EXHIBIT 99.1

 

TOPPOP LLC

 

FINANCIAL STATEMENTS

 

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

 

 

 

TOPPOP LLC

 

YEARS ENDED DECEMBER 31, 2020 AND 2019

 

I N D E X

 

 

 

Page

 

 

 

 

 

Independent Accountants’ Audit Report

 

3

 

 

 

 

 

Financial Statements:

 

 

 

 

 

 

 

Balance Sheet

 

4

 

 

 

 

 

Statement of Operations

 

5

 

 

 

 

 

Statement of Members’ Equity

 

6

 

 

 

 

 

Statement of Cash Flows

 

7

 

 

 

 

 

Notes to Financial Statements

 

8-15

 

 

 
2

Table of Contents

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Of TopPop LLC.,

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of TopPop LLC (the “Company”) as of December 31, 2020 and December 31, 2019 and the related statements of operations, members’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of TopPop LLC as of December 31, 2020 and December 31, 2019 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

Going Concern Uncertainty

 

The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company’s present financial situation raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Revenue Recognition

 

Critical Audit Matter Description

 

The Company’s fiscal year 2020 sales was $2,598,486. The increase in sales is primarily due to revenue generated from three new customers.

 

How the Critical Audit Matter was Addressed in the Audit:

 

Our principal audit procedures related to the Company’s sales included:

 

 

1.

Reviewed the Company’s revenue recognition process and ascertained the Company has adopted ASC 606.

 

2.

Performed detail testing on sales, including the three customers that accounted for majority of the sales.

 

3.

Performed sales cutoff procedures to verify sales are recorded in the proper period.

 

4.

Considered the adequacy of the disclosure in the financial statements in relation to sales.

 

/s/ Fei Qi CPA

Fei Qi CPA

 

Elmhurst, New York

October 12, 2021

We have served as the Company’s auditor since 2020.

 

 
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Table of Contents

 

TOPPOP LLC

BALANCE SHEET

 

 

 

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

ASSETS

Current assets:

 

 

 

 

 

 

Cash and Cash Equivalents

 

$ 125,328

 

 

$ 41,289

 

Account Receivable, Less Allowance for Doubtful Accounts of $220,147 and $0 respectively

 

 

85,969

 

 

 

-

 

Inventories

 

 

238,820

 

 

 

-

 

Prepaid Expenses

 

 

46,075

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

496,192

 

 

 

41,289

 

 

 

 

 

 

 

 

 

 

Property and Equipment at Cost, Less Accumulated Depreciation for 2020 and 2019 of $102,563 and $0, respectively

 

 

1,422,718

 

 

 

23,975

 

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

Deposit on Equipment

 

 

248,017

 

 

 

489,461

 

Security Deposits

 

 

66,598

 

 

 

45,864

 

Operating lease right of use asset

 

 

728,603

 

 

 

-

 

Total Other Assets

 

 

1,043,218

 

 

 

535,325

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 2,962,128

 

 

$ 600,589

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

 

 

 

 

 

Accounts Payable

 

 

228,665

 

 

 

5,579

 

Accounts Payable - Related Party

 

 

87,376

 

 

 

-

 

Accrued Expenses

 

 

95,618

 

 

 

-

 

Deferred Revenue

 

 

77,013

 

 

 

-

 

Original Issue Discount Promissory Notes

 

 

536,984

 

 

 

-

 

Convertible Promissory Notes to Member

 

 

451,000

 

 

 

-

 

Operating lease liabilities - current

 

 

219,327

 

 

 

 

 

Advances under Financing Arrangement

 

 

38,442

 

 

 

-

 

Total Current liabilities

 

 

1,731,149

 

 

 

5,579

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Operating lease liabilities - non-current

 

 

518,912

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

$ 2,250,061

 

 

$ 5,579

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’ equity:

 

 

 

 

 

 

 

 

Capital Contribution

 

 

1,827,000

 

 

 

658,503

 

Distributions to Members

 

 

-

 

 

 

-

 

Promissory Note Conversion

 

 

574,886

 

 

 

-

 

Retained Deficit

 

 

(1,689,819 )

 

 

(63,493 )

Total Members' equity

 

 

712,067

 

 

 

595,010

 

TOTAL LIABILITIES AND MEMBERS’ EQUITY

 

$ 2,962,128

 

 

$ 600,589

 

 

See accompanying notes to financial statements.

