UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2020

 

or

 

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

 

For the transition period from ________________ to ________________

 

Commission File Number: 333-227420

 

 

ICONIC BRANDS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

13-4362274

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

44 Seabro Avenue

Amityville, NY

 

 

11701

(Address of principal executive offices)

 

(Zip Code)

 

(866) 219-8112

(Registrant’s telephone number, including area code)

 

N/A

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x

Smaller reporting company

x

Emerging growth company

¨

 

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

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange

on which registered

N/A

 

N/A

 

N/A

 

As of May 15, 2020, the registrant had 16,440,681 shares of common stock, $0.001 par value per share, issued and outstanding.

 

 

 

 

ICONIC BRANDS, INC.

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

ITEM 1

Financial Statements

 

F-1

 

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

4

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

 

11

 

ITEM 4

Controls and Procedures

 

11

 

PART II – OTHER INFORMATION

 

ITEM 1

Legal Proceedings

 

12

 

ITEM 1A

Risk Factors

 

12

 

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

12

 

ITEM 3

Defaults Upon Senior Securities

 

12

 

ITEM 4

Mine Safety Disclosures

 

12

 

ITEM 5

Other Information

 

12

 

ITEM 6

Exhibits

 

13

 

Signatures

 

14

 

Certifications

 

 
- 2 -

 

  

FORWARD-LOOKING STATEMENTS

 

Statements in this Quarterly Report on Form 10-Q may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934.

 

Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would.” These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K, and our other filings with the U.S. Securities and Exchange Commission.

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable law.

 

 
- 3 -

Table of Contents

  

PART I – FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

  

ICONIC BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2020 and 2019

 

CONTENTS

 

FINANCIAL STATEMENTS

 

Page(s)

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019

 

 

F-2

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

 

F-3

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019

 

F-4

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

F-5

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

F-6 to F-25

 

 

 
F-1

Table of Contents

  

Iconic Brands, Inc. and Subsidiaries

Consolidated Balance Sheets

 

 

 

March 31,

 

 

  December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 916,686

 

 

$ 263,638

 

Accounts receivable (less allowance for doubtful accounts of $26,513 and $26,513, respectively)

 

 

247,965

 

 

 

573,747

 

Inventories

 

 

638,144

 

 

 

573,800

 

Prepaid expenses

 

 

126,005

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

1,928,800

 

 

 

1,411,185

 

 

 

 

 

 

 

 

 

 

Right-of-use assets, less accumulated amortization of $148,317 and $125,921, respectively

 

 

114,440

 

 

 

136,836

 

Leasehold improvements, furniture, and equipment (less accumulated depreciation and amortization of $4,615 and $0, respectively)

 

 

24,093

 

 

 

20,000

 

Investment in and receivable from Can B Corp

 

 

1,000,000

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 3,067,333

 

 

$ 2,568,021

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of operating lease liabilities

 

$ 84,286

 

 

$ 90,982

 

Accounts payable and accrued expenses

 

 

1,698,492

 

 

 

1,852,563

 

Loans payable to officer and affiliated entity-noninterest bearing and due on demand

 

 

29,744

 

 

 

45,131

 

Note payable

 

 

15,000

 

 

 

40,000

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

1,827,522

 

 

 

2,028,676

 

 

 

 

 

 

 

 

 

 

Non-current portion of operating lease liabilities

 

 

33,943

 

 

 

49,147

 

Total liabilities

 

 

1,861,465

 

 

 

2,077,823

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value; authorized 100,000,000 shares:

 

 

 

 

 

 

 

 

Series A, 1 and 1 share issued and outstanding, respectively

 

 

1

 

 

 

1

 

Series E, 2,115,244 and 2,790,244 shares issued and outstanding, respectively

 

 

2,115

 

 

 

2,790

 

Series F ($1,000 per share stated value), 2965.75 and 3155.75 shares issued and outstanding, respectively

 

 

2,965,750

 

 

 

3,155,750

 

Series G ($1,000 per share stated value), 1475 and 0 shares issued and outstanding, respectively

 

 

1,475,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Common stock, $.001 par value; authorized 200,000,000 shares, 15,985,681 and 14,576,681 shares issued and outstanding respectively

 

 

15,986

 

 

 

14,577

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

21,624,713

 

 

 

21,282,679

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(23,763,668 )

 

 

(22,925,748 )

 

 

 

 

 

 

 

 

 

Total Iconic Brands, Inc. stockholders’ equity

 

 

2,319,897

 

 

 

1,530,049

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests in subsidiaries and variable interest entity

 

 

(1,114,029 )

 

 

(1,039,851 )

 

 

 

 

 

 

 

 

 

Total stockholders' equity

 

 

1,205,868

 

 

 

490,198

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$ 3,067,333

 

 

$ 2,568,021

 

 

See notes to consolidated financial statements.

 

 
F-2

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months

Ended

March 31,

2020

 

 

Three Months

Ended

March 31,

2019

 

 

 

 

 

 

 

 

Sales

 

$ 405,886

 

 

$ 121,913

 

Cost of Sales

 

 

252,426

 

 

 

81,435

 

Gross profit

 

 

153,460

 

 

 

40,478

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Officers compensation

 

 

103,750

 

 

 

185,750

 

Professional and consulting fees

 

 

186,789

 

 

 

448,519

 

Royalties

 

 

15,964

 

 

 

75,188

 

Marketing and advertising

 

 

128,645

 

 

 

46,467

 

Occupancy costs

 

 

22,251

 

 

 

27,623

 

Travel and entertainment

 

 

19,469

 

 

 

64,269

 

Investor relations

 

 

361,689

 

 

 

84,003

 

Other

 

 

227,001

 

 

 

91,023

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

1,065,558

 

 

 

1,022,842

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(912,098 )

 

 

(982,364 )

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests in subsidiaries and variable interest entity

 

 

74,178

 

 

 

309,697

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Iconic Brands, Inc.

 

$ (837,920 )

 

$ (672,667 )

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted:

 

$ (0.05 )

 

$ (0.11 )

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding and to be issued to Escrow Agent:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

15,416,710

 

 

 

6,159,404

 

  

See notes to consolidated financial statements.

   

 

F-3

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

 

 

 

Series A
Preferred

Stock,
$.001 par

 

 

 

Series C
Preferred

Stock,
$.001 par

 

 

 

Series D
Preferred

Stock,
$.001 par

 

 

 

Series E
Preferred

Stock,
$.001 par

 

 

Series F
Preferred

Stock,
$1,000

stated

value per share

 

 

Series G
Preferred

Stock,
$1,000

stated

value per share

 

 

 

Common Stock,
$.001 par

 

 

Common

Stock
to be

issued to

Escrow

Agent,

$0.001 par

 

 

 Additional
Paid-in

 

 

Noncontrolling

Interests in

Sub-

sidiaries and

Variable

Interest

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Entity

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

1

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

2,790,224

 

 

$ 2,790

 

 

 

3,156

 

 

$ 3,155,750

 

 

 

-

 

 

$ -

 

 

 

14,576,681

 

 

$ 14,577

 

 

 

-

 

 

 

-

 

 

$ 21,282,679

 

 

$ (1,039,851 )

 

$ (22,925,748 )

 

$ 490,198

 

Sale of Series G Preferred Stock and warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,475

 

 

 

1,475,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,475,000

 

Placement agent fees and stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

375,000

 

 

 

375

 

 

 

-

 

 

 

-

 

 

 

(150,375 )

 

 

-

 

 

 

-

 

 

 

(150,000 )

Issuance of common stock in exchange for Series E Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(675,000 )

 

 

(675 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

270,000

 

 

 

270

 

 

 

-

 

 

 

-

 

 

 

405

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock in exchange for Series F Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(190 )

 

 

(190,000 )

 

 

-

 

 

 

-

 

 

 

304,000

 

 

 

304

 

 

 

-

 

 

 

-

 

 

 

189,696

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock in exchange for services rendered and to be rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

460,000

 

 

 

460

 

 

 

-

 

 

 

-

 

 

 

302,308

 

 

 

-

 

 

 

-

 

 

 

302,768

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(74,178 )

 

 

(837,920 )

 

 

(912,098 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020 

 

 

1

 

 

$ 1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,115,224

 

 

$ 2,115

 

 

 

2,966

 

 

$ 2,965,750

 

 

 

1,475

 

 

$ 1,475,000

 

 

 

15,985,681

 

 

$ 15,986

 

 

 

-

 

 

 

-

 

 

$ 21,624,713

 

 

 

(1,114,029 )

 

$ (23,763,668 )

 

$ 1,205,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019 (as previously reported)

 

 

1

 

 

$ 1

 

 

 

1,000

 

 

$ 1

 

 

 

10

 

 

$ -

 

 

 

6,602,994

 

 

$ 6,603

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

5,440,312

 

 

$ 5,440

 

 

 

534,203

 

 

$ 534

 

 

$ 18,798,438

 

 

$ (615,300 )

 

$ (21,233,083 )

 

$ (3,037,366 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect adjustment relating to reduction of derivative liability on warrants, pursuant to ASU 2017-11

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,261,039

 

 

 

2,261,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019 (as adjusted)

 

 

1

 

 

 

1

 

 

 

1,000

 

 

 

1

 

 

 

10

 

 

 

-

 

 

 

6,602,994

 

 

 

6,603

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,440,312

 

 

 

5,440

 

 

 

534,203

 

 

 

534

 

 

 

18,798,438

 

 

 

(615,300 )

 

 

(18,972,044 )

 

 

(776,327 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to Escrow Agent

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

534,203

 

 

 

534

 

 

 

(534,203 )

 

 

(534 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Sale of Series E Preferred Stock and warrants in connection with Securities Purchase Agreement dated September 27, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,362,520

 

 

 

1,363

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

339,267

 

 

 

-

 

 

 

-

 

 

 

340,630

 

Issuance of common stock in connection with Settlement and Release Agreement dated February 7, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

120,000

 

 

 

120

 

 

 

-

 

 

 

-

 

 

 

91,080

 

 

 

-

 

 

 

-

 

 

 

91,200

 

Issuance of common stock in connection with Business Development Agreement dated March 15, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

150,000

 

 

 

150

 

 

 

-

 

 

 

-

 

 

 

199,350

 

 

 

-

 

 

 

-

 

 

 

199,500

 

Issuance of common stock in exchange for the  surrender of Series C Preferred Stock on March 27, 2019

 

 

-

 

 

 

-

 

 

 

(1,000 )

 

 

(1 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,000,000

 

 

 

1,000

 

 

 

-

 

 

 

-

 

 

 

(999 )

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock in exchange for the  surrender of Series D Preferred Stock on March 27, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,000,000

 

 

 

1,000

 

 

 

-

 

 

 

-

 

 

 

(1,000 )

 

 

-

 

 

 

-

 

 

 

-

 

Adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1 )

 

 

-

 

 

 

258

 

 

 

257

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(309,697 )

 

 

(672,667 )

 

 

(982,364 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

 

 

1

 

 

$ 1

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

7,965,514

 

 

$ 7,966

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

8,244,515

 

 

$ 8,244

 

 

 

-

 

 

$ -

 

 

$ 19,426,135

 

 

$ (924,997 )

 

$ (19,644,453 )

 

$ (1,127,104 )

 

See notes to consolidated financial statements.

