UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2021

 

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: 000-53162

 

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)

 

Registrant’s telephone number, including area code: (631) 464-4050

 

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

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ICNB

OTC Markets Group

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 an emerging growth company. See 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

Smaller reporting company

 

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 Ex-change Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

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

 

The aggregate market value of the voting stock and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter ended June 30, 2021 was $6,228,000 based upon the closing price of the registrant’s common stock of $0.40 on the OTCQB as of that date.

  

As of June 13, 2022, there were 97,086,968 shares of common stock, par value $0.001, issued and outstanding.

 

 

 

 

 

 ICONIC BRANDS, INC.

 

FORM 10-K ANNUAL REPORT

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021

 

TABLE OF CONTENTS

 

PART I

 

 

 

 

 

 

 

ITEM 1

BUSINESS

 

4

 

ITEM 1A

RISK FACTORS

 

13

 

ITEM 1B

UNRESOLVED STAFF COMMENTS

 

22

 

ITEM 2

PROPERTIES

 

22

 

ITEM 3

LEGAL PROCEEDINGS

 

22

 

ITEM 4

MINE SAFETY DISCLOSURES

 

22

 

 

 

 

 

 

PART II

 

 

 

 

 

 

ITEM 5

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

23

ITEM 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

24

ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

31

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

F-1

ITEM 9

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

31

ITEM 9A

CONTROLS AND PROCEDURES

 

32

ITEM 9B

OTHER INFORMATION

 

33

ITEM 9C

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

33

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

ITEM 10

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

34

 

ITEM 11

EXECUTIVE COMPENSATION

 

36

 

ITEM 12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

39

 

ITEM 13

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

41

 

ITEM 14

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

43

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

ITEM 15

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

44

 

 
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

 

Statements in this Annual Report on Form 10-K 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” of this 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K or to reflect the occurrence of unanticipated events, except as required by applicable law.

 

 
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PART I

 

Throughout this Annual Report on Form 10-K, the “Company,” “Iconic,” “we,” “us,” and “our” refers to Iconic Brands, Inc. and its subsidiaries.

 

ITEM 1. BUSINESS

 

Overview

 

Iconic Brands, Inc (“we,” “us,” “our,” “Iconic” or the “Company”) is engaged in the development and sale of alcohol and non-alcohol brands that are “better-for-you” (“BFY”) and “better-for-the-planet”. TopPop, our wholly owned subsidiary, produces low calorie, “ready to go” products, ready-to-freeze (“RTF”) products and ready-to-drink (“RTD”) products in sustainable, flexible and stand-up pouch packaging. TopPop is also a leader in the “cocktails-to-go” pouches and alcohol ice-pop market. Our brands include “Bellissima” by Christie Brinkley, a premium BFY collection of Prosecco, Sparkling Wines, and Still Wines, all certified vegan and made with organic grapes. Bellissima is strategically positioned with its Zero Sugar Wines. We operate in multiple states, sell and distribute across the globe and have Fortune 500 customers that include some of the world’s largest alcohol beverage companies and brands. United Distributors, Inc., (“United”) is our 100% owned subsidiary which sells our Bellissima, Bella, Sonja Sangria and other alcohol beverages to state distributors. United holds all applicable state and federal licenses in order to sell these products to state distributors in accordance with the United States three tier distribution platform.

 

We have expertise in developing, from product inception to wholesale distribution or direct to consumer through the QVC distribution channel, and in branding alcohol beverages for our company and for third parties. We market and place products into national distribution through long-standing industry relationships approximately 45 national or regional alcoholic beverage distributors. We currently market and sell the following product lines: 

 

·

Bellissima Prosecco – these products comprise a line of all-natural and vegan Prosecco and Sparkling Wines made with organic grapes, including a Zero Sugar, Zero Carb option, a DOC Brut and a Sparkling Rose. The Bellissima line of Prosecco and Sparkling Wines includes two new flavor profiles, a Zero Sugar/Zero Carb Sparkling Rose and a Rose Prosecco;

 

 

·

Bellissima Zero Sugar Still Wines – this line of five still wines was launched in March 2022 and are certified vegan and are made with organic grapes.

 

 

·

Bella Sprizz Aperitifs - 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;

 

 

·

Ready-to-Freeze and Ready-to-Drink Alcoholic Products – these products are currently produced under contract for third-party national and regional brands and for our Boozy Pops® product line; and

 

 

 ·

BiVi Vodka – a celebrity-branded vodka that we have sold since 2018 under the brand “BiVi 100 percent Sicilian Vodka” and which currently does not represent a material portion of our sales.

 

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

 

As a result of our July 2021 acquisition of 100% of the equity of TopPop, we are now a vertically integrated company for the development, production and distribution of alcoholic brands. TopPop is a premier product development, contract manufacturing and packaging company that specializes in flexible packaging applications in the food, beverage and health categories. It has the federal and state licenses necessary to manufacture and blend malt, wine and spirits-based products. In June 2020, TopPop opened a 27,000-square-foot FDA-approved manufacturing facility in Marlton, New Jersey with a Safe Quality Food certification. In September 2021, TopPop leased an additional 65,000 square feet facility for manufacturing in Pennsauken, New Jersey. Construction is now complete, and the facility reached full-scale production capability at the end of March 2022. The facility includes approximately $4 million of high-speed packaging equipment and is expected to triple our production capacity.

 

 
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For its first product line, TopPop identified the single serve, RTD and RTF as ripe for product and packaging innovation. TopPop introduced an alcohol-infused ice pop in June 2020 and began marketing the concept to major alcohol companies. In addition, it developed its own product line trademarked under the name BoozyPopz® which is expected to be sold through e-commerce platforms and wholesaled directly to sports and entertainment venues. TopPop manufactured approximately 8 million ice pops from its launch in June 2020 through December 31, 2020 and manufactured approximately 42 million ice pops during the year ended December 31, 2021. TopPop has also developed a pipeline for the single serve, RTD alcohol cocktail market and anticipates launching a line of products in this market in 2022. TopPop designs and markets flexible packaging for its RTD and RTF products with formulations that are low calorie and contain healthy and natural ingredients. With the planned opening of TopPop’s new facility at the end of the first quarter of 2022, we expect to have the capacity to manufacture over 150 million units in 2022.

 

We believe TopPop brings to us additional synergies and opportunities for cross-promoting new and existing products to a broader customer base and better positions our company to establish and support our brands and to create sustainable packaging solutions to the consumable goods market. We believe our focus on lifestyle branding and the rising “Better-for-You,” “Better-for-the-Planet” consumer categories has made us a leader in developing celebrity brands worldwide, such as our Bellissima Prosecco by Christie Brinkley. Our mission is to be an industry leader in the brand development, marketing and sales of alcoholic beverages and related products by capitalizing on our ability to procure products from around the world and to develop unique and innovative packaging to create brand and product line extensions. We plan to leverage our relationships to add value to our products and to create brand awareness in unbranded niche categories.

 

Segments

 

The Company has two reportable segments: the development and sale of alcohol and non-alcohol brands that are BFY and “better-for-the-planet” (Branded Beverages segment) and the packaging of low calorie, “ready to go” products, RTF products and RTD products in sustainable, flexible and stand-up pouch packaging. See Note 15 – Segment Reporting.

 

Brands and Products

 

Bellissima Prosecco, Bellissima Sparkling Wines and Bellissima Still Wines

 

We market and sell a line of all-natural and vegan prosecco, sparkling wines and still wines made with organic grapes. The prosecco and sparkling wines include two zero sugar options, a zero carb glera grape option, and a zero sugar, zero carb rose option. Our line of sparkling wine also includes a DOC Brut and a sparkling rose, as well as a DOC pink prosecco. Our zero sugar and less-than-one-gram of carbs still wine collection currently consists of a cabernet sauvignon, a chardonnay, a pinot grigio, a rose and a merlot. We market and sell these products under the Bellissima brand name pursuant to a license agreement entered into between our Bellissima Spirits LLC (“Bellissima Spirits”) subsidiary, and Christie Brinkley, Inc., an entity owned by supermodel and entrepreneur Christie Brinkley (“CBI”), on November 12, 2015, which agreement was amended on June 30, 2017 and further amended on April 22, 2022 (as amended, the “Bellissima Agreement”). During her career, Christie Brinkley has appeared on over 500 magazine covers worldwide, served as a spokeswoman for CoverGirl, and performed on Broadway, in television and in film.

 

The Bellissima products are produced at a winery located in Treviso, Italy. Bellissima’s winery partners manage the procurement of all raw materials required to produce a finished product of the Bellissima sparkling wine and still wine collections.

 

Bella Sprizz Aperitifs

 

We have also developed, and now market and sell, a line of aperitifs in partnership with Christie Brinkley under the brand name Bella Sprizz. This line of aperitifs consists of three different expressions, a classic Italian aperitif typically used in making a “Spritz,” or as we prefer to say “Sprizz.” The second product in the line is an all-natural elderflower aperitif that may be added as a component to a consumer’s favorite cocktail or simply added to another spirit, such as a glass of our Bellissima Zero Sugar. We also offer “Bella Bitter,” a classic Italian bitter that can be served over ice with a garnish, such as a squeeze of a fresh orange, or added as a component in making a superior Negroni, a popular Italian cocktail.

 

Sonja Productions LLC

 

We have signed a brand licensing agreement (the “Sonja Agreement”) with Sonja Productions LLC, a company owned by Sonja Morgan (“Sonja Productions”), pursuant to which we obtained the exclusive right to use certain of Sonja Productions’ intellectual property in connection with the marketing, distribution and sale of red sangria using Sonja’s name, image, signature and likeness in connection therewith. Pursuant to the Sonja Agreement, we will pay Sonja Productions a royalty of 10% of the net sales of all products sold during the term of the Sonja Agreement, including direct-to-consumer sales.

  

 
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Private Label Manufacturing and Distribution

 

In addition to developing celebrity brands, we develop and supply products for national restaurant chains, consumer good companies, and national retailers with high-quality, private label products through our designated in-market wholesalers. We believe that private labeling presents a significant opportunity for growth of our business. We provide full-service, turnkey private labeling-enabled expertise in product sourcing, product development, brand development, marketing and distribution.

 

We previously marketed and sold 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. Currently, we are in the process of developing a Hooters product that will be produced by TopPop, pursuant to an amended agreement.

 

TopPop is also launching its own brand of RTF products under the name BoozyPopz® using an e-commerce distribution channel.

 

Flexible Packaging

 

Our recently acquired TopPop subsidiary specializes in flexible packaging for alcohol products as an alternative to cans and bottles. We believe the trend in beverage, liquid and lotion packaging has been to move away from bottles and cans and toward flexible stand-up pouches. In particular, beverage brands continue to develop packaging with the objective of accentuating the entire experience of the consumer associated with holding, opening, drinking, and enjoying beverages. We believe flexible packaging offers numerous benefits in the marketing, packaging and distribution of alcohol. In addition, we believe flexible, stand-up pouches create design opportunities to have the package stand out and appeal to consumers.

 

The key advantages of flexible packaging over cans and bottles for alcohol products include the following:

 

 

·

Barrier Protection - Barrier material used in specialized alcohol pouches provides an oxygen barrier with a longer shelf life.

 

 

 

 

·

Product Differentiation - Disruptive marketers can use standout packaging formats to differentiate themselves from long-established brands in traditional containers. New pouches developed specifically for the alcohol sector can provide greater stability and offer better shelf presence in stores.

 

 

 

 

·

Millennial and Gen Z Appeal - Flexible packaging has been shown to appeal to millennials and Gen Z’ers due to the increased portability and reduced weight.

 

 

 

 

·

Sustainability - Pouches offer an estimated 80-85% reduction in carbon footprint compared to glass. Pouches also compare favorably compared to cans, as they easily can be flattened and recycled after the liquid is consumed, unlike cans, which must be crushed and recycled in trash cans or recycling bins.

 

 

 

 

·

Supply Chain Efficiency - Reduced packaging material also has a ripple effect on the supply chain, with less space needed to store and transport the product, which improves total supply chain efficiencies and costs.

 

TopPop also has other initiatives in place regarding recycling for its product packages and continues to work with vendors toward increasingly sustainable solutions.

 

Industry Overview

 

According to Statista, a leading research firm for a number of consumer goods markets, the U.S. alcoholic beverages market was valued at approximately $255 billion in 2021 and is expected to grow by 5.92% annually between 2021 and 2025. Recent market data shows that from 2011 to 2019, sales increased by 30%, with an average increase of roughly 4.3% annually. Much of this growth is attributed to a shift toward spirits; the sales of the spirits category have increased substantially since 2018, averaging over 13% sales growth per year.

 

According to Euromonitor International, a leading provider of global business intelligence, market analysis and consumer insights, in 2019, the “high end” and “super premium” categories experienced larger sales growth than the “premium” and “value” categories. Within the wine category, there has been a shift in consumer behavior towards Sparkling Wine and Rosé. Prosecco and Sparkling Rosé in particular have seen high growth rates.

