Overview

Veroni Brands Corp. (formerly "Echo Sound Acquisition Corporation") ("Veroni" or the "Company") was incorporated on December 7, 2016, under the laws of the state of Delaware. The business purpose of the Company is to facilitate the sales and distribution of premium food and beverage products from Europe.

Prior to 2018, the Company's operations were limited to issuing shares to its original stockholders and effecting a change in control of the Company. In 2018, the Company commenced its principal operations. The Company originated as a blank check company and qualifies as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act which became law in April 2012.

In January 2019, the Company expanded its product offerings and established a relationship with another manufacturer, Millano Group, a related party, to import chocolate products, as well as snacks, for distribution to major retailers throughout the United States. The Company recently became the vendor of record and successfully delivered these products to several national retailers.

In February 2019, the Company engaged Tyler Distribution and Continental Logistics, two operating companies of Port Jersey Logistics, to better serve its customers throughout the United States. Management believes that this partnership will give the Company a tremendous opportunity to support its growth, as it will be able to store and ship products and fulfill its purchase orders received from its customers.

The Company has also established relationships with other European manufacturers that can provide a wide range of "panned" products, meaning those that are coated with a sugar syrup, chocolate, or both, such as nuts, raisins, pretzels, and fruit, as well as healthy snack items, and specialty confection goods.

For the fiscal year ended December 31, 2019, the Company's independent auditors issued a report raising substantial doubt about the Company's ability to continue as a going concern. For the year ending December 31, 2019, the Company has an accumulated deficit of $907,000 since its inception. As of December 31, 2019, the Company had a cash balance available of approximately $99,010 and working capital of $2,715, which is not sufficient to meet its operating requirements for the next twelve months. Therefore, the Company's ability to continue as a going concern is dependent on its ability to grow its revenue and generate sufficient cash flows from operations to meet its obligations and/or obtaining additional financing from its shareholders or other sources, as may be required. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company's ability to continue as a going concern.





Revenues and Losses

Three Months Ended June 30, 2020 Compared to June 30, 2019. During the three months ended June 30, 2020, the Company generated revenues of $1,671,932 and a gross profit of $291,771, compared to revenues of $2,291,784 and gross profit of $534,766 in 2019. The decrease in revenue relates to the Company not participating in Easter chocolate sales, as compared to 2019 when the Company supplied product Easter products to Aldi stores, and a lower demand for products in 2020 attributable to current economic conditions.

Operating expenses of $253,698 during the three months ended June 30, 2020 consisted of warehouse and selling expenses of $49,450 and general and administrative costs of $204,248. For the comparable 2019 period, warehouse and selling expenses and general and administrative costs were $294,977 and $122,317, respectively, for a total of $417,294 in operating expenses. The decrease in operating expenses is related to the reduction in revenue and the termination of a broker agreement that resulted in reduced commission expenses.

Other expense for the three months ended June 30, 2020 mainly consists of factoring fees of $29,537, compared to factoring fees of $61,219 for the same period in 2019. The decrease in the fees is related to the renegotiation of the factoring agreement in the third quarter of 2019. See "Accounts Receivable Financing" below. Interest expense for the three months ended June 30, 2019 was $54,742, as opposed to nil in the same period of 2020 reflecting no outstanding debts in the 2020 period.





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Six Months Ended June 30, 2020 Compared to June 30, 2019. During the six months ended June 30, 2020, the Company generated revenues of $2,812,617 and a gross profit of $697,990, compared to revenues of $3,331,140 and gross profit of $685,499 in 2019. The decrease in revenue relates to the Company not participating in Easter chocolate sales, as compared to 2019 when the Company supplied product Easter products to Aldi stores, and a lower demand for products in 2020 attributable to a weakened economy. During the quarter ended March 31, 2020, Millano Group, the Company's chocolate supplier, agreed to give the Company a credit of approximately $184,000 for chocolate that the Company had to write-off in the quarter ended December 31, 2019. The write-off in 2019 was a result of the product being unsaleable due to a proprietary labeling problem. This resulted in the Company applying for a credit in 2020 and obtaining the supplier's approval. The credit reduced the Company's cost of sales and increased the gross profit by approximately $184,000 for the quarter ended March 31, 2020.