 

 
F-4

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended

March 31,  

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

Net loss attributable to Iconic Brands, Inc.

 

$ (837,920 )

 

$ (672,667 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests in subsidiaries and variable interest entity

 

 

(74,178 )

 

 

(309,697

 

Issuance of note payable to consultant

 

 

-

 

 

 

50,000

 

Stock-based compensation

 

 

243,081

 

 

 

290,700

 

Depreciation and amortization

 

 

4,615

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

325,782

 

 

 

9,566

 

Inventories

 

 

(64,344 )

 

 

41,768

 

Prepaid expenses

 

 

(66,318 )

 

 

-

 

Accounts payable and accrued expenses

 

 

(153,575 )

 

 

220,754

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(622,857 )

 

 

(369,576 )

 

 

 

 

 

 

 

 

 

Investing Activities:

 

 

 

 

 

 

 

 

Leasehold improvements

 

 

-

 

 

 

-

 

Furniture and equipment

 

 

(8,708 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(8,708 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from sale of Series G Preferred Stock and warrants (net of placement agent fees of $150,000)

 

 

1,325,000

 

 

 

-

 

Proceeds from sale of Series E Preferred Stock and warrants

 

 

-

 

 

 

340,630

 

Repayment of note payable

 

 

(25,000 )

 

 

-

 

Loans payable to officer and affiliated entity

 

 

(15,387 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

1,284,613

 

 

 

340,630

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

653,048

 

 

 

(28,946 )

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

263,638

 

 

 

191,463

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$ 916,686

 

 

$ 162,517

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Income taxes paid

 

$ -

 

 

$ -

 

Interest paid

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in exchange for the surrender of Series C Preferred Stock and Series D Preferred Stock

 

$ -

 

 

$ 2,000

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in exchange for Series E Preferred Stock

 

$ 270

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in exchange for Series F Preferred Stock

 

$ 304

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Issuance of common stock to Escrow Agent in connection with Settlement Agreement and Amended Settlement Agreement

 

$ -

 

 

$ 534

 

 

See notes to consolidated financial statements.

 

 
F-5

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

1. ORGANIZATION AND NATURE OF BUSINESS

 

Iconic Brands, Inc., formerly Paw Spa, Inc. (“Iconic Brands” or “Iconic”), was incorporated in the State of Nevada on October 21, 2005. Effective December 31, 2016, Iconic closed on a May 15, 2015 agreement to acquire a 51% interest in BiVi LLC (“BiVi”), the brand owner of “BiVi 100 percent Sicilian Vodka,” and closed on a December 13, 2016 agreement to acquire a 51% interest in Bellissima Spirits LLC (“Bellissima”), the brand owner of Bellissima sparkling wines. These transactions involved entities under common control of the Company’s chief executive officer and represented a change in reporting entity. The financial statements of the Company have been retrospectively adjusted to reflect the operations of BiVi and Bellissima from their inception.

 

BiVi was organized in Nevada on May 4, 2015. Bellissima was organized in Nevada on November 23, 2015.

 

Effective May 9, 2019, Iconic closed on a May 9, 2019 Share Exchange Agreement to acquire a 51% interest in Green Grow Farms, Inc. (“Green Grow”), an entity organized on February 28, 2019 to grow hemp for CBD extraction. Effective December 31, 2019, Iconic sold its 51% interest in Green Grow Farms, Inc. to Can B Corp (see Note 3).

 

Reverse Stock Split

 

Effective January 18, 2019, the Company effectuated a 1 share for 250 shares reverse stock split which reduced the issued and outstanding shares of common stock at December 31, 2018 from 1,359,941,153 shares to 5,439,765 shares. The accompanying financial statements have been retrospectively adjusted to reflect this reverse stock split.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Principles of Consolidation

 

The consolidated financial statements include the accounts of Iconic, its two 51% owned subsidiaries BiVi and Bellissima, and United Spirits, Inc., a variable interest entity of Iconic (see Note 6) (collectively, the “Company”). All inter-company balances and transactions have been eliminated in consolidation.

 

(b) Interim Financial Statements

 

The interim financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the information contained herein. Operating results for the three months ended March 31, 2020 are not necessarily indicative of results that may be expected for the year ending December 31, 2020.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the Unites States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2019 as included in our report on Form 10-K.

 

 
F-6

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

(c) Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

(d) Fair Value of Financial Instruments

 

Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

 

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, loans payable to officer and affiliated entity, and note payable, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.

 

(e) Cash and Cash Equivalents

 

The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents.

 

(f) Accounts Receivable, Net of Allowance for Doubtful Accounts

 

The Company extends unsecured credit to customers in the ordinary course of business but mitigates risk by performing credit checks and by actively pursuing past due accounts. The allowance for doubtful accounts is based on customer historical experience and the aging of the related accounts receivable. At March 31, 2020 and December 31, 2019, the allowance for doubtful accounts was $26,513 and $26,513, respectively.

 

(g) Inventories

 

Inventories are stated at the lower of cost (first-in, first-out method) or market, with due consideration given to obsolescence and to slow moving items. Inventory at March 31, 2020 and December 31, 2019 consists of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers, and cases of alcoholic beverages and packaging materials relating to our Hooters line of products introduced in August 2019.

 

 
F-7

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

(h) Marketable Equity Securities

 

Marketable equity securities are recorded at fair value with unrealized gains and losses included in income. The Company has classified its investment in Can B Corp (see Note 3) as trading securities.

 

(i) Revenue Recognition

 

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) which establishes revenue recognition standards. ASU 2014-19 was effective for annual reporting periods beginning after December 15, 2017. We adopted ASU 2014-09 effective January 1, 2018. ASU 2014-09 has not had a significant effect on the Company’s financial position and results of operations.

 

Revenue from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Persuasive evidence of an arrangement and fixed price criteria are satisfied through purchase orders. Collectability criteria are satisfied through credit approvals. Delivery criteria are satisfied when the products are shipped to a customer and title and risk of loss passes to the customer in accordance with the terms of sale. The Company has no obligation to accept the return of products sold other than for replacement of damaged products. Other than quantity price discounts negotiated with customers prior to billing and delivery (which are reflected as a reduction in sales), the Company does not offer any sales incentives or other rebate arrangements to customers.

 

(j) Shipping and Handling Costs

 

Shipping and handling costs to deliver product to customers are reported as operating expenses in the accompanying statements of operations. Shipping and handling costs to purchase inventory are capitalized and expensed to cost of sales when revenue is recognized on the sale of product to customers.

 

(k) Stock-Based Compensation

  

Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation”. For the three months ended March 31, 2020 and 2019, stock-based compensation was $243,081 and $290,700, respectively.

   

(l) Income Taxes

 

Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.

 

 
F-8

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

(m) Net Income (Loss) per Share

 

Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding and to be issued to Escrow Agent (see Note 11) during the periods presented.

 

Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and to be issued to Escrow Agent (see Note 11) and dilutive securities (such as stock options, warrants, and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

 

(n) Recently Issued Accounting Pronouncements

 

Effective January 1, 2019, we adopted ASU 2016-2 (Topic 842) which establishes a new lease accounting model for lessees. Under the new guidance, lessees are required to recognize right of use assets and liabilities for most leases having terms of 12 months or more. We adopted this new accounting guidance using the effective date transition method, which permits entities to apply the new lease standards using a modified retrospective transition approach at the date of adoption. As such, historical periods will continue to be measured and presented under the previous guidance while current and future periods are subject to this new accounting guidance. Upon adoption we recorded a total of $223,503 for right-of-use assets related to our two operating leases (see Note 13g) and a total of $223,503 for lease liabilities.

 

On July 13, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-11. Among other things, ASU 2017-11 provides guidance that eliminates the requirement to consider “down round” features when determining whether certain financial instruments or embedded features are indexed to an entity’s stock and need to be classified as liabilities. ASU 2017-11 provides for entities to recognize the effect of a down round feature only when it is triggered and then as a dividend and a reduction to income available to common stockholders in basic earnings per share. The guidance is effective for annual periods beginning after December 15, 2018; early adoption is permitted. Accordingly, effective January 1, 2019, the Company reflected a $2,261,039 reduction of the derivative liability on warrants (see Note 10) and a $2,261,039 cumulative effect adjustment reduction of accumulated deficit.

 

Certain other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.

 

(o) Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained significant net losses which have resulted in an accumulated deficit at March 31, 2020 of $23,763,668 and has experienced periodic cash flow difficulties, all of which raise substantial doubt regarding the Company’s ability to continue as a going concern.

 

Continuation of the Company as a going concern is dependent upon obtaining additional working capital and attaining profitable operations. The management of the Company has developed a strategy which it believes will accomplish these objectives and which will enable the Company to continue operations for the coming year. However, there is no assurance that these objectives will be met. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from the outcome of this uncertainty.