 

 
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TOPPOP LLC

STATEMENT OF OPERATIONS

 

 

 

 

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

REVENUE

 

 

 

 

 

 

Sales

 

$ 2,241,842

 

 

$ -

 

Other Income

 

 

356,644

 

 

 

-

 

Total revenue

 

 

2,598,486

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

1,733,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

864,814

 

 

 

-

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Facility Expenses

 

 

561,212

 

 

 

15,288

 

General and Administrative Expenses

 

 

1,662,751

 

 

 

23,045

 

Sales and Marketing Expenses

 

 

97,680

 

 

 

25,160

 

Total operating expenses

 

 

2,321,643

 

 

 

63,493

 

 

 

 

 

 

 

 

 

 

Loss from Operation

 

$ (1,456,829 )

 

$ (63,493 )

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

Interest Expense

 

 

(245,493 )

 

 

-

 

Gain on Extinguishment of Paycheck Protection Program Loan

 

 

75,995

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total Other Income (Expenses)

 

 

(169,498 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,626,326 )

 

$ (63,493 )

 

See accompanying notes to financial statements.

 

 
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Table of Contents

 

TOPPOP LLC

STATEMENT OF MEMBERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

Contribution

 

 

Distributions to

Members

 

 

Promissory Note

Conversion

 

 

Retained

Deficit

 

 

Members

Equity

 

Balance - December 31, 2018

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Contribution

 

 

658,503

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

658,503

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(63,493 )

 

 

(63,493 )

Balance - December 31, 2019

 

$ 658,503

 

 

$ -

 

 

$ -

 

 

$ (63,493 )

 

$ 595,010

 

Contribution

 

 

1,168,497

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,168,497

 

Distributions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of promissory notes

 

 

-

 

 

 

-

 

 

 

574,886

 

 

 

-

 

 

 

574,886

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,626,326 )

 

 

(1,626,326 )

Balance - December 31, 2020

 

$ 1,827,000

 

 

$ -

 

 

$ 574,886

 

 

$ (1,689,819 )

 

$ 712,067

 

 

See accompanying notes to financial statements.

 

 
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TOPPOP LLC

STATEMENT OF CASH FLOWS

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

Reconciliation of Net Loss to Net Cash Provided by (Used in) Operating Activities

 

 

 

 

 

 

Net Loss

 

$ (1,626,326 )

 

$ (63,493 )

 

 

 

 

 

 

 

 

 

Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities

 

 

 

 

 

 

 

 

Depreciation

 

 

102,563

 

 

 

-

 

Amortization of Original Issue Discounts

 

 

26,984

 

 

 

-

 

Provisions for Bad Debt

 

 

237,880

 

 

 

-

 

Amortization of Right of Use

 

 

129,376

 

 

 

 

 

Noncash Paycheck Protection Loan Forgiveness

 

 

(75,995 )

 

 

-

 

(Increase) Decrease in Account Receivable

 

 

(306,116 )

 

 

-

 

(Increase) Decrease in Inventories

 

 

(238,820 )

 

 

-

 

(Increase) Decrease in Prepaid Expenses

 

 

(41,397 )

 

 

-

 

(Increase) Decrease in Security Deposits

 

 

(20,734 )

 

 

(45,864 )

Increase (Decrease) in Accounts Payable

 

 

200,674

 

 

 

5,579

 

Increase (Decrease) in Accounts Payable - related parties

 

 

87,376

 

 

 

 

 

Increase (Decrease) in Lease Liability

 

 

(123,016 )

 

 

 

 

Increase (Decrease) in Accrued Expenses

 

 

94,047

 

 

 

-

 

Increase (Decrease) in Accrued Interest

 

 

74,238

 

 

 

-

 

Increase (Decrease) in Deferred Revenue

 

 

77,013

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by (Used in) Operating Activities

 

 

(1,402,254 )

 

 

(103,778 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of Fixed Assets

 

 

(1,011,845 )

 

 

(23,975 )

Deposits on Equipment

 

 

(248,017 )

 

 

(489,461 )

Net cash by (Used in) investing activities

 

 

(1,259,862 )

 

 

(513,436 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds on Issue of Convertible Promissory Notes to Member

 

 

953,220

 

 

 

-

 

Receipt of Paycheck Protection Program Loan

 

 

75,995

 

 

 

-

 

Proceeds on Issuance of Original Issue Discount Promissory Notes

 

 

