subject to repurchase in the entirety by the Company at a repurchase price equal to the Issue Value. On November 6, 2009, as
additional inducement to the shareholders of Cono Italiano (Delaware) to enter into the Share Exchange Agreements, Lara Mac Inc.
agreed to the termination of the Management Services Agreement with Cono Italiano (Nevada) and cancellation of all Cono Italiano
(Nevada) shares previously issued to Lara Mac under the Management Services Agreement (242,557 shares of the Company’s common
stock as adjusted for the one-for-sixty reverse stock split).
There
have been no transactions, since the beginning of the Company’s last fiscal year, and there are no currently proposed transactions,
in which the Company was or is to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the
average of the Company’s total assets at fiscal year-end for the last three completed fiscal years, and in which any related
person had or will have a direct or indirect material interest, except as set forth above.
Mr.
Scott Smith, who is the only current member of the Board of Directors who is independent under the standards for independence
contained in the Nasdaq Marketplaces Rules, Rule 5605(a)(2), has independently reviewed and assessed the fairness of the Management
Services Agreement. Mr. Smith has determined that the terms and conditions of the Management Services Agreement are fair and reasonable
to the Company and its shareholders and he has recommended that the Management Services Agreement be adopted and approved by the
entire Board of Directors. Mr. Mitchell Brown, having an economic interest in the Management Services Agreement through his beneficial
ownership of Lara Mac, recused himself from all deliberations and voting in regard to the Management Services Agreement.
Edesia
Emprise, LLC
In
July of 2008, the Company’s Chief Executive Officer, Mitchell Brown and Ramona Fantini of Pino Gelato formed a manufacturing
entity, Edesia Emprise, LLC, to produce and manufacturer the “Cones” used in the Company’s products at a location
in Indianapolis Indiana. Mitchell Brown transferred his ownership interests in Edesia Emprise, LLC to his father, Gene Brown,
later that month.
On
November 11, 2009, Cono Italiano (Delaware) and Edesia Emprise, LLC entered into a Master Manufacturing Agreement. Pursuant to
this Master Manufacturing Agreement, Edesia Emprise, LLC will produce the Company’s Pizza Cono product. Cono Italiano (Delaware)
has agreed to pay Edesia Emprise, LLC the costs of production plus fifteen percent (15%). This Master Manufacturing Agreement
has a five (5) year term and will automatically renew unless cancelled by one of the parties pursuant to its terms. This Master
Manufacturing Agreement is exclusive within the United States. Under the Master Manufacturing Agreement, Edesia Emprise, LLC may
engage qualified subcontractors throughout its territory for purposes of performing its obligations to the Company. On December
8, 2009, the Company was advised that Edesia Emprise had entered into its first subcontract agreement with Sunrise Baking Acquisition
Company, based in Brooklyn, New York. As of December 31, 2012 Edesia’s contract with Sunrise was terminated as well as Edesia’s
Master Manufacturing Agreement with Cono Italiano.
On
November 12, 2009, the Company’s Board of Directors ratified the Master Manufacturing Agreement entered into by and between
Cono Italiano (Delaware) and Edesia Emprise, LLC. The Board has determined that the terms and conditions of this agreement are
fair and reasonable to the Company and its shareholders. Mr. Mitchell Brown, whose father owns Edesia Emprise, LLC, recused himself
from all deliberations and voting in regard to this agreement.
DIRECTOR
INDEPENDENCE
Mr.
Scott Smith is the only current member of the Board who may be deemed to be independent. The Company has adopted the standards
for independence contained in the NASDAQ Marketplaces Rules, Rule 5605(a)(2).
Item
14. Principal Accountant Fees and Services.
(a)
Audit Fees
The
aggregate fees of EFP Rotenberg LLP for professional services rendered for the audit of the Company’s annual financial statements
for the years ended December 31, 2012 and 2011, totaled $26,900 and $26,560, respectively.
(b)
Audit-Related Fees
The
aggregate fees billed by EFP Rotenberg LLP for audit related services for the each of the years ended December 31, 2012 and 2011,
and which are not disclosed in “Audit Fees” above, were $-0-.
(c)
Tax Fees
The
aggregate fees billed by EFP Rotenberg LLP for tax compliance for each of the years ended December 31, 2012 and 2011, were $-0-.