 

 
F-9

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

3. DISCONTINUED OPERATIONS

 

Effective December 31, 2019, the Company sold its 51% equity interest in Green Grow Farms, Inc. (“Green Grow”) to Can B Corp. in exchange for 37,500,000 shares of Can B Corp. common stock and a Can B Corp. obligation to issue additional shares (“Additional Purchases Shares”) of Can B Corp. common stock to the Company on June 30, 2020 in such number so that the aggregate value of the aggregate shares issued to the Company equals $1,000,000. We acquired this equity interest on May 9, 2019 in exchange for a $200,000 note payable to NY Farms Group Inc. and 2,000,000 shares of Company common stock valued at $1,250,000.

 

4. INVESTMENT IN BIVI LLC

 

On May 15, 2015, Iconic entered into a Securities Exchange Agreement by and among the members of BiVi LLC, a Nevada limited liability company (“BiVi”), under which Iconic acquired a 51% majority interest in BiVi in exchange for the issuance of (a) 4,000 shares of restricted common stock and (b) 1,000 shares of newly created Series C Convertible Preferred Stock.

 

Prior to May 15, 2015, BiVi was beneficially owned and controlled by Richard DeCicco, the controlling shareholder and chief executive officer of Iconic Brands, Inc.

 

5. INVESTMENT IN BELLISSIMA SPIRITS LLC

 

On December 13, 2016, Iconic entered into a Securities Purchase Agreement with Bellissima Spirits LLC (“Bellissima”) and Bellissima’s members under which Iconic acquired a 51% majority interest in Bellissima in exchange for the issuance of a total of 10 shares of newly designated Iconic Series D Convertible Preferred Stock. Each share of Iconic Series D Convertible Preferred Stock was convertible into the equivalent of 5.1% of Iconic common stock issued and outstanding at the time of conversion.

 

Prior to December 13, 2016, Bellissima was controlled by Richard DeCicco, the controlling shareholder and chief executive officer of Iconic.

 

 
F-10

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

6. UNITED SPIRITS, INC.

 

United Spirits, Inc. (“United”) is owned and managed by Richard DeCicco, the controlling shareholder and chief executive officer of Iconic. United provides distribution services for Iconic, BiVi and Bellissima (see Note 13e) and is considered a variable interest entity (“VIE”) of Iconic. Since Iconic has been determined to be the primary beneficiary of United, we have included United’s assets, liabilities, and operations in the accompanying consolidated financial statements of Iconic. Summarized financial information of United follows:

 

Balance Sheets:

 

March 31,

2020

 

 

December 31,

2019

 

Cash and cash equivalents

 

$ 647,742

 

 

$ 130,454

 

Intercompany receivable from Iconic (A)

 

 

-

 

 

 

56,495

 

Right-of-use asset

 

 

42,794

 

 

 

54,955

 

Total assets

 

$ 690,536

 

 

$ 241,904

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expense

 

$ 190,321

 

 

$ 187,658

 

Loans payable to officer and affiliated entity

 

 

72,692

 

 

 

88,077

 

Intercompany payable to Iconic (A)

 

 

3,200

 

 

 

-

 

Intercompany payable to Bellissima (A)

 

 

794,156

 

 

 

317,722

 

Intercompany payable to BiVi (A)

 

 

66,876

 

 

 

66,876

 

Operating lease liability

 

 

42,794

 

 

 

54,955

 

Total Liabilities

 

 

1,170,039

 

 

 

715,288

 

Noncontrolling interest in VIE

 

 

(479,503 )

 

 

(473,384 )

Total liabilities and stockholders’ deficiency

 

$ 690,536

 

 

$ 241,904

 

 

 

 

Three months ended

March 31,

 

Statements of operations:

 

2020

 

 

2019

 

Intercompany distribution income (A)

 

$ 3,125

 

 

$ 2,075

 

 

 

 

 

 

 

 

 

 

Royalty expense

 

 

-

 

 

 

63,750

 

Officers’ compensation

 

 

-

 

 

 

82,000

 

Other operating expenses – net

 

 

9,245

 

 

 

9,028

 

Total operating expenses

 

 

9,245

 

 

 

154,778

 

Net income (loss)

 

$ (6,120 )

 

$ (152,703 )

_______ 

(A) Eliminated in consolidation

 

 
F-11

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

7. INVENTORIES

 

Inventories consist of:

 

 

March 31,

2020

 

 

December 31,

2019

 

Finished goods:

 

 

 

 

 

 

Hooters brands

 

$ 318,968

 

 

$ 286,123

 

Bellissima brands

 

 

234,330

 

 

 

199,580

 

BiVi brands

 

 

47,880

 

 

 

48,132

 

Total finished goods

 

 

601,178

 

 

 

533,835

 

 

 

 

 

 

 

 

 

 

Raw materials:

 

 

 

 

 

 

 

 

Hooters brands

 

 

36,966

 

 

 

39,965

 

Total raw materials

 

 

36,966

 

 

 

39,965

 

 

 

 

 

 

 

 

 

 

Total

 

$ 638,144

 

 

$ 573,800

 

  

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Accounts payable

 

$ 539,260

 

 

$ 737,850

 

Accrued officers compensation

 

 

837,800

 

 

 

813,050

 

Accrued royalties

 

 

311,006

 

 

 

295,042

 

Other

 

 

10,426

 

 

 

6,621

 

Total

 

$ 1,698,492

 

 

$ 1,852,563

 

9. NOTE PAYABLE

 

Note payable consists of:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Amount due to a former Bellissima consultant pursuant to a Settlement and Release Agreement dated February 7, 2019, due December 31, 2019

 

$ 15,000

 

 

$ 40,000

 

Total

 

$ 15,000

 

 

$ 40,000

 

 

10. DERIVATIVE LIABILITY ON WARRANTS

 

From September 2017 to November 2017, in connection with the sale of a total of 480,000 shares of common stock, the Company issued a total of 480,000 Common Stock Purchase Warrants (the “Warrants”) to the respective investors. The Warrants were exercisable into ICNB common stock at a price of $2.50 per share, were to expire five years from date of issuance, and contained “down round” price protection.

 

Effective May 21, 2018, in connection with the sale of a total of 120,000 shares of Series E Preferred Stock, the Company issued a total of 480,000 Warrants to four investors. These warrants were exercisable into ICNB common stock at a price of $2.50 per share, were to expire five years from date of issuance, and contained “down round” price protection.

 

The down round provision of the above Warrants required a reduction in the exercise price if there were future issuances of common stock equivalents at a lower price than the $2.50 exercise price of the Warrants. Accordingly, we recorded the $2,261,039 fair value of the Warrants at December 31, 2018 as a derivative liability.

 

Effective January 1, 2019 (see Note 2), the Company adopted ASU 2017-11 and reduced the $2,261,039 derivative liability on warrants at December 31, 2018 to $0 and recognized a $2,261,039 cumulative effect adjustment reduction of accumulated deficit.

 

 
F-12

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

11. CAPITAL STOCK

 

Preferred Stock

  

The one share of Series A Preferred Stock, which was issued to Richard DeCicco on September 10, 2009, entitles the holder to two votes for every share of Common Stock Deemed Outstanding and has no conversion or dividend rights.

 

The 1000 shares of Series C Preferred Stock, which were issued to Richard DeCicco on May 15, 2015 pursuant to the Securities Exchange Agreement (see Note 4) for the Company’s 51% investment in BiVi, entitled the holder in the event of a Sale (as defined) to receive out of the proceeds of such Sale (in whatever form, be it cash, securities, or other assets), a distribution from the Company equal to 76.93% of all such proceeds received by the Company prior to any distribution of such proceeds to all other classes of equity securities, including any series of preferred stock designated subsequent to this Series C Preferred Stock. Effective March 27, 2019, pursuant to a Preferred Stock Exchange Agreement, Mr. DeCicco exchanged the 1,000 shares of Series C Preferred Stock for 1,000,000 shares of Company common stock.

 

The 10 shares of Series D Preferred Stock, which were issued to Richard DeCicco and Roseann Faltings (5 shares each) on December 13, 2016 pursuant to the Securities Purchase Agreement (See Note 5) for the Company’s 51% investment in Bellissima, entitled the holders to convert each share of Series D Preferred Stock to the equivalent of 5.1% of the common stock issued and outstanding at the time of conversion. Effective March 27, 2019, pursuant to a Preferred Stock Exchange Agreement, Mr. DeCicco and Ms. Faltings exchanged the 10 shares of Series D Preferred Stock for 1,000,000 shares of Company common stock (500,000 shares each).

 

Effective May 21, 2018, the Company entered into a Share Purchase Agreement with the four investors who purchased 480,000 shares of common stock pursuant to a Securities Purchase Agreement dated October 27, 2017. The Exchange Agreement provided for the exchange of the 480,000 shares of common stock for 1,200,000 shares of Series E Preferred Stock. Each share of Series E Preferred Stock is convertible into 0.4 shares of common stock, is entitled to 0.4 votes on all matters to come before the common stockholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, is entitled to a distribution preference of $0.25 upon liquidation, and is not redeemable.

 

Also effective May 21, 2018, the Company sold a total of 1,200,000 shares of Series E Preferred Stock and 480,000 warrants to the four investors referred to in the preceding paragraph for $300,000 cash pursuant to an Amendment No. 1 to Securities Purchase Agreement.

 

Effective October 4, 2018, the Company closed on the first tranche of the Securities Purchase Agreement dated September 27, 2018 with nine (9) accredited investors for the sale of an aggregate of 4,650,000 shares of our Series E convertible preferred stock and warrants to acquire 1,860,000 shares of our common stock (at an exercise price of $1.25 per share for a period of five years) for gross proceeds of $1,162,500. The first tranche sale was for 1,550,000 shares of our Series E Preferred stock and warrants to acquire 620,000 shares of our common stock for gross proceeds of $387,500.

 

As a condition to the closing of the first tranche, the Company entered into Securities Exchange Agreements with holders of convertible notes totaling $519,499 who exchanged their convertible notes for an aggregate of 2,077,994 shares of our Series E Preferred stock plus warrants to acquire 831,198 shares of our common stock. Also, holders of convertible notes totaling $76,569 exchanged their notes for an aggregate of 122,510 shares of our common stock and holders of convertible notes totaling $90,296 were paid off with cash.