Operating expenses of $509,922 during the six months ended June 30, 2020 consisted of warehouse and selling expenses of $135,591 and general and administrative costs of $374,331. For the comparable 2019 period, warehouse and selling expenses and general and administrative costs were $381,173 and $170,146, respectively, for a total of $551,319 in operating expenses. The decrease in operating expenses is related to the termination of marketing and commission contracts and lower promotional allowance, which led to decreased selling expenses, offset by the increased professional fees related to SEC filings, and increased payroll expenses due to additional employees being added and the commencement of officer's salary. The Company paid $140,000 of salaries and wages during the 2020 six-month period, compared to $15,000 for the same period in 2019. Also, the Company incurred $118,000 of legal and professional services for the six months ended June 30, 2020, compared to $61,000 during the same period in 2019.

Other expense for the six months ended June 30, 2020 mainly consists of factoring fees of $52,567, compared to factoring fees of $61,537 for the same period in 2019. The decrease in the fees is related to the renegotiation of the factoring agreement in the third quarter of 2019. See "Accounts Receivable Financing" below. Interest expense for the six months ended June 30, 2019 was $74,091, as opposed to nil in the same period of 2020 reflecting no outstanding debts in the 2020 period.

Liquidity and Capital Resources

During the six months ended June 30, 2020, the Company's operating activities provided net cash of $303,121, primarily through its net income of $136,501 and decreases in its contract receivables with recourse of $343,950 and inventory in the amount of $147,027 and increases in accounts payable of $111,953, offset by increases in trade accounts receivable and accounts receivable related party of $93,769 and $184,848, respectively, and decreases in accounts payable related party and accrued liabilities of $38,137 and $63,045, respectively. Net cash used by financing activities totaled $384,786, with $437,094 used to pay contract receivables with recourse. In comparison, the Company used net cash of $1,790,286 during the comparable 2019 period for its operating activities, with $1,886,399 being provided by financing activities. The financing activities for the six months ended June 30, 2019 were largely the result of proceeds of $1,579,149 from factoring its receivables. The Company had a cash balance of $17,345 and working capital of $184,454 as of June 30, 2020, as compared to a cash balance of $99,010 and working capital of $2,715, as of December 31, 2019.

The Company's proposed activities will necessitate significant uses of capital into and beyond 2020, particularly for the financing of inventory. While the Company has recently entered into a factoring arrangement, sales of equity securities in the Company would result in reduced financing costs. Since the beginning of 2018 and through the date of this report, the Company has engaged in sales of its equity securities in private placements. Through June 30, 2020, 10,591,400 shares have been sold for total gross proceeds of $563,533, 29,997 shares have been issued for services rendered valued at $22,497, 186,965 shares valued at $140,223 have been issued in lieu of interest, 286,667 shares have been issued upon conversion of a $215,000 promissory note, and a total of 2,270,000 shares were redeemed for $45,200.





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Plan of Operations

For the next few years, the Company will continue to focus on obtaining visibility for the products by contacting convenience store locations and small distributors to those types of locations. The Company is targeting metropolitan areas, such as Chicago, Los Angeles, Las Vegas and cities in New Jersey, New York and Miami. In addition, the Company will also continue to expand the number of products to be imported from Europe and distributed throughout the United States.

The Company is also implementing strategies for long-term operational improvements that should positively impact working capital. It plans to invest a total of $500,000 into shelf space for various products, so as to reach a sustained reduction in handling costs, improved service levels, faster order fulfillment, and fewer write-offs of excess or obsolete inventory.

Currently, these efforts are being funded through the proceeds of the Company's private placements, as discussed above, as well as short-term borrowing from the Company's shareholders and third parties. As part of the Company's efforts to gain visibility and to raise capital, it proposes to establish a trading market for its shares. Management of Veroni believes that having a trading market for the Company's common stock will make other sources of financing available and assist it in engaging with larger distributors.