(d)
All Other Fees
The
aggregate fees billed by EFP Rotenberg LLP for services other than those described above, for the years ended December 31, 2012
and 2011, were $-0-.
Audit
Committee Pre-Approval Policies
Our
Board of Directors reviewed the audit and non-audit services rendered by EFP Rotenberg LLP during the periods set forth above
and concluded that such services were compatible with maintaining the auditors’ independence. All audit and non-audit services
performed by our independent accountants are pre-approved by our Board of Directors to assure that such services do not impair
the auditors’ independence from us.
The accompanying notes
are an integral part of these financial statements.
The accompanying notes
are an integral part of these financial statements.
The accompanying notes
are an integral part of these financial statements.
The accompanying notes
are an integral part of these financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
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
|
Principles
of Consolidation
The
consolidated financial statements include the accounts of Cono Italiano, Inc. (Nevada) and its wholly owned subsidiary, Cono Italiano,
Inc. (Delaware) (the “Company”). All significant intercompany balances have been eliminated in consolidation.
Method
of Accounting
The
Company maintains its books and prepares its financial statements on the accrual basis of accounting.
Development
Stage
The
Company has operated as a development stage enterprise since its inception by devoting substantially all of its efforts to financial
planning, raising capital, research and development, and developing markets for its services. The Company prepares its financial
statements in accordance with the requirements of FASB ASC 915, “Development Stage Entities.”
Cash
and Cash Equivalents
Cash
and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities
of three months or less. The Company maintains cash and cash equivalents at financial institutions, which periodically may exceed
federally insured amounts.
Property,
Equipment and Depreciation
Property
and equipment are reflected at cost of acquisition and are depreciated on various methods utilizing the following estimated lives:
Machinery
and Equipment
|
|
5
Years
|
Office
Equipment
|
|
5
Years
|
Maintenance
and repairs are expensed as incurred. The cost of property and equipment retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts and reflected as other income or expense.
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.
-
continued -
CONO
ITALIANO, INC.
(A
DEVELOPMENT STAGE COMPANY)
(A
NEVADA CORPORATION)
Keyport,
New Jersey
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note B
|
-
|
Summary
of
Significant
Accounting
Policies
–
continued
|
Accounts
Receivable - continued
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 December
31, 2012 and 2011, the allowance for doubtful accounts was $2,440 and $-0-, 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
One
customer accounted for approximately $68,655 or 55%, while another customer accounted for $16,507 or 13% of net sales for the
year ended December 31, 2012. Various other customers accounted for the remaining sales of $37,823 or 32%. All transactions were
in United States dollars. There were no transaction gains or losses associated with sales transactions.
Income
Taxes
The
Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes” using the asset and liability approach,
which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates
in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income
tax rates upon enactment. Deferred tax assets are recognized, net of any valuation allowance, for temporary differences and net
operating loss and tax credit carry forwards. Deferred income tax expense represents the change in net deferred assets and liability
balances.
Earnings
per Share
Earnings
per share of common stock are computed in accordance with FASB ASC 260, “Earnings per Share”. Basic earnings per share
are computed by dividing income or loss available to common shareholders by the weighted-average number of common shares outstanding
for each period.
-
continued -
CONO
ITALIANO, INC.
(A
DEVELOPMENT STAGE COMPANY)
(A
NEVADA CORPORATION)
Keyport,
New Jersey
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note B
|
-
|
Summary
of
Significant
Accounting
Policies
–
continued
|
Earnings
per Share
Diluted
earnings per share are calculated by adjusting the weighted average number of shares outstanding assuming conversion of all potentially
dilutive stock options, warrants and convertible securities, if dilutive. Common stock equivalents that are anti-dilutive are
excluded from both diluted weighted average number of common shares outstanding and diluted earnings per share.
In
a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential
common shares is anti-dilutive. At December 31, 2012, there were 4,651,395 shares that could dilute future earnings.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair
value of Financial Instruments
Prepaid
expenses, accrued expenses, notes payable, and amounts due to and from related parties are carried in the financial statements
at amounts which approximate fair value.
Stock-Based
Compensation
Stock-based
compensation related to non-employees is recognized based on service provided in the accompanying 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.
The
Company follows 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
.
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.
CONO
ITALIANO, INC.