 

On November 30, 2018 and December 20, 2018, the Company received two payments of $71,875 and $71,875 respectively (totaling $143,750) in exchange for 287,500 and 287,500 shares of Series E Preferred Stock (totaling 575,000 shares) respectively at $0.25 per share. These payments represented advance payments in connection with the second tranche of the Securities Purchase Agreement dated September 27, 2018 which closed February 7, 2019.

 

 
F-13

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

Effective February 7, 2019, the Company closed on the second tranche of the Securities Purchase Agreement dated September 27, 2018. The Company received the remaining $243,750 (of the $387,500 total second tranche proceeds) and issued the investors the remaining total of 975,000 shares of Series E Preferred Stock (of the 1,550,000 total second tranche shares) and warrants to acquire 620,000 shares of our common stock.

 

On February 12, 2019 and March 18, 2019, the Company received two payments of $71,880 and $25,000 respectively (totaling $96,880) in exchange for 287,520 and 100,000 shares of Series E Preferred Stock (totaling 387,520 shares) respectively at $0.25 per share. These payments represent advance payments in connection with the third tranche of the Securities Purchase Agreement dated September 27, 2018. Closing of the third tranche of $387,500 has not occurred.

 

On April 25, 2019 and September 4, 2019, the Company received payments of $71,875 and $96,875 respectively (totaling $168,750) in exchange for 287,500 and 387,500 shares of Series E Preferred Stock (totaling 675,000 shares) respectively at $0.25 per share. These payments represent advance payments in connection with the third tranche of the Securities Purchase Agreement dated September 27, 2018. Closing of the third tranche of $387,500 has not occurred.

 

On April 23, 2019, a holder converted 673,398 shares of Series E Preferred Stock into 269,359 shares of Iconic common stock.

 

On May 17, 2019, a holder converted 800,000 shares of Series E Preferred Stock into 320,000 shares of Iconic common stock.

 

On July 18, 2019, Iconic entered into Securities Purchase Agreements with certain accredited investors (the “Investors”) for the sale of an aggregate of 3,125 shares of newly designated Series F Convertible Preferred Stock plus 5,000,000 warrants at a price of $1,000 per share of Series F Convertible Preferred Stock or for a total of $3,125,000 (which was collected in full from July 18, 2019 to August 2, 2019). On August 2, 2019, Iconic paid $322,500 in commissions and expenses to the placement agent of this offering. Each share of Series F Convertible Preferred Stock has a stated value of $1,000, is convertible into 1,600 shares of common stock (subject to adjustment under certain circumstances), has no voting rights, is entitled to dividends on an as-converted-to common stock basis, is entitled to a distribution preference of $1,000 upon liquidation, and is not redeemable. Each warrant is exercisable into one share of common stock at an exercise price of $0.625 per share (subject to adjustment under certain circumstances) for a period of five years from the date of issuance.

 

We also entered into separate Registration Rights Agreements with the Investors, pursuant to which the Company agreed to undertake to file a registration statement to register the resale of the shares underlying the Series F Convertible Preferred Stock and Warrants within thirty (30) days following the closing date (the “Filing Date”), to cause such registration statement to be declared effective within 60 days following the earlier of (i) the date that the registration statement is filed with the Securities and Exchange Commission (the “SEC”) and (ii) the Filing Date, and to maintain the effectiveness of the registration statement until all of such shares of Common Stock have been sold or are otherwise able to be sold pursuant to Rule 144 under the Securities Act, without any restrictions. We filed the Form S-1 registration statement on September 9, 2019 which was declared effective by the SEC on September 18, 2019. If we fail to maintain the effectiveness of the registration statement for the required time period, the Company is obligated to pay the Investors liquidated damages in the amount of 1% of their subscription amount, per month, until such event is satisfied.

 

 
F-14

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

Concurrently with the closing of the financing transaction described above, we entered into Securities Exchange Agreements with certain holders of our Series E Convertible Preferred Stock and exchanged their 2,725,000 shares of Series E Convertible Preferred Stock for an aggregate of 681.25 shares of our Series F Convertible Preferred Stock.

 

From July 26, 2019 to August 28, 2019, three holders converted a total of 1,000,000 shares of Series E Preferred Stock into a total of 400,000 shares of Iconic common stock.

 

From September 19, 2019 to September 27, 2019, three holders converted a total of 14.20 shares of Series E Preferred Stock into a total of 227,200 shares of Iconic common stock.

 

On October 25, 2019 and December 28, 2019, two holders converted a total of 651,892 shares of Series E Preferred Stock into a total of 260,757 shares of Iconic common stock.

 

From October 2, 2019 to December 31, 2019, six holders converted a total of 508.50 shares of Series F Preferred Stock into a total of 813,600 shares of Iconic common stock.

 

On January 12, 2020, the Company entered into securities purchase agreements with certain accredited investors for the sale of a total of 1,500 shares of Series G Convertible Preferred Stock and warrants o purchase 1,200,000 shares of our common stock for gross proceeds of $1,500,000 (of which $1,475,000 was collected on January 13, 2020 and January 14, 2020). Each share of Series G Convertible Preferred Stock (designated on January 13, 2020) has a stated value of $1,000, is convertible into shares of common stock at a price of $1.25 per share (subject to adjustment under certain circumstances), has no voting rights, is entitled to dividends on an as-converted-to common stock basis, is entitled to a distribution preference of $1,000 upon liquidation, and is not redeemable. Each warrant is exercisable into one share of common stock at an exercise price of $1.25 per share (subject to adjustment under certain circumstances) for a period of five years from the date of issuance.

 

On February 12, 2020, February 13, 2020, and February 14, 2020, three holders converted a total of 675,000 shares of Series E Preferred Stock into a total of 270,000 shares of Iconic common stock.

 

From January 16, 2020 to February 24, 2020, two holders converted a total of 190 shares of Series F Preferred Stock into a total of 304,000 shares of Iconic common stock.

 

Common Stock

 

On March 28, 2017, the Company executed a Settlement Agreement and Release (the “Settlement Agreement”) with 4 holders of convertible notes payable. Notes payable and accrued interest totaling $892,721 were satisfied through the Company’s agreement to irrevocably reserve a total of 1,931,707 shares of its common stock and to deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.

 

 
F-15

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

On May 5, 2017, the Company executed an Amended Settlement Agreement and Release (the “Amended Settlement Agreement”) replacing the Settlement Agreement and Release dated March 28, 2017 (see preceding paragraph). The Amended Settlement Agreement is with 5 holders of convertible notes payable (the 4 holders who were parties to the Settlement Agreement and Release dated March 28, 2017 and one additional holder) and provided for the satisfaction of notes payable and accrued interest totaling $1,099,094 (a $206,373 increase from the $892,721 amount per the Settlement Agreement and Release dated March 28, 2017) through the Company’s agreement to irrevocably reserve a total of 2,452,000 shares of its common stock (a 520,293 shares increase from the 1,931,707 shares per the Settlement Agreement and Release dated March 28, 2017) and deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.

 

In the quarterly period ended June 30, 2017, the Company issued an aggregate of 284,777 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. In the quarterly period ended September 30, 2017, the Company issued an aggregate of 253,333 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

From September 2017 to November 2017, pursuant to a Securities Purchase Agreement dated October 27, 2017 (the “SPA”), the Company issued a total of 480,000 shares of its common stock and 480,000 warrants to four investors for a total of $300,000 cash. The Warrants, which were exercised May 8, 2019 pursuant to Warrant Exercise Agreements, were exercisable into ICNB common stock at a price of $2.50 per share, were to expire five years from date of issuance, and contained “down round” price protection (see Note 10).

 

On January 2, 2018, the Company issued 103,447 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

On January 19, 2018, the Company issued 216,127 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

On March 14, 2018, the Company issued 126,667 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

On April 5, 2018, the Company issued 172,000 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

On April 9, 2018, the Company issued 280,296 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

On April 12, 2018, the Company issued 481,151 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

On August 14, 2018, the Company issued 51,938 shares of its common stock in settlement of convertible notes payable and accrued interest payable totaling $32,461.

 

 
F-16

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

On September 7, 2018, the Company issued 70,572 shares of its common stock in settlement of convertible notes payable and accrued interest payable totaling $44,108.

 

Effective May 21, 2018, the Company entered into a Share Purchase Agreement with the four investors who purchased 480,000 shares of common stock pursuant to a Securities Purchase Agreement dated October 27, 2017. The Exchange Agreement provided for the exchange of the 480,000 shares of common stock for 1,200,000 shares of Series E Preferred Stock. Each share of Series E Preferred Stock is convertible into 0.4 shares of common stock, is entitled to 0.4 votes on all matters to come before the common stockholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, is entitled to a distribution preference of $0.25 upon liquidation, and is not redeemable.

 

On January 16, 2019, the Company issued 436,125 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.

 

On January 24, 2019, the Company issued 98,078 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. This issuance completed the Company’s obligation to deliver shares of our common stock to the Escrow Agent.

 

On February 7, 2019, the Company agreed to issue 120,000 shares of its common stock (issued April 18, 2019) and a $50,000 note payable due December 31, 2019 to a former Bellissima consultant pursuant to a Settlement and Release Agreement. The $141,200 total fair value of the note ($50,000) and the 120,000 shares of common stock ($91,200) was expensed as consulting fees in the three months ended March 31, 2019.

 

On March 15, 2019, the Company agreed to issue 150,000 shares of its common stock (issued April 8, 2019) to a consulting firm entity pursuant to a Business Development Agreement. The $199,500 fair value of the 150,000 shares of common stock was expensed as consulting fees in the three months ended March 31, 2019.

 

On March 27, 2019, the Company issued 1,000,000 shares of its common stock to Chief Executive Officer Richard DeCicco in exchange for the surrender of the 1,000 shares of Series C Preferred Stock owned by Mr. DeCicco.