620,000

 

 

 

-

 

Repayment of Original Issue Discount Promissory Notes

 

 

(110,000 )

 

 

-

 

Advances under Financing Arrangements

 

 

1,311,220

 

 

 

-

 

Repayments of Advances under Financing Arrangements

 

 

(1,272,778 )

 

 

-

 

Capital Contributions

 

 

1,168,497

 

 

 

658,503

 

Net cash by (Used in) provided by financing activities

 

 

2,746,154

 

 

 

658,503

 

 

 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

84,039

 

 

 

41,289

 

Cash and Cash Equivalents, January 1

 

 

41,289

 

 

 

-

 

Cash and Cash Equivalents, December 31

 

$ 125,328

 

 

$ 41,289

 

 

 

 

 

 

 

 

 

 

Non Cash Investing Activity

 

 

 

 

 

 

 

 

Operating Lease Right of Use Asset Acquired

 

$ 861,371

 

 

$ -

 

Loan Forgiveness - Pay check Protection Program

 

$ 75,995

 

 

$ -

 

Convertible Promissory Note and Accrued Interest Converted to Capital

 

$ 574,886

 

 

$ -

 

 

See accompanying notes to the financial statements.

 

 
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TOPPOP LLC
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

 

Note 1. ORGANIZATON AND NATURE OF BUSINESS

 

TopPop LLC (the “Company”) is organized as a limited liability company in the State of New Jersey on September 5, 2019. The Company’s primary operation is the manufacture and packaging of single-serve, shelf-stable, ready-to-freeze ice pops, both alcohols infused and non-alcoholic. The Company began operations in December 2019.

 

During the year ended December 31, 2020, virtually all sales were generated from contracts with three major customers. Customers are primarily national breweries and beverage manufacturers.

 

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

Management uses estimates and assumptions in preparing its financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

Accounts receivable are recorded net of an allowance for expected losses. Contracts include payment terms ranging from 30 to 60 days of receipt of a correct invoice. The Company provides an allowance for doubtful collections that is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customers. At December 31, 2020 and 2019, the Company had recorded an allowance for doubtful accounts of $220,147 and $0, respectively.

 

Inventories

 

Inventories consist of raw materials to be used in the production process. Inventories are stated at the lower of cost and net realizable value, with cost determined by the first-in, first-out method. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss in tin the period in which it occurs. No inventory loss was recorded for the year ended December 31, 2020 and December 31, 2019.

 

The Company’s agreements with customers require that certain materials used in production be purchased from suppliers designated by the customer.

 

Property, Equipment and Depreciation

 

Property and equipment are stated at cost. The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line method for financial reporting purposes. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

 

 
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Table of Contents

 

Impairment of Long-Lived Assets

 

The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial position. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

 

Fair Value of Financial Instruments

 

The Company adopted ASC 820 “Fair Value Measurements,” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures.

 

The three levels are defined as follows:

 

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the financial instruments.

 

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value.

 

Financial instruments include cash, receivables, due from related parties, accounts payable and accrued expenses, advances from prospective customers/distributors and due to related parties. The carrying values of these financial instruments approximate their fair values due to the short-term maturities of these instruments.

 

Leases

 

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate, on a secured basis. The initial measurement of the right-of-use asset is equal to the initial lease liability plus any initial direct costs.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

 

Revenue Recognition

 

Revenue is recognized at a point in time when obligations under the terms of a contract with a customer are satisfied. The Company adopted ASC 606 requires the use of a new five-step model to recognize revenue from customers. The five-step model requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company has concluded that the new guidance did not require any significant change to its revenue recognition processes.

 

 
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Income Taxes

 

The Company is organized as a limited liability company and has elected to be treated as a partnership for federal and state tax purposes. Income taxes are not payable by the Company. Members of limited liability companies are taxed individually on their applicable share of earnings. Accordingly, no provision for income taxes is reflected in these financial statements. Net income or loss is allocated to each member in accordance with the terms of the limited liability company agreement.

 

Effective January 1, 2021, the Company has elected to change its current classification from being taxed as a partnership to being taxed as a C corporation. On July 20, 2021, the Company revoked its C corporation election prior to being acquired by Iconic Brands, Inc., see Note 13.

 

Advertising Costs

 

Advertising costs are charged to operations when incurred. Advertising expenses totaled
$724 and $0 for the years ended December 31, 2020 and 2019.