(A
DEVELOPMENT STAGE COMPANY)
(A
NEVADA CORPORATION)
Keyport,
New Jersey
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note D
|
-
|
Property
and
Equipment
|
Property
and equipment consisted of the following:
December 31,
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Machinery and Equipment
|
|
$
|
261,150
|
|
|
$
|
190,168
|
|
Office Equipment
|
|
|
2,398
|
|
|
|
2,398
|
|
|
|
$
|
263,548
|
|
|
$
|
192,566
|
|
Less: Accumulated Depreciation
|
|
|
96,011
|
|
|
|
44,479
|
|
|
|
|
|
|
|
|
|
|
Net Property and Equipment
|
|
$
|
167,537
|
|
|
$
|
148,087
|
|
Depreciation
expense for the years ended December 31, 2012 and 2011 was $63,795 and $8,665, respectively.
Note E
|
-
|
Deferred
Note
Payable
Issuance
Costs
|
Deferred
note payable issuance costs associated with the convertible promissory note consisted of the following:
December 31,
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Deferred Note Payable Issuance Costs
|
|
$
|
39,125
|
|
|
$
|
––
|
|
Less: Accumulated Amortization
|
|
|
32,604
|
|
|
|
––
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Note Payable Issuance Costs
|
|
$
|
6,521
|
|
|
$
|
––
|
|
Amortization
expense for the years ended December 31, 2012 and 2011 was $32,604 and $-0-, respectively.
Note F
|
-
|
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.
-
continued -
CONO
ITALIANO, INC.
(A
DEVELOPMENT STAGE COMPANY)
(A
NEVADA CORPORATION)
Keyport,
New Jersey
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note F
|
-
|
Related
Party
Transactions
–
continued
|
The
advances are non-interest bearing and is due upon demand. Due from related party consists of the following:
December 31,
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Edesia Emprise, LLC
|
|
$
|
16,937
|
|
|
$
|
11,937
|
|
On
November 11, 2009, Cono Italiano (Delaware) and Edesia Emprise, LLC entered into a Master Manufacturing Agreement. Pursuant to
this Master Manufacturing Agreement, Edesia Emprise, LLC will produce the Company’s Pizza Cono product. Cono Italiano (Delaware)
has agreed to pay Edesia Emprise, LLC the costs of production plus fifteen percent (15%). This Master Manufacturing Agreement
has a five (5) year term and will automatically renew unless cancelled by one of the parties pursuant to its terms. Edesia Emprise,
LLC may either produce this product directly or through a subcontractor. As of December 31, 2012 this contract was terminated.
In
November 2009, Edesia Emprise, LLC has entered into a subcontract agreement with Sunrise Bakery, located in Brooklyn, New York,
to produce the cones for the Pizza Cono product on behalf of Edesia Emprise, LLC. As of December 31, 2012 this contract was terminated.
For
the year ended December 31, 2012, Edesia Emprise was reimbursed expenses paid on behalf of the Company in the amount of $25,000
and Edesia transferred $20,000 to the Company for the future purchase of a piece of equipment.
Due
to Officer
Certain
disbursements of the Company have been paid by an officer of the Company. The balance at December 31, 2012 and 2011 was $767,317
and $724,975, respectively. There are no established repayment terms. For the years ended December 31, 2012 and December 31, 2011,
the Company has imputed interest at the applicable federal rate of 0.95% and 1.27%, respectively. Accrued interest was $59,834
and $52,746, at December 31, 2012 and December 31, 2011, respectively.
Note G
|
-
|
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 December 31, 2012 and December 31, 2011 was $199,269 and $187,525, respectively.
The
Company has a note payable to DT Crystal Limited accruing interest at 10% annually which is due upon demand. The note is convertible
at option of the holder into restricted stock of Cono (Nevada). At December 31, 2012 and December 31, 2011 note payable to DT
Crystal was $67,228 and $60,905, respectively. Interest expense for the years ended December 31, 2012 and 2011 was $6,323 and
$5,728, respectively.
CONO
ITALIANO, INC.
(A
DEVELOPMENT STAGE COMPANY)
(A
NEVADA CORPORATION)
Keyport,
New Jersey
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
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 $2,966,914 at December 31, 2012.
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 J
|
-
|
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 December 31, 2012 accrued compensation was $225,000. 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
|
|
It
has been agreed by the Company, Mr. Smith, a director and Mr. Kaminski that pursuant to separate stock option agreements, Mr.