There is no assurance that the Company's activities will generate sufficient revenues to sustain its operations without additional capital, or if additional capital is needed, that such funds, if available, will be obtainable on terms satisfactory to the Company. Accordingly, given the Company's limited cash and cash equivalents on hand, the Company will be unable to implement its business plans and proposed operations unless it obtains additional financing or otherwise is able to generate revenues and profits. In 2019, the Company entered into a factoring agreement covering its accounts receivable (see below). The Company may raise additional capital through sales of debt or equity, obtain loan financing or develop and consummate other alternative financial plans. In the near term, the Company plans to rely on its primary stockholder to continue his commitment to fund the Company's continuing operating requirements. Management anticipates a total capital raise of up to $5,000,000 over the course of the following four consecutive quarters; provided, however, that the Company will require a minimum of $600,000 for the next 12 months to fund its operations, which will be used to fund expenses related to operations, office supplies, travel, salaries and other incidental expenses. Management believes that this capital would allow the Company to meet its operating cash requirements, and would facilitate the Company's business of selling and distributing its products. Management also believes that the acquisition of such assets would generate revenue to cover overhead cost and general liabilities of the Company, and allow the Company to achieve overall sustainable profitability.

During the first quarter of 2020, the Company did not experience a decrease in sales revenues. However, with COVID-19-related lockdowns, shutdowns, and layoffs being in effect during the entire second quarter, the Company experienced decreased demand for its products, as well as longer lead times in obtaining product from its manufacturers. Since most of Veroni's retailer base is comprised of national and international retailers, the collection of receivables is not expected to be negatively impacted over the long-term, but short-term issues may arise. In addition, efforts to raise additional capital, may be negatively impacted due to volatility and uncertainty in the domestic and global economy. This may delay the Company's planned implementation of strategies to improve its working capital situation and reduce its borrowing costs. Management of the Company is unable to predict how sales revenues for the remainder of the current fiscal year will be impacted by the COVID-19 situation.

Under the Small Business Administration ("SBA"), the Company applied for the Paycheck Protection Program ("PPP") loan. These loans are forgiven if used for payroll, payroll benefits, including health insurance and retirement plans, as well as certain rent payments, leases, and utility payments, which are limited to 40% of the loan proceeds, all of which if paid within either 8 weeks or 24 weeks of the receipt of the loan proceeds. At the time of this filing, we anticipate a significant amount of this loan will be forgiven; however, the forgiveness application process is not yet complete. The Company has elected to record these advances under the debt treatment for these loans, under GAAP guidance. Unforgiven portions of these loans will be repaid over 5 years, accruing interest at 1% per annum. The PPP loan has a loan balance of $56,250 as of June 30, 2020.





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Accounts Receivable Financing

On February 21, 2019, the Company entered into a factoring agreement with an unrelated third party, Advance Business Capital LLC, dba Interstate Capital ("ICC"), pursuant to which the Company sells the majority of its accounts receivable to ICC for 85% of the value of the receivable. The term of the agreement is for 12 months and automatically renews for additional 12-month periods. The accounts receivable are sold with recourse back to the Company, meaning that the Company bears the risk of non-payment by the account debtor. To secure its obligations to ICC, the Company has granted a blanket security interest in its other assets, such as inventory, equipment, machinery, furniture, fixtures, contract rights, and general intangibles. The loan is guaranteed by two major shareholders of the Company. On September 11, 2019, the lender (which now does business as Triumph Business Capital) entered into an amended agreement with the Company which lowered the interest charged by the lender from 0.49% for every 10 days to prime rate (with a floor of 5.5%) plus 3%. As of June 30, 2020, the Company owed $977,545 for advances on its receivables.





Potential Revenue

The Company expects to generate revenue from selling its products. Further, depending on the market environment, the Company plans on acquiring the rights to sell and distribute other food and beverage products.

Alternative Financial Planning

The Company has no alternative financial plans at the moment. If the Company is not able to successfully raise monies as needed through a private placement or other securities offering (including, but not limited to, a primary public offering of securities), the Company's ability to survive as a going concern and implement any part of its business plan or strategy will be severely jeopardized.





Critical Accounting Policies

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires making estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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