 

On March 27, 2019, the Company issued a total of 1,000,000 shares of its common stock (500,000 shares to Chief Executive Officer Richard DeCicco; 500,000 shares to Vice President Roseann Faltings) in exchange for the surrender of the 5 shares each of Series D Preferred Stock owned by Mr. DeCicco and Ms. Faltings.

 

Effective April 15, 2019 the Company issued 50,000 shares of its common stock to a consulting firm entity pursuant to a Consulting Agreement. The $95,000 fair value of the 50,000 shares of Iconic common stock was expensed as consulting fees in the three months ended June 30, 2019.

 

 
F-17

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

On April 23, 2019, a stockholder converted 673,398 shares of Series E Preferred Stock into 269,359 shares of Iconic common stock.

 

On May 8, 2019, Iconic executed Warrant Exercise Agreements with four holders of Company warrants. The holders exercised a total of 960,000 warrants at an agreed price of $0.32 per share and paid the Company a total of $307,200. Pursuant to the Warrant Exercise Agreements, the holders were issued a total of 1,920,000 New Warrants which are exercisable into Company common stock at a price of $2.25 per share for a period of five years.

 

On May 9, 2019, Iconic closed on a Share Exchange Agreement (the “Agreement”) with Green Grow Farms, Inc. (“Green Grow”) and NY Farms Group Inc. (“NY Farms”). Pursuant to the Agreement, Iconic acquired a 51% equity interest in Green Grow in exchange for (i) note payable of $200,000 and (ii) 2,000,000 shares of Company common stock. Effective December 31, 2019, Iconic sold its 51% equity interest in Green Grow (see Note 3).

 

On May 17, 2019, a stockholder converted 800,000 shares of Series E Preferred Stock into 320,000 shares of Iconic common stock.

 

Effective May 23, 2019, the Company issued 250,000 shares of its common stock to a consulting firm entity pursuant to a Consulting Agreement. The $390,000 fair value of the 250,000 shares of Iconic common stock was expensed as consulting fees in the three months ended June 30, 2019.

 

From July 26, 2019 to August 28, 2019, three holders converted a total of 1,000,000 shares of Series E Preferred Stock into a total of 400,000 shares of Iconic common stock.

 

On September 3, 2019, the Company issued a total of 781,250 shares of common stock to the placement agent and five associated individuals for services relating to the offering of 3,125 shares of Series F Preferred Stock which concluded on August 2, 2019 (see Preferred Stock above).

 

From September 19, 2019 to September 27, 2019, three holders converted a total of 14.2 shares of Series F Preferred Stock into a total of 227,200 shares of Iconic common stock.

 

On October 25, 2019 and December 26, 2019, two holders converted a total of 651,892 shares of Series E Preferred Stock into a total of 260,757 shares of Iconic common stock.

 

From October 2, 2019 to December 31, 2019, six holders converted a total of 508.50 shares of Series F Preferred Stock into a total of 813,600 shares of Iconic common stock.

 

On January 22, 2020, the Company issued a total of 375,000 shares of its common stock to the placement agent and four associated individuals for services relating to the offering of 1,500 shares of Series G Preferred Stock which concluded on January 14, 2020 (see Preferred Stock above).

 

On January 22, 2020, and February 27, 2020, the Company issued a total of 160,000 shares of its common stock to an investor relations firm for services rendered to the Company. The $101,018 total fair value of the 160,000 shares of Iconic common stock on the respective dates of issuance was expensed as investor relations in the three months ended March 31, 2020.

 

 
F-18

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

On January 26, 2020, the Company issued 150,000 shares of its common stock to a consulting firm for services rendered to the Company. The $100,500 fair value of the 150,000 shares of Iconic common stock was expensed as consulting fees in the three months ended March 31, 2020.

 

On February 24, 2020, the Company issued 100,000 shares of its common stock to William Clyde Elliot II pursuant to an Endorsement Agreement dated February ___, 2020 (see Note 13h). The $67,500 fair value of the 100,000 shares of Iconic common stock was charged to prepaid expenses and is being expensed over the term of the Endorsement Agreement.

 

On February 24, 2020, the Company issued 50,000 shares of its common stock to a consulting firm for services rendered to the Company. The $33,750 fair value of the 50,000 shares of Iconic common stock was expensed as consulting fees in the three months ended March 31, 2020.

 

On February 12, 2020, February 13, 2020, and February 14, 2020, three holders converted a total of 675,000 shares of Series E Preferred Stock into a total of 270,000 shares of Iconic common stock.

 

From January 16, 2020 to February 24, 2020, two holders converted a total of 190 shares of Series F Preferred Stock into a total of 304,000 shares of Iconic common stock.

 

Warrants

 

A summary of warrants activity for the period January 1, 2018 to March 31, 2020 follows:

 

 

 

 Common shares Equivalent

 

Balance, January 1, 2018

 

 

534,000

 

Issued in the year ended December 31, 2018

 

 

2,361,198

 

 

 

 

 

 

Balance, December 31, 2018

 

 

2,895,198

 

Issued in the three months ended March 31, 2019

 

 

620,000

 

 

 

 

 

 

Balance, March 31, 2019

 

 

3,515,198

 

 

 

 

 

 

Exercise of warrants in connection with Warrant Exercise Agreements dated May 8, 2019

 

 

(960,000 )

 

 

 

 

 

Issuance of New Warrants in connection with Warrant Exercise Agreements dated May 8, 2019

 

 

1,920,000

 

 

 

 

 

 

Balance, June 30, 2019

 

 

4,475,198

 

Issued in the three months ended September 30, 2019

 

 

5,000,000

 

 

 

 

 

 

Balance, September 30, 2019 and December 31, 2019

 

 

9,475,198

 

Issued in the three months ended March 31, 2020

 

 

1,180,000

 

 

 

 

 

 

Balance, September 30, 2019 and December 31, 2019

 

 

10,655,198

 

  

 
F-19

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

  

Issued and outstanding warrants at March 31, 2020 consist of:

 

Year Granted

 

Number Common Shares Equivalent

 

 

Exercise Price

Per Share

 

 

Expiration Date

 

2017

 

 

54,000

 

 

$ 2.50

 

 

June 22, 2022 to June 30, 2022

 

2018

 

 

400,000

 

 

$ 0.625

 

 

March 28, 2021

 

2018

 

 

30,000

 

 

$ 2.50

 

 

May 21, 2023

 

2018

 

 

831,198

 

 

$ 1.25

 

 

September 20, 2023

 

2018

 

 

620,000

 

 

$ 1.25 *

 

September 20, 2023

 

2019

 

 

620,000

 

 

$ 1.25 *

 

February 7, 2024

 

2019

 

 

1,920,000

 

 

$ 2.25 *

 

May 8, 2024

 

2019

 

 

5,000,000

 

 

$ 0.625

 

 

August 2, 2024

 

2020

 

 

1,180,000

 

 

$ 1.25

 

 

January 12, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

10,655,198

 

 

 

 

 

 

 

 

___________ 

* These warrants contain a “down round” provision and thus the exercise price is reduceable to $0.625 per share as a result of the Series F Preferred Stock financing which closed on August 2, 2019.

 

Effective October 4, 2018, the Company closed on the first tranche of the Securities Purchase Agreement dated September 27, 2018 with nine (9) accredited investors for the sale of an aggregate of 4,650,000 shares of our Series E convertible preferred stock and warrants to acquire 1,860,000 shares of our common stock (at an exercise price of $1.25 per share for a period of five years) for gross proceeds of $1,162,500. The first tranche sale was for 1,550,000 shares of our Series E convertible preferred stock and warrants to acquire 620,000 shares of our common stock for gross proceeds of $387,500. The second tranche of $387,500 closed on February 7, 2019 and also was for 1,550,000 shares of our Series E convertible preferred stock and warrants to acquire 620,000 shares of our common stock.

 

On May 8, 2019, Iconic executed Warrant Exercise Agreements with four holders of Company warrants. The holders exercised a total of 960,000 warrants (which were acquired from September 2017 to November 2017 and on May 21, 2018) at an agreed price of $0.32 per share and paid the Company a total of $307,200. Pursuant to the Warrant Exercise Agreements, the holders were issued a total of 1,920,000 New Warrants which are exercisable into Company common stock at a price of $2.25 per share for a period of five years and contain “down round” price protection.

 

As discussed in Preferred Stock above, the Company issued a total of 5,000,000 warrants to investors as part of the offering of 3,125 shares of Series F Preferred Stock which concluded on August 2, 2019. Each warrant is exercisable into one share of common stock at an exercise price of $0.625 per share for a period of five years from the date of issuance and contains “down round” price protection.

 

As also discussed in Preferred Stock above, the Company issued a total of 1,180,000 warrants to investors as part of the offering of 1,500 shares of Series G Preferred Stock which concluded on January 14, 2020. Each warrant is exercisable into one share of common stock at an exercise price of $1.25 per share for a period of five years from the date of issuance and contains “down round” price protection.

 

 
F-20

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

12. INCOME TAXES

 

No income taxes were recorded in the periods presented since the Company had taxable losses in these periods.

 

The provision for (benefit from) income taxes differs from the amount computed by applying the statutory United States federal income tax rate of 21% for the periods presented to income (loss) from continuing operations before income taxes. The sources of the difference are as follows:

 

 

 

Three months ended

March 31,

 

 

 

2020

 

 

2019

 

Expected tax at 21%

 

$ (191,541 )

 

$ (206,296 )

 

 

 

 

 

 

 

 

 

Nondeductible stock-based compensation

 

 

51,047

 

 

 

61,047

 

Increase (decrease) in valuation allowance

 

 

140,494

 

 

 

145,249

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

$ -

 

 

$ -

 

 

Significant components of the Company's deferred income tax assets are as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Net operating loss carryforward

 

$ 4,435,577

 

 

$ 4,295,083

 

 

 

 

 

 

 

 

 

 

Less valuation allowance

 

 

(4,435,577 )

 

 

(4,295,083 )

 

 

 

 

 

 

 

 

 

Deferred income tax assets - net

 

$ -

 

 

$ -

 

 

Based on management’s present assessment, the Company has not yet determined that a deferred tax asset attributable to the future utilization of the net operating loss carryforward as of March 31, 2020 and December 31, 2019 will be realized. Accordingly, the Company has maintained a 100% valuation allowance against the deferred tax asset in the financial statements at March 31, 2020 and December 31, 2019. The Company will continue to review this valuation allowance and make adjustments as appropriate.

