10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to ______

 

000-55735

(Commission file number)

 

VERONI BRANDS CORP.

(Exact name of registrant as specified in its charter)

 

Delaware   81-4664596

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

650 Forest Edge Drive, Vernon Hills, IL 60061

(Address of principal executive offices) (Zip Code)

 

(888)794-2999

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
  Emerging growth company [X]

 

If an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 26,801,396 shares as of May 20, 2019.

 

 

 

   
 

 

VERONI BRANDS CORP.

 

FORM 10-Q

FOR THE QUARTER ENDED

March 31, 2019

 

INDEX

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements:  
     
  Condensed Balance Sheets (Unaudited) 3
     
  Statements of Operations (Unaudited) 4
     
  Statement of Changes in Equity (Unaudited) 5
     
  Statements of Cash Flows (Unaudited) 6
     
  Notes to Unaudited Condensed Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
     
Item 4. Controls and Procedures 18
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 20
     
Item 1A. Risk Factors 20
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
     
Item 3. Defaults Upon Senior Securities 20
     
Item 4. Mine Safety Disclosures 20
     
Item 5. Other Information 20
     
Item 6. Exhibits 21
     
SIGNATURES 22

 

 2 
 

 

Veroni Brands Corp.

CONDENSED BALANCE SHEETS

March 31, 2019 and December 31, 2018

 

   2019   2018 
   (Unaudited)   * 
ASSETS          
Current Assets          
Cash & equivalents  $11,831   $2,999 
Accounts receivable, net allowance for doubtful accounts of $9,948 and $9,948 respectively   506,553    13,160 
Contract receivables with recourse   459,811    - 
Inventory   756,682    208,369 
Prepaid expenses and other current assets   17,673    106,317 
Total Current Assets   1,752,550    330,845 
           
Total Assets  $1,752,550   $330,845 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities          
Accounts payable  $497,811   $43,713 
Accrued liabilities   94,768    23,921 
Notes and accounts payable - related parties including interest   161,191    157,059 
Notes payable - other   330,000    - 
Contract receivables liability with recourse   390,839    - 
Total Current Liabilities   1,474,609    224,693 
           
STOCKHOLDERS’ EQUITY          
Preferred Stock, $0.0001 par value; 20,000,000 shares authorized; none outstanding as of March 31, 2019 and December 31, 2018   -    - 
Common Stock, $0.0001 par value; 100,000,000 shares authorized; 26,801,397 and 26,568,400 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively   2,680    2,656 
Additional paid-in capital   584,407    409,683 
ACCUMULATED DEFICIT   (309,146)   (306,187)
           
Total Stockholders’ Equity   277,941    106,152 
           
Total Liabilities and Stockholders’ Equity  $1,752,550   $330,845 

 

* derived from audited information

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 3 
 

 

Veroni Brands Corp.

STATEMENTS OF OPERATIONS

For the three months ended March 31, 2019 and 2018

(Unaudited)

  

   2019   2018 
         
Revenue  $1,039,356   $- 
           
Cost of sales   888,442    - 
           
Gross Profit   150,914    - 
           
Selling and warehouse expenses   86,377    - 
General and administrative expenses   47,829    30,157 
Total operating expenses   134,206    30,157 
           
Net income (loss) from operations   16,708    (30,157)
           
Interest expense   19,667    - 
Interest expense - related party   -    - 
Total other expense   19,667    - 
           
Loss before income taxes   (2,959)   (30,157)
           
Income taxes   -    - 
Net Loss  $(2,959)  $(30,157)
           
Net loss per share:          
Basic and diluted   **    ** 
           
Weighted average shares outstanding:          
Basic and diluted   26,656,181    25,981,844 

 

** less than $.01

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 4 
 

 

Veroni Brands Corp.

