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.
16
Revenues and Losses
Three Months Ended June 30, 2021 Compared to June 30, 2020. During the three
months ended June 30, 2021, the Company generated revenues of $1,585,183 and a
gross profit of $344,418, compared to revenues of $1,671,932 and a gross profit
of $291,771 in 2020. The decrease in revenue relates to the adverse impact on
the Company's supply chain resulting from COVID-19. During the quarter ended
June 30, 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 June 30, 2020.
Operating expenses of $365,994 during the three months ended June 30, 2021
consisted of warehouse and selling expenses of $110,011 and general and
administrative costs of $255,983. For the comparable 2020 period, warehouse and
selling expenses and general and administrative costs were $49,450 and $233,785,
respectively, for a total of $283,235 in operating expenses. The increase in
operating expenses is directly related to a higher volume of products being
shipped during the second quarter in 2021 and an increase in salaries and wages
.
Accordingly, for the three months ended June 30, 2021, the Company incurred a
net loss of $25,080, as compared to net income of $9,536 for the three months
ended June 30, 2020.
Six Months Ended June 30, 2021 Compared to June 30, 2020. During the six months
ended June 30, 2021, the Company generated revenues of $2,483,359 and a gross
profit of $612,543, compared to revenues of $2,812,617 and a gross profit of
$697,990 in 2020. The decrease in revenue relates to the adverse impact on the
Company's supply chain resulting from COVID-19. During the quarter ended June
30, 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 June
30, 2020.
Operating expenses of $718,999 during the six months ended June 30, 2021
consisted of warehouse and selling expenses of $169,799 and general and
administrative costs of $549,200. For the comparable 2020 period, warehouse and
selling expenses and general and administrative costs were $135,591 and
$426,898, respectively, for a total of $562,489 in operating expenses. The
increase in operating expenses is directly related to the Company paying
$306,584 of salaries and wages in the six months ended June 30, 2021 compared to
$139,838 of salaries and wages in the six months ended June 30, 2020, as well as
the increase in warehouse and selling expenses described above.
Accordingly, for the six months ended June 30, 2021, the Company incurred a net
loss of $109,460, as compared to net income of $136,501 for the six months ended
June 30, 2020.
Liquidity and Capital Resources
During the six months ended June 30, 2021, the Company's operating activities
used net cash of $489,300, due primarily to the net loss of $109,460, and
increases in trade account receivable of $311,319 and in contract receivables of
$434,162, offset by increases in accounts payable related party of $127,544 and
contract liabilities of $92,300. In comparison, the Company's operating
activities provided net cash of $303,121 during the comparable 2020 period,
primarily through its net income and decreases in its contract receivables with
recourse of $343,950 and inventory in the amount of $147,027, offset by
increases in trade accounts receivable of $93,769 and other receivables related
party of $184,848 for that period. Net cash provided by financing activities was
$463,354, from the proceeds of the Company's contract receivables financing. For
the comparable 2020 period, net cash used by financing activities totaled
$348,786, with $437,094 used to pay contract receivables with recourse.
17
The Company had a cash balance of $90,784 and a working capital deficit of
$392,716 as of June 30, 2021, as compared to a cash balance of $116,730 and a
working capital deficit of $342,796, as of December 31, 2020.
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
June 30, 2021.
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
June 30, 2021, the Company has engaged in sales of its equity securities in
private placements. Through June 30, 2021, 10,531,400 shares have been sold for
total gross proceeds of $518,533, 56,997 shares have been issued for services
rendered valued at $69,747, 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.
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.
18
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%. On January 27, 2021, the agreement was further amended to include the
factoring of purchase orders at the Wall Street Journal Prime Rate. As of June
30, 2021 and December 31, 2020, the Company owes $1,112,856 and $649,502,
respectively for advances on their receivables. Of the $1,112,856 amount,
$116,119 is related to the factoring of purchase orders. The Company bears all
credit risk related to the receivables factored.
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