 

 
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This shift in consumer behavior toward premium offerings, sparkling wines and seeking new experience continued in 2020 and is forecast to continue in the next years. Despite a challenging COVID-19 environment, the alcohol e-commerce industry is seeing continued growth. According to IWSR, a leading source of data and research on the global beverage alcohol market, U.S. alcohol e-commerce approached approximately $5.6 billion in 2020, up from roughly $3 billion in 2019. This growth was largely driven by the omni-channel segment as supermarkets and traditional retailers have sought to rapidly enhance their online offering.

 

According to Euromonitor Internationals, starting in 2021, the alcoholic drinks market will begin to recover after the pandemic effect on 2020 sales. Spirits are expected to see a return to positive growth in 2021. Compared to previous years, more consumption occasions will remain in the home, and e-commerce sales will continue growth. Within the wine category, sparkling wine is expected to record the highest total volume compound annual growth rate (CAGR), signaling that this category will be well positioned for recovery post-COVID-19.

 

According to Beverage Daily, new young consumers are looking for ethical brands that address causes they care about, which often includes the planet, animals welfare and social inclusivity, among others.

 

In addition, the direct-to-consumer channel is predicted to grow by nearly $3 billion in value between 2019 and 2024, at a CAGR of 24% over the five-year period, according to IWSR.

 

RTF adult ice pops and RTD single-serve cocktails are a fast-growing segment in the alcohol beverage industry and have grown in popularity in recent years. According to Grand View Research, the global RTD cocktails market size was valued at over $700 million in 2020 and is expected to grow at a CAGR of 12% from 2021 to 2028.

 

Currently, the celebrity-branded alcoholic beverage industry is a largely consolidated industry, in which the largest companies control a significant portion of industry revenues. This includes existing distillery companies that use their own liquor and parent brands to promote their products. These companies have a significant advantage over smaller industry participants because they already have large bottling facilities and established brands.

 

Industry market share has also increased slightly during recent years as larger companies acquired smaller firms. For example, Sammy Hagar sold an 80% stake to Gruppo Campari for $80 million, Bethenny Frankel sold her Skinny Girl Cocktail brand to Fortune Brands’ Beam Global for an estimated $100 million in 2011, and George Clooney sold his tequila company to Diageo for approximately $1 billion.

 

Entrants and products in the celebrity-branded alcoholic beverage industry include, but are not limited to, Casamigos Tequila and George Clooney (2013), Ciroc Vodka and Sean Combs (2007), Skinnygirl Margarita and Bethenny Frankel (2011) and Cabo Wabo Tequila and Sammy Hagar (1996).

 

Given the trends discussed above, we believe that there is a substantial opportunity in this market due to the rising popularity of celebrity-branded alcoholic beverages.

 

Sales and Marketing

 

We intend to utilize the strength of our management team and industry consultants to focus on brands that will consistently meet the needs of customers and consumers around the world. We aim to gain brand loyalty by partnering with well-known celebrities and/or national chains, such as we have with Christie Brinkley and Sonja Morgan, and have in the past with Chase Elliott and Hooters. We also intend to engage in targeted and national advertising and promotional campaigns, host celebrity and other sponsored events, and to offer distribution incentives. We hope to attain national exposure in order to drive both awareness and sales of our products in their markets. In addition, we expect that on and off-premise promotions, led by our sales management team, will pay off in increased awareness and higher sales.

 

We intend to kick off promotional campaigns with launch parties, supported by on-premise samplings, contests, on and off-premise giveaways, as well as social media campaigns, the launch of additional bottle sizes, and specialty drinks and menus. Product brochures, press kits, signage, banners, public relations, product placement, sponsorships and internet-based marketing will also be utilized to maximize brand exposure and awareness.

 

 
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Examples of some of our promotional activities have included:

 

 

·

In February 2020, Christie Brinkley hosted a series of Après Ski events at The Snow Lodge in Aspen, CO (starting on February 14, 2020 - Valentine’s Day). The events included an ice bar and featured Bellissima Prosecco and Sparkling Wines, wines made with organic grapes, with Bambinis (375ml) available in all three expressions. In addition, the highlight of the evening series showcased Bellissima’s partner, Christie Brinkley, as their celebrity mixologist throughout the evening;

 

 

 

 

· 

In 2021, Bellissima participated in a “One Tree Planted” campaign, in which it donated a tree for every bottle of Bellissima that was sold, to help the fire torn regions in California. Through Bellissima’s partnership with One Tree Planted, it helped plant 10,000 trees in California.

 

 

 

 

·

Hooters Spirits launched its premium line of alcohol beverages in August 2019 with first tastings taking place in and around Bristol, Tennessee. The No. 9 Hooters Spirits Chevrolet show car was at each event with the world-famous Hooters Girls on-site taking pictures with customers and fans. The debut events led up to the 2019 NASCAR Cup Series Bass Pro Shops 500 on August 17, 2019 at Bristol Motor Speedway, where Chase Elliott drove the Hendricks Motorsports No. 9 Hooters Spirits Chevrolet Camaro ZL1 1LE to a top-five finish; and

 

 

 

 

·

We have in the past also supported the rollout of the Hooters product line with marketing initiatives to help raise awareness of the brand, both inside and outside of the Hooters restaurants, which included event launches, contests and giveaways, such as an autographed Chase Elliott No. 9 Hooters Spirits Chevy Camaro ZL1 diecast giveaway.

 

We also plan to participate in consumer trade shows where wholesalers and retailers are also invited. This will allow our sales team to meet with many of the wholesalers and retailers who are otherwise hard to reach. Advertising and promotion will also be achieved through staff training of on-premise locations; bartenders and wait-staff will be trained to fully understand our products and market them to customers. Incentives will then be offered to motivate sales efforts.

 

Since public relations activity can be used as an effective promotional tool to promote brands, we plan to participate in high-profile public events to create an affinity for our brands that will resonate with their target markets, help build brand loyalty and ultimately drive sales. Among the numerous high-profile promotional and sampling campaigns that we have hosted are events at NASCAR races and events at selected Hooters locations for The College Football National Championship Game.

 

TopPop has engaged a major marketing agency to promote its RTD and RTF products in flexible packaging to sports and entertainment and venues.

 

Finally, we engage in direct-to-consumer (DTC) sales events, such as sales through QVC and websites.

 

Production and Suppliers

 

Bringing a wine brand to market involves several stages, including name choice, bottle selection, label or print design, raw material procurement, bottle-filling, and bottle packaging in various configurations for shipment. Labelling can have a large impact on consumers’ purchasing practices. We conduct market research to validate the consistency of our wine labels with our brand narrative. Packaging also continues to be a key driver of brand perception. For our traditional bottling, we often seek shapes or forms that are unique and will add value to our brand awareness in the marketplace. We are exploring “active lifestyle packaging” alternatives to traditional bottling that provides an opportunity for our customers to enjoy our “Better for You” and “Better for the Planet” wine products in non-traditional settings, including bottles with screw-off caps, aluminum cans, and smaller size bottles and cans that can be taken on-the-go and are ideal for in-store point of purchase sales, and through our TopPop subsidiary, pouches and other non-traditional packaging.

 

All of our wine products are developed and produced by a premier certified grower of organic grapes that is located in the Veneto region of Italy. This arrangement has allowed us to commence our operations and to build our wine brands without having to incur the considerable overhead costs involved with the purchase or full-time lease of a production facility. Under our arrangement with our winery partner, we are actively involved in the development and production of each product category within each brand. To achieve unique flavor profiles for our brands, including for the development and production our Prosecco, Sparkling Wines and newly-released Still Wines, we collaborate with our wine maker, which has substantial expertise in blending wines with unique profiles. . Once the final profile is approved and quality control standards are met, our winery partner produces the liquid in bulk and using unique production practices, bottles our wines for export to the United States and several international markets. This process includes the bulk production of the “juice” and the bottling of the product and packaging into cases configured to our specifications.

 

 
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Our relationship with our winery partner reduces our internal overhead expenses and allows us to benefit from that company’s increased purchasing power. Our winery provides these services on a purchase order basis, which are subject to the parties’ mutual agreement. This agreement outlines the schedule for placing orders, the responsibility and schedule for delivery of production materials, procedures for establishing the wine bottling date and delivery date. We have an open credit line with our winery partner and we provide payment via wire transfer in Euros. From time to time, we may provide an advance payment for the procurement of materials that we refer to as “dry goods”, such as the caps, corks, bottles, cartons and all other materials required to produce the finished product. If there is an opportunity to secure extra “juice,” we have the ability to purchase it by providing advance payment. We maintain approval rights for all components and finished products throughout the process.

 

The ability and willingness of our winery partner to supply and provide services to us pursuant to purchase orders may be affected by competing orders placed by other companies, the demands of those companies or other factors. If our winery partner becomes unable or unwilling to supply and provide services to us, we believe we can obtain comparable supplies and services from alternative suppliers. However, there can be no assurance that alternative suppliers will be available when required on terms that are acceptable to us, or at all, or that alternative suppliers will allocate sufficient capacity to us in order to meet our requirements. Given our long-standing relationships with our winery partner, we believe we have the ability to receive certain preferences over its other customers.

 

Our TopPop manufacturing and packaging operation purchases the alcohol for its products from various bulk alcohol suppliers in the United States. In addition, a number of TopPop’s largest customers purchase and deliver the alcohol required to manufacture clients’ products to our licensed TopPop facility, given their bulk purchasing capabilities. TopPop also purchases various other raw materials including, but not limited to cartons, liquid and labels. We generally purchase these raw materials from multiple suppliers and historically have not experienced significant shortages.

 

Intellectual Property

 

We strive to protect the reputation of our brands. We establish, protect and defend our intellectual property in a number of ways, including through employee and third-party nondisclosure agreements, copyright laws, domestic and foreign trademark protections, intellectual property licenses and social media and information security policies for employees. We have been granted 11 trademark registrations in the United States, and we have filed, and expect to continue to file, trademark applications seeking to protect any newly-developed brands.

 

We also rely on, and carefully protect, proprietary knowledge and expertise, including the sources of certain supplies, formulations, production processes, innovation regarding product development and other trade secrets necessary to maintain and enhance our competitive position.

 

 
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Bellissima Agreements

 

We market and sell our Bellissima Prosecco and Sparkling Wine products under a license granted by the Bellissima Agreement. Under the Bellissima Agreement, we were granted the right to use Christie Brinkley’s endorsement, signature and other intellectual property in connection with the sale of the products. We have agreed to guarantee certain of the obligations of Bellissima Spirits under the Bellissima Agreement and to indemnify CBI and Christie Brinkley against third-party claims.

 

Pursuant to the Bellissima Agreement, Bellissima Spirits is obligated to pay CBI a royalty fee equal to 10% of the monthly gross sales (12.5% for sales in excess of defined Case Break Points) of Bellissima branded products payable monthly. CBI has the right to terminate the endorsement if Bellissima Spirits fails to sell as least 20,000 cases each year. In addition, upon a liquidity event of either Bellissima Spirits or our company, CBI is entitled to 22.5% of, in the case of a liquidity event of Bellissima Spirits, the net proceeds generated from such liquidity event, or in the case of a liquidity event of our company, an amount equal to 22.5% of the appraised value of Bellissima Spirits. For purposes of such agreement, the term “liquidity event” means generally, any of the following:

 

 

·

a sale of all or substantially all of the assets of Bellissima Spirits or our company;

 

 

 

 

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a change of control of Bellissima Spirits or our company;

 

 

 

 

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a sale of equity following which the members of Bellissima Spirits or the stockholders of our company, immediately prior to such transaction do not own, immediately following such transaction, a majority of the voting and economic rights in Bellissima Spirits or our company; or

 

 

 

 

·

a merger, consolidation or similar transaction involving Bellissima Spirits or our company, following which the members of Bellissima Spirits or the stockholders of our company, immediately prior to such transaction do not own, immediately following such transaction, a majority of the voting and economic rights in Bellissima Spirits or our company.

 

On April 22, 2022, pursuant to an amendment to the Bellissima Agreement, we agreed to grant CBI options to purchase 1,500,000 shares of common stock (the “CB Options”). The exercise price per share of the CB Options will be equal to the fair market value of our common stock on the date the CB Options are granted, as determined in good faith by our board of directors. The CB Options will vest in equal quarterly installments over two years.

 

On October 23, 2019, United entered into a Marketing and Order Processing Services Agreement (the “Marketing Agreement”) with QVC, Inc. (“QVC”) pursuant to which United granted to QVC an exclusive worldwide right to promote the Bellissima Spirits products through direct response television programs. The initial license period commenced on October 23, 2019 and expires on December 4, 2021. 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 Marketing Agreement, the license continually renews for additional two-year periods. The Marketing Agreement provides for United’s payment of “Marketing Feed” (payable no less than monthly) to QVC in amounts agreed to between United and QVC from time to time.