STATEMENT OF CHANGES IN EQUITY

For the three months ended March 31, 2019

Unaudited

  

           Additional       Total 
   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Amount   Capital   Deficit   Deficit 
                     
Balance, December 31, 2018   26,568,400   $2,656   $409,683   $(306,187)  $106,152 
                          
Issuance of common stock for cash   203,000    21    152,229    -    152,250 
                          
Issuance of common stock for services   29,997    3    22,495    -    22,498 
                          
Net loss for the quarter   -    -    -    (2,959)   (2,959)
                          
Balance, March 31, 2019   26,801,397    2,680    584,407    (309,146)   277,941 

 

STATEMENT OF CHANGES IN EQUITY

For the three months ended March 31, 2018

Unaudited

 

                Additional           Total  
    Common Stock     Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Capital     Deficit     Deficit  
                               
Balance, December 31, 2017     18,300,000     $ 1,830     $ 83,826     $ (47,357 )   $ 38,299  
                                         
Issuance of common stock for cash     10,096,600     1,010     191,420           192,430  
                                         
Net loss for the quarter     -       -       -     (30,157 )   (30,157 )
                                         
Balance, March 31, 2018     28,396,600     $ 1,830     $ 275,246     $ (77,514 )   $ 200,572  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 5 
 

 

Veroni Brands Corp.

STATEMENTS OF CASH FLOW

For the three months ended March 31, 2019 and 2018

(Unaudited)

 

   2019   2018 
         
Cash flow from operating activities:          
Net Loss  $(2,959)  $(30,157)
Adjustments to reconcile net loss to net cash used in operating activities:          
Common stock issued for services    22,498    - 
Accounts receivable   (493,393)   - 
Contract receivables with recourse   (459,811)   - 
Inventory   (548,313)   (168,319)
Prepaid expenses   88,644    (5,021)
Accounts payable   454,098    5,403 
Accrued liabilities   70,847    7,901 
Notes and accounts payable - related party including accrued Interest   4,132    - 
Net cash used in operating activities   (864,257)   (190,193)
           
Cash flows from financing activities:          
           
Proceeds from issuance of common stock   152,250    192,640 
Proceeds from issuance of notes payable   330,000    - 
Proceeds from contract receivables with recourse   390,839    - 
Net cash provided by financing activities   873,089    192,640 
           
Net change in cash   8,832    2,447 
           
Cash at the beginning of the period   2,999    595 
           
Cash at the end of the period  $11,831   $3,042 
           
Supplemental disclosure of cash flow information:          
Cash paid for:          
Interest  $-   $- 
Taxes  $-   $- 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 6 
 

 

Note 1 - Nature of Operations and Financial Condition

 

Veroni Brands Corp. (formerly European CPG Acquisition Corp. or Echo Sound Acquisition Corporation) (the “Company”) was incorporated on December 7, 2016 under the laws of the state of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisition.

 

On August 31, 2017, the Company effected a change in control by the redemption of 19,750,000 shares of the then outstanding 20,000,000 shares of common stock. The then current officers and directors resigned and Igor Gabal was named the sole officer and director of the Company. Pursuant to the change in control, the Company changed its name to European CPG Acquisition Corp. On September I, 2017, the Company issued l0,000,000 shares of its common stock to two shareholders at par value of $0.000l and recorded share compensation of $1,000. On November 1, 2017, the name of the Company was changed to Veroni Brands Corp.

 

The Company has been formed to acquire, operate, develop, grow and import premium European products into the U.S. market. Veroni Brands was created to search out unique, remarkable and desirable premium products across Europe and make them accessible to discerning consumers in the U.S. Veroni Brands strives to import the extraordinary and delight their consumers with experiences that had previously only been attainable in Europe. The Company became an exclusive importer and distributor of “Iron Energy” by Mike Tyson. The beverage became available to consumers in select Chicago area markets in May 2018 in three different flavors such as “Mojito,” “Zero Sugar” and “Original.” The Company will be introducing other flavors of “Iron Energy” in 2019. We take pride in the products we import and are proud to share them with our consumers. The Company expanded into imports and distribution of chocolate and related products sold to U.S. national retailers.

 

Basis of presentation: unaudited interim financial information

 

The accompanying interim condensed financial statements are unaudited. In opinion of management, the accompanying unaudited condensed financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position and results of operations as of and for the periods presented. The interim results are not necessarily indicative of the results to be expected for the full year or any future period.

 

Certain information and footnote disclosures normally included in the condensed financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company believes that the disclosures are adequate to make the interim information presented not misleading. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Report on Form 10-K filed on April 16, 2019 for the years ended December 31, 2018 and 2017.

