Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2021

 

☐	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.)

 

2275 Half Day Rd. Suite 346, Bannockburn, IL 60015

(Address of principal executive offices) (Zip Code)

 

[phone]

(Registrant’s telephone number, including area code)

 

Not applicable

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

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered

 

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 ☐ 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 ☒ 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 ☒
	Emerging growth company ☒

 

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 ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,112,029 shares as of November 12, 2021

  

 

 

 

 

VERONI BRANDS CORP.

 

FORM 10-Q

FOR THE QUARTER ENDED

June 30, 2021

 

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Balance Sheets (Unaudited)	3
	Statements of Operations (Unaudited)	4
	Statements of Changes in Stockholders’ Equity (Unaudited)	5
	Statements of Cash Flows (Unaudited)	6
	Notes to Unaudited Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	20
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
SIGNATURES		23

 

2

 

 

Veroni Brands Corp.

BALANCE SHEETS

June 30, 2021 and December 31, 2020

 

		2021				2020
			Unaudited
ASSETS
Current Assets
Cash & equivalents		$	90,784			$	116,730
Accounts Receivable, net allowance for doubtful accounts of  $19,408 at June 30, 2021 and $0 at December 31, 2020			325,622				14,303
Contract Receivables with recourse			1,228,066				793,904
Inventory			552,239				550,657
Prepaid expenses and other current assets			3,313				5,524
Total Current Assets			2,200,024				1,481,118
Other Assets
Deposits			9,310				9,310
Right-of-use asset-operating, net			47,297				74,721
Total Other Assets			56,607				84,031
Total Assets		$	2,256,631			$	1,565,149
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable		$	107,656			$	68,869
Accounts payable related party			910,961				783,417
Contract receivables liability with recourse			1,112,856				649,502
Accrued liabilities			193,959				134,137
Paycheck protection loans (PPP)			56,250				56,250
Contract liabilities			167,100				74,800
Short-Term lease liability-operating			43,958				56,939
Total Current Liabilities			2,592,740				1,823,914
Long-term Liabilities
Economic injury disaster loan (EIDL)			149,900				149,900
Long-Term lease liability-operating			-				15,134
Total Long-Term Liabilities			149,900				165,034
Total Liabilities			2,742,640				1,988,948
STOCKHOLDERS’ DEFICIT
Preferred Stock, $0.0001 par value; 20,000,000 shares authorized; none outstanding as of June 30, 2021 and December 31, 2020			-				-
Common Stock, $0.0001 par value; 100,000,000 shares authorized; 27,112,029 and 27,085,029 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively			2,712				2,709
Additional paid-in capital			1,006,847				959,600
ACCUMULATED DEFICIT			(1,495,568	)			(1,386,108	)
Total Stockholders’ Deficit			(486,009	)			(423,799	)
Total Liabilities and Stockholders’ Deficit		$	2,256,631			$	1,565,149

 

The accompanying notes are an integral part of these financial statements

 

3

 

 

Veroni Brands Corp.

STATEMENTS OF OPERATIONS

For the three and six months ended June 30, 2021 and 2020

Unaudited

 

		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
		For the three months ended								For the six months ended
		June 30, 2021				June 30, 2020				June 30, 2021				June 30, 2020
Revenue, net		$	1,585,183			$	1,671,932			$	2,483,359			$	2,812,617
Cost of sales, related party			1,226,013				1,346,763				1,855,524				2,065,872
Cost of sales			14,752				33,398				15,292				48,755
Total cost of sales			1,240,765				1,380,161				1,870,816				2,114,627
Gross profit			344,418				291,771				612,543				697,990
Warehouse and selling expenses			110,011				49,450				169,799				135,591
General and administrative expenses			255,983				233,785				549,200				426,898
Total operating expenses			365,994				283,235				718,999				562,489
Net income (loss) from operations			(21,576	)			8,536				(106,456	)			135,501
Other income (expense)
Interest expense			(3,504	)			-				(3,504	)			-
Other income			-				1,000				500				1,000
Total other income (expense)			(3,504	)			1,000				(3,004	)			1,000
Income (loss) before income taxes			(25,080	)			9,536				(109,460	)			136,501
Income taxes			-				-				-				-
Net income (loss)		$	(25,080	)		$	9,536			$	(109,460	)		$	136,501
Net income (loss) per share:
Basic and diluted			*				*				*			$	0.01
Weighted average shares outstanding:
Basic and diluted			27,112,029				27,085,030				27,103,475				27,080,415

