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 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.
On January 30, 2018, the Company entered into a distribution agreement with
FoodCare. Under the terms of the Distribution Agreement, the Company became the
exclusive importer and distributor of FoodCare's products in the United States,
Puerto Rico and the U.S. Virgin Islands (the "U.S. market"). FoodCare is a
manufacturer and supplier of desserts, cereals, energy drinks and other beverage
products. Notably, FoodCare manufactures the "Iron Energy" drink, a product
sponsored by celebrity and former boxer Mike Tyson. The term of the Distribution
Agreement was for a period of 10 years during which Veroni was to have the
exclusive right to distribute FoodCare products within the U.S. market, so long
as Veroni purchased the required quantity of product from FoodCare. The Company
failed to meet its minimum purchase requirements under the FoodCare agreement in
2018 in part due to FoodCare's failure to provide promised marketing support.
The Company terminated the agreement and relationship with FoodCare in 2020 due
to the lack of its ability to support Veroni's brand marketing initiatives.
In summer 2018, the Company introduced the Iron Energy beverage to various
retailers and distributors nationwide and since then has been working with many
retailers and distributors to bring the product to market.
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.
In June 2021, the Company engaged Roadtex Transportation Corporation with 31
facilities nationwide that handles LTL 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, 2020, 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, 2020, the Company
has an accumulated deficit of $1,386,108 since its inception. As of December 31,
2020, the Company had a cash balance available of approximately $116,730 and a
working capital deficit of $342,796, 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.
9
Results of Operations
Prior to 2018, the Company had focused its efforts on identifying business
opportunities, and devoted little attention or resources to sales and marketing
or generating near-term revenues and profits. During 2018, the Company began
distribution of various products and then increased its distribution network
during 2019. During 2020, the Company's revenues were impacted by the effects of
COVID-19 as the pandemic affected transportation logistics. Revenues were
$5,581,764 for 2020, as compared to $6,678,790 for 2019.
The 2020 gross profit of $1,155,331 was not sufficient to cover the Company's
operating expenses of $1,534,439, consisting of $359,399 in warehouse and
selling expenses and $1,175,040 in general and administrative expenses,
resulting in a net loss from operations of $379,108. In comparison, a gross
profit of $860,352 was generated in 2019. Due to operating expenses of
$1,419,806, consisting of $646,249 in warehouse and selling expenses and
$773,557 in general and administrative expenses, a net loss from operations of
$559,454 resulted.
The increase in general and administrative expenses from $773,557 in 2019 to
$1,175,040 in 2020 was due primarily to an increase in officers' salaries from
$62,500 in 2019 to $552,656 in 2020.
The Company incurred no interest expense in 2020, as compared to $141,359 of
interest expense on various promissory notes in 2019, resulting in a net loss of
$700,813.
Liquidity and Capital Resources
At December 31, 2020, the Company had cash and a working capital deficit of
$116,730 and $342,796, respectively, as compared to $99,010 and $364,784,
respectively, at December 31, 2019. During the year ended December 31, 2020,
operating activities provided cash of $573,978, and financing activities used
cash of $556,258. In comparison, during fiscal 2019, operating activities used
cash of $1,599,780 with $1,695,791 being provided by financing activities.
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
December 31, 2020.
On August 27, 2020, the Company executed the standard loan documents required
for securing a loan (the "EIDL Loan") from the SBA under its Economic Injury
Disaster Loan ("EIDL") assistance program in light of the impact of the COVID-19
pandemic on the Company's business. Pursuant to that certain Loan Authorization
and Agreement (the "SBA Loan Agreement"), the principal amount of the EIDL Loan
is up to $150,000, with proceeds to be used for working capital purposes. On
September 2, 2020, the Company received $149,900. Interest accrues at the rate
of 3.75% per annum. Installment payments, including principal and interest, are
due monthly beginning August 27, 2021 (twelve months from the date of the SBA
Note (defined below)) in the amount of $720. The balance of principal and
interest is payable thirty years from the date of the SBA Note.
In connection therewith, the Company executed (i) a note for the benefit of the
SBA (the "SBA Note"), which contains customary events of default and (ii) a
Security Agreement, granting the SBA a security interest in all tangible and
intangible personal property of the Company, which also contains customary
events of default (the "SBA Security Agreement").
The Company's proposed activities will necessitate significant uses of capital
into and beyond 2021, particularly for the financing of inventory. While the
Company has a factoring arrangement, sales of equity securities in the Company
would result in reduced financing costs. Since the beginning of 2018 and through
December 31, 2020, the Company has engaged in sales of its equity securities in
private placements. Through December 31, 2020, 10,531,400 shares have been sold
for total gross proceeds of $518,533, 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.
10
Plan of Operations
During 2019 and 2020, sales were concentrated in two customers. One of these
customers notified the Company that it was not selected as a vendor for 2021.
Sales in 2021 are expected to decrease by more than 50%. As vendor selection is
an annual process with this customer, the Company is planning to reapply as a
vendor for 2022 and broaden its customer base. 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. In addition, the Company will also continue to expand the number of
products to be imported from Europe and distributed throughout the United
States.
Management believes that while the current COVID-19 crisis has not affected the
volume of sales, it has resulted in the Company experiencing supply chain and
transportation logistics issues. Manufacturers and those providing shipping and
logistics services are increasing prices and/or decreasing the amount of product
and/or services to the Company, thereby making it more difficult to meet the
terms of contracts with retailers. Management believes that for the current
fiscal year, the Company will experience reduced profit margins as a result. It
is not known whether the supply chain and transportation logistics issues will
continue into the future.
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 stockholders to continue
to fund the Company's continuing operating requirements. 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.
Due to the above-described difficulties, management is seeking other
opportunities outside of the import/distribution business in order to bring
value to the stockholders.
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 December 31, 2020 and 2019, the Company owed $649,502 and $1,414,639,
respectively, for advances on is receivables.
11
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.
© Edgar Online, source Glimpses
VERONI BRANDS CORP. 
