VERONI BRANDS CORP. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

Edgar Glimpses |

Overview

Veroni Brands Corp. (formerly "Echo Sound Acquisition Corporation") ("Veroni" or the "Company") was incorporated on , 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, most notably its Iron Energy beverage product.

On , 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 the 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.

The Company failed to meet its minimum purchase requirements in 2018 and is currently re-negotiating the contract.

In summer 2018, the Company introduced the Iron Energy beverage to various retailers and distributors nationwide and since then been working with many retailers and distributors to bring the product to market. As of the date of this report, the Company has commitments from major convenience stores, as well as national distributors to sell and distribute the Iron Energy product to its retailers.

For the fiscal year ended , the Company's independent auditors issued a report raising substantial doubt about the Company's ability to continue as a going concern. As of , the Company had minimal operations and the continuation of the Company as a going concern is dependent upon financial support from its principal stockholders, its ability to obtain necessary equity and/or debt financing, or its ability to sell its products to generate consistent profitability.

In , the Company established a relationship with another manufacturer, ZWC Millano, to import snacks and chocolate products for distribution to major retailers throughout the United States. The Company recently became the vendor of record for these products with Family Dollar, Dollar General, Costco and few other retailers.

In , the Company established a relationship with 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 transport products and fulfill its purchase orders received from its customers.

The Company has generated approximately $3.3 million in revenue for the six months ended and a loss of $1,448. At , the Company had sustained net losses of $307,635 since inception.



Revenues and Losses


The Company was in the development stage in 2018 and therefore the comparison of 2019 results with those of the comparable 2018 periods is of limited benefit.

Three Months Ended and 2018. During the three months ended and 2018, the Company generated revenues of $2,291,784 and a gross profit of $484,213, compared to revenues of $11,069 and gross profit of $5,996 in 2018. The increase in revenue relates to the Company's sales and marketing efforts. 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.



15






Operating expenses of $366,741 during the three months ended consisted of selling and warehouse expenses of $244,424 and general and administrative costs of $122,317. For the comparable 2018 period, selling and warehouse expenses and general and administrative costs were $41,493 and $78,086, respectively, for a total of $119,579 in operating expenses. The increase in operating expenses is directly related to the increase in marketing and selling expenses, which resulted in the increase in sales.

The Company also incurred interest expense of $115,961 for the three months ended , as compared to $-0- for the 2018 period. The increase interest expense relates to an increase in short term borrowing and fees related to factoring the Company's receivables. Accordingly, for the three months ended , the Company generated net income of $1,511, as compared to a net loss of $113,583 for 2018.

Six Months Ended and 2018. During the six months ended and 2018, the Company generated revenues of $3,331,140 and a gross profit of $635,127, compared to revenues of $11,069 and gross profit of $5,996 in 2018. The increase in revenue relates to the Company's sales and marketing efforts.

Operating expenses of $500,947 during the six months ended consisted of selling and warehouse expenses of $330,801 and general and administrative costs of $170,146. For the comparable 2018 period, selling and warehouse expenses and general and administrative costs were $58,644 and $91,092, respectively, for a total of $149,736 in operating expenses. The increase in operating expenses is directly related to the increase in marketing and selling expenses, which resulted in the increase in sales.

The Company also incurred interest expense of $135,628 for the six months ended , as compared to $-0- for the 2018 period. The increase interest expense relates to an increase in short term borrowing and fees related to factoring the Company's receivables. Accordingly, for the six months ended , the Company generated a net loss of $1,448, as compared to a net loss of $143,740 for 2018. The decrease in the net loss relates to the increase in sales.

Liquidity and Capital Resources

Since its inception through , the Company had devoted most of its efforts to business planning, research and development, recruiting management and staff and raising capital. Accordingly, the Company was in the development stage during that period.

During the six months ended , the Company used net cash of $1,790,286 in its operating activities, primarily for increases in amortization of $37,773, contract receivables with recourse in the amount of $1,897,042 and inventory in the amount of $463,379, offset by increases in accounts payable of $288,901 and accrued liabilities of $138,127 for that period. Net cash provided by financing activities totaled $1,886,399 from the proceeds of contract receivables with recourse of $1,579,149 and notes payable of $430,000, as well as the sale and issuance of its common stock in private placements of $152,250, offset by repayment of notes payable and a shareholder note in the amounts of $215,000 and $60,000, respectively. The Company had a cash balance of $99,112 and working capital of $270,142 as of , as compared to cash and working capital of $2,999 and $106,152, as of .

The Company's proposed activities will necessitate significant uses of capital into and beyond 2019, 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 , a total of 10,471,400 shares have been sold for total gross proceeds of $473,533, and a total of 2,020,000 shares were redeemed for $20,200.



16







Plan of Operations


For the next few months, the Company will be focusing 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.

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.



Accounts Receivable Financing


On , 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 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 and provided personal guarantees from stockholders.



Potential Revenue


The Company expects to generate revenue from selling its products, most notably the "Iron Energy" drink, snacks and chocolate 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), or continue to generate sales and net income, 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.



17






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.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     

Blockchain in Mobility - Discussion at the EU Parliament

From the recent Blockchain For Europe Summit in Brussels: Panel on Mobility and Transportation