 

Going Concern

 

The Company has generated only minimal revenue since inception to date and has a net loss of $2,959 for the three months ending March 31, 2019. As of March 31, 2019, the Company had a cash balance available of approximately $11,831 and an accumulated deficit of $309,146. The Company’s ability to continue as a going concern is dependent on its ability to 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 unaudited 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. The unaudited financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

 7 
 

 

Note 1 - Nature of Operations and Financial Condition (continued)

 

The Company failed to its meet minimum purchase requirements under its FoodCare Sp. z.o.o. (“FoodCare”) contract and could lose its exclusive rights to distribute in the U.S. Market. The Company is currently re-negotiating the agreement.

 

The Company is evaluating various financing options in order to fund its continued startup of operations and expand the products being offered to its customers. The Company has established a relationship with a manufacturer to import and distribute chocolate and other related products.

 

Note 2 – Summary of Significant Accounting Policies

 

Reclassifications

 

Certain reclassifications have been made in the 2018 financial statements to conform to the 2019 presentation. These reclassifications have no effect on net loss for 2018.

 

Advertising

 

The Company’s policy is to expense advertising costs as incurred. Advertising expense for the three months ending March 31, 2019 and 2018 is $22,549 and $0, respectively.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include the carrying amount of inventory and associated reserves, and allowances in regards to revenue. Actual results could differ from those estimates.

 

Revenue Recognition

 

The majority of the Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements. Given the startup nature of the Company, some distributors will require that the Company operate under consignment arrangements in the beginning of its contracts or agreements, generally for the first 90 days or until customer demand is established for the product.

 

Under consignment, the Company retains control of the inventory located at the distributor and only records revenues when the distributor sells through to the ultimate retail establishment. The Company’s general payment terms are short-term in duration. The Company does not have significant financing components or payment terms. The Company did not have any material unsatisfied performance obligations as of March 31, 2019.

 

Distribution expenses to transport the Company’s products, where applicable, and warehousing expense is included in selling expenses.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and on deposit at banking institutions as well as all highly liquid short-term investments with original maturities of 90 days or less.

 

 8 
 

 

Note 2 – Summary of Significant Accounting Policies (Continued)

 

Concentration of Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation limit as of March 31, 2019 and 2018, respectively.

 

Accounts Receivable and Concentration of Credit Risk

 

Accounts receivable are recorded at the invoiced amounts less an allowance for doubtful accounts. The allowance for doubtful accounts is based on our estimate of the amount of probable credit losses in our accounts receivable. We determine the allowance for doubtful accounts based upon an aging of accounts receivable, historical experience and management judgment. Accounts receivable balances are periodically reviewed for collectability, and balances are charged off against the allowance when we determine that the potential for recovery is remote. An allowance for doubtful accounts of approximately $9,900 is reserved as of March 31, 2019 and December 31, 2018, respectively.

 

We are exposed to credit risk in the normal course of business, primarily related to accounts receivable. To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance for doubtful accounts. As of March 31, 2019, we had two customers who comprised approximately 95% of our combined accounts and contract receivables and their combined amounts equaled approximately $926,300.

 

During the three months ended March 31, 2019, we had two customers who accounted for approximately 91% of revenue.

 

Distribution Agreements -Supplier Concentration

 

In January 2018, the Company entered into a distributor agreement with FoodCare, which was amended and restated on January 30, 2018. FoodCare is a company organized under the laws of Poland. FoodCare is a manufacturer and supplier of desserts, cereals, energy drinks and other beverage products. FoodCare manufactures the “Iron Energy” drink, a product sponsored by celebrity Mike Tyson.

 

Under the terms of the distribution agreement, the Company became the exclusive distributor of FoodCare products in the United States, Puerto Rico and the U.S. Virgin Islands. FoodCare is the sole supplier of Iron Energy to the Company. The term of the agreement is for ten years and gives the Company exclusive rights to distribute FoodCare products within the U.S. market, so long as the Company purchases the required quantity of product from FoodCare. The distribution agreement is terminable (1) upon mutual consent of the parties; (2) by either party in writing, without justification, if an issue is not amicable resolved within 30 days of such issue by providing 180 days’ notice and, in such case, the distributor shall lose it exclusivity rights; or (3) immediately in the event of notice of an uncured breach in the terms of the agreement.