 

*	less than $.01 per share

 

The accompanying notes are an integral part of these financial statements

 

4

 

 

Veroni Brands Corp.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the six months ended June 30, 2021

Unaudited

 

		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit
																		Additional								Total
		Preferred Stock								Common Stock								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit
Balance, December 31, 2020			-			$	-				27,085,029			$	2,709			$	959,600			$	(1,386,108	)		$	(423,799	)
Issuance of common stock for services			-				-				27,000				3				47,247								47,250
Issuance of common stock for cash			-				-				-				-
Net loss for the three months ended March 31, 2021			-				-				-				-				-				(84,380	)			(84,380	)
Balance , March 31, 2021			-			$	-				27,112,029			$	2,712			$	1,006,847			$	(1,470,488	)		$	(460,929	)
Net loss for the three months ended June 30, 2021			-				-				-				-				-				(25,080	)			(25,080	)
Balance , June 30, 2021			-			$	-				27,112,029			$	2,712			$	1,006,847			$	(1,495,568	)		$	(486,009	)

 

Veroni Brands Corp.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the six months ended June 30, 2020

Unaudited

 

Balance, December 31, 2019			-			$	-				27,025,029			$	2,703			$	914,606			$	(907,000	)		$	10,309
Issuance of common stock for cash			-				-				60,000				6				44,994								45,000
Net income for the three months ended March 31, 2020			-				-				-				-				-				126,965				126,965
Balance			-				-				27,085,029				2,709				959,600				(780,035	)			182,274
Net income for the three months ended June 30, 2020							-								-				-				9,536				9,536
Net income (loss)							-								-				-				9,536				9,536
Balance , June 30, 2020			-			$	-				27,085,029			$	2,709			$	959,600			$	(770,499	)		$	191,810
Balance			-			$	-				27,085,029			$	2,709			$	959,600			$	(770,499	)		$	191,810

 

The accompanying notes are an integral part of these financial statements

 

5

 

 

Veroni Brands Corp.

STATEMENTS OF CASH FLOW

For the six months ended June 30, 2021 and 2020

Unaudited

 

		2021				2020
Cash flow from operating activities:
Net income (loss)		$	(109,460	)		$	136,501
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Common stock issued for service			47,250				-
Changes in:
Trade accounts receivable			(311,319	)			(93,769	)
Contract receivables			(434,162	)			343,950
Other receivables’ related party			-				(184,848	)
Prepaid expenses and other current assets			2,211				(23,716	)
Inventory			(1,582	)			147,027
Accounts payable			38,787				111,953
Accounts payable related party			127,544				(38,137	)
Customer deposits			-				-
Accrued liabilities			59,822				(63,045	)
Contract liabilities			92,300				(33,033	)
ROU asset/liability			(691	)			238
Net cash provided by (used in) operating activities			(489,300	)			303,121
Cash flows from financing activities:
Repayment of shareholders loans			-				(43,370	)
Repayment of insurance loans			-				(5,572	)
Proceeds from PPP loans			-				56,250
Proceeds from issuance of common stock			-				45,000
Proceeds from (repayment of) contract receivables with recourse			463,354				(437,094	)
Net cash provided by (used in) financing activities			463,354				(384,786	)
Net change in cash			(25,946	)			(81,665	)
Cash at the beginning of the year			116,730				99,010
Cash at the end of the year		$	90,784			$	17,345
Supplemental disclosure of cash flow information:
Cash paid for:
Interest		$	-			$	-
Non-cash investing and financing activities
Financing of insurance premiumns		$	-			$	14,859

 

The accompanying notes are an integral part of these financial statements

 

6

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

Note 1 - Nature of Operations and Financial Condition

 

Veroni Brands Corp. (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.

 

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 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 its consumers with experiences that had previously only been attainable in Europe. In January 2018, 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.” During 2019, the Company built the distribution of the Iron Energy product nationwide. Beginning in February 2019, the Company expanded its import and distribution network with the distribution of chocolate products and significantly grew its sales and distribution volumes. The Company entered into long term supply agreements with major U.S national retailers to import chocolate products under “Private Label Brands” that are currently being sold in over 20,000 retail locations across the U.S. The Company takes pride in the variety of consumer products it imports and is proud to share them with its consumers nationwide. The Company’s recent expansion of the import and distribution of snacks, chocolate and chocolate related products that are currently being sold to U.S. national retailers presents the Company with a substantial growth opportunity to introduce to its retail partners to many other consumer products and to increase its network of retailers.

