The outbreak of the novel coronavirus (COVID-19), including the measures to reduce its spread, and the impact on the economy, cannot
fully be understood and identified. Indications to date are that there are somewhat offsetting factors relating to the impact on
our Company. Industry data shows that supermarket sales remain up, with more people spending more time at home. Anecdotally and
statistically, snacking activity is also up while consumers are reporting a decrease in sleep quality and sleep satisfaction. Industry
sales data also showed ice cream as one of the categories experiencing the largest increase with year over year growth averaging
over 30% through a series of five one-week periods between March 15 and April 12, 2020 according to IRI data.
The offsetting factors are the impact of
the virus on the overall economy, and the impact that a down economic period can have on consumer behavior, including trial of
new brands. Greater unemployment, recession, and other possible unforeseen factors are shown to have an impact. Research indicates
that consumers are less likely to try new brands during economic recession and stress, returning to the legacy brands they've
known for decades.
With consumers generally making fewer shopping
trips, while buying more on those occasions and reverting back to more familiar brands, certain brand-launch marketing tactics,
such as in-store displays and in-store product sampling tables, are either impaired or impermissible. So, while overall night snacking
demand is up, and consumer need/desire for better sleep is also stronger, driving consumer trial and adoption has been more difficult
and expensive during these circumstances.
From both public statements, and ongoing
exploratory meetings between Nightfood Management and experts from certain global food and beverage conglomerates, it has been
affirmed to Management that there is increased strategic interest in the nighttime nutrition space as a potential high-growth opportunity,
partially due to recent declines in consumer sleep quality and increases in at-home nighttime snacking.
We have experienced no major issues with
supply chain or logistics. Order processing function has been normal to date, and our manufacturers have assured us that their
operations are "business as usual" as of the time of this filing.
It is possible that the fallout from the
pandemic could make it more difficult in the future for the Company to access required growth capital, possibly rendering us unable
to meet certain debts and expenses.
More directly, COVID has impaired Nightfood's
ability to execute certain in-store and out-of-store marketing initiatives. For example, since the inception of COVID, the Company
was unable to conduct in-store demonstrations and unable to participate in local pregnancy, baby expos, and health expos that were
originally intended to be part of our marketing mix.
Additionally, with more consumers shopping
online, both for delivery or at-store pickup, the opportunity for shoppers to learn about new brands at-shelf has been somewhat
diminished. Management is working to identify opportunities to build awareness and drive trial under these new circumstances.
It is impossible to know what the future
holds with regard to the virus, both for our company and in the broader sense. There are many uncertainties regarding the current
coronavirus pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including
how it will impact its customers, vendors, and business partners. It is difficult to know if the pandemic has materially impacted
the results of operations, and we are unable to predict the impact that COVID-19 will have on our financial position and operating
results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and
intends to make adjustments accordingly, if necessary.