 

Our Bellissima product line is owned by Bellissima Spirits, of which we, Mr. DeCicco, Ms. Faltings and an unaffiliated third party are members. Pursuant to the Bellissima Spirits Operating Agreement, upon a liquidity event of Bellissima Spirits, each of Mr. DeCicco, Ms. Faltings and the unaffiliated third party are entitled to 15.34%, 15.33% and 15.33%, respectively, of the net proceeds of such liquidity event, with us receiving the balance of such net proceeds. On April 15, 2022, we entered into a Second Amended and Restated Limited Liability Company Agreement of Bellissima Spirits, which provides that upon (i) a sale of all or substantially all of our assets, (ii) a change of control of us, (iii) a sale of equity following which our shareholders immediately prior to such transaction do not own, immediately following such transaction, a majority of the voting and economic rights in us, or (iv) a merger, consolidation or similar transaction involving us, each of Mr. DeCicco, Ms. Faltings and the unaffiliated third party will be entitled to sell their interests in Bellissima Spirits to us in exchange for the value of the equity interest in Bellissima Spirits that they would have received upon the sale of Bellissima Spirits, which value will be determined by an independent third-party appraiser.

  

Distribution

 

Private Label

 

Prior to our acquisition of United in July 2021, we marketed and sold our private label Hooters products pursuant to a marketing and distribution agreement entered into between us and United, effective as of April 1, 2019. Under such agreement, we had been granted the right to market and distribute the Hooters Spirits products line to (a) “Hooters” branded restaurants; (b) liquor distributors; and (c) off-premise, retail establishments (with all sales being made through distributors licensed to conduct business in the state of such sale) in the United States, Europe and Asia for a period of five years. The agreement provided for United to receive a fee of $1.00 per case of product sold to any wholesaler for retailer distribution.

 

 
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United obtained the rights to manufacture, market, distribute and sell certain alcoholic products bearing the Hooters trademarks in North America, Europe, Asia and Australia pursuant to a brand licensing agreement that it had entered into with Hooters on July 23, 2018 (the “Hooters Agreement”). Pursuant to the Hooters Agreement, United was granted a non-exclusive license to use the “Hooters” trademarks to manufacture, market, distribute and sell certain alcoholic products bearing the Hooters trademarks in North America, Europe, Asia and Australia for a period that expired on December 31, 2020. Under the Hooter’s Agreement, United paid Hooters an advance of $30,000, and agreed to pay royalties to Hooters of 6% of net sales (as defined) of all products during the term. In addition, the agreement also provided for United’s payment of a marketing contribution equal to 2% of the prior year’s net sales of the licensed products. If United failed to spend the required marketing contribution in any calendar year, the deficiency would be paid to Hooters. In November of 2021, we amended the contract with Hooters, which, among other items, would allow for TopPop to produce a ready to drink product line and would discontinue the sale of the branded alcohol products.

 

By law, United can only sell our alcoholic products to licensed United States wholesalers or distributors. Wholesalers and distributors then sell the product to licensed retailers for “on” or “off” premise consumption. An “on” premise retailer is an establishment where the alcohol is consumed, such as a bar or restaurant, and an “off” premise retailer is an establishment where alcohol is sold for consumption elsewhere, such as a liquor store or, in some state, a supermarket. Accordingly, our products are shipped to the United States by United either directly to its distributors or to United’s warehouse. Products that are shipped to United’s warehouse are then shipped via ground freight to wholesalers or distributors to fulfill orders as they are placed.

 

TopPop is currently in negotiations with global alcohol beverage companies, including two of the five largest beer producers in the world, to license some of their brands for use by TopPop in the development and sale of new RTD and RTF products.

 

We have registered trademarks in the United States associated with our BiVi and Bella Sprizz brands or products. In addition, Richard DeCicco, our Chairman of the Board and President, owns the rights to a trademark depicting an image of the Botticelli Venus that is used on certain or our Bellissima and Bella Sprizz products. We use that trademark with the permission of Mr. DeCicco.

 

Our other brands, such as Bellissima Prosecco and Sparkling Wines or Hooters branded spirits, are either protected under trademarks owned by the licensors or under common law use, and we use them with the licensors’ permission pursuant to the agreements that we or our subsidiaries have entered into with them.

 

We intend to apply for new trademarks on an ongoing basis as we develop new brands or products. We regard our trademarks, service marks, copyrights, domain names, trade dress, and similar intellectual property as very important to our business.

 

We enforce and protect our trademark rights against third parties infringing or denigrating our trademarks by opposing registration of infringing trademarks, and initiating litigation as necessary.

 

Competition

 

The beverage alcohol industry is highly competitive. We compete on the basis of quality, price, brand recognition and distribution strength, as well as providing consumers with unique brands with special attributes that set our brands apart from the rest. Our beverage alcohol products compete with other alcoholic and non-alcoholic beverages for consumer purchases, as well as shelf space in retail stores, restaurant presence and wholesaler attention. We compete with numerous multinational producers and distributors of beverage alcohol products, some of which have greater resources than we do. Our competitors include, but are not limited to, Gallo, Mionetto, Gruppo Campari, Constellation Brands, William Grant and Sons and Jim Beam Brands.

 

 
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As TopPop products are relatively new in the marketplace, there is not yet significant competition in the manufacturing and sale of such products to or for the account of third parties. We expect competition to intensify with the expected increase in the popularity of RTD and RTF products in flexible packaging.

 

Governmental Regulation of the Wine and Spirits Industry

 

The production and sale of malt, wine and spirits is subject to extensive regulation by the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau and state liquor commissions and agencies.

 

In addition, most states in which our products are sold impose varying excise taxes on the sale of alcoholic beverages. Prompted by growing government budget shortfalls and public reaction against alcohol abuse, government entities often consider legislation that could potentially affect the taxation of alcoholic beverages. Excise tax rates being considered are often substantial. The ultimate effects of such legislation, if passed, cannot be assessed accurately. Any increase in the taxes imposed on our products can be expected to have a potentially adverse impact on overall sales of such products. However, the impact may not be proportionate to that experienced by distributors of other alcoholic beverages and may not be the same in every state.

 

The agreements we have in place with United and Dan Kay International provide the required licensing conduits that allow us to capture the sales relative to alcoholic beverages in the United States. The United States alcohol beverage business is based upon what is known as a “three-tier system.” The three tiers consist of an import or supplier tier if the product is domestically produced. The second tier is the wholesale tier. The third tier is known as the retail tier, consisting of an on and off premise split. The import/supply tier sells to the wholesale tier that then sells to the retail tier.

 

We possess the import/supply tier licensing as well as the required licenses in the states in which we sell alcoholic beverages to the wholesale tier. Prior to our recent acquisition of United, we had contracted with United to facilitate the sales of our products using the licensing United has in place. This is a common third party provider relationship in the United States alcohol beverage business.

 

We contract with Dan-Kay International (an entity controlled by Richard DeCicco) for warehousing services for the alcohol beverage products that come to rest in the United States. Dan-Kay maintains a required New York State warehousing license. This license has a level allowing the third-party warehousing classified as “product of others.”

 

Employees

 

As of December 31, 2021, we employed 41 full-time employees and 8 consultants. Of our full-time employees at that date, 12 were in corporate administration, 8 were in marketing and sales, 21 were in production and distribution. We are not a party to any collective bargaining agreements. We believe that we maintain good relations with our employees.

 

Corporate History

 

We were incorporated in the State of Nevada on October 21, 2005 (under the name Paw Spa, Inc.). On May 7, 2009, we changed our name to Iconic Brands, Inc.

 

Effective December 31, 2016, we closed on (i) a May 15, 2015 agreement to acquire a 51% interest in BiVi LLC. and (ii) a December 13, 2016 agreement to acquire a 51% interest in Bellissima Spirits LLC. These transactions involved entities under common control of our Chief Executive Officer and represented a change in reporting entity.

 

BiVi LLC was organized under the laws of the State of Nevada on May 4, 2015 and Bellissima Spirits LLC was organized under the laws of the State of Nevada on November 23, 2015.

 

On July 26, 2021, we acquired 100% of the equity of TopPop LLC, a limited liability company organized under the laws of the State of New Jersey on September 5, 2019.

 

 
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Availability of Certain Information

 

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act are available free of charge on our website, www.iconicbrandsusa.com, as soon as reasonably practicable after the electronic filing of such reports with the Securities and Exchange Commission.

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other information in this Annual Report on Form 10-K before investing in our common stock. Our business and results of operations could be seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part of your investment.

 

Risk Factors Related to the Business of the Company

 

We face significant risks relating to our recent acquisition.

 

Our recent acquisition of TopPop involves a number of significant risks and uncertainties that may adversely affect us, including the following:

 

 

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our inability to realize anticipated synergies or other expected benefits or cost savings;

 

 

 

 

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the diversion of financial resources to the new operations or acquired businesses;

 

 

 

 

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our failure to successfully integrate acquired systems, business processes, policies and procedures;

 

 

 

 

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our exposure to unknown liabilities and unforeseen costs that were not discovered during due diligence;

 

 

 

 

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the potential loss of key employees, suppliers or customers;

 

 

 

 

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potential delays in the opening of the new TopPop manufacturing facility due to regulatory and equipment factors, such as late issuance by the State of New Jersey of alcohol manufacturing and licensing approvals or supply chain delays in the delivery of new capital equipment;

 

 

 

 

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wars (such as the recent outbreak of hostilities between Russia and Ukraine), pandemics, weather and natural or man-made disasters; and

 

 

 

 

·

other challenges associated with managing the larger, more complex and integrated combined businesses.

 

If one or more of these risks and uncertainties were to materialize, we could experience reduced sales, higher costs, lower profitability and other adverse impacts to our operations and businesses.

 

We have a history of losses, and may not achieve or maintain profitability in the future.

  

We have a history of losses and have historically raised capital to meet our needs. Our net losses for the years ended December 31, 2021 and 2020 were $10,463,994 and $3,571,602, respectively, and our accumulated deficit as of December 31, 2021 was $36,961,344. We may sustain losses in the future as we continue to implement our business plan, and there can be no assurance that we will ever generate sufficient revenues to maintain profitability in the future.

 

 
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If we fail to obtain the capital necessary to fund our operations, we will be unable to continue our operations and you will likely lose your entire investment.

 

We will need to continue to seek capital from time to time to continue to execute our business plan. Our business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhanced products, acquire complementary products, business or technologies or otherwise respond to competitive pressures and opportunities. In addition, we may need to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned, and this would require additional capital. However, we may not be able to secure funding when we need it or on favorable terms. If we cannot raise adequate funds to satisfy our capital requirements, we will have to curtail or cease our operations.

 

Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.

 

The capital markets have been unpredictable in the recent past. The amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control. As a result, we may not be able to secure financing on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued viability will be materially adversely affected.

 

We rely on one supplier for the production and supply of our wine products

 

All of our wine products are produced and supplied by one supplier.  While we work closely with this supplier in the development and production of our wine products, we have no long-term agreement with this supplier for the development, production or purchase of products, and our products are developed, produced and acquired by us from this supplier only through purchase orders that are negotiated on a case-by-case basis. At the current time, we have ordered, and our supplier has agreed to produce, our currently estimated needs through the end of 2022. However, if our supplier is unwilling or unable to supply to us the wine products we market and sell in the quantities we require, or at all, or otherwise elects to terminate its business relationship with us, we may not be able to obtain alternative products from other suppliers on acceptable terms, in a timely manner, or at all, and our business may be materially and adversely impacted. We do not currently have any alternative suppliers from which we can obtain the quality or quantity of wine products.

   

Further, any increase in distribution prices, increase in the prices charged by our single supplier or failure to perform by the supplier could cause our costs to increase or could cause us to experience short-term unavailability of our wine products. Failure to identify an alternate source of supply for these products may result in significant cost increases and an inability to provide our wine. If these events occur, it may reduce our profitability or may cause us to increase our prices. In addition, any material interruptions in our supply chain, or interruptions in service by common carriers that ship goods within our distribution channels, may result in significant cost increases and reduce sales, which could harm our business, financial condition and results of operations and may have a material adverse impact on our business.

 

Widespread health developments, including the recent global COVID-19 pandemic, could materially and adversely affect our business, financial condition and results of operations.