 

Basis of presentation: unaudited interim financial information

 

The accompanying interim condensed financial statements are unaudited. In the 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 October 12, 2021 for the years ended December 31, 2020 and 2019.

 

Going Concern

 

The Company has generated revenue of approximately $2,483,000 and incurred a net loss of $109,460 for the six months ended June 30, 2021 and has an accumulated deficit of $1,495,568 since its inception. As of June 30, 2021, the Company had a cash balance available of approximately $90,784 and negative working capital of ($392,716) 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 Company failed to meet its minimum annual purchase requirements under the FoodCare Sp. z.o.o. (“FoodCare”) agreement, in part due to FoodCare’s failure to provide promised marketing support. In 2020, the Company terminated the agreement and relationship with FoodCare and no longer had exclusive rights to distribute FoodCare’s Iron Energy drinks. The Company has found greater success with the distribution of chocolate and snack products instead of beverages. In addition to importing products from ZWC Millano, the Company has recently established relationships with other European manufacturers that can manufacture wide range of “panned” products, meaning those that are coated with a sugar syrup and/or chocolate, such as nuts, raisin, pretzels, fruits and many other “panned” and healthy snacks items as well as chocolate bars, multi-flavor truffles, sticks, chocolate cups, 5-bites, chocolate covered gummies, chocolate Easter eggs, custom Christmas chocolate figures as well as Advent calendars and many other products to support demand of the Company’s national retailers.

 

7

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

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

 

The Company is continuing to evaluate various financing options in order to continue the funding of the expansion of its operations, the products being offered and its customer base. The Company is also focusing on broadening its customer base. As disclosed below in Accounts Receivable and Concentration of Credit Risk, a significant customer did not select the Company as a vendor for 2021.

 

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. The 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.

 

Note 2 – Summary of Significant Accounting Policies

 

Reclassifications

 

Certain reclassifications have been made in the 2020 financial statements to conform to the 2021 presentation. These reclassifications have no effect on net income for 2020.

 

Advertising

 

The Company’s policy is to expense advertising costs as incurred. Advertising expense for the six months ending June 30, 2021 and 2020 is $550 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 and reserves in regards to receivables and revenue. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company’s significant accounting policy for revenue was updated as a result of the adoption of ASU Topic 606. The Company has adopted the new standard on January 1, 2019 and has used the modified retrospective method. The majority of the Company’s business is ship and bill. Based on our analysis, the Company did not identify a cumulative effect adjustment to retained earnings at December 31, 2018. The Company recognizes revenue in accordance with the five-step model as prescribed by ASU 606 in which the Company evaluates the transfer of promised goods or services and recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for the arrangements that the Company determines are within the scope of ASU 606, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 11 for revenue disaggregated by product line.

 

The Company recognizes revenue from the sale of products when title and risk of loss passes and the customer accepts the goods, which generally occurs at the time of delivery to a customer warehouse. Customer sales incentives such as volume-based rebates or discounts are treated as a reduction of sales at the time the sale is recognized. Shipping and handling costs are treated as fulfillment costs and presented in warehouse and selling expenses.

 

Payments that are received before performance obligations are recorded are shown as current liabilities.

 

8

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

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.

 

Shipping Costs

 

Costs associated with shipping product to customers aggregating approximately $95,290 and $125,908 for the six months ended June 30, 2021 and 2020, respectively, is included in warehouse and selling expenses.

 

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 June 30, 2021 and December 31, 2020, 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 the Company’s estimate of the amount of probable credit losses in its accounts receivable. The Company determines 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 the Company determines that the potential for recovery is remote. An allowance for doubtful accounts of approximately $19,408 and $-0- is reserved as of June 30, 2021 and December 31, 2020, 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. For the six months ended June 30, 2021, we had one customer who comprised approximately 95% or $1,165,360 of our contract receivables with recourse and two customers who comprised approximately 57% or $187,435 of our accounts receivable. For the six months ended June 30, 2020, we had one customer who comprised approximately 85% or $1,030,675 of our contract receivables with recourse.

 

For the six months ended June 30, 2021, we had two customers with sales in excess of 10% of our revenue and they represented 80% of our revenue. For the six months ended June 30, 2020, we had two customers with sales in excess of 10% of our revenue and they represented 78% of our revenue.