 

Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.

 

All tax years remain subject to examination by major taxing jurisdictions.

 

 
F-21

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

  

13. COMMITMENTS AND CONTINGENCIES

 

a. Iconic Guarantees

 

On May 26, 2015, BiVi LLC (“BiVi”) entered into a License Agreement with Neighborhood Licensing, LLC (the “BiVi Licensor”), an entity owned by Chazz Palminteri (“Palminteri”), to use Palminteri’s endorsement, signature and other intellectual property owned by the BiVi Licensor. Iconic has agreed to guarantee and act as surety for BiVi’s obligations under certain sections of the License Agreement and to indemnify the BiVi Licensor and Palminteri against third party claims.

 

On November 12, 2015, Bellissima Spirits LLC (“Bellissima”) entered into a License Agreement with Christie Brinkley, Inc. (the “Bellissima Licensor”), an entity owned by Christie Brinkley (“Brinkley”), to use Brinkley’s endorsement, signature, and other intellectual property owned by the Bellissima Licensor. Iconic has agreed to guarantee and act as surety for Bellissima’s obligations under certain sections of the License Agreement and to indemnify the Bellissima Licensor and Brinkley against third party claims.

 

b. Royalty Obligations of BiVi and Bellissima

 

Pursuant to the License Agreement with the Bivi Licensor (see Note 13a. above), BiVi is obligated to pay the BiVi Licensor a Royalty Fee equal to 5% of monthly gross sales of BiVi Brand products payable monthly subject to an annual Minimum Royalty Fee of $100,000 in year 1, $150,000 in year 2, $165,000 in year 3, $181,500 in year 4, $199,650 in year 5, and $219,615 in year 6 and each subsequent year.

 

Pursuant to the License Agreement and Amendment No. 1 to the License Agreement effective September 30, 2017 with the Bellissima Licensor (see Note 13a. above), Bellissima is obligated to pay the Bellissima Licensor a Royalty Fee equal to 10% of monthly gross sales (12.5% for sales in excess of defined Case Break Points) of Bellissima Brand products payable monthly. The Bellissima Licensor has the right to terminate the endorsement if Bellissima fails to sell 10,000 cases of Bellissima Brand products in year 1, 15,000 cases in year 2, or 20,000 cases in year 3 and each subsequent year.

 

c. Brand Licensing Agreement relating to Hooters Marks

 

On July 23, 2018, United Spirits, Inc. (“United”) executed a Brand Licensing Agreement (the “Agreement”) with HI Limited Partnership (“the Licensor”). The Agreement provides United a license to use certain “Hooters” Marks to manufacture, market, distribute, and sell alcoholic products.

 

The Initial Term of the Agreement is from July 23, 2018 through December 31, 2020. Provided that United is not in breach of any terms of the Agreement, United may extend the Term for an additional 3 years through December 31, 2023.

 

The Agreement provides for United’s payment of Royalty Fees (payable quarterly) to the Licensor equal to 6% of the net sales of the licensed products subject to a minimum royalty fee of $65,000 for Agreement year 1 (ending December 31, 2018), $255,000 for Agreement year 2, $315,000 for Agreement year 3 and 4, $360,000 for Agreement year 5, and $420,000 for Agreement year 6.

  

The Agreement also provided for United’s payment of an advance payment of $30,000 to the Licensor to be credited towards royalty fees payable to Licensor. On September 6, 2018, the $30,000 advance payment was paid to the Licensor. The Agreement also provides for United’s payment of a marketing contribution equal to 2% of the prior year’s net sales of the Licensed Products. If United fails to spend the required marketing contribution in any calendar year, the deficiency will be paid to Licensor.

 

For the three months ended March 31, 2020 and 2019, royalties expense under this Agreement was $4,406 and $63,750, respectively.

 

 
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Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

  

d. Marketing and Order Processing Services Agreement

 

During October 2019, United Spirits, Inc. (“United”) executed a Marketing and Order Processing Services Agreement (the “Agreement”) with QVC, Inc. (“QVC”). Among other things, the Agreement provides for United’s grant to QVC of an exclusive worldwide right to promote the Bellissima products through direct response television programs.

 

The Initial License Period commenced October 2019 and expires December 2021 (i.e., two years after first airing of a Bellissima product). Unless either party notifies the other party in writing at least 30 days prior to the end of the Initial License Period or any Renewal License Period of its intent to terminate the Agreement, the License continually renews for additional two-year periods (each, a “Renewal License Period” in perpetuity).

 

The Agreement provides for United’s payment of “Marketing Fees” (payable no less than monthly) to QVC in amounts agreed to between United and QVC from time to time. For the three months ended March 31, 2020, the Marketing Fees expense (payable to QVC) was $53,724 and the direct response sales generated from QVC programs was $252,340.

 

e. Distribution Agreement

 

On May 1, 2015, BiVi entered into a Distribution Agreement with United Spirits, Inc. (“United”) for United to distribute and wholesale BiVi’s product and to act as the licensed importer and wholesaler. The Distribution Agreement provides United the exclusive right for a term of ten years to sell BiVi’s product for an agreed distribution fee equal to $1.00 per case of product sold. United is owned and managed by Richard DeCicco, the controlling shareholder and chief executive officer of Iconic.

 

In November 2015, Bellissima and United agreed to have United distribute and wholesale Bellissima’s products under the same terms contained in the Distribution Agreement with BiVi described in the preceding paragraph.

 

Effective April 1, 2019, Iconic and United agreed to have United distribute and wholesale Hooters brand products under the same terms contained in the Distribution Agreement with BiVi described in the second preceding paragraph.

 

 
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Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

   

f. Compensation Arrangements

 

Effective April 1, 2018, the Company executed Employment Agreements with its Chief Executive Officer Richard DeCicco (“DeCicco”) and its Vice President of Sales and Marketing Roseann Faltings (“Faltings”). Both agreements have a term of 24 months (to June 30, 2020). The DeCicco Employment Agreement provides for a base salary at the rate of $265,000 per annum and a compensation stock award of 300,000 shares of Iconic common stock issuable upon the effective date of the planned reverse stock split. The Faltings Employment Agreement provides for a base salary at the rate of $150,000 per annum and a compensation stock award of 100,000 shares of Iconic common stock issuable upon the effective date of the planned reverse stock split.

 

For the year ended December 31, 2018, we accrued a total of $311,250 officers compensation pursuant to these two Employment Agreements. In 2018, the accrued compensation was allocated 50% to Iconic ($155,625), 40% to Bellissima ($124,500), and 10% to BiVi ($31,125). For the year ended December 31, 2019, we accrued a total of $415,000 officers compensation pursuant to these two Employment Agreements which was allocated 50% to Iconic ($207,500), 40% to Bellissima ($166,000), and 10% to BiVi ($41,500).

 

For the three months ended March 31, 2020, we accrued a total of $103,750 officers compensation pursuant to these two Employment Agreements which was allocated 50% to Iconic ($51,875) and 50% to Bellissima ($51,875).

 

As of March 31, 2020 and December 31, 2019, accrued officers compensation was $837,800 and $813,050, respectively.

 

g. Lease Agreements

 

On March 27, 2018, United Spirits, Inc. executed a lease extension for the Company’s office and warehouse space in North Amityville New York. The extension has a term of three years from February 1, 2018 to January 31, 2021 and provides for monthly rent of $4,478.

 

On January 1, 2019, United Spirits, Inc. executed a lease agreement with the two officers of the Company to use part of their residence in Copiague, New York for Company office space. The agreement has a term of three years from January 1, 2019 to December 31, 2021 and provides for monthly rent of $3,930.

 

At March 31, 2020, the future minimum lease payments under these two non-cancellable operating leases were:

 

Year ended December 31, 2020

 

$ 75,672

 

Year ended December 31, 2021

 

 

51,643

 

 

 

 

 

 

Total

 

$ 127,315

 

 

The operating lease liabilities totaling $118,229 at March 31, 2020 as presented in the Consolidated Balance Sheets represents the discounted (at our 10% estimated incremental borrowing rate) value of the future lease payments of $127,315 at March 31, 2020.

 

 
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Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Three months ended March 31, 2020 and 2019

 

h. Endorsement Agreement

 

In February 2020, Iconic executed an Endorsement Agreement with an entity (“CEE”) controlled by Chase Elliott (“Elliott”), driver of the Hendrick Motorsports Number 9 NAPA/Hooter’s Chevrolet in races of the NASCAR Cup Series. The agreement, which has a term ending on December 31, 2021, provides Iconic the right to utilize Elliott’s name in connection with the promotion and distribution of Hooters brand products and requires CEE and Elliott to perform certain specified services for Iconic including certain promotional appearances. The agreement provides for compensation payable to CEE of (1) Initial Share Award of 100,000 shares of Iconic common stock (which was issued on February 24, 2020); (2) $75,000 year 2020 cash compensation (which was paid March 6, 2020); (3) $75,000 year 2021 cash compensation payable on or before February 15, 2021; and (4) Year 2021 Second Share Award of that number of shares of Iconic common stock equal to $75,000 based upon the average closing price of the common stock for the five trading days immediately preceding February 15, 2021.

 

For the three months ended March 31, 2020, we expensed $16,495 in license fees relating to the Endorsement Agreement. As of March 31, 2020, prepaid license fees relating to the Endorsement Agreement was $126,005.

 

i. Concentration of sales

 

For the three months ended March 31, 2020 and 2019, sales consisted of:

 

 

 

2020

 

 

2019

 

Bellissima product line:

 

 

 

 

 

 

 

 

 

 

 

 

 

QVC direct response sales

 

$ 252,340

 

 

$ -

 

Other

 

 

80,105

 

 

 

118,213

 

Total Bellissima

 

 

332,445

 

 

 

118,213

 

BiVi product line

 

 

-

 

 

 

3,700

 

Hooters product line

 

 

73,441

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total

 

$ 405,886

 

 

$ 121,913

 

 

j. Coronavirus

 

In December 2019, a novel strain of coronavirus was reported to have surfaced in China. The spread of this virus began to cause some business disruption in our United States operations in March 2020. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration. Therefore, the Company expects this matter to negatively impact its operating results. However, the related financial impact and duration cannot be reasonably estimated at this time.