 

Our business has been, and may continue to be, impacted by the fear of exposure to or actual effects of the COVID-19 pandemic in countries where we operate or our customers are located, such as recommendations or mandates from governmental authorities to close businesses, limit travel, avoid large gatherings or to self-quarantine, as well as temporary closures or decreased operations of the facilities of our customers, distributors or suppliers. These impacts include, but are not limited to:

 

 

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Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other restrictions, store or restaurant closures, or financial hardship, shifts in demand away from one or more of our higher priced products to lower priced products, or stockpiling or similar activity, reduced options for marketing and promotion of products or other restrictions in connection with the COVID-19 pandemic; if prolonged, such impacts can further increase the difficulty of operating our business, including accurately planning and forecasting;

 

 

 

 

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Our inability to meet our consumers’ and customers’ needs and achieve costs targets due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or purchased finished goods, logistics, reduction or loss of workforce due to the insufficiency or failure of our safety protocols, or other manufacturing and supply capability;

 

 

 

 

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Failure of third parties on which we rely, including our suppliers, bottlers, distributors, contract manufacturers, contractors, commercial banks and external business partners, to meet their obligations to us or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties; or

 

 

 

 

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Significant changes in the conditions of the markets in which we manufacture, sell or distribute our products, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise prevent our third-party bottlers, distributors, partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products.

 

 
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All of these impacts could place limitations on our ability to execute on our business plan and materially and adversely affect our business, financial condition and results of operations. We continue to monitor the situation, have actively implemented policies and procedures to address the situation, and may adjust our current policies and procedures as more information and guidance become available to address the evolving situation. The impact of COVID-19 may also exacerbate other risks discussed in this Report, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

 

We face risks related to our inventory, and if we fail to accurately predict demand for our products, we may face write-downs or other charges.

 

We are exposed to inventory risks that may adversely affect our operating results as a result of new product launches, changes in product cycles and pricing, limited shelf-life of certain of our products, changes in consumer demand, and other factors. Demand for our products can change significantly between the time of production and the date of sale. If we are unable to accurately predict the demand for our products, we may face write-downs or other charges, which could have a material adverse effect on our business or operations.

 

Disruptions in our supply chain could have a substantial adverse impact on our ability to produce our products and the cost of our raw materials.

 

We are exposed to production risks, especially in the case of Bellissima Prosecco and Sparking Wines, due to weather conditions. The growing and harvesting of the grapes that we need to make our wines are directly affected by the weather conditions. Adverse weather conditions may decrease the availability of grapes thereby increasing the cost of grapes which would have a material adverse effect on our business and operations.

 

In addition, we produce our wines at two production facilities located in Sicily, Italy and Treviso, Italy. A disruption from fire or other catastrophic event at either of these facilities could halt production and have a material adverse effect on our financial condition.

 

Contamination and degradation of product quality from diseases, pests and weather conditions may have a material adverse effect on our business and results of operation.

 

Our success depends upon the positive image that consumers have of our brands and of the safety and quality of our products. Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could adversely affect their sales. Various diseases, pests, fungi, viruses, drought, frosts and certain other weather conditions could affect the quality and quantity of grapes and other agricultural raw materials available, decreasing the supply and quality of our products. We cannot guarantee that our grape suppliers or our suppliers of other agricultural raw materials will succeed in preventing contamination in existing vineyards or fields or that we will succeed in preventing contamination in our existing vineyards or future vineyards we may acquire. Future government restrictions regarding the use of certain materials used in growing grapes or other agricultural raw materials may increase vineyard costs and/or reduce production of grapes or other crops. It is also possible that a supplier may not provide materials or product components which meet our required standards or may falsify documentation associated with the fulfillment of those requirements.

 

 
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Product contamination or tampering or the failure to maintain our standards for product quality, safety and integrity, including with respect to raw materials, naturally occurring compounds, packaging materials or product components obtained from suppliers, may also reduce demand for our products or cause production and delivery disruptions. Contaminants or other defects in raw materials, packaging materials or product components purchased from third parties and used in the production of our wine or spirits products could lead to low beverage quality as well as illness among, or injury to, consumers of our products and may result in reduced sales of the affected brand or all our brands.

 

If any of our products become unsafe or unfit for consumption, are misbranded, or cause injury, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall, multiple product recalls, or a significant product liability judgment could cause our products to be unavailable for a period, which could further reduce consumer demand and brand equity thereby adversely affecting our business and results of operations.

 

Climate change and environmental regulatory compliance may have an adverse effect on our operations.

 

Our business depends upon agricultural activity and natural resources. There has been much public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. Decreased availability of our raw materials may increase the cost of goods for our products. Severe weather events or changes in the frequency or intensity of weather events can also disrupt our supply chain, which may affect production operations, insurance cost and coverage, as well as delivery of our products to wholesalers, retailers and consumers. Natural disasters such as floods and earthquakes may also negatively impact the ability of consumers to purchase our products.

 

We may experience significant future increases in the costs associated with environmental regulatory compliance, including fees, licenses, and the cost of capital improvements for our operating facilities to meet environmental regulatory requirements. In addition, we may be party to various environmental remediation obligations arising in the normal course of our business or relating to historical activities of businesses we acquire. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants in our current and former properties, the potential exists for remediation, liability and indemnification costs to differ materially from the costs that we have estimated. We may incur costs associated with environmental compliance arising from events we cannot control, such as unusually severe floods, hurricanes, earthquakes or fires. We cannot assure you that our costs in relation to these matters will not exceed our projections or otherwise have a material adverse effect upon our business, liquidity, financial condition or results of operations.

 

A potential decline in the consumption of the products we sell could have a material adverse effect on our business.

 

Our business depends upon consumers’ consumption of our wine and spirits brands. Consumer preferences and tastes may shift due to, among other reasons, changing taste preferences, demographics or perceived value. Consequently, any material shift in consumer preferences and taste away from our, wine and spirits brands could have a negative impact on our business, liquidity, financial condition and/or results of operations. Consumer preferences may shift due to a variety of factors, including changes in demographic or social trends, public health policies, and changes in leisure, dining and beverage consumption patterns. A limited or general decline in consumption of our products could occur in the future due to a variety of factors, including:

 

 

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a general decline in economic or geopolitical conditions;

 

 

 

 

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concern about the health consequences of consuming beverage alcohol products and about drinking and driving;

 

 

 

 

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a general decline in the consumption of beverage alcohol products in on-premise establishments, such as may result from stricter laws relating to driving while under the influence of alcohol;

 

 

 

 

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the increased activity of anti-alcohol groups;

 

 

 

 

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increased federal, state, provincial and foreign excise or other taxes on beverage alcohol products and possible restrictions on beverage alcohol advertising and marketing;

 

 

 

 

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inflation; and

 

 

 

 

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wars (such as the recent outbreak of hostilities between Russia and Ukraine), pandemics, weather and natural or man-made disasters.

 

 
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Our wine products face significant competition which could adversely affect our business.

 

The wine industry is highly competitive. Our wines compete in several super-premium and ultra-premium wine market segments with many other domestic and foreign wines. Our wines also compete with other alcoholic and, to a lesser degree, non-alcoholic beverages, for shelf space in retail stores and for marketing focus by independent distributors, many of which carry extensive brand portfolios. In addition, the wine industry has experienced significant consolidation. Many competitors have greater financial, technical, marketing and public relations resources.

 

Our sales could be negatively affected by numerous factors including:

 

 

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our inability to maintain or increase prices;

 

 

 

 

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new entrants in our market or categories;

 

 

 

 

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the decision of wholesalers, retailers or consumers to purchase competitors’ products instead of ours; or

 

 

 

 

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a general decline in beverage alcohol consumption due to consumer dietary preference changes or consumers substituting legalized marijuana or other similar products in lieu of beverage alcohol.

 

Furthermore, sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by wholesalers, state and other local agencies, and retailers which could affect their supply of, or consumer demand for, our products. We could also experience higher than expected selling, general and administrative expenses if we find it necessary to increase the number of our personnel or our advertising or marketing expenditures to maintain our competitive position or for other reasons. We cannot guarantee that we will be able to increase our prices to pass along to our customers any increased costs we incur. Our sales may be harmed to the extent we are not able to compete successfully against wine or alternative beverage producers.

 

Our business depends on the effectiveness of our advertising and marketing programs, including the strength of our social media presence, to attract and retain members and subscribers.

 

Our business success depends on our ability to attract and retain consumers which depends significantly on the effectiveness of our advertising and marketing practices. In addition, from time-to-time, we use brand ambassadors, spokespersons and social media influencers in our advertising and marketing programs to communicate with consumers. Actions taken by these individuals that harm their personal reputation or image, or include the cessation of using our products, could have an adverse impact on the advertising and marketing campaigns in which they are featured. We and our brand ambassadors, spokespersons and social media influencers also use social media channels as a means of communicating with consumers. Unauthorized or inappropriate use of these channels could result in harmful publicity or negative consumer experiences, which could have an adverse impact on the effectiveness of our marketing in these channels. In addition, substantial negative commentary by others on social media platforms could have an adverse impact on our reputation and ability to attract and retain members and subscribers. If our advertising and marketing campaigns do not generate a sufficient number of consumers, our business, financial condition and results of operations could be adversely affected.

 

The loss of one or more of our current customers could adversely affect our results of operations.

 

Our business is dependent not only on securing new customers but also on maintaining current customers. One of our customers, QVC, Inc., accounted for approximately 32% of our sales for the year ended December 31, 2021. At December 31, 2021, QVC, Inc., accounted for an aggregate of approximately 21% of our accounts receivable. Unless we are able to retain our existing customers, or secure new customers if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected. In addition, the default on payments by one or more of these significant customers may negatively impact our cash flow and current assets.

 

 
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Any changes to our relationship with QVC or retail outlets may have a material adverse effect on our business.

 

For the year ended December 31, 2021, we had direct response sales of approximately $1,600,000 million, respectively, which represented almost all of our direct to consumer sales for the year. These sales were made pursuant to the Marketing Agreement between United and QVC, which currently extends through December 4, 2021. Our agreements with other direct retail partners are informal and therefore subject to change. If the Marketing Agreement is terminated, one or more of the direct retail partners chose to purchase fewer products, or we are forced to reduce the prices at which we currently sell our products, our sales and profits would be reduced and the business would be harmed.

 

We may engage in strategic transactions that fail to enhance shareholder value.

 

From time to time, we may consider possible strategic transactions, including potential acquisitions or licensing of products or technologies or acquisition of companies, and other alternatives with the goal of maximizing shareholder value. If we do complete a strategic transaction, implementation of such transaction may impair shareholder value or otherwise adversely affect our business. There can be no assurance that our acquisitions will perform as expected in the future. For example, we may be unable to successfully integrate the operations of and/or the acquired assets of the businesses we acquire into our operations and we may not realize the anticipated efficiencies and synergies of such acquisitions. In addition, acquisitions require significant managerial attention, which may be diverted from our other operations. If the businesses or products we acquire do not achieve their intended results, our business, financial condition, and results of operations could be materially and adversely affected.

 

We may not be successful in hiring and retaining key employees, including executive officers.

 

Our future operations and successes depend in large part upon the strength of our management team. We rely heavily on the continued service of Richard DeCicco, our Chairman of the Board and President, Larry Romer, our Chief Executive Officer, John Cosenza, our Chief Operating Officer, David Allen, our Chief Financial Officer, and Rosanne Faltings, our Vice President and a member of our board of directors. Accordingly, if any of such persons terminates his or her employment with us, such a departure may have a material adverse effect on our business, and our future success depends on our ability to identify, attract, hire or engage, retain and motivate other well-qualified personnel. There can be no assurance that these professionals will be available in the market, or that we will be able to retain existing professionals or to meet or to continue to meet their compensation requirements. Furthermore, the cost base in relation to such compensation, which may include equity compensation, may increase significantly, which could have a material adverse effect on us. Failure to establish and maintain an effective management team and work force could adversely affect our ability to operate, grow and manage our business.

 

Our operations may be adversely affected by our failure to maintain or renegotiate supply, manufacturing or license agreements on favorable terms.

 

Our business involves a number of supply, manufacturing or license agreements for brands owned by us or by other companies. There can be no assurance that we will be able to renegotiate our rights on favorable terms when these agreements expire or that they will not be terminated. Failure to renew such agreements could have an adverse impact on our business and financial results.

 

Class action or other litigation relating to alcohol abuse or the misuse of alcohol could adversely affect our business.

 

There has been increased public attention directed at the beverage alcohol industry, which we believe is due to concern over problems related to alcohol abuse, including drinking and driving, underage drinking and health consequences from the misuse of alcohol. Several beverage alcohol producers have been sued in several courts regarding alleged advertising practices relating to underage consumers. Adverse developments in these or similar lawsuits or a significant decline in the social acceptability of beverage alcohol products that results from these lawsuits could materially adversely affect our business.

 

 
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Regulatory decisions and changes in the legal and regulatory environment could increase our costs and liabilities or limit our business activities.

 

Our operations are subject to extensive regulatory requirements relating to production, distribution, importation, marketing, advertising, sales, pricing, labelling, packaging, product liability, antitrust, labor, pensions, compliance and control systems, and environmental issues. Changes in any such applicable laws, regulations or governmental or regulatory policies and/or practices could cause us to incur material additional costs or liabilities that could adversely affect our business. In particular, governmental bodies in jurisdictions where we operate may impose new labelling, product or production requirements, limitations on the marketing, advertising and/or promotion activities used to market beverage alcohol, restrictions on retail outlets, restrictions on importation and distribution or other restrictions on the locations or occasions where beverage alcohol is sold which directly or indirectly limit the sales of our products. Regulatory authorities may also have enforcement power that can subject us to actions such as product recalls, product seizures or other sanctions which could have an adverse effect on our sales or damage our reputation. Any changes to the regulatory environment in which we operate could also cause us to incur material additional costs or liabilities, which could adversely affect our performance.