 

The Company’s only business line in 2018 was the distribution of the “Iron Energy” drink, the cancelation of the distribution agreement will require the Company to secure replacement product(s) to continue operations.

 

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

 

 9 
 

 

Note 2 – Summary of Significant Accounting Policies (Continued)

 

Income Taxes

 

Under ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2019 and December 31, 2018, there were no net deferred tax assets, as the Company setup a 100% valuation allowance, due to the uncertainty of the realization of net operating loss carryforwards prior to their expiration.

 

Loss Per Common Share

 

Basic loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity. As of March 31, 2019 and 2018, there are no outstanding dilutive securities.

 

Fair Value of Financial Instruments

 

The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 inputs are unobservable inputs for the asset or liability. The carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.

 

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents and accounts payable approximate their fair values at March 31, 2019 and 2018 due to their short-term nature and management’s belief that their carrying amounts approximate the amount for which the assets could be sold or the liabilities could be settled.

 

 10 
 

 

Note 2 – Summary of Significant Accounting Policies (Continued)

 

Share-Based Compensation

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, Equity–Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date. In June 2018, the Financial Accounting Standards Board adopted Accounting Standards Update 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. In that update, ASC 505 has been rescinded in its entirety and share based compensation issued to nonemployees will now fall under ASC 718 and its associated fair value measurements. Due to its Emerging Growth Company (see below) status, the Company expects it will adopt the update on January 1, 2020.

 

Emerging Growth Company

 

The Company has elected to be an Emerging Growth Company as defined under the Jumpstart Our Business Startups Act of 2012 (“Jobs Act”). Included with this election, the Company has also elected to use the provisions within the Jobs Act that allow companies that go public to continue to use the private company adoption date rules for new accounting policies. Should the Company obtain revenues in excess of $1 billion on an annual basis, have its non-affiliated market capitalization increase to over $700 million as of the last day of its second quarter, or raise in excess of $1 billion in public offerings of its equity or instruments directly convertible into its equity, it will forfeit its status under the Jobs Act as an emerging growth company.

 

New Accounting Pronouncements

 

In 2014, the FASB issued guidance on revenue recognition, with final amendments issued in 2016. The guidance provides for a five-step model to determine the revenue recognized for the transfer of goods or services to customers that reflects the expected entitled consideration in exchange for those goods or services. It also provides clarification for principal versus agent considerations and identifying performance obligations. In addition, the FASB introduced practical expedients related to disclosures of remaining performance obligations, as well as other amendments related to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes. Financial statement disclosures required under the guidance will enable users to understand the nature, amount, timing, judgments and uncertainty of revenue and cash flows relating to customer contracts. The two permitted transition methods under the guidance are the full retrospective approach or a cumulative effect adjustment to the opening retained earnings in the year of adoption (cumulative effect approach).

 

We will utilize a comprehensive approach to assess the impact of the guidance on our contract portfolio by reviewing our current accounting policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts, including evaluation of our performance obligations.

 

In 2016, the FASB issued guidance on leases, with amendments issued in 2018. The guidance requires lessees to recognize most leases on the balance sheet but record expenses in the income statement in a manner similar to current accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The two permitted transition methods under the guidance are the modified retrospective transition approach, which requires application of the guidance for all comparative periods presented, and the cumulative effect adjustment approach, which requires prospective application at the adoption date.

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) which simplifies the presentation of deferred income taxes. This update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update are effective for annual periods beginning after December 15, 2017.

 

 11 
 

 

Note 2 – Summary of Significant Accounting Policies (Continued)

 

Early adoption is permitted, and the amendments may be applied prospectively or retrospectively for all periods presented.

 

In June 2018, an accounting update was issued to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that ASC Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that ASC Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC Topic 606, Revenue from Contracts with Customers. The amendments in this accounting update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC Topic 606.

 

Under the JOBS Act, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company intends to take advantage of this extended transition period. Since the Company will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, the financial statements may not be comparable to financial statements of companies that comply with public company effective dates. The Company has determined that no other recent accounting pronouncements apply to its operations or could otherwise have a material impact on its consolidated financial statements.