 

Shipping and Handling Costs:

 

Shipping and handling costs are included in the cost of sales when they are incurred.

 

Recent Accounting Pronouncement:

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the Balance Sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Statement of Operations. As a nonpublic entity and as allowed by FASB ASU 2020-05 issued June 3, 2020, the Company has elected its option to defer adoption of the revised lease standard until its fiscal year beginning after December 15, 2021. The Company continues to evaluate the impact of the adoption of ASU 2016-02 on its financial statements.

 

NOTE 3. 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 December 31, 2020 of $1,683,459 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.

 

 
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NOTE 4. PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

 

 

Estimated useful

 

 

December 31,

 

 

December 31,

 

 

 

lives in years

 

 

2020

 

 

2019

 

Machinery and equipment

 

5-10

 

 

$ 1,441,788

 

 

$ -

 

Leasehold improvements

 

10

 

 

 

78,301

 

 

 

23,975

 

Office equipment and furniture

 

5

 

 

 

5,192

 

 

 

-

 

Accumulated depreciation

 

 

 

 

 

(102,563 )

 

 

-

 

Totals

 

 

 

 

$ 1,422,718

 

 

$ 23,975

 

 

For the year ended December 31, 2020 and December 31, 2019, depreciation was to $102,563 and $0, respectively.

 

NOTE 5. PROMISSORY NOTES

 

The Company has issued several short-term, original issue discount promissory notes to be used for capital expenditures and working capital purposes. The carrying value of these promissory notes is shown net of the total unamortized discount of $35,016 at December 31, 2020. Amortization of the original issue discounts is reported in the Statement of Operations as interest expense. The note holder has the right to convert the outstanding principal balance, in whole or in part, into capital of the Company. At December 31, 2020, the following original issue discount promissory notes were outstanding:

 

 

 

December 31,

 

 

December 31,

 

Lenders

 

2020

 

 

2019

 

Original issue discount promissory note issued October 21, 2020; unsecured obligation; issued at $110,000 with a maturity value of $121,000 due on January 21, 2021; imputed interest rate of 38.2%

 

$ 118,492

 

 

$ -

 

Original issue discount promissory note issued October 21, 2020; unsecured obligation; issued at $110,000 with a maturity value of $121,000 due on January 21, 2021; imputed interest rate of 38.2%

 

 

118,492

 

 

 

-

 

Original issue discount promissory note issued December 28, 2020; unsecured obligation; issued at $200,000 with a maturity value of $220,000 due on March 28, 2021; imputed interest rate of 38.7%

 

 

200,000

 

 

 

-

 

Original issue discount promissory note issued December 28, 2020; unsecured obligation; issued at $100,000 with a maturity value of $110,000 due on March 28, 2021; imputed interest rate of 38.7%

 

 

100,000

 

 

 

-

 

Totals original issue discount promissory notes

 

$ 536,984

 

 

$ -

 

 

 
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NOTE 6. CONVERTIBLE PROMISSORY NOTES

 

In April 2020, the Company entered into a convertible loan agreement with one of its members, InnoAccel Investments LLC (“InnoAccel”). Three promissory notes were issued under the loan agreement during the year ended December 31, 2020. The total available amount under the three promissory notes was $1,035,000. The loan proceeds are to be used to finance receivables from MPL Brands and are to be used only for approved working capital costs. The advance rate is 80% of approved receivables. Interest (finance fees) is assessed at 1.95% of the advance amount for each 30 day period the advance is outstanding. Interest on each advance is payable upon the maturity date. Each promissory note matures six months from the issuance date. Principal and unpaid accrued interest are due and payable the earlier of the date of payment by MPL Brands of the receivable being financed or three months from the date of the advance. The note is secured by a lien on all assets of the Company, subordinate to liens of Prestige Capital Finance, LLC.

 

If an advance and accrued finance fees are not repaid within 30 days after the maturity date or payment is prohibited under a subordination agreement, InnoAccel shall have the right to convert all or a part of accrued and future finance fees into equity membership interests in the Company.

 

At December 31, 2020, Notes 1 and 2 and all accrued interest were converted to equity membership interests. A total of $574,886 of the outstanding loan balance and accrued interest were converted to equity. InnoAccel received an additional 22.26% membership equity interest as a result of the conversion. In addition, InnoAccel received an additional 5% interest in accordance with the operating agreement since no distributions were made in 2020.