 

In addition, most states in which our wines and spirits are sold impose varying excise taxes on the sale of alcoholic beverages. Prompted by growing government budget shortfalls and public reaction against alcohol abuse, government entities often consider legislation that could potentially affect the taxation of alcoholic beverages. Excise tax rates being considered are often substantial. The ultimate effects of such legislation, if passed, cannot be assessed accurately. Any increase in the taxes imposed on wines and spirits can be expected to have a potentially adverse impact on overall sales of such products. However, the impact may not be proportionate to that experienced by distributors of other alcoholic beverages and may not be the same in every state.

 

We are subject to cybersecurity risks.

 

Cybersecurity risks and attacks continue to increase. Cybersecurity attacks are evolving and not always predictable. Attacks include malicious software, threats to information technology infrastructure, denial-of-service attacks on websites, attempts to gain unauthorized access to data, and other breaches. Data breaches can originate with authorized or unauthorized persons. Authorized persons could inadvertently or intentionally release confidential or proprietary information, and recipients could misuse data. Such events could lead to interruption of our operations or business, unauthorized release or use of information, compromise of data, damage to our reputation, damage to our customers or vendors, and increased costs to prevent, respond to or mitigate any events.

 

Risks Related To Our Common stock

 

The market price of our common stock may be volatile and may be affected by market conditions beyond our control.

 

The market price of our common stock is subject to significant fluctuations in response to, among other factors:

 

 

·

variations in our operating results and market conditions specific to companies in our industry;

 

 

 

 

·

changes in financial estimates or recommendations by securities analysts;

 

 

 

 

·

announcements of innovations or new products or services by us or our competitors;

 

 

 

 

·

the emergence of new competitors;

 

 

 

 

·

operating and market price performance of other companies that investors deem comparable;

 

 

 

 

·

changes in our board or management;

 

 

 

 

·

sales or purchases of our common stock by insiders;

 

 

 

 

·

commencement of, or involvement in, litigation;

 

 

 

 

·

changes in governmental regulations; and

 

 

 

 

·

general economic conditions and slow or negative growth of related markets.

 

In addition, if the market for stocks in our industry or the stock market in general, experiences a loss of investor confidence, the market price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause the price of our common stock to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to the board of directors and management.

 

 
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Future sales and issuances of our securities could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.

 

We expect that significant additional capital will be needed in the future to continue our planned operations, including continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

 

Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and our management will be required to devote substantial time to compliance matters.

 

As a publicly traded company we incur significant legal, accounting and other expenses. The obligations of being a public company in the United States require significant expenditures and places significant demands on our management and other personnel, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules require the establishment and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and changes in corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance with. In addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems.

 

As a result of the late filing of this annual report on Form 10-K, our common stock has been temporarily removed from the OTCQB Market, and moved to the OTC Pink Limited Information tier of the OTC Markets Group, Inc. Although our expectation is that our common stock will be moved back to the OTCQB Market, there can be no guaranty that this will occur. If our common stock is relisted on the OTCQB, there is no guaranty that it will remain on the OTCQB, and such a failure to do so may make it more difficult for investors to resell their shares.

 

As a result of the late filing of this annual report on Form 10-K, our common stock has been temporarily removed from the OTCQB Market, and moved for quotation on the OTC Pink Limited Information tier maintained by OTC Markets Group, Inc. Upon the filing of this report and our quarterly report on Form 10-Q for the period ended March 31, 2022, and the completion of other required corporate actions that we expect to finalize shortly, we expect our common stock to be moved back to OTCQB Market. Although our expectation is that our common stock will be moved back to the OTCQB Market, there can be no guaranty that this will occur. A failure to return our common stock to the OTCQB Market may reduce the potential market for our common stock by reducing the number of potential investors, which may make it more difficult for investors in our common stock to dispose of their shares.

 

Further, even if we do return to the OTCQB, the OTCQB requires a minimum bid price of $0.01 and that we file our Exchange Act reports on a timely basis. If the bid price goes below $0.01 or we fail to file our Exchange Act reports on the timeline required by OTC Markets Group, Inc. in the future, we may again be removed from the OTCQB. If we are again removed from the OTCQB, our stock would be quoted on the OTC Pink tier. Broker-dealers often decline to trade in over-the-counter stocks that are quoted on the OTC Pink tier given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to dispose of their shares.

 

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

 

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

 
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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

We have no independent directors and no board committees. This may hinder our board of directors’ effectiveness in fulfilling the typical functions of a board and of committees thereof.

 

Currently, we have no independent directors, nor do we have an audit committee, compensation committee or nominating and corporate governance committee at this time. Independent board members, audit committees, compensation committees and nominating and corporate governance committees with independent directors play a crucial role in the corporate governance process, assessing a company’s processes relating to its risks and control environment, overseeing financial reporting, preventing self-dealing by company executives and evaluating internal and independent audit processes. The lack of an independent board or board committees prevents the board of directors from being independent from management in its judgments and decisions and its ability to pursue the board’s responsibilities without undue influence. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified, independent directors, the management of our business could be compromised. In addition, our board of directors does not have a “financial expert”.

 

We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.

 

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any, of our share price.

 

Our Articles of Incorporation, as amended (“Articles of Incorporation”), our Restated Bylaws, and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.

 

Our Articles of Incorporation, Bylaws, and Nevada law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 100,000,000 shares of preferred stock, of which 45,000 shares have been designated as Series A-2 Preferred Stock and 38,830 are issued and outstanding as June 13, 2022. Our authorized but undesignated preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.

 

Provisions of our Articles of Incorporation, our Bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholder s to replace or remove our management. In particular, the Articles of Incorporation, our Bylaws and Nevada law, as applicable, among other things:

 

 
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·

provide the board of directors with the ability to alter the Bylaws without stockholder approval; and

 

 

 

 

·

provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum.

 

We have identified a material weakness in our internal control over financial reporting that could, if not remediated, result in material misstatements in our financial statements.

 

In connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2021, we have concluded that there is a material weakness relating to our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Specifically, we identified a material weakness relating to the lack of segregation of duties. Although we need to take measures to fully mitigate such material weakness, the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that the identified material weakness will not result in a material misstatement of our annual or interim consolidated financial statements. If we are unable to correct material weaknesses or deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC, will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and materially and adversely impact our business and financial condition.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

On January 1, 2021, we executed a cancellable lease agreement with Dan Kay International for the lease of our office and warehouse space in North Amityville New York. The agreement has a term of three years from January 1, 2021 to January 1, 2024 and provides for monthly rent of $4,893.

 

In addition, TopPop has executed a lease agreement to rent approximately 26,321 square feet of warehouse space in Marlton, NJ. The lease provides a term of five years commencing upon January 1, 2020 and terminating on December 31, 2024. The lease also provides for a monthly payment for common area use of $4,430 and a security deposit of $45,864.

 

Effective November 6, 2020, TopPop executed a lease agreement to rent approximately 14,758 square feet of warehouse space in Bellmawr, NJ. The lease provides for a lease term of two years commencing on December 1, 2020 and terminating on November 30, 2022. The lease provides for a security deposit of $20,734.

 

Effective May 19, 2021, TopPop executed a lease agreement with Industrial Opportunities II LLC to rent approximately 63,347 square feet of warehouse space in Pennsauken, NJ. The lease provided a lease term of 76 months commencing upon September 1, 2021 and terminating on December 31, 2027. The lease provided a security deposit to Industrial Opportunities II LLC of $64,931.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Other than the following, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

  

On April 7, 2022, the Office of the Attorney General of the State of New Jersey, Department of Law and Public Safely, Division of Alcoholic Beverage Control issued to TopPop a Notice of Charges (the “Notice”) wherein the New Jersey Division of Alcoholic Beverage Control Board (the “Division”) alleged that TopPop has committed certain violations of its permit issued by the Division for TopPop’s manufacturing facilities located in Marlton, New Jersey.  In the Notice, the Board alleged that TopPop (i) allowed such manufacturing facilities to be used in furtherance of, or to aid, an illegal activity or enterprise, and (ii) sold and delivered, or allowed the sale, service, delivery and consumption, of alcoholic beverages beyond the scope of TopPop’s license, and conducted business with companies outside the scope of the license in an area which was not designated or described by TopPop in its license application as a place to be licensed for such sale, service or delivery of alcoholic beverages.  The total penalty sought by the Division is a 90-day suspension of TopPop’s permit for that manufacturing facility.

  

  The Company is in preliminary discussions with the Division regarding a possible settlement of these proceedings. We intend to investigate the claims of the Division and, depending upon our findings, to seek a mutually acceptable resolution to this matter.  Although the results of our investigation and of our future discussions with the Division cannot be predicted with certainty, we plan to vigorously pursue a settlement option and believe that the final outcome of this matter will not have a material adverse effect on our business, results of operations or financial condition.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our common stock is quoted on the OTCQB tier of the marketplace maintained by OTC Markets Group, Inc. under the symbol “ICNB”; however, due to the late filing of this annual report on Form 10-K and our quarterly report on Form 10-Q for the period ended March 31, 2022, our common stock has been temporarily moved to the OTC Pink Limited Information tier of the OTC Markets Group, Inc. Upon the filing of this report and our quarterly report on Form 10-Q for the period ended March 31, 2022, and the completion of other required corporate actions that we expect to finalize shortly, we expect our common stock to be moved back to OTCQB Market.

 

Stockholders

  

As of June 13, 2022, there were 194 stockholders of record of our common stock. The actual number of holders of our common stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

 

Dividend Policy

 

We have not declared any stock dividends to date. We have no present intention of paying any cash dividends on our common stock in the foreseeable future, as we intend to use earnings, if any, to generate growth. Shares of common stock can be issuable to the holders of our Series A-2 Preferred Stock, as a one-time dividend payment equal to 6% of the $1,000 per share stated value of the outstanding Series A-2 Preferred Stock in cash or, at our option, in shares of common stock, or a combination thereof, depending on our trading price and subject to the potential adjustment in the event the average of the volume weighted average price of our common stock for each of the 15 consecutive trading days ending on the trading day immediately prior to July 26, 2022 is less than the conversion price then in effect. The payment by us of dividends, if any, in the future, is within the discretion of our board of directors and will depend upon, among other things, our earnings, capital requirements and financial condition, as well as other relevant factors. There are no material restrictions in our Articles of Incorporation, as amended, or Bylaws that restrict us from declaring dividends. To date, no dividends have been declared or paid.

 

 
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Recent Issuance of Unregistered Securities

 

The following 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:

 

On December 14, 2021, the Company issued 1.1 million shares of common stock as payment to two vendors.

 

On January 28, 2022 the Company issued 160,000 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

On February 2, 2022, the Company issued 3,200 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

On March 1, 2022, the Company issued 160,000 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

On March 7, the Company issued 320,000 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

On March 22, 2022, the Company issued 320,000 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

On March 24, 2022, the Company issued 160,000 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

On March 28, 2022, the Company issued 800,000 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

On March 31, 2022, the Company issued 320,000 shares of common stock upon an investor’s conversion of preferred stock to common stock.

 

ITEM 7. 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; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; 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.

 

You should read the following discussion and analysis of our financial condition and plan of operations together with and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K. All amounts in this report are in U.S. dollars, unless otherwise noted.

 

Overview

 

We are engaged in the development and sale of alcohol and non-alcohol brands that are “better-for-you” (“BFY”) and “better-for-the-planet”. TopPop, our wholly owned subsidiary, produces low calorie, “ready to go” products, ready-to-freeze (“RTF”) products and ready-to-drink (“RTD”) products in sustainable, flexible and stand-up pouch packaging. TopPop is also a leader in the “cocktails-to-go” pouches and alcohol ice-pop market. Our brands include “Bellissima” by Christie Brinkley, a premium BFY collection of Prosecco, Sparkling Wines, and Still Wines, all certified vegan and made with organic grapes. Bellissima is strategically positioned with its Zero Sugar Wines. We operate in multiple states, sell and distribute across the globe and have Fortune 500 customers that include some of the world’s largest alcohol beverage companies and brands. United Distributors, Inc., (“United”) is our 100% owned subsidiary which sells our Bellissima, Bella, Sonja Sangria and other alcohol beverages to state distributors. United holds all applicable state and federal licenses in order to sell these products to state distributors in accordance with the United States three tier distribution platform.

