Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
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 its “Sweet Desire” brand as well as “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 April 14, 2020
for the years ended December 31, 2019, and 2018.
Going
Concern
The
Company has generated revenue this year of approximately $1.1 million and has income of $126,965 for the three months ending March
31, 2020 and has an accumulated deficit of $780,035 since its inception. As of March 31, 2020, the Company had a cash balance
available of $16,169 and working capital of $174,869, 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.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
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
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 2019 financial statements to conform to the 2020 presentation. These reclassifications
have no effect on net loss for 2019.
Advertising
The
Company’s policy is to expense advertising costs as incurred. Advertising expense for the three months ending March 31,
2020 and 2019 is $0 and $2,825, 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.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
Note
2 – Summary of Significant Accounting Policies (Continued)
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 10 for revenue disaggregated by
product line.
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 picked up or delivered
based on the terms contained within the underlying contracts or agreements.
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 $49,399 and $0 for the three months ended March 31, 2020
and 2019, 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 March 31, 2020 and December 31, 2019, 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 $0
and $2,125 is reserved as of March 31, 2020 and December 31, 2019, 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, 2020, the Company had one customer that comprised approximately 77% or $750,704 of its combined accounts receivables
and contract receivables with recourse.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
Note
2 – Summary of Significant Accounting Policies (Continued)
Distribution
Agreements and Supplier Concentration
The
Company’s only business line in 2018 was the distribution of “Iron Energy” drink that continued to be part of
the Company’s product offering in 2019. The cancelation of the “Iron Energy” drink distribution agreement will
not significantly affect the Company or its revenue.
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.
Currently,
the Company is sourcing all its chocolate products from the Millano Group, a related party. The Company has not entered into a
distributor agreement but is currently evaluating entering into an agreement with Millano Group. The Company, due to relationships
with other European manufacturers, could find other sources to replace its chocolate products if the Company terminates
Millano Group as it suppler for chocolate products.
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,
2020 and December 31, 2019, 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 March 31, 2020 and 2019, there are no outstanding dilutive securities.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
Note
2 – Summary of Significant Accounting Policies (Continued)
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, 2020 and December 31, 2019 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 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.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
Note
2 – Summary of Significant Accounting Policies (Continued)
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in ASU 2016-02 provides guidance in GAAP about
the recognition of assets and liabilities by lessees for those leases classified as operating leases under GAAP. The guidance
requires that a lessee should recognize in the statement of financial position a liability to make lease payments and a right-to-use
asset representing the company’s right to use the underlying assets for the term of the lease. The guidance allows a lessee
who enter into a lease with a term of 12 months or less to make an accounting policy election to not recognize assets and liabilities.
In November 2019, the FASB provided updated guidance that allowed certain entities to delay the adoption of the standard and the
provisions of ASU 2016-02 are effective for the fiscal periods beginning after December 15, 2020, and for interim periods within
fiscal years beginning after December 15, 2021. Early application is permitted. The Company has not yet elected this accounting
guidance and continues to review the effect adoption will have on its financial position and results of operations.
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, 2020. Early adoption is permitted. The Company has not yet elected this accounting guidance.
On
June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share based payments granted to nonemployees
for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the
requirements for share-based payments granted to employees. For emerging growth companies, the amendments in ASU 2018-07 are
effective for fiscal years beginning after December 15, 2019. The Company has Adopted the guidance effective January 1,
2020. Through March 31, 2020 the Company has had no share based payments.
Note
3 – Inventory
Finished
Goods inventory consist of “Iron Energy” energy drinks, 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. Cost includes all freight (ocean,
air and truck) costs to the warehouse, import duties, regulatory and miscellaneous fees. Inventory is as follows:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Finished
goods – in transit to warehouse
|
|
$
|
-
|
|
|
$
|
399,043
|
|
Finished
goods – in warehouse
|
|
|
403,638
|
|
|
|
211,604
|
|
|
|
$
|
403,638
|
|
|
$
|
610,647
|
|
During
the first quarter of 2020, the Company removed beverage product totaling approximately $12,791 from inventory due to reaching
the end of its shelf life and becoming unsaleable.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
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.
The Company’s 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 seaport in Poland. 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.