 

One of these customers had sales of approximately $1,270,257 and $1,512,608 for the six months ended June 30, 2021 and 2020, respectively. In April 2021, the Company received a letter from this customer stating that the Company was not selected as a vendor for 2021.

 

Distribution Agreements and 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 was for ten years and gave the Company exclusive rights to distribute FoodCare products within the U.S. market, so long as the Company purchased the required quantity of product from FoodCare.

 

9

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

Note 2 – Summary of Significant Accounting Policies (continued)

 

The Company failed to meet its minimum purchases in 2018, due in part to FoodCare’s failure to provide marketing support as promised. The Company terminated the agreement and relationship with FoodCare in 2020. Sales of Iron Energy were only $33,475 in 2020. The termination of the “Iron Energy” drink distribution agreement did not significantly affect the company or its revenue, as the Company has found greater success with the distribution of chocolate and snack products instead of beverages.

 

At the beginning of 2019, the Company established relationships with other European manufacturers that can manufacture a wide range of “panned” products such as nuts, raisin, pretzels, fruits and many other “panned” and healthy snacks items, as well as chocolate bars, multi-flavor truffles, sticks, chocolate cups, 5-bites, chocolate covered gummies, chocolate Easter eggs, custom Christmas chocolate figures as well as Advent calendars and many other products to support demand from the Company’s national retailers.

 

In June 2021, the Company entered into storage and procurement distribution agreement with a transportation company to store the chocolate products, as well as fulfill the purchase orders from the Company’s customers. The agreement is for a term of two years from the date of first inbound receipt and may be terminated at the option of the Company upon 60 days’ notice.

 

Vendor Concentration

 

Currently, the Company is sourcing all its chocolate products and snacks from the Millano Group, a related party. The Company has not entered into a distributor agreement but is currently negotiating an agreement with Millano Group. The Company, due to relationships with other European manufacturers could find other sources to replace its chocolate and snack products if the Company were to terminate Millano Group as its suppler for chocolate products. Total purchases for the six months ended for June 30,2021 and 2020 were approximately $1,614,805 and $1,921,624, respectively which represents 100% of product purchases.

 

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 June 30, 2021 and 2020, there were no net deferred tax assets, as the Company established 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 June 30, 2021 and 2020, 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:

 

10

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

Note 2 – Summary of Significant Accounting Policies (Continued)

 

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 June 30, 2021 and 2020 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.

 

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 the Emerging Growth Company (see below) status of the Company, the Company has adopted 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.

 

Recent Accounting Pronouncements

 

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The update also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The update should be applied on a prospective basis. The provisions of ASU 2017-04 are effective for the fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has elected this accounting guidance as of January 1, 2020. It has had no effect on the Company’s financial statements.

 

11

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

Note 3 – Inventory

 

Finished Goods inventory consist of chocolates and related products imported from Poland and is stated at the lower of actual cost (first-in, first-out method) or net realizable value. Inventory cost includes all freight (ocean, air and truck) costs to the warehouse, import duties, regulatory and miscellaneous fees. Inventory is as follows:

 Schedule of Inventory

		June 30, 2021				December 31, 2020
Finished goods – in warehouse			552,239				550,657
Finished goods - consignment			-				-
		$	552,239			$	550,657

 

Note 4 – Prepaid Expenses

 

Prepaid inventory

 

The Company’s foreign suppliers will generally require that the Company pay in advance of an inventory shipment to it from Europe. Amounts transferred to the Company’s suppliers to secure future delivery, but prior to transfer of title of those shipments, are recorded as prepaid inventory and are included in prepaid expenses and other current assets.

 Schedule of Prepaid Expenses

		June 30, 2021				December 31, 2020
Prepaid services		$	3,313			$	5,524
Prepaid Rent			-				-
Prepaid inventory			-				-
Total prepaid expenses		$	3,313			$	5,524

 

Note 5 – Notes Payable Other

 

On February 22, 2019, the Company entered into a promissory note in the amount of $215,000. The note matured 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. 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. The common stock issuable under the term of the promissory note was valued at $112,500 with an effective interest rate of 88.5% and was amortized over the term of the note. Through December 31, 2019 approximately $112,500 has been amortized and recorded as Interest Expense. The lender in 2020 converted the promissory note into 286,667 shares of the Company’s common stock at the conversion price of $0.75 per share.

 

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.