 

We have expertise in developing, from product inception to wholesale distribution or direct to consumer through the QVC distribution channel, and in branding alcohol beverages for our company and for third parties. We market and place products into national distribution through long-standing industry relationships approximately 45 national or regional alcoholic beverage distributors. We currently market and sell the following product lines: 

 

·

Bellissima Prosecco – these products comprise a line of all-natural and vegan Prosecco and Sparkling Wines made with organic grapes, including a Zero Sugar, Zero Carb option, a DOC Brut and a Sparkling Rose. The Bellissima line of Prosecco and Sparkling Wines includes two new flavor profiles, a Zero Sugar/Zero Carb Sparkling Rose and a Rose Prosecco;

 

 

·

Bellissima Zero Sugar Still Winesthis line of five still wines was launched in March 2022 and are certified vegan and are made with organic grapes.

 

 

·

Bella Sprizz Aperitifs - 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;

 

 

·

Ready-to-Freeze and Ready-to-Drink Alcoholic Products – these products are currently produced under contract for third-party national and regional brands and for our Boozy Pops® product line; and

 

 

·

BiVi Vodka – a celebrity-branded vodka that we have sold since 2018 under the brand “BiVi 100 percent Sicilian Vodka” and which currently does not represent a material portion of our sales.

 

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

 

As a result of our July 2021 acquisition of 100% of the equity of TopPop, we are now a vertically integrated company for the development, production and distribution of alcoholic brands. TopPop is a premier product development, contract manufacturing and packaging company that specializes in flexible packaging applications in the food, beverage and health categories. It has the federal and state licenses necessary to manufacture and blend malt, wine and spirits-based products. In June 2020, TopPop opened a 27,000-square-foot FDA-approved manufacturing facility in Marlton, New Jersey with a Safe Quality Food certification. In September 2021, TopPop leased an additional 65,000 square feet facility for manufacturing in Pennsauken, New Jersey. Construction is now complete, and the facility reached full-scale production capability at the end of March 2022. The facility includes approximately $4 million of high-speed packaging equipment and is expected to triple our production capacity.

 

 
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For its first product line, TopPop identified the single serve, RTD and RTF as ripe for product and packaging innovation. TopPop introduced an alcohol-infused ice pop in June 2020 and began marketing the concept to major alcohol companies. In addition, it developed its own product line trademarked under the name BoozyPopz® which is expected to be sold through e-commerce platforms and wholesaled directly to sports and entertainment venues. TopPop manufactured approximately 8 million ice pops from its launch in June 2020 through December 31, 2020 and manufactured approximately 42 million ice pops during the year ended December 31, 2021. TopPop has also developed a pipeline for the single serve, RTD alcohol cocktail market and anticipates launching a line of products in this market in 2022. TopPop designs and markets flexible packaging for its RTD and RTF products with formulations that are low calorie and contain healthy and natural ingredients. With the opening of TopPop’s new facility at the end of the first quarter of 2022, we expect to have the capacity to manufacture over 150 million units in 2022.

 

We believe TopPop brings to us additional synergies and opportunities for cross-promoting new and existing products to a broader customer base and better positions our company to establish and support our brands and to create sustainable packaging solutions to the consumable goods market. We believe our focus on lifestyle branding and the rising “Better-for-You,” “Better-for-the-Planet” consumer categories has made us a leader in developing celebrity brands worldwide, such as our Bellissima Prosecco by Christie Brinkley. Our mission is to be an industry leader in the brand development, marketing and sales of alcoholic beverages and related products by capitalizing on our ability to procure products from around the world and to develop unique and innovative packaging to create brand and product line extensions. We plan to leverage our relationships to add value to our products and to create brand awareness in unbranded niche categories.

 

Recent Developments

 

COVID-19

 

As a result of COVID-19, we have seen a shift away from the traditional brick-and-mortar business to a direct-to-consumer business. Although we expect brick-and-mortar to rebound, we also expect the director-to-consumer model to stay post-COVID-19, as consumers embrace the convenience of having their alcoholic beverages delivered to their doorstep. As we expand our relationship with QVC and our own direct-to-consumer platform through our website, we believe we are well positioned to execute on this opportunity.

 

TopPop Acquisition

   

On July 26, 2021, we completed the acquisition of TopPop. In connection with such acquisition, the former TopPop members received, in the aggregate(a) $3,694,273 in cash, net of cash acquired, by transfer of immediately available funds, (b) 26,009,600 shares of our common stock, which shares were valued in the aggregate at $10,143,744, or $0.39 per share, (c) $5,042,467 aggregate principal amount of our promissory notes and (d) future additional payments as earnout consideration valued at $20,204,505 to be paid in cash and stock. The earn-out payments, if any, will be made (i) following the 12-month period commencing on August 1, 2021, in an aggregate amount equal to the excess, if any, of: (A) 1.96 times TopPop’s EBITDA for the period over (B) the aggregate amount of the closing promissory notes repaid in cash during period; provided, however, no such amount shall be payable if (i)(A) does not exceed (i)(B); and (ii) following the 12-month period commencing on August 1, 2022, in an aggregate amount equal to the excess, if any, of: (A) 1.96 times TopPop’s EBITDA for such period over (B) the aggregate amount of the closing promissory notes repaid in cash during the period; provided, however, no such amount shall be payable if (ii)(A) does not exceed (ii)(B). The earn-out payments will be made, at the election of each former TopPop member, in cash or in shares of our common stock or a combination thereof, less any reserve for possible indemnification payments, provided that not less than 45% of the value of each earn-out payment shall be paid in common stock. If paid in shares of common stock, such shares shall be valued at the then-prevailing market rate.

 

 
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Series A-2 Convertible Preferred Stock Financing

 

On July 26, 2021, we entered into securities purchase agreements dated as of July 26, 2021 with certain accredited investors for the sale of our newly-created Series A-2 Convertible Preferred Stock, par value $0.001 per share (the “Series A-2 Preferred Stock”), shares of common stock, and warrants to purchase shares of common stock.

 

Pursuant to the purchase agreements, the shares of Series A-2 Preferred Stock, common stock and warrants were sold in two tranches, the first of which closed on July 26, 2021 for gross proceeds of $18,372,354 for the sale of an aggregate of 18,800 shares of Series A-2 Preferred Stock, an aggregate of 6,711,997 shares of common stock, and warrants to purchase an aggregate of 73,338,203 shares of common stock. Of the $18,372,354 gross proceeds we received upon the closing of the first tranche, $15,603,385 was paid in cash net of fees of $2,808,320.

 

The second tranche closed on January 5, 2022 in which the Company sold 12,257.76 shares of Series A-2 Preferred Stock, 4,781,004 shares of common stock and warrants to purchase 40,018,583 shares of common stock for gross proceeds of approximately $12.2 million and net proceeds of approximately $10.8 million after deduction of placement agent commissions and expenses of the offering. Such net proceeds are expected to be used by the Company for domestic and international expansion of its Bellissima brand, the expansion of the production facilities of the Company’s TopPop subsidiary, new product launches, marketing, and other general working capital purposes.

 

The warrants are exercisable for a period of five years from the date of issuance at an exercise price of $0.3125 per share. The Warrants may be exercised on a cashless basis if the shares of common stock underlying the warrants are not then registered for resale pursuant to an effective registration statement under the Securities Act.

 

In connection with this offering, we entered into a Placement Agency Agreement with Dawson James Securities, Inc. (the “Placement Agent”), pursuant to which at the closing of the first tranche under the purchase agreements we paid to the Placement Agent a cash fee in the amount of $2,050,000 and at the closing of the second tranche under the purchase agreements we paid to the Placement Agent a cash fee in the amount of $1,150,000. In addition, we agreed to pay to the Placement Agent a fee in connection with any cash exercise of any of the Warrants in an amount equal to 10% of the cash amount received by us upon any such exercise. Pursuant to the Placement Agency Agreement, as additional consideration for the services of the Placement Agent, we also issued to the Placement Agent or its designees in connection with the closing of the first tranche under the purchase agreements 2,194 shares of Series A-2 Preferred Stock and an additional 1,096 shares of Series A-2 Preferred Stock in connection with the closing of the second tranche under the purchase agreements. The fees paid to the Placement Agent were accounted for as financing costs and reduces the additional paid in capital from the financing.

 

Redemption of Series F Convertible Preferred Stock

 

On July 26, 2021, we entered into redemption agreements with two holders of our Series F Convertible Preferred Stock, pursuant to which we redeemed all their outstanding shares of our Series F Convertible Preferred Stock for an aggregate purchase price of $225,000 in accordance with the terms of such redemption agreements. Any remaining outstanding shares of Series F Convertible Preferred Stock was exchanged pursuant to the following agreements.

 

Exchange of Issued and Outstanding Series E, F and G Convertible Preferred Stock and Series E, F and G Common Stock Purchase Warrants

 

On July 26, 2021, we entered into securities exchange agreements with the holders of our outstanding (a) Series E Convertible Preferred Stock, Series F Convertible Preferred Stock and Series G Convertible Preferred Stock (the “Existing Preferred Stock”), and (b) Series E Common Stock Purchase Warrants, Series F Common Stock Purchase Warrants and Series G Common Stock Purchase Warrants (the “Existing Warrants” and together with the Existing Preferred Stock, collectively, the “Existing Securities”), pursuant to which such holders exchanged (i) all Existing Preferred Stock held by each holder for shares of Series A-2 Preferred Stock and Warrants, and (ii) all Existing Warrants held by each holder for shares of common stock. In connection with such exchange, 2,115,224 shares of Series E Convertible Preferred Stock, 2,189 shares of Series F Convertible Preferred Stock, 1,475 shares of Series G Convertible Preferred Stock were exchanged for an aggregate of 3,555 shares of Series A-2 Preferred Stock, Warrants to purchase an aggregate of 14,304,880 shares of common stock, and 2,209,517 shares of common stock for an aggregate value of $3,663,651.

 

 
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Upon such exchange, the Existing Securities were cancelled and all contractual (or similar) rights, preferences and obligations relating to such Existing Securities became null and void and of no further effect whatsoever.

 

Exchange of Issued and Outstanding Series A Preferred Stock

 

On July 26, 2021, we entered into a securities exchange agreement dated as of July 26, 2021 with Richard DeCicco, who, at the time of execution and delivery of such agreement, was our Chief Executive Officer, Chief Financial Officer, chairman of our board of directors and the holder of our one issued and outstanding share of Series A Preferred Stock, and is currently our Chairman of the Board and President. Pursuant to such agreement, Mr. DeCicco exchanged his one share of Series A Preferred Stock for 25,600,000 shares of our common stock. Upon such exchange, the Series A Preferred Stock, which previously gave Mr. DeCicco two votes for every one vote of our outstanding voting securities, was cancelled and all contractual (or similar) rights, preferences and obligations relating to such Series A Preferred Stock became null and void and of no further effect whatsoever.

 

Purchase of all Issued and Outstanding Capital Stock of United Spirits, Inc.

 

On July 26, 2021, we entered into a securities purchase agreement with Mr. DeCicco pursuant to which we purchased from Mr. DeCicco all of the issued and outstanding capital stock of United Spirits, Inc., a New York corporation (“United”). Pursuant to such purchase agreement, Mr. DeCicco transferred to us 100% of the issued and outstanding capital stock of United in exchange for a purchase price of $1,000,000. The purchase agreement contains customary representations, warranties and covenants of the parties thereto, and the closing of the transactions contemplated by such purchase agreement was subject to the satisfaction of certain closing conditions, including, without limitation, certain approvals from various state liquor authorities. Prior to the closing of such transaction, we marketed and sold our wine and spirts products pursuant to an exclusive marketing and distribution agreement between United and us.

 

Amended and Restated LLC Agreements of Bellissima Spirits LLC and BiVi LLC

 

On July 26, 2021, we, and each other member identified therein, including Mr. DeCicco and Rosanne Faltings, our vice president of sales and a member of the Board, entered into an Amended and Restated Limited Liability Company Agreement dated as of July 26, 2021 of Bellissima and BiVi. Such agreement provides that the manager of Bellissima and BiVi, currently Mr. DeCicco, may cause Bellissima and BiVi to make distributions of available cash flow to the members pro rata in accordance with their cash flow ratios, of which we are entitled to 100% of any such distribution of available cash flow. Such agreement also provides that the manager shall cause Bellissima and BiVi to make distributions of net proceeds attributable to certain capital events to members pro rata in accordance with their membership interest percentage, of which we are entitled to 54% of any such distribution of net proceeds and Mr. DeCicco and Ms. Faltings are entitled to 15.34% and 15.33%, respectively. Transfers of membership interests in Bellissima and BiVi are generally restricted and such agreement provides for preemptive rights, rights of first refusal, and rights of co-sale, in each case, in accordance with the terms and conditions set forth therein.