Prepaid
were as follows:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Prepaid
services
|
|
$
|
18,698
|
|
|
$
|
1,049
|
|
Prepaid
rent
|
|
|
-
|
|
|
|
4,655
|
|
Prepaid
packaging
|
|
|
2,440
|
|
|
|
-
|
|
Prepaid
promotion
|
|
|
43,126
|
|
|
|
-
|
|
Prepaid
inventory
|
|
|
50,310
|
|
|
|
50,310
|
|
|
|
$
|
114,574
|
|
|
$
|
56,014
|
|
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. The note was repaid in full by June 30, 2019. The Company issued to the lender
26,965 shares of the Company’s common stock valued at $20,224 in lieu of a cash payment of interest.
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 was convertible into 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 and in lieu of a cash payment of interest. The common stock issuable under the term of the promissory
note was valued and recorded in 2019 at $112,500 with an effective interest rate of 88.5 percent and was amortized over
the term of the note. During December 2019, the lender converted the promissory note into 286,667 shares of the
Company’s common stock at the conversion price of $0.75 per share.
On
March 11, 2019, the Company issued a promissory note in the amount of $65,000. The note accrued interest at 5 percent every 45
days on the unpaid principal balance or the equivalent of 40.6 percent per annum rate. The promissory note was repaid in full
on June 11, 2019. The Company issued to the lender 10,000 shares of the Company’s common stock valued at $7,500 in lieu
of a cash payment of interest.
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 percent for every 10 days to Prime
Rate (floor of 5.5 percent) plus 3 percent. As of March 31, 2020 and December 31, 2019, the Company owes $661,382 and $1,414,639,
respectively, for advances on their receivables. 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 president of the Company and a major shareholder
have guaranteed the debt.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
Note
7 – 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 of each such series and the qualifications, limitations
or restrictions thereof. At March 31, 2020, 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 March 31, 2019 the Company issued 203,000 shares of common stock in consideration of cash proceeds of $152,250. The
Company also issued 29,997 shares of common stock for services rendered with a value of $22,498.
From
January 1 to March 31, 2020 the Company issued 60,000 shares of common stock in consideration of cash proceeds of $45,000.
At
March 31, 2020, the Company has no outstanding options or warrants.
Note
8 –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. The due date for the second shareholder note has been extended to be due on or before August 1, 2020 and as of March
31, 2020, $97,311 has been repaid leaving $0 of an outstanding loan balance and a payable to that lender of $3,059, which includes
unpaid interest of $1,000. At March 31, 2020 and December 31, 2019, the related party balances were as follows:
|
|
March
31, 2020
|
|
|
December
31, 2019
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
-
|
|
|
$
|
17,000
|
|
Accounts
payable and accrued interest
|
|
|
3,059
|
|
|
|
26,370
|
|
Total
related party
|
|
$
|
3,059
|
|
|
$
|
43,370
|
|
The
Company is purchasing all of its chocolate products from Millano Group, a related party (controlled by the father of a major
shareholder), and Millano Group was owed $371,836 and $546,612 at March 31, 2020 and December 31, 2019,
respectively. The balance is reflected in accounts payable related party.
On
March 30, 2020, the Millano Group agreed to reimburse the Company $184,848 for a 2019 customer credit for a recall that is reflected
in other receivable related party. The Cost of Sales has been reduced by $184,848 during the first quarter of 2020 due to this
credit.
Note
9– Office Lease
On
February 4, 2019, the Company entered into a sublease for office space located in Bannockburn, Illinois. The sublease terminates
on September 30, 2022. Rent for the three months ending March 31, 2020 and 2019 was $14,433 and $8,645, respectively. The annual
rent per the sublease is as follows:
2020
|
|
$
|
57,396
|
|
2021
|
|
|
59,107
|
|
2022
|
|
|
15,110
|
|
|
|
$
|
131,613
|
|
The
Company also paid a security deposit of $9,310.
VERONI
BRANDS CORP.
Notes
to Unaudited Financial Statements
March
31, 2020 and 2019
Note
10– Revenue
During
the three months ended March 31, 2020, the Company had two customers whose sales accounted for approximately 78% of revenue.
The
following table presents net revenues by product line for the years ended March 31:
|
|
2020
|
|
|
2019
|
|
Chocolate
|
|
$
|
1,116,499
|
|
|
$
|
1,039,297
|
|
Energy
drinks
|
|
|
24,186
|
|
|
|
59
|
|
Totals
|
|
$
|
1,140,685
|
|
|
$
|
1,039,356
|
|
Note
11– 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.
Note
12 – Subsequent Events
The
Company has analyzed its operations subsequent to March 31, 2020 through the date these financial statements were issued, and
has determined that it does not have any material subsequent events to disclose.