 

The outstanding balance of Note 3 at December 31, 2020 was $451,000. The outstanding balance is scheduled to mature at various dates from February 2021 through April 2021. The total interest accrued and converted to equity at December 31, 2020 was $71,166.

 

NOTE 7. ADVANCES UNDER FINANCING AGREEMENT

 

The Company entered into a purchase and sale agreement with Prestige Capital Finance, LLC (“Prestige”). Under the agreement, Prestige buys all of the Company’s right, title, and interest in specific accounts receivable. Prestige has full recourse against the Company for advances if payments are not received for any reason. All credit risk is borne by the Company and not by Prestige. Prestige pays a down payment to the Company of 80% of the face value of the specified receivables. The maximum outstanding balance of the advance is $1,500,000. Prestige’s final purchase price of the accounts receivable is at a discount which is deducted from the face value of each account upon collection. The discount fee is based upon the number of days the account receivable is outstanding from the date of the down payment. The discount fee ranges from 1.95% if the receivable is paid within 30 days to 5.85% if paid within 90 days, plus an additional 1.5% for each 10-day period thereafter until the account is paid in full.

 

The outstanding balance is secured by an interest in virtually all assets of the Company, with a first security interest in accounts receivable. The agreement remains in effect through July 24, 2021 and will be automatically renewed for successive periods of one year each unless either party terminates the agreement in writing at least 60 days prior to the expiration of the initial term or any renewal term. Prestige may cancel the agreement at any time upon 60 days’ notice.

 

The Company accounts for this agreement as a financing arrangement, with the down payments recorded as debt and repayment made when the applicable receivable is collected. At December 31, 2020, the outstanding balance was $38,442 and accrued interest was $1,572.

 

NOTE 8. OPERATING LEASE RIGHT OF USE ASSET AND OPERATING LEASE LIABILITY

 

On November 12, 2019, TopPop LLC executed a lease agreement with Plymouth 4 East Stow LLC (the “Landlord”) to rent approximately 26,321 square feet of warehouse space in Marlton, NJ. The lease provided a term of five years commencing upon January 1, 2020 and terminating on December 31, 2024. The lease also provided for a monthly payment to the landlord for common area use of $4,430 and a security deposit to the Landlord of $45,864.

 

 
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Effective November 6, 2020, the Company executed a lease agreement with Warehouse4Biz LLC (the “Landlord”) to rent approximately 14,758 square feet of warehouse space in Bellmawr, NJ. The lease provided a lease term of two years commencing upon December 1, 2020 and terminating on November 30, 2022. The lease provided a security deposit to the landlord of $20,734.

 

At December 31, 2020, the future undiscounted minimum lease payment under the two noncancellable leases are as follows:

 

 

 

As of December 31, 2020

 

Year ending December 31, 2021

 

 

216,051

 

Year ending December 31, 2022

 

 

221,600

 

Year ending December 31, 2023

 

 

143,450

 

Year ending December 31, 2024

 

 

153,862

 

Year ending December 31, 2025

 

 

-

 

Thereafter

 

 

 

 

Total

 

$ 734,963

 

 

The operating lease liabilities totaling $728,603 at December 31, 2021 as presented in the Balance Sheet represents the discounted (at a 4.75% estimated incremental borrowing rate) value of the future lease payments of $734,963 at December 31, 2020.

 

For the year ended December 31, 2020 and December 31, 2019, occupancy expense attributed to these two leases was $192,824 and $0, respectively.

 

NOTE 9. RELATED PARTY TRANSACTIONS

 

On December 6, 2019 the Company executed a Financial Services Agreement with InnoAccel Solutions (“InnoAccel”), LLC, a controlling member of the Company. InnoAccel had agreed to provide financial and administrative services for the company in exchange for hourly compensations. For the year ended December 31, 2019 and December 31, 2020, consulting expenses related to InnoAccel was $178,633 and $0, respectively. As of December 31, 2020, the Company owed $60,000 to InnoAccel.

 

As of December 31, 2020, the Company owed its Chief Operating Officer and a member of the Company $27,376 for reimbursements of expenses paid on behalf of the Company. The loan is non-interest bearing and due on demand.

 

NOTE 10. COMMITMENS AND CONTINGENCIES

 

Compensation Agreement

 

Effective December 5, 2019, the Company executed Employment Agreement with its Chief Operating Officer Thomas Martin. The employment had no term limits and may be terminated by written notice by either party. The base agreement provides a base salary of at the rate of $250,000.