Smith will be granted options to purchase 2,000,000 shares of the Company’s common stock at $.01 per share and Mr. Kaminski
will be granted options to purchase 1,500,000 shares of the Company’s common stock at $.01 per share. These options will
vest in one year and will expire in three years. As of December 31, 2012, the stock agreements have not been executed, therefore
the options have not been granted.
The
Company is not in compliance with filing its required income tax returns. Since the Company has had continuous losses and has
available net operating losses, the Company believes that any tax liability would not be material. Deferred taxes are provided
for the temporary differences between the financial reporting basis and the tax reporting basis of the Company’s assets
and liabilities. The temporary differences between financial reporting and income tax purposes are primarily net operating loss
carry forwards for income tax purposes. A valuation allowance is recorded for deferred tax assets when management determines it
is more likely than not, that such assets, will not be realized.
-
continued -
CONO
ITALIANO, INC.
(A
DEVELOPMENT STAGE COMPANY)
(A
NEVADA CORPORATION)
Keyport,
New Jersey
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Note K
|
-
|
Income
Taxes
–
continued
|
The
Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences
of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.
The Company incurred net losses in the year ending December 31, 2012 and 2011 and therefore, has no tax liability. The deferred
tax asset generated by the carry-forward is approximately $1,184,985 at December 31, 2012. The deferred tax asset will expire
in the years 2026 through 2032.
Components
of deferred tax assets at December 31, 2012 are as follows:
Deferred
Tax Asset:
|
|
|
|
|
|
|
|
Net Operating Loss Carry-Forwards
|
|
$
|
1,184,985
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
1,184,985
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
––
|
|
A
full valuation allowance has been established against the deferred tax assets for the years ended December 31, 2012 and 2011 as
utilization of the loss carry forwards and realization of other deferred tax assets cannot be reasonably assured.
The
Company has adopted ASC 740-10 “Income Taxes”. As a result of the assessment the Company has recognized no material
tax adjustments to the unrecognized tax benefits. At the adoption date of January 1, 2008 and as of December 31, 2012, the Company
has no unrecognized tax benefits. The reconciliation of the effective income tax rate of the Company to the statutory income tax
rate for the fiscal year ended on December 31, 2012 and 2011 is as follows:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Federal Income Tax Rate
|
|
|
34
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
State Income Tax Rate
|
|
|
9
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
Increase in Valuation Allowance
|
|
|
(43
|
%)
|
|
|
(40
|
%)
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Note L
|
-
|
Security
Agreement
|
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 L
|
-
|
Security
Agreement
–
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 a beneficial conversion feature recorded as a debt discount in the amount of $13,157 which will
be 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 and note value, net of debt discount, of $247,807 at December 31, 2012.
Accrued interest for the year ended December 31, 2012 was $25,000.
On
February 27, 2012, the Company entered into the 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 December 31, 2012, 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. A total of $84,591 is included in Deferred Equity Financing Costs at December 31, 2012 which will be netted against proceeds
when shares are purchased pursuant to the Equity Agreement.
CONO
ITALIANO, INC.
(A
DEVELOPMENT STAGE COMPANY)
(A
NEVADA CORPORATION)
Keyport,
New Jersey
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
On
November 6, 2009, Cono Italiano (Delaware) entered into a Commitment Letter, pursuant to which, one of the Company’s shareholders,
Lara Mac 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 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 December 31,
2012, the agreement was still in effect and no funds have been borrowed.
On
August 1, 2010, Cono Italiano (Delaware) entered into a manufacturing agreement with Interstate Caterers for the purposes of manufacturing,
producing and distributing “pizza cono”. The term of the agreement shall continue in force and effect unless terminated
by either party. Cono will lease to Interstate equipment required for the manufacture of the product for $1 per year. All equipment
will remain the property of Cono and upon termination of the agreement be returned to Cono by Interstate. In addition to this
agreement Cono issued 100,000 shares of common stock to the 2 sole stockholders of Interstate in exchange for the use of Interstate’s
facility for 1 (one) year at an approximate value of $36,000 for the calendar year 2011, included in prepaid expenses. For the
year ended December 31, 2012 and 2011, $-0- and $36,000 has been expensed to rent, respectively. This agreement was superseded
in September 2011 by another agreement with Interstate Caterers (See below).
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 M
|
-
|
Other
Matters
–
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 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 N
|
-
|
Subsequent
Events
|
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.