 

On April 22, 2022 we entered into a Second Amended and Restated Limited Liability Company Agreement of Bellissima, which provides that upon (i) a sale of all or substantially all of our assets, (ii) a change of control of us, (iii) a sale of equity following which our shareholders immediately prior to such transaction do not own, immediately following such transaction, a majority of the voting and economic rights in us, or (iv) a merger, consolidation or similar transaction involving us, each of Mr. DeCicco and Ms. Faltings will be entitled to sell their interest in Bellissima to us in exchange for the value of their equity interest in Bellissima that they would have received upon the sale of their equity interest in Bellissima, upon the sale of Bellissima, which value will be determined by an independent third-party appraiser.

 

Results of Operations for the Years Ended December 31, 2021 and 2020

 

Introduction

   

We had sales of $4,960,016 and $2,848,913 for the years ended December 31, 2021 and 2020, respectively. Our cost of sales was $4,628,734 and $1,330,441 for the years ended December 31, 2021 and 2020, respectively. Our operating expenses were $10,592,867 and $4,716,564, for the years ended December 31, 2021 and 2020, respectively. Our operating expenses consisted mostly of salaries, professional fees, royalties and fulfilment costs along with marketing and advertising costs, occupancy costs, and travel and entertainment.

 

 
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Revenues and Net Operating Loss

 

Our revenues, operating expenses, and net operating loss for the years ended December 31, 2021 and 2020 were as follows:

 

 

 

Year Ended

 

 

Year Ended

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

Increase /

 

 

 

2021

 

 

2020

 

 

(Decrease)

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$4,960,016

 

 

$2,848,913

 

 

$2,111,103

 

Cost of Sales

 

 

4,628,734

 

 

 

1,330,441

 

 

 

3,298,293

 

Gross Profit

 

 

331,282

 

 

 

1,518,472

 

 

 

(1,187,190 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Officers’ compensation

 

 

627,000

 

 

 

415,000

 

 

 

212,000

 

Fulfillment Costs

 

 

287,466

 

 

 

536,255

 

 

 

(248,789 )

Royalties

 

 

160,119

 

 

 

497,253

 

 

 

(337,135 )

Professional fees

 

 

2,874,968

 

 

 

962,481

 

 

 

1,912,487

 

Travel and entertainment

 

 

194,785

 

 

 

41,208

 

 

 

153,577

 

Other operating expenses, including occupancy

 

 

6,309,392

 

 

 

1,462,922

 

 

 

4,846,470

 

Total general and administrative

 

 

10,453,730

 

 

 

3,915,119

 

 

 

6,538,611

 

Selling and marketing

 

 

716,727

 

 

 

801,445

 

 

 

(84,718 )

Gain from the cancellation of accrued royalties

 

 

(577,590 )

 

 

-

 

 

 

(577,590 )

Total operating expenses

 

 

10,592,867

 

 

 

4,716,564

 

 

 

5,876,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating loss from continuing operations

 

 

(10,261,585 )

 

 

(3,198,092 )

 

 

(7,063,493 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on forgiveness of PPP loan

 

 

28,458

 

 

 

-

 

 

 

28,458

 

Interest expense

 

 

(271,749 )

 

 

-

 

 

 

(271,749 )

Loss on Investment in Can B Corp

 

 

-

 

 

 

(483,472 )

 

 

(483,472 )

Net loss

 

 

(10,504,876 )

 

 

(3,681,564 )

 

 

(6,823,312 )

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

 

 

(40,882 )

 

 

(109,962 )

 

 

69,080

 

Net Loss attributable to Iconic Brands

 

$(10,463,994 )

 

$

(3,571,602 )

 

$

(6,892,392 )

 

Sales

 

Our sales are comprised of sales of BiVi Sicilian Vodka, Bellissima Prosecco and Sparkling Wine, the line of Hooters brand products and our RTF TopPop products. Sales were $4,960,016 and $2,848,913 for the years ended December 31, 2021 and 2020, respectively, which resulted in an increase of $2,111,103 or approximately 74%. The increase was due primarily to $2,192,119 sales from our newly acquired TopPop products.

 

Cost of Sales

 

Cost of sales was $4,628,734, or approximately 93% of sales, and $1,330,441, or approximately 47% of sales, for the years ended December 31, 2021 and 2020, respectively. Cost of sales includes the cost of the products purchased from our suppliers, freight-in costs and import duties. Cost of sales for the year ended December 31, 2021 for our alcohol sales was approximately 51% of sales, which was similar to the prior year, while the costs associated with our TopPop acquisition were approximately 151% of sales. The increase was due to TopPop increased costs of production since July 25, 2021 from (i) significant labor costs and scrap costs from a large rework of a customer order due to an isolated error in blending of batched raw materials and lot coding by a vendor of TopPop, (ii) write down of perishable inventory as the summer production season wound down and a customer who ended production early who would not reimburse TopPop for unused raw materials. The targeted cost of goods for TopPop products is approximately 51% and we expect to achieve that margin in future years. Four semi-automated cartoning machines were purchased by TopPop to significantly reduce labor costs and will be installed during 1st quarter 2022 and the referenced batching and coding errors by the vendor have been process corrected and approved by the customer.

 

 
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Officers Compensation

 

Officers’ compensation was $627,000 for the year ended December 31, 2021 and $415,000 for the year ended December 31, 2020. This increase of $212,000 was due to bonus payments and additional compensation for new officers.

 

Fulfillment Costs

 

Fulfillment costs were $287,466 for the year ended December 31, 2021 and $536,255 for the year ended December 31, 2020. This decrease of $248,789 was primarily due to lower QVC sales in 2021.

 

Professional and Consulting Fees

 

Professional and consulting fees were $2,874,968 for the year ended December 31, 2021, and $962,481 for the year ended December 31, 2020, an increase of $1,912,487. Professional and consulting fees consist primarily of legal and, accounting services. The increase from 2020 to 2021 was primarily related to additional expenses of approximately $1.6 million from the newly acquired TopPop in 2021.

 

Royalties and Gain from Cancellation of Accrued Royalties

 

We accrued royalty expenses of $160,119 and recognized a gain from the cancellation of royalties of $577,590 for the year ended December 31, 2021 compared to expenses of $497,253 for the year ended December 31, 2020. Royalties decreased due primarily to the cancellation of accrued, but unpaid, royalties as part of the amended licensing agreement with Hooters signed in the fourth quarter of 2021.

 

Selling and Marketing

 

Selling and Marketing expenses were $716,727 and $801,445 for the years ended December 31, 2021 and 2020, respectively, which was a decrease of $84,718, or 11%. Decrease is primarily due to the concentration of operating expenses towards the acquisition of TopPop in 2021 rather than on marketing activities. We expect marketing expenses to increase somewhat in 2022.

 

Travel and Entertainment

 

Travel and entertainment expenses were $194,785 and $41,208 for the years ended December 31, 2021 and 2020, respectively, an increase of $153,577, or 373%, between the periods. The increase was a result of limited travel during the year ended December 31, 2020, due to the COVID-19 environment. During the year ended December 31, 2021, our personnel attended numerous product development events.

 

Other Operating Expenses

 

Other operating expenses were $6,309,392 and $1,462,922 for the years ended December 31, 2021 and 2020, respectively, an increase of $4,846,470, or 373%, between the periods. The increase was primarily related to amortization of intangibles of approximately $1,300,000, payroll costs of approximately $2,200,000, equity based compensation to employees of approximately $891,000 and rent expense of 424,523.  Payroll costs have increased due to hiring additional personnel and with the acquisition of TopPop in 2021.

 

Net Operating Loss

 

We had a loss from operations of $10,261,585 for the year ended December 31, 2021, and $3,198,092 for the year ended December 31, 2020, an increase of $7,063,493 or approximately 221%. Net operating loss increased as set forth above.

 

Other Income (Expense)

 

We had other nonoperating expenses of $243,291 for the year ended December 31, 2021, primarily due to interest expense of $271,749, while we had a loss on investment in and receivable from Can B Corp of $483,472 for the year ended December 31, 2020.

 

 
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Net (income) Loss attributable to Noncontrolling Interests in Subsidiaries

 

Net income attributable to noncontrolling interests in subsidiaries represented 49% of the net income of Bellissima and BiVi (of which we own 51%) and is accounted for as a increase in the net loss attributable to us. Net loss attributable to noncontrolling interests in subsidiaries for the year ended December 31, 2021 was $40,882 compared to net loss of $109,962 for the year ended December 31, 2020. With the acquisition of United, there is no longer a noncontrolling interest associated with this entity, as it is now a 100%-owned subsidiary, see note 5 in the Notes to the Consolidated Financial Statements.

 

Net Loss Attributable to Iconic Brands, Inc.

 

The net loss attributable to Iconic Brands, Inc. was $10,463,994 for the year ended December 31, 2021 and $3,571,602 for the year ended December 31, 2020, an increase of $6,892,392 or approximately 193%. The net loss from Iconic Brands increased primarily because of the items described above.

 

Liquidity and Capital Resources

 

Introduction

 

During the year ended December 31, 2021, and December 31, 2020, we had negative operating cash flows. Our cash on hand as of December 31, 2021, was $2,190,814. During 2021, cash used in operations was $4,090,659. Of the equity financing that we entered into on July 26, 2021, the Company received approximately $15.6 million, net of fees, from the first tranche and approximately $10.8 million, net of fees, from the second tranche which closed on January 5, 2022. With the funding of the second tranche of the equity financing, we believe we have sufficient capital to fund our operations in the near term.

 

Going Concern

 

Our cash, current assets, total assets, current liabilities, and total liabilities as of December 31, 2021 and December 31, 2020, respectively, are as follows:

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

2021

 

 

2020

 

 

Change

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$2,190,814

 

 

$457,041

 

 

$1,733,773

 

Total Current Assets

 

 

4,346,003

 

 

 

1,298,999

 

 

 

3,047,004

 

Total Assets

 

 

50,706,656

 

 

 

1,354,892

 

 

 

49,351,764

 

Total Current Liabilities

 

 

16,650,909

 

 

 

3,183,015

 

 

 

13,467,894

 

Total Liabilities

 

 

31,593,601

 

 

 

3,183,015

 

 

 

28,410,586

 

 

Our cash increased $1,733,773 and total current assets increased $3,047,004 because of our equity financing and acquisition of TopPop, respectively. Our total current liabilities increased $13,467,894 primarily because of the current portion of contingent consideration, notes payable issued to the former owners of TopPop as consideration in the acquisition and operating lease liabilities from the warehouses that TopPop leases. Our total liabilities increased $28,410,586 as a result of recognition of contingent payments associated with the TopPop acquisition of $20,204,505. Our stockholders’ equity increased from a deficit of $1,828,123 to an equity balance of $19,113,055 due primarily to the issuance of stock associated with the TopPop acquisition and the equity financing.

  

In order to repay our obligations in full or in part when due, we may be required to raise significant capital from other sources and to execute on our business plans for TopPop. There is no assurance, however, that we will be successful in these efforts. Please see the Risk Factors beginning on page 12 of this Annual Report Form 10-K.

 

Cash Requirements

 

Our cash on hand as of December 31, 2021 was $2,190,814. On January 5, 2022, the Company closed the second tranche of the equity financing and sold 12,257 shares of Series A-2 Preferred Stock, 4,781,004 shares of common stock and warrants to purchase 40,018,583 shares of common stock for approximately $10.8 million, net of fees. Such net proceeds are expected to be used by the Company for domestic and international expansion of its Bellissima brand, the expansion of the production facilities of the Company’s TopPop subsidiary, new product launches, marketing, and other general working capital purposes. We anticipate that the funding from financing activities and product sales will be enough to sustain us for the next 12 months from the date of this filing.

 

 
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Sources and Uses of Cash

 

Operations

 

Our net cash used in operating activities for the years ended December 31, 2021 and 2020 was $4,090,659 and $1,070,853, respectively, an increase of $3,019,806. The use for operating activities included a net loss of $10,504,876. Changes to working capital included increases of $4,914,745 related to accounts receivable, $474,085 for inventory partially offset by decrease of $2,298,147 related to accounts payable and accrued expenses. The net loss was further offset by non-cash transactions of $2,469,592 related to equity compensation, $1,327,614 related to amortization of intangibles.

 

Investments

 

For the year ended December 31, 2021, we used cash for investing activities of $8,230,906. This cash was used for the acquisition of TopPop, United and purchases of fixed assets. For the year ended December 31, 2020, we used cash for investing activities of $19,708 for the purchase of furniture and equipment.

 

Financing

 

Our net cash provided from financing activities for the year ended December 31, 2021 was $14,055,338 compared to $1,283,964 of cash provided by financing activities for the year ended December 31, 2020. The significant inflow of cash in 2021 represents proceeds from the financing transaction of approximately $15.6 million, net of fees, and proceeds from notes payable of approximately $976,000, partially offset by the payment of notes payable of $2,315,380.