 

Effective March 1 2020, the Company executed Employment Agreements with its Chief Marketing Officer Laurance Rassin and its Chief Creative Officer Tracy Memoli. The agreement had no term limits and can be terminated by written notice by either party. Both agreements provide for a base salary $50,000 and a commission equal to 3% of the gross revenue. Both agreements were amended in July 2021, in which annual base salary was increased to $150,000 and additional commission incentives were added.

 

For the year ended December 31, 2020 and December 31, 2019, the Company officer compensation expense were $286,558 and $0, respectively.

 

 
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Commission Agreements

 

On July 10, 2019, the Company executed a Commission Agreement with CAA-GBA USA, LLC (“CCA-GBG”). The agreement provides CCA-GBG to receive 5% revenue generated with respect to the co-packing or related manufacturing deal for Anheuser-Busch, LLC. Additionally, CAA-GBG is also entitled to receive 5% of revenue for new business identified. The initial agreement expires on July 31, 2021 and automatically renews every year.

 

For the year ended December 31, 2020 and December 31, 2019, commissions under this agreement were $61,470.33 and $0, respectively.

 

Effective December 11, 2019, the Company executed a Commission Agreement with Christopher J. Connolly. Mr. Connolly had agreed to provide sales representation services to Company for alcohol ice pop packing opportunities in exchange for commission. The agreement provides a commission 5% of gross revenue collected. The initial term is one year from the effective date. The agreement will renew automatically for 1-year terms unless the agreement is terminated.

 

No commissions were incurred under this agreement for the year ended December 31, 2020 and December 31, 2019.

 

Master Purchase Order Assignment Agreement

 

On May 8, 2020, the Company executed a Master Purchase Order Assignment Agreement with Rosenthal and Rosenthal, Inc (“R&R”). According to the agreement, R&R provides purchase financing up to 70% of the P.O. price in exchange for a fee. The maximum financing under the agreement was $1,000,000. The agreement was terminated by R&R on July 6, 2021.

 

Settlement Agreement and Release

 

On November 17, 2020, the Company executed a Settlement Agreement and Release with T.H.E.M, the previous employer of one of Company’s members filed a complaint with the Superior Court for the County of Burlington in New Jersey. According to the agreement, the Company had agreed not to solicit T.H.E.M’s clients for period of one year and to pay T.H.E.M a total of $25,000. For the year ended December 31, 2020, the $25,000 settlement charge had been fully paid by the Company.

 

NOTE 11. MEMBER EQUITY

 

Member

 

Profit and Loss Percentage as of December 31,

2020

 

Thomas Martin

 

 

27.28 %

FrutaPop LLC

 

 

27.28 %

InnoAccel Investments LLC

 

 

45.45 %

Total

 

 

100.00 %

 

 
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Pursuant to the operating agreement, the investor member is to make capital contributions in the amount $1,825,000. On December 31, 2020, InnoAccel Investments LLC converted two promissory notes, resulting in $574,886 in additional equity. No distributions were made for the year ended December 31, 2020 and December 31, 2019.

 

NOTE 12. SALES CONCENTRATION

 

The Company had two significant customers representing approximately 47% and 36% of the total sales in 2020. No sales were recorded in 2019. The loss of significant customers or the failure to attract new customers could have a material adverse effect on our business, results of operations and financial condition.

 

NOTE 13. SUBSEQUENT EVENTS

 

On July 26, 2021, all of the issued and outstanding membership interests of the Company was acquired by Iconic Brands, Inc (“Iconic”) in exchange for (a) $3,995,551 cash; (b) 26,009,600 shares of Iconic’s common stock (valued at $0.3125 per share or $8,128,000); (c) $4,900,000 Promissory Notes bearing interest at 10% and due July 26, 2022; and (d) earn-out payments for years ended July 31, 2022 and July 31, 2023 equal to the excess of 1.96 times TopPop’s EBITDA for each year over the amount of Promissory Notes repaid for each year. The earn-out payments shall be made, at the election of each TopPop Member, in cash or in shares of Iconic’s common stock or a combination thereof provided that not less than 45% of the value of each earn-out payment shall be paid in common stock.

 

Subsequent to December 31, 2020, the Company received an Economic Injury Disaster Loan (“EIDL”) from the SBA. The loan was for $150,000 and is payable over 30 years with interest at 3.75%.

 

 
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