 

Note 3 – Inventory

 

Finished Goods inventory consists of “Iron Energy” drinks, chocolates, and related products imported from Europe and is stated at the lower of actual cost (first-in, first-out method) or market. Cost includes shipping, import fees and handling fees. Inventory is as follows:

 

   March 31, 2019   December 31, 2018 
         
Finished goods – in warehouse  $737,455   $192,318 
Finished goods - consignment   15,314    16,051 
   $752,769   $208,369 

 

 12 
 

 

Note 4 – Prepaid Expenses

 

Prepaid inventory

 

Due to the development stage nature of the Company, our suppliers will generally require that we deposit funds in advance of shipment of inventory to us from Europe. Our current agreement with FoodCare includes provisions in which title for the inventory passes upon FoodCare loading the product onto truck transport for delivery to the seaports in Poland. Amounts transferred to our suppliers to secure delivery, but prior to transfer of title of those shipments, are recorded as prepaid inventory.

 

   March 31, 2019   December 31, 2018 
         
Prepaid services  $8,363   $3,674 
Prepaid inventory   3,913    102,643 
   $12,276   $106,317 

 

Note 5 – Notes Payable Other

 

On February 6, 2019, the Company issued a promissory note in the amount of $150,000, bearing interest at 4 percent monthly or the equivalent of 48 percent per annum rate and maturing on April 30, 2019. Interest is payable in shares of the Company’s common stock valued at $0.75 per share. The note’s maturity was extended to May 30, 2019. In May 2019, the Company repaid $105,000 of the principal.

 

On February 22, 2019, the Company entered into a promissory note in the amount of $215,000. The note matures on December 31, 2019 and can be converted in shares of the Company’s common stock at $0.75 per share during the term of the note. As of March 31, 2019, $100,000 of the note remains to be funded by the lender. The Company agreed to issue to the lender 150,000 shares of the Company’s common stock on or before December 31, 2019 as a one-time consideration for making the loan in lieu of a cash payment of interest. During May 2019, the lender funded the balance of the note.

 

On March 11, 2019, the Company issued a promissory note in the amount of $65,000, the note accrues interest at 5 percent every 45 days on the unpaid principal balance or the equivalent of 40.6% per annum rate. The loan matures on June 11, 2019. The lender has the option to convert interest due into common shares of the Company’s common stock at $0.75 per share.

 

Note 6 – Contract Receivables Liability with Recourse

 

On February 21, 2019, the Company entered into a factoring agreement with Advance Business Capital d/b/a Interstate Capital for a term of one year. The Company initially factored approximately $459,000 of receivables and received an advance of 85% in the amount of $390,839. The Company bears all credit risk related to the receivables factored. The Company has given a security interest in substantially all of its assets and the Company’s president and a major shareholder have personally guaranteed the debt.

 

Note 7 – Stockholders’ Equity

 

The Company is authorized to issue 100,000,000 shares of common stock and 20,000,000 shares of preferred stock.

 

On December 7, 2016, the Company issued 20,000,000 founders’ common stock to two directors and officers at par for legal services provided to the Company. On August 31, 2017, an aggregate of 19,750,000 was contributed back to the Company pro rata from the then two shareholders.

 

On September 1, 2017, the Company issued 2,800,000 shares of its common stock to Igor Gabal and 7,200,000 shares to GP Michigan, LLC at par value of $0.0001 in connection with the change in control.

 

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Note 7 – Stockholders’ Equity (Continued)

 

On December 1, 2017, the Company issued 8,050,000 shares of its common stock at par value of $0.0001.

 

As of December 31, 2018 and 2017, 26,568,400 and 18,300,000 shares of common stock and no preferred stock, respectively, were issued and outstanding.

 

From January 1 to March 31, 2019, the Company issued 232,997 shares of its common stock at $0.75 per share. 203,000 shares of common stock were issued in a private placement for $152,250 and 29,997 shares were issued for services to a consultant.

 

Note 8 –Related Party Transactions

 

On May 23, 2017, GP Michigan, LLC entered into a contract with Tiber Creek Corporation for a myriad of services, one of which entails the change in control of the Company. The agreement also provides that Tiber Creek will effect a registration statement under the Securities Act of 1933 for the Company, will advise the Company on its structure and operations in order to effectively enter the public market, will introduce it to the brokerage and financial a community, and will assist it in locating a broker to file a Form 1Sc-211 application with FINRA for the public trading of its securities. GP Michigan agreed to pay Tiber Creek Corporation $80,000 for those services.