 

 
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ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

 

Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.

 

Summary Overview

 

Overview

 

We are a lifestyle branding company with the highest expertise of developing, from inception to completion, alcoholic beverages for ourselves and third parties. We market and place products into national distribution through long-standing industry relationships. We are a leader in “Celebrity Branding” of beverages, procuring superior and unique products from around the world and branding our products with internationally recognized celebrities. We currently market and sell the following products:

 

 

Bellissima Prosecco – these products comprise a line of all-natural and Vegan Prosecco and Sparkling Wine made with organic grapes, including a Zero Sugar, Zero Carb option, a DOC Brut and a Sparkling Rose;

 

 

 

 

Bella Sprizz Apertifs - these products comprise a line of aperitifs consisting of three different expressions, a classic Italian aperitif an all-natural elderflower aperitif and a classic Italian bitter;

 

 

 

 

BiVi Vodka – this product is made from semolina wheat grown out of the rich volcanic soil and pure mountain spring water of Sicily; and

 

 

 

 

Hooters Spirits – these products comprise a line of private-label premium spirits that are sold under the Hooters brand. The full line of Hooters Spirits includes Vodka, Gin, Rum (Dark & Light), Tequila (Silver & Gold), American Whiskey and Hooters Heat Cinnamon Whiskey.

 

 
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In addition, we also develop private label spirits for domestic and international established chains.

 

Our mission is to be the industry leader in brand development, marketing, and sales of the alcoholic beverages by capitalizing on our ability to procure products from around the world. Our relationships with internationally recognized celebrities will be leveraged to add value to a product and create brand awareness in unbranded niche categories.

 

We market and sell a line of line of all-natural and Vegan Prosecco and Sparkling Wine made with organic grapes, including a Zero Sugar, Zero Carb option, a DOC Brut and a Sparkling Rose, pursuant to a License Agreement entered into between our majority-owned (51%) subsidiary, Bellissima Spirits LLC and Christie Brinkley, Inc., an entity owned by supermodel and entrepreneur Christie Brinkley.

 

We also market and sell a Vodka product, under the brand “BiVi 100 percent Sicilian Vodka,” pursuant to a License Agreement entered into between our majority-owned (51%) subsidiary, BiVi LLC and Neighborhood Licensing, LLC, an entity owned by Chazz Palminteri.

 

In addition, we market and sell a line of private-label premium spirits under the Hooters brand, including Vodka, Gin, Rum (Dark & Light), Tequila (Silver & Gold), American Whiskey and Hooters Heat Cinnamon Whiskey, pursuant to a Marketing and Distribution Agreement entered into between us and United Spirits, Inc., a company owned and managed by Richard DeCicco, the controlling shareholder, President, Chief Executive Officer, Chief Financial Officer and Director of the Company, which we treat as a variable interest entity.

 

Recent Developments

 

Series G Preferred Stock Financing

 

On January 12, 2020, we entered into securities purchase agreements with certain accredited investors for the sale of an aggregate of 1,500 shares of our Series G Preferred Stock and warrants to purchase up to 1,200,000 shares of our common stock for gross proceeds of $1,500,000, before deducting placement agent and other offering expenses.

 

Going Concern

 

As a result of our current financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2019 and 2018 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. In order to continue as a going concern, we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues. If we are not able to do this, we may not be able to continue as an operating company. Until we can grow revenues sufficient to meet our operating expenses, we must continue to raise capital by issuing debt or through the sale of our stock. There is no assurance that our cash flow will be adequate to satisfy our operating expenses and capital requirements.

 

 
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Results of Operations for the Three months Ended March 31, 2020 and 2019

 

Introduction

 

We had sales of $405,886 for the three months ended March 31, 2020 and $121,913 for the three months ended March 31, 20219, an increase of $283,973. Our operating expenses were $1,065,558for the three months ended March 31, 2020, compared to $1,022,842 for the three months ended March 31, 2019, an increase of $42,716or approximately 4%. Our net operating (loss) was ($912,098) for the three months ended March 31, 2020, compared to ($982,364) for the three months ended March 31, 2019, a decrease of $70,266 or approximately 7%.

 

Revenues and Net Operating Loss

 

Our operations for the three months ended March 31, 2020 and 2019 were as follows:

 

 

 

March 31,

 

 

March 31,

 

 

Increase /

 

 

 

2020

 

 

2019

 

 

(Decrease)

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$ 405,886

 

 

$ 121,913

 

 

$ 283,973

 

Cost of Sales

 

 

252,426

 

 

 

81,435

 

 

 

170,991

 

Gross Profit

 

 

153,460

 

 

 

40,478

 

 

 

112,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Officers compensation

 

 

103,750

 

 

 

185,750

 

 

 

(82,000 )

Professional and consulting

 

 

186,789

 

 

 

448,519

 

 

 

(261,730 )

Royalties

 

 

15,964

 

 

 

75,188

 

 

 

(59,224 )

Investor relations

 

 

361,689

 

 

 

84,003

 

 

 

277,686

 

Marketing and advertising

 

 

128,645

 

 

 

46,467

 

 

 

82,178

 

Travel and entertainment

 

 

19,469

 

 

 

64,269

 

 

 

(44,800 )

Other operating expenses, including occupancy

 

 

249,252

 

 

 

118,646

 

 

 

130,606

 

Total operating expenses

 

 

1,065,558

 

 

 

1,022,842

 

 

 

42,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income (loss)

 

 

(912,098 )

 

 

(982,364 )

 

 

(70,266 )

Other income (expense)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity

 

 

74,178

 

 

 

309,367

 

 

 

(235,189 )

Net income (loss) attributable to Iconic Brands, Inc

 

 

(837,920 )

 

 

(672,667 )

 

 

165,253

 

  

 
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Sales

 

Our sales are comprised of sales of BiVi Sicilian Vodka, Bellissima Prosecco and Sparkling Wine, and the line of Hooters brand products introduced in August 2019. Sales were $405,886 for the three months ended March 31, 2020 and $121,913 for the three months ended March 31, 2019, an increase of $283,973 or approximately 232%. The increase in sales was primarily due to continued expansion of the OVC Network sales of our Bellissima products.

 

Cost of Sales

 

Cost of sales was $252,426, or approximately 62% of sales, for the three months ended March 31, 2020 and $81,435, or approximately 67% of sales, for the three months ended March 31, 2019. Cost of sales includes the cost of the products purchased from our suppliers, freight-in costs and import duties. The decrease in cost of sales as a percentage of sales is due primarily to product mix and slightly lower production costs.

 

Officers Compensation

 

Officers compensation was $103,750 for the three months ended March 31, 2020 and $185,750 for the three months ended March 31, 2019, a decrease of $82,000. Officers compensation in 2019 includes a catch-up accrual of $82,000 relating to employment agreements executed April 1, 2018 with our two officers.

 

Professional and Consulting Fees

 

Professional and consulting fees were $186,789 for the three months ended March 31, 2020 and $448,519 for the three months ended March 31, 2019, an decrease of $261,730. Professional and consulting fees consist primarily of legal and accounting and auditing services. The decrease was a result of lower professional fees as we were engaged in a purchase transaction in 2019.

 

Royalties

 

Royalties were $15,964, or approximately 4% of sales, for the three months ended March 31, 2020 and $75,188 for the three months ended March 31, 2019, a decrease of $59,224. Royalties decreased primarily due to the sales to QVC in 2020 do not have a royalty associated with them and in 2019 we paid a royalty advance on our Hooters product line.

 

Marketing and Advertising

 

Marketing and advertising expenses were $128,645 for the three months ended March 31, 2020 and $46,467 for the three months ended March 31, 2019, an increase of $82,178 or approximately 177%. The increase was a result of marketing fees associated with the QVC sales channel.

  

 
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Occupancy Costs

 

Occupancy costs were $22,251 for the three months ended March 31, 2020 and $27,623 for the three months ended March 31, 2019, a decrease of $5,372.

 

Travel and Entertainment

 

Travel and entertainment expenses were $19,469 for the three months ended March 31, 2020 and $64,269 for the three months ended March 31, 2019, a decrease of $44,800 or approximately 70%. The decrease is a result of timing of product development activity.

   

Investor relations

 

Investor relation expenses were $361,689 for the three months ended March 31, 2020 and $84,003 for the three months ended March 31, 2019, an increase of $277,686 or approximately 330%. The increase was primarily related to cost associated with a large investor relations campaign, including a national road show.

 

Other Operating Expenses

 

Other operating expenses were $227,001 for the three months ended March 31, 2020 and $91,023 for the three months ended March 31, 2019, an increase of $135,978 or approximately 149%. The increase was primarily related to cost associated with equity financing transactions.

 

Income (Loss) from Operations

 

We had a (loss) from operations of ($912,098) for the three months ended March 31, 2020 and ($982,364) for the three months ended March 31, 2019, an increase of $70,266 or approximately 7%. Our loss from operations decreased, as set forth above, primarily because certain operating expenses, marketing and advertising and other operating expenses, increased, offset by an increase in sales.

 

Net Loss attributable to Noncontrolling Interests in Subsidiaries and Variable Interest Entity

 

The net loss  attributable to noncontrolling interests in subsidiaries and variable interest entity represents 49% of the net loss of Bellissima, BiVi and Green Grow (which we own 51%) and 100% of United Spirits (which we own 0%) and is accounted for as a reduction in the net loss attributable to the Company. This net loss was $74,178 for the three months ended March 31, 2020 and $309,697for the three months ended March 31, 2019, an decrease of $235,519.

 

Net Loss Attributable to Iconic Brands, Inc.

 

The net loss attributable to Iconic Brands, Inc. was ($837,920) for the three months ended March 31, 2020 and ($672,667) for the three months ended March 31, 2019, an increase of $165,253 or approximately 25%. The net loss from Iconic Brands increased primarily as a result of lower net loss of $253,519 attributable to noncontrolling interests in subsidiaries and variable interest entity.