 

12

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

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. On September 11, 2019, the lender (now doing business as Triumph Business Capital), entered into an amended agreement with the Company which lowered the interest rate charged by the lender from 0.49% for every 10 days to Prime Rate (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, which allows the Company to pre-pay for product shipped from the supplier.

 

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 purchase order financing. The Company bears all credit risk related to the receivables factored as well as purchase order financing. The Company has given a security interest in substantially all of its assets and the president of the Company and a major shareholder, have personally guaranteed the debt.

 

Note 7 – Long Term Debt

 

On August 27, 2020 the Company received an Economic Injury Disaster Loan (EIDL) from the U.S. Small Business Administration SBA) in the amount of $150,000. The interest rate is 3.75% with payments of $731 beginning twelve month from the date of the loan. Interest is accrued monthly and payments are first applied to interest accrued to the date of receipt of payment and the balance, if any, will be applied to the principal. The balance of principal and interest is due 8/27/2050. As of June 30, 2021 the Company owes $149,900.

 

The maturity of the EIDL loan as of June 30, 2021 is as follows:

 Schedule of Maturities of Long Term Debt

			2021
2021		$	-
2022			-
2023			2,181
2024			3,285
2025			3,410
Thereafter			141,024
Long Term Debt		$	149,900

 

Note 8 – Stockholders’ Equity

 

The Board of Directors is authorized to issue preferred stock by series that will establish the number of shares to be included and fix the designation, powers, preferences and rights of the shares each such series and the qualifications, limitations or restrictions thereof. At June 30, 2021, the Company has not established any series of preferred stock.

 

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

 

From January 1 to June 30, 2021 the Company issued 27,000 shares of common stock in consideration of services of $47,250.

 

From January 1 to June 30, 2020 the Company issued 60,000 shares of common stock in consideration of cash proceeds of $45,000.

 

At December 31, 2020, the Company has no outstanding options or warrants.

 

13

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

Note 9 –Related Party Transactions

 

During 2018, two significant shareholders of the Company advanced the Company $157,059. The advance was evidenced by two individual notes totaling $155,000 which were due on or before August 1, 2019 and a payable of $2,059. The two notes have a fixed interest fee of $1,000 for each of the notes. One shareholder was repaid in June 2019 on his promissory note and accrued interest, which totaled $61,000. In December 2019 that shareholder paid $6,276 of Company expenses and $14,726 of Company liabilities. In January 2020 the Company reimbursed the shareholder these amounts.

 

The due date for the second shareholder note was extended to be due on or before August 1, 2020, and as of December 31, 2019, $78,000 has been repaid leaving an outstanding loan balance of $17,000 and a payable of $4,370. Unpaid interest of $1,000 has been accrued as of December 31, 2019 for the remaining balance of the promissory note. The Company repaid the remaining principal and accrued interest in February 2020 and paid $2,311 of the outstanding payable in March 2020.

 

During the year ended December 31, 2020, one of the significant shareholders paid certain expenses on behalf of the Company from time to time. These amounts were repaid during the year and no amount was owed to the shareholder at December 31, 2020.

 

The Company is purchasing all of its chocolate products from Millano Group, a related party (controlled by the father of a major shareholder), and owed $910,961 and $783,417 at June 30, 2021 and December 31, 2020, respectively. The balance is reflected in accounts payable related party.

 

Note 10– Office Lease

 

On February 4, 2019, the Company entered into a sublease for office space located in Bannockburn, Illinois, with an unrelated third party. The sublease terminates on May 31, 2022. The sublease requires annual rent of $55,860 for the first year of the sublease, $57,536 for the second year, $59,262 for the third year, and $61,040 for the last year. Rent for the three months ending June 30, 2021 and 2020 was $14,670 and $14,433, respectively. The Company also paid a security deposit of $9,310, which is reflected in Other Assets - Deposits As of June 30, 2021 and December 31, 2020, our right of use asset and related liability was $47,297 and $74,721, respectively.

 

In determining the present value of our operating lease right-of-use asset and liability, we used a discount rate of 5% (which approximates our borrowing rate). The remaining term on the lease is 1 year.

 

The annual rent per the sublease is as follows:

 Schedule of Annual Rent Sublease

			2021
2021		$	29,625
2022			15,260
Sublease, annual rental, total		$	44,885

 

Note 11– Revenue

 

During the six months ended June 30, 2021, the Company had two customers whose sales accounted for approximately 80% of revenue.