 

As March 31, 2019, two significant shareholders of the Company advanced the Company $160,191. The advance was evidenced by two individual notes which are due on August 1, 2019 and have a fixed interest fee for the note term. Interest of $1,000 has been accrued as of March 31, 2019. The notes mature August 2, 2019.

 

Note 9– Office Lease

 

On February 4, 2019, the Company entered into a sublease for office space located in Bannockburn, IL. The sublease terminates on March 31, 2022. Rent for the three months ending March 31, 2019 and 2018 was $8,645 and $0, respectively. The annual rent per the sublease is as follows:

 

First lease year  $55,860 
Second lease year   57,536 
Third lease year   59,262 
Final lease year   61,039 

 

The Company paid a security deposit of $9,310.

 

Note 10– Commitments and Contingencies

 

The Company’s operations are subject to the Federal Food, Drug and Cosmetic Act; the Bioterrorism Act; and regulations created by the U.S. Food and Drug Administration (“FDA”). The FDA regulates manufacturing and holding requirements for foods, specifies the standards of identity for certain foods and prescribes the format and content of certain information that must appear on food product labels. In addition, the published applicable rules under the Food Safety Modernization Act (“FSMA”) regulates food products imported into the United States and provides the FDA with mandatory recall authority.

 

For the purchase of products harvested or manufactured outside the United States, and for the shipment of products to customers located outside of the United States, the Company is subject to customs laws regarding the import and export of shipments. The Company’s activities, including working with customs brokers and freight forwarders, are subject to regulation by U.S. Customs and Border Protection, part of the Homeland Security.

 

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 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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, most notably its Iron Energy beverage product.

 

The Company is in the development stage. Prior to 2018, its operations have been limited to issuing shares to its original stockholders and effecting a change in control of the Company described below. In 2018, the Company commenced its principal operations, but remains in the development stage.

 

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 August 31, 2017, the Company effected a change in control by the redemption of 19,500,000 shares of the then outstanding 20,000,000 shares of common stock and the issuance on September 1, 2017 of 10,000,000 shares of common stock to Igor Gabal and GP Michigan LLC, a company controlled by Mr. Gabal, at a purchase price of $0.0001 per share. Messrs. James Cassidy and James McKillop, the then officers and directors of the Company, resigned and Igor Gabal was named its sole officer and director. Pursuant to the change in control, the Company changed its name to European CPG Acquisition Corporation, which was subsequently changed to Veroni Brands Corp.

 

The Company filed Current Reports on Form 8-K to disclose the change of control and the change of name.

 

Subsequently, 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 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.

 

An affiliate of the Company has entered into an agreement with Tiber Creek Corporation of which the former president of the Company is the president and controlling stockholder. Tiber Creek Corporation assists companies to become public reporting companies and for the preparation and filing of registration statements pursuant to the Securities Act of 1933, and the introduction to brokers and market makers.

 

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.

 

As of December 31, 2018, the Company has generated only limited revenues and cash flows from operations, and has incurred an accumulated deficit of $306,187.

 

For the fiscal year ended December 31, 2018, the Company’s independent auditors issued a report raising substantial doubt about the Company’s ability to continue as a going concern. As of December 31, 2018, the Company has 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.

 

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In January 2019, 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 become the vendor of record for these products with Family Dollar, Dollar General, Costco and few other retailers.

 

In February 2019, 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.

 

As of March 31, 2019, the Company had generated limited revenues from operations since inception. At March 31, 2019, the Company had sustained net losses of $309,146 since inception.

 

Revenues and Losses

 

Three Months Ended March 31, 2019. During the three months ended March 31, 2019 and 2018, the Company generated revenues of $1,039,356 and a gross profit of $150,914, compared to no revenues in 2018. 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.

 

During the three months ended March 31, 2019, the Company incurred a net loss of $2,959, as compared to a net loss of $30,157 for 2018. Operating expenses of $134,206 during the three months ended March 31, 2019 consisted of selling and warehouse expenses of $86,377 and general and administrative costs of $47,829.