  

 
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Liquidity and Capital Resources

 

Introduction

 

During the three months ended March 31, 2020 and March 31, 2019, we had negative operating cash flows. Our cash on hand as of March 31, 2020 was $916,686, which was derived from the sale of Series G preferred stock and warrants. Our monthly cash flow burn rate for 2019 was approximately $228,000, and our monthly burn rate through the three months ended March 31, 2020 was approximately $225,000. We have strong medium to long term cash needs. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.

 

Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2020 and December 31, 2019, respectively, were as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$ 916,686

 

 

$ 263,638

 

 

$ 653,048

 

Total Current Assets

 

 

1,928,800

 

 

 

1,411,185

 

 

 

517,615

 

Total Assets

 

 

3,067,333

 

 

 

2,568,021

 

 

 

499,312

 

Total Current Liabilities

 

 

1,827,522

 

 

 

2,028,676

 

 

 

(201,154 )

Total Liabilities

 

$ 1,861,465

 

 

 

2,077,823

 

 

 

(216,358 )

 

Our cash increased $653,048 and total current assets increased $517,615. Our total current liabilities decreased $201,154 as our accounts payable and accrued expenses decreased, reflecting our decrease in professional and consulting fees. Our total liabilities decreased $216,358. Our stockholders’  equity increased from $490,198 to $1,205,868due primarily to proceeds from the sale of preferred stock.

 

In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.

 

Cash Requirements

 

Our cash on hand as of March 31, 2020 was $916,686. Based on our minimal sales and annualized monthly burn rate of approximately $225,000 per month, we will need to raise additional funding through strategic relationships, public or private equity or debt financings. If such funding is not available, or not available on terms acceptable to us, our current development plans may be curtailed. 

 

We have funded our operations from proceeds from the sale of equity and debt securities. We will require significant additional capital to make the investments we need to execute our longer-term business plan. Our ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if we are successful, future equity issuances would result in dilution to its existing stockholders and any future debt securities may contain covenants that limit our operations or ability to enter into certain transactions.

 

Sources and Uses of Cash

 

Operations

 

We had net cash used in operating activities for the three months ended March 31, 2020 of ($622,857), compared to ($369,576) for the three months ended March 31, 2019. For the three months ended March 31, 2020, the net cash used in operating activities consisted primarily of our net loss of ($837,920) plus a net loss attributable to non-controlling interests in our subsidiaries of ($74,178) and inventories increase  of ($64,344), offset primarily by stock-based compensation of $243,081 and accounts payable and accrued expenses increase of $153,575.

 

Investments

 

Except for $8,708 of furniture purchased in in 2020, we had no investing activities for the three months ended March 31, 2020 or March 31, 2019.

 

 
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Financing

 

Our net cash provided by financing activities for the three months ended March 31, 2020 was $1,284,613 compared to $340,630 for the three months ended March 31, 2019, which consisted principally of proceeds from the sale of our Series G preferred stock and warrants.

 

January 2020 Financing

 

On January 12, 2020, we entered into securities purchase agreements (collectively, the “Purchase Agreement”) with certain accredited investors for the sale of an aggregate of 1,500 shares of the Company’s series G convertible preferred stock (the “Series G Convertible Preferred Stock”), and warrants (the “Warrants”) to purchase 1,200,000 shares of our common stock for gross proceeds of $1,500,000, before deducting placement agent and other offering expenses. The terms of the Series G Convertible Preferred Stock are set forth under Items 3.02 and 5.03 below.

 

The Warrants are exercisable for a period of five years from the date of issuance at an exercise price of $1.25 per share (the “Exercise Price”). The Investors may exercise the Warrants on a cashless basis if the shares of common stock underlying the Warrants are not then registered pursuant to an effective registration statement.

 

The conversion price of the Series G Convertible Preferred Stock and the exercise price of the Warrants are subject to anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.

 

The Series G Convertible Preferred Stock and the Warrant each contain a beneficial ownership limitation that restricts each of the Investor’s ability to exercise the Warrants and convert the Series G Convertible Preferred Stock such that the number of shares of the Company common stock held by each of them and their affiliates after such conversion or exercise does not exceed 4.99% or 9.99% (at the election of the Investor) of the Company’s then issued and outstanding shares of common stock.

 

The Purchase Agreement also provides that until the 18 month anniversary of the date of the Purchase Agreement, in the event of a subsequent financing (except for certain exempt issuances as provided in the Purchase Agreement) by the Company, each Investor that invested over $500,000 pursuant to the Purchase Agreement will have the right to participate in such subsequent financing up to an amount equal to the Investor’s proportionate share of the subsequent financing based on such Investor’s participation in this private placement on the same terms, conditions and price provided for in the subsequent financing up to an amount equal to 50% of the subsequent financing. The Purchase Agreements also provide that for as long as the Series G Convertible Preferred Stock or Warrants are outstanding, if the Company effects a subsequent financing, an Investor may elect, in its sole discretion, to exchange all or a portion of the Series G Convertible Preferred Stock then held by such Investor for any securities issued in a subsequent financing on a $1.00 for $1.00 basis, provided such subsequent financing is not a firm commitment underwritten offering.

 

From the date of the Purchase Agreement until the date that is the earlier of (i) nine (9) months following the date of the Purchase Agreement and (ii) the date that the VWAP for 10 consecutive Trading Days following January 12, 2020 is greater than $1.25, subject to adjustment, the Company shall not issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or Common Stock Equivalents (as defined in the Purchase Agreement).

 

We also entered into separate Registration Rights Agreements with the Investors, pursuant to which the Company agreed to undertake to file a registration statement to register the resale of the shares underlying the Series G Convertible Preferred Stock and Warrants within ten (10) days following the date of written demand by the lead investor (the “Demand Date”) , and to maintain the effectiveness of the registration statement until all of such shares of Common Stock have been sold or are otherwise able to be sold pursuant to Rule 144 under the Securities Act, without any restrictions. If we fail to file the registration statement or have it declared effective by the dates set forth above, among other things, the Company is obligated to pay the investors liquidated damages in the amount of 1% of their subscription amount, per month, until such events are satisfied.

 

 
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Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

 

                As of March 31, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

  

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 4 Controls and Procedures

 

(a) Disclosure Controls and Procedures

 

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2020, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2020, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in our Annual Report on Internal Control Over Financial Reporting filed in our Annual Report on Form 10-K.

 

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all errors and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers are determined to make our disclosure controls and procedures effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

(b) Changes in Internal Control over Financial Reporting

 

No change in our system of internal control over financial reporting occurred during the period covered by this report, the three month period ended March 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  

 
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 PART II – OTHER INFORMATION

 

ITEM 1 Legal Proceedings

 

From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

 

ITEM 1A Risk Factors

 

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).

 

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

Except as set forth below or previously reported on a Current Report on Form 8-K, we had no unregistered sales of equity securities during the three month period ended March 31, 2020.

 

On January 12, 2020, the Company entered into securities purchase agreements with certain accredited investors for the sale of an aggregate of 1,500 shares of the Company’s series G convertible preferred stock, and warrants to purchase 1,200,000 shares of our common stock for gross proceeds of $1,500,000

 

On January 12, 2020, the Company issued an aggregate of 375,000 shares of common stock to a FINRA-registered broker-dealer and certain individuals associated with the broker-dealer for services related to the January 202 Offering of Series G Convertible Preferred Stock.

 

On January 22, 2020, and February 27, 2020, the Company issued a total of 160,000 shares of its common stock to an investor relations firm for services rendered to the Company.

 

On January 26, 2020, the Company issued 150,000 shares of its common stock to a consulting firm for services rendered to the Company.

 

On February 12, 2020, February 13, 2020, and February 14, 2020, three holders converted a total of 675,000 shares of Series E Preferred Stock into a total of 270,000 shares of Iconic common stock.

 

From January 16, 2020 to February 24, 2020, two holders converted a total of 190 shares of Series F Preferred Stock into a total of 304,000 shares of Iconic common stock.

 

On February 24, 2020, the Company issued 100,000 shares of its common stock to William Clyde Elliot II pursuant to an Endorsement Agreement effective as of February 24, 2020.

 

On February 24, 2020, the Company issued 50,000 shares of its common stock to a consulting firm for services rendered to the Company.

  

All of the issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, there was no solicitation, and the investors were accredited or sophisticated.

 

ITEM 3 Defaults Upon Senior Securities

 

None.

 

ITEM 4 Mine Safety Disclosures

 

Not applicable.

 

ITEM 5 Other Information

 

None.

 

 
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ITEM 6 Exhibits

 

(a) Exhibits

 

Exhibit No.

 

Description of Exhibits

 

3.1

Certificate of Designation of Series G Convertible Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on January 13, 2020).

 

10.1

Form of Securities Purchase Agreement, dated January 12, 2020 between Iconic Brands, Inc. and the signatories thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 13, 2020).

 

10.2

Form of Warrant (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 13, 2020).

 

10.3

 

Form of Registration Rights Agreement, dated January 12, 2020, between Iconic Brands, Inc. and the signatories thereto (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on January 13, 2020).

 

 

 

10.4

 

Form of Lock-Up Agreement dated January 12, 2020  (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on January 13, 2020).

 

101.INS

 

XBRL Instance Document

 

101.SCH

 

XBRL Schema Document

 

101.CAL

 

XBRL Calculation Linkbase Document

 

101.DEF

 

XBRL Definition Linkbase Document

 

101.LAB

 

XBRL Labels Linkbase Document

 

101.PRE

 

XBRL Presentation Linkbase Document

_______________ 

(1)

Incorporated by reference to Form SB-2 filed on November 30, 2007.

(2)

Incorporated by reference to our Registration Statement on Form S-1 filed on September 19, 2018 (File No. 333-227420).

 

 
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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.

 

 

Iconic Brands, Inc.

 

Dated: May 15, 2020

By:

/s/ Richard J. DeCicco

 

Richard J. DeCicco

 

Its:

Chief Executive Officer

 

 
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