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.

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"). The term of the Distribution Agreement is for a period of 10 years during which Veroni will have the exclusive right to distribute FoodCare products within the U.S. market, so long as Veroni purchases the required quantity of product from FoodCare. The Distribution Agreement is terminable upon (1) mutual consent of the parties, (2) by either party in writing without justification, if an issue is not amicably resolved in 30 days of such issue, by providing 180 days' notice (in which case the Company would lose its exclusivity rights), or (3) immediately in the event of notice of an uncured breach in the terms of the Distribution Agreement. FoodCare Sp. z o.o., a company organized under the laws of Poland, 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.

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.

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.

The Company failed to meet its minimum purchase requirements under the FoodCare agreement, in part due to FoodCare's failure to provide promised marketing support. The Company is currently re-evaluating the agreement and relationship with FoodCare. If the FoodCare agreement is terminated, the Company would no longer have exclusive rights to distribute FoodCare's Iron Energy drinks. However, during 2019, the Company found greater success with the distribution of chocolate and snack products instead of beverages.

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.





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Revenues and Losses

Three Months Ended March 31, 2020 Compared to March 31, 2019. During the three months ended March 31, 2020 and 2019, the Company generated revenues of $1,140,685 and a gross profit of $406,219, compared to revenues of $1,039,356 and gross profit of $150,914 in 2019. The increase in revenue relates to the Company's sales and marketing efforts. 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 $256,224 during the three months ended March 31, 2020 consisted of warehouse and selling expenses of $86,141 and general and administrative costs of $170,083. For the comparable 2019 period, warehouse and selling expenses and general and administrative costs were $86,377 and $47,829, respectively, for a total of $134,206 in operating expenses. The increase in operating expenses is directly related to the Company paying $65,000 of salaries and wages in the quarter ended March 31, 2020 compared to no payroll in the quarter ended March 31, 2019. Also due to its increase in operations, the Company incurred $44,000 of legal and professional services for the quarter ended March 31, 2020, compared to $12,500 in the quarter ended March 31, 2019.

The Company also incurred factoring fee expense of $23,030 for the three months ended March 31, 2020, as compared to $0 for the 2019 period. In 2019, the Company engaged instead in short term borrowing to provide working capital and incurred $19,667 of interest expense. Accordingly, for the three months ended March 31, 2020, the Company generated net income of $126,965, as compared to a net loss of $2,959 for 2019.

Liquidity and Capital Resources

During the three months ended March 31, 2020, the Company's operating activities provided net cash of $665,727, primarily through its net income and decreases in its contract receivables with recourse of $831,414 and inventory in the amount of $207,009, offset by increases in trade accounts receivable of $119,138, other receivables related party of $184,848, and accounts payable related party of $174,776 for that period. Net cash used by financing activities totaled $748,568, with $753,257 used to pay contract receivables with recourse. In comparison, the Company used net cash of $864,257 during the comparable 2019 period for its operating activities, with $873,089 being provided by financing activities. The financing activities for the quarter ended March 31, 2019 were a result of proceeds of $330,000 from the issuance of debt, $152,250 from the issuance of common stock, and approximately $391,000 from the proceeds received from factoring its receivables. The Company had a cash balance of $16,169 and working capital of $174,869 as of March 31, 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 March 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.





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.





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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.

Management believes that while the current COVID-19 crisis has not affected the volume of sales, it has resulted in the Company experiencing 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. Efforts to raise additional capital, however, 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.





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 March 31, 2020, the Company owed $661,382 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.





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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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