 

The following table presents revenues by product line for the years ended June 30:

 Schedule of Revenue by Product Line

		2021				2020
Chocolate		$	2,483,359			$	2,796,476
Energy drinks		$	-			$	16,141
Totals		$	2,483,359			$	2,812,617

 

14

 

 

VERONI BRANDS CORP.

Notes to Unaudited Financial Statements

June 30, 2021 and 2020

 

Note 12– 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.

 

On June 17, 2019, The Scale Effect Company d/b/a Mant Logistics filed an amended complaint in the United States District Court for the Northern District of Illinois naming as defendants the Company, Baron Chocolatier, Inc. and two significant shareholders of the Company. The action was originally against Baron Chocolatier only, alleging that Baron did not pay for shipping and logistics services in the amount of $277,233, plus accrued interest. The complaint was amended to allege that the Company is a successor corporation and continuation of Baron Chocolatier, thereby making the Company liable for the debts and liabilities of Baron, and that Baron is an alter ego for the Company and the Company’s two significant shareholders. No trial date has been scheduled. The parties are still in the discovery stage, as the pandemic and a reassignment of the case to a new judge caused delays. The Company intends to vigorously defend in this lawsuit.

 

In March 2021, Crossmark Inc. initial a lawsuit in the Circuit Court of Cook County, Illinois, against the Company, seeking to collect payment for services rendered. The Company had entered into an agreement with Crossmark to promote the sale of the Iron Energy products which the Company had distributed. Crossmark alleges that $100,000 plus costs and attorneys’ fees are owed by the Company. The default judgment entered in this case has been vacated and the Company intends to defend in this lawsuit. The Company has accrued $100,000 in 2019 as a reserve for this liability.

 

Note 13 – Subsequent Events

 

The Company’s management has performed subsequent events procedures through the date the financial statements were available to be issued. There were no subsequent events requiring adjustment to or disclosure in the financial statements.

 

15

 

 

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 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.

 

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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.

 

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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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

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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 June 30, 2021, 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 June 30, 2021, because of the identification of the material weakness in internal control over financial reporting described below. Notwithstanding the material weakness that existed as of June 30, 2021, 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.

 

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 June 30, 2021.

 

As a result of our material weakness described below, management has concluded that, as of June 30, 2021, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.

 

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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 June 30, 2021:

 

	●	There is a lack of segregation of duties within the accounting and financial reporting process along with the proper safeguards to prevent the management override of controls, as the Company has only one executive officer.
	●	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 June 30, 2021.

 

Due to our limited resources, 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.

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On June 17, 2019, The Scale Effect Company d/b/a Mant Logistics filed an amended complaint in the United States District Court for the Northern District of Illinois naming as defendants the Company, Igor Gabal, Tomasz Kotas, and Baron Chocolatier, Inc. The action was originally against Baron Chocolatier only, alleging that Baron did not pay for shipping and logistics services in the amount of $277,233, plus accrued interest. The complaint was amended to allege that the Company is a successor corporation and continuation of Baron Chocolatier, thereby making the Company liable for the debts and liabilities of Baron, and that Baron is an alter ego for the Company, Igor Gabal and Tomasz Kotas. No trial date has been scheduled. The parties are still in the discovery stage. The Company intends to vigorously defend in this lawsuit.

 

In March 2021, Crossmark Inc. initial a lawsuit in the Circuit Court of Cook County, Illinois, against the Company, seeking to collect payment for services rendered. The Company had entered into an agreement with Crossmark to promote the sale of the Iron Energy products which the Company had distributed. Crossmark alleges that $100,000 plus costs and attorneys’ fees are owed by the Company. The default judgment entered in this case has been vacated and the Company intends to defend in this lawsuit.

 

Item 1A. Risk Factors

 

Not applicable to smaller reporting companies.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

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Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

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		Amendment 2 to Factoring and Security Agreement with Triumph Business Capital dated September 11, 2019 (5)
10.5		Employment Agreement of Igor Gabal (6)
10.6		Amendment 4 to Factoring and Security Agreement with Triumph Business Capital dated January 27, 2021(7)
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 June 30, 2021, 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
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

	(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.
	(5)	Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed November 14, 2019.
	(6)	Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed October 12, 2021.
	(7)	Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed October 28, 2021

 

*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: November 12, 2021	By:	/s/ Igor Gabal
		Igor Gabal, President and Chief Financial Officer

 

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