 

Liquidity and Capital Resources

 

Since its inception, the Company has devoted most of its efforts to business planning, research and development, recruiting management and staff and raising capital. Accordingly, the Company has been in the development stage since inception. The Company has generated only limited revenues from its operations, and there is no assurance of future revenues.

 

During the three months ended March 31, 2019, the Company used net cash of $864,257 in its operating activities, primarily for the increase in inventory in the amount of $548,313 and the generation of accounts receivable and contract receivables with recourse totaling $953,204, offset by an increase in accounts payable and accrued expenses of $524,945 for that period. Net cash provided by financing activities totaled $873,089 from the proceeds of contract receivables with recourse of $390,839 and notes payable of $330,000, as well as the sale and issuance of its common stock in private placements of $152,250. The Company had a cash balance of $11,831 and working capital of $277,941 as of March 31, 2019, as compared to cash and working capital of $2,999 and $106,152, as of December 31, 2018.

 

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 March 31, 2019, 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.

 

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.

 

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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 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 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), 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.

 

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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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures and Changes in Internal Controls

 

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

 

As of March 31, 2019, our management carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on this evaluation, the President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2019, because of the identification of the material weakness in internal control over financial reporting described below. Notwithstanding the material weakness that existed as of March 31, 2019, our President and Chief Financial Officer has concluded that the financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows of the Company and its subsidiaries in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
  Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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Under the supervision and with the participation of our management, we conducted an assessment of the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992, as of March 31, 2019.

 

As a result of our material weakness described below, management has concluded that, as of March 31, 2019, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.

 

Material Weakness in Internal Control over Financial Reporting

 

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility, that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with its assessment, management identified the following material weaknesses at March 31, 2019:

 

  There is a lack of segregation of duties within the accounting and financial reporting process.
  Since we use external consultants to prepare our financial statements and provide sufficient documentation of such preparation and review procedures, our officer must rely on such documentation.
  We had only one executive officer at March 31, 2019.

 

Due to our limited resources as just having emerged from being a development stage company, we expect these weaknesses in internal control to continue while we implement our business plan.

 

Changes in Internal Control over Financial Reporting

 

During the period covered by this quarterly report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently involved in any pending or threatened legal proceedings.

 

Item 1A. Risk Factors

 

Not applicable to smaller reporting companies.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

From January 1 to March 31, 2019 the Company issued 232,997 shares of its common stock at $0.75 per share. 203,000 shares of common stock were issued in a private placement for $152,250 and 29,997 shares were issued for services to a consultant. These shares were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, based on the following factors: (i) the number of offerees or purchasers, as applicable, (ii) the absence of general solicitation, (iii) investment representations obtained from the security holders in the transaction, (iv) the provision of appropriate disclosure, and (v) the placement of restrictive legends on the certificates reflecting the securities.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

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Item 6. Exhibits

 

Regulation
S-K Number
  Document
     
3.1   Certificate of Incorporation (1)
3.2   Certificate of Amendment to Certificate of Incorporation (2)
3.3   Bylaws (1)
10.1   Contract between FoodCare Sp. z o.o. and Veroni Brands Corp. dated January 30, 2018 (3)
10.2   Promissory Note dated October 2, 2018 to Igor Gabal (4)
10.3   Promissory Note dated October 3, 2018 to Tomasz Kotas (4)
10.4   Agreement with Advance Business Capital LLC dba Interstate Capital dated February 21, 2019 (4)
31.1   Rule 13a-14(a) Certification of Igor Gabal
32.1   Certifications of Igor Gabal Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*   Financial statements from the Quarterly Report on Form 10-Q of Veroni Brands Corp. for the quarterly period ended March 31, 2019, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Cash Flows; and (iv) the Notes to Financial Statements

 

  (1) Filed as an exhibit to the registration statement on Form 10, filed January 18, 2017, file number 000-55735.
  (2) Filed as an exhibit to the Current Report on Form 8-K dated November 22, 2017, filed November 30, 2017.
  (3) Filed as an exhibit to the Current Report on Form 8-K dated February 2, 2018, filed February 2, 2018.
  (4) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed April 16, 2019, file number 000-55735.

 

*In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  VERONI BRANDS CORP.
     
Dated: May 20, 2019 By: /s/ Igor Gabal
   

Igor Gabal, President and

Chief Financial Officer

 

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