 

Critical Accounting Policies and Estimates

 

See Note 2 of the Notes to Consolidated Financial Statements for the years ended December 31, 2021 and 2020.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

ICONIC BRANDS, INC. AND SUBSIDIARIES

Index to the Consolidated Financial Statements

Years Ended December 31, 2021 and 2020

 

Report of Independent Registered Public Accounting Firm 2021 (Mazars USA LLP, Fort Washington, PA, PCAOB ID 339)

 

F-2

 

 

 

 

Report of Independent Registered Public Accounting Firm 2020 – ( Fei Qi CPA, Elmhurst, NY, PCAOB ID 6631)

 

F-4

 

 

Balance Sheets as of December 31, 2021 and 2020

F-5

 

Statements of Operations for the years ended December 31, 2021 and 2020

F-6

 

Statement of Stockholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020

F-7

 

Statements of Cash Flows for the years ended December 31, 2021 and 2020

F-8

 

Notes to Financial Statements for the years ended December 31, 2021 and 2020

F-9

  

 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Iconic Brands, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Iconic Brands, Inc.(the “Company”) as of December 31, 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows, for the year 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 the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

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.

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Acquisition

 

During the year ended December 31, 2021, the Company entered into a Stock Purchase Agreement to acquire 100% of the issued and outstanding stock of TopPop LLC through a combination of cash, issuance of company stock, assumption of promissory notes, and future additional cash payments as earnout consideration.

 

The principal considerations for our determination that the accounting for and the valuation of the acquisition is a critical audit matter are that (1) the transaction requires the appropriate application of complex accounting authoritative guidance from the FASB’s Accounting Standards Codification (“ASC”), (2) significant judgment is used by management when determining assumptions used in the fair value measurement of the acquired intangible assets, (3) there is a high degree of auditor judgement and subjectivity in performing procedures and evaluating management’s significant accounting and valuation assumptions and (4) the audit effort involved the use of professionals with specialized skill and knowledge.

 

 
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The primary procedures we performed to address this critical audit matter included:

 

 

·

We evaluated and recomputed the methodology used in connection with the Company’s acquisition and valuation process, including review of the appropriate accounting literature, valuation model, significant assumptions used, and the completeness and accuracy of the underlying date used;

 

 

 

 

·

With the assistance of our valuation specialists, we assessed the weighted-average cost of capital including the risk-free rate of return and discount rate applied as well as the internal rate of return for the purchase price allocation valuation assumptions for the intangible assets;

 

 

 

 

·

We assessed the appropriate interpretation and application used by management of the FASB’s Accounting Standards Codification for the transaction including topic ASC 805, Business Combinations;

 

 

 

 

·

We evaluated the reasonableness of the Company’s projections of future cash flows by comparing the assumptions used in the projections to actual results and other information deemed necessary as well as tested the mathematical accuracy of the calculations;

 

 

 

 

·

We evaluated the adequacy of the Company’s disclosures in the financial statements related to the acquisition.

 

We have served as the Company’s auditor since 2021.

 

/s/ Mazars USA LLP

 

Fort Washington, PA

June 15, 2022

 

 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Of Iconic Brands Inc.,

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Iconic Brands Inc. (the “Company”) as of December 31, 2020 and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the year 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 Iconic Brands Inc. as of December 31, 2020 and the results of its operations and cash flows for the year 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 B 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 2 (m). 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.

 

Sales – Refer to Note 2 (m)

 

Critical Audit Matter Description

 

The Company’s fiscal year 2020 sales increased by $1,638,671 or 135% from 2019. The increase in sales is primarily due to revenue generated from one new customer, which accounted approximately 70% of total sales for the year.

 

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 new customer 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    

April 13, 2021

We have served as the Company’s auditor from 2020 until December 2021. 

 

 
F-4

Table of Contents

  

ICONIC BRANDS, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

 

 

 

December 31, 2021

 

 

December 31, 2020

 

 ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$2,190,814

 

 

$457,041

 

Accounts receivable

 

 

852,321

 

 

 

334,458

 

Inventory

 

 

1,228,351

 

 

 

507,500

 

Prepaid expense and other current assets

 

 

74,517

 

 

 

-

 

         Total current assets

 

 

4,346,003

 

 

 

1,298,999

 

 

 

 

 

 

 

 

 

 

Right-of-use asset, net

 

 

3,074,864

 

 

 

45,381

 

Leasehold improvements, furniture, and equipment, net

 

 

5,556,964

 

 

 

10,512

 

Intangible assets

 

 

21,609,586

 

 

 

-

 

Goodwill

 

 

15,976,877

 

 

 

-

 

Other assets

 

 

142,362

 

 

 

-

 

   Total assets

 

$50,706,656

 

 

$1,354,892

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

2,713,046

 

 

$3,089,773

 

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

 

 

-

 

 

 

15,637

 

Notes payable

 

 

5,045,466

 

 

 

28,458

 

Deferred revenue

 

 

135,034

 

 

 

-

 

Other current liabilities

 

 

132,234

 

 

 

-

 

Current portion of operating lease liability

 

 

380,487

 

 

 

49,147

 

Contingent consideration

 

 

8,244,642

 

 

 

-

 

   Total current liabilities

 

 

16,650,909

 

 

 

3,183,015

 

 

 

 

 

 

 

 

 

 

Operating lease liability, long term

 

 

2,835,828

 

 

 

-

 

Notes payable, long term

 

 

147,001

 

 

 

-

 

Contingent consideration, long term

 

 

11,959,863

 

 

 

-

 

   Total liabilities

 

 

31,593,601

 

 

 

3,183,015

 

 

 

 

 

 

 

 

 

 

Stockholders’ and members’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; authorized 100,000,000 shares:

 

 

 

 

 

 

 

 

Series A, no shares issued and outstanding at December 31, 2021; 1 share issued and outstanding at December 31, 2020

 

 

-

 

 

 

1

 

Series E, no shares issued and outstanding at December 31, 2021; 2,115,224 shares issued and outstanding at December 31, 2020

 

 

-

 

 

 

2,115

 

Series F ($1,000 per share stated value), no shares issued and outstanding at December 31, 2021; 2,413.75 shares issued and outstanding at December 31, 2020

 

 

-

 

 

 

2,413,750

 

Series G ($1,000 per share stated value), no shares issued and outstanding at December 31, 2021; 1,475 shares issued and outstanding at December 31, 2020

 

 

-

 

 

 

1,475,000

 

Series A-2, 26,623 shares issued and outstanding at December 31, 2021 and no shares issued and outstanding at December 31, 2020;

 

 

27

 

 

 

-

 

Common stock, $0.001 par value; authorized 2,000,000,000 shares, 90,542,764 and 17,268,881 shares issued and outstanding respectively as of December 31, 2021 and 2020

 

 

90,544

 

 

 

17,269

 

Treasury stock, at cost – no shares issued and outstanding at December 31, 2021; 1,000,000 shares issued and outstanding at December 31, 2020

 

 

-

 

 

 

(516,528 )

Additional paid-in capital

 

 

56,749,055

 

 

 

22,430,430

 

Accumulated deficit

 

 

(36,961,344 )

 

 

(26,497,350 )

Noncontrolling interests

 

 

(765,227 )

 

 

(1,152,810 )

Total stockholders’ equity (deficit)

 

 

19,113,055

 

 

 

(1,828,123 )

Total liabilities and stockholders’ equity

 

$50,706,656

 

 

$1,354,892

 

 

See accompanying notes to Consolidated Financial Statements.

 

 
F-5

Table of Contents

  

ICONIC BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

Years ended December 31,

 

 

 

2021

 

 

2020

 

REVENUE

 

 

 

 

 

 

Sales

 

$4,960,016

 

 

$2,848,913

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

4,628,734

 

 

 

1,330,441

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

331,282

 

 

 

1,518,472

 

 

 

 

 

 

 

 

 

 

OPERATING (INCOME) EXPENSES

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

10,453,730

 

 

 

3,915,119

 

Selling and marketing

 

 

716,727

 

 

 

801,445

 

Gain from the cancellation of accrued royalties

 

 

 (577,590

 

 

 -

 

Total operating expenses

 

 

10,592,867

 

 

 

4,716,564

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(10,261,585 )

 

 

(3,198,092 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Gain on forgiveness of PPP loan

 

 

28,458

 

 

 

-

 

Interest expense

 

 

(271,749 )

 

 

-

 

Loss on investment in and receivable from Can B Corp

 

 

-

 

 

 

(483,472 )

Total other income (expense)

 

 

(243,291 )

 

 

(483,472 )

 

 

 

 

 

 

 

 

 

Net loss

 

$(10,504,876 )

 

$(3,681,564 )

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests in subsidiaries

 

(40,882 )

 

(109,962 )

 

 

 

 

 

 

 

 

 

Net loss attributable to Iconic Brands, Inc.

 

(10,463,994)

 

(3,571,602 )

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$(0.22 )

 

$(0.22 )

Weighted average number of shares outstanding

 

 

48,378,549

 

 

 

16,367,218

 

 

See accompanying notes to Consolidated Financial Statements.  

 

 
F-6

Table of Contents

  

ICONIC BRANDS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

 

Series A Preferred stock

 

 

Series E Preferred stock

 

 

Series F Preferred stock

 

 

Series G Preferred stock

 

 

Series A-2 Preferred stock

 

 

Common stock

 

 

Treasury stock

 

 

Additional paid-in

 

 

 

 

 

Noncontrolling

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

Subtotal

 

 

interests

 

 

Deficit

 

 

Total

 

Balance, December 31, 2019

 

 

1

 

 

$1

 

 

 

2,790,224

 

 

$2,790

 

 

 

3,156

 

 

$3,155,750

 

 

 

-

 

 

$-

 

 

 

-

 

 

 

-

 

 

 

14,576,681

 

 

$14,577

 

 

 

-

 

 

$-

 

 

$21,282,679

 

 

$24,455,797

 

 

$(1,039,851)

 

$(22,925,748)

 

 

490,198

 

Sale of Series G Preferred Stock and warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,475

 

 

 

1,475,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,475,000

 

 

 

-

 

 

 

-

 

 

 

1,475,000

 

Placement agent fees and stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

375,000

 

 

 

375

 

 

 

-

 

 

 

-

 

 

 

(150,375)

 

 

(150,000)

 

 

-

 

 

 

-

 

 

 

(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 services rendered and to be rendered

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

860,000

 

 

 

860

 

 

 

-

 

 

 

-

 

 

 

556,908

 

 

 

557,768

 

 

 

-

 

 

 

-

 

 

 

557,768

 

Issuance of common stock in exchange for Series F Preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(742)

 

 

(742,000)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,187,200

 

 

 

1,187

 

 

 

-

 

 

 

-

 

 

 

740,813

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Treasury stock acquired from Can B Corp

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000,000)

 

 

(516,528)

 

 

-

 

 

 

(516,528)

 

 

-

 

 

 

-

 

 

 

(516,528)
Adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,997)

 

 

-

 

 

 

(2,997)
Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(109,962)

 

 

(3,571,602)

 

 

(3,681,564)
Balance, December 31, 2020

 

 

1

 

 

 

1

 

 

 

2,115,224

 

 

 

2,115

 

 

 

2,414

 

 

 

2,413,750

 

 

 

1,475

 

 

 

1,475,000

 

 

 

-

 

 

 

-

 

 

 

17,268,881

 

 

 

17,269

 

 

 

(1,000,000)

 

 

(516,528)

 

 

22,430,430

 

 

 

25,822,037

 

 

 

(1,152,810)

 

 

(26,497,350)

 

 

(1,828,123)
Common stock and Series A-2 Preferred stock issued for cash, net of fees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,800

 

 

 

19

 

 

 

6,711,997

 

 

 

6,712

 

 

 

-

 

 

 

-

 

 

 

15,596,654

 

 

 

15,603,385

 

 

 

-

 

 

 

-

 

 

 

15,603,385

 

Equity-   based  compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,861,670

 

 

 

4,862

 

 

 

-

 

 

 

-

 

 

 

2,464,730

 

 

 

2,469,592

 

 

 

-

 

 

 

-

 

 

 

2,469,592

 

Common stock issued to purchase TopPop

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,009,600

 

 

 

26,010

 

 

 

-

 

 

 

-

 

 

 

10,117,734

 

 

 

10,143,744

 

 

 

-

 

 

 

-

 

 

 

10,143,744

 

Common stock issued for the exchange of Series A Preferred Stock

 

 

(1)

 

 

(1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,600,000

 

 

 

25,600

 

 

 

-

 

 

 

-

 

 

 

(25,599)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common and preferred shares issued in exchange for old Series, E, F and G Preferred shares

 

 

-

 

 

 

-

 

 

 

(2,115,224)

 

 

(2,115)

 

 

(2,189)

 

 

(2,188,750)

 

 

(1,475)

 

 

(1,475,000)

 

 

3,555

 

 

 

4

 

 

 

2,209,517

 

 

 

2,210

 

 

 

-

 

 

 

-

 

 

 

3,663,651

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Redemption of Series F Preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(225)

 

 

(225,000)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(225,000)

 

 

-

 

 

 

-

 

 

 

(225,000)
Purchase of United Spirits

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,428,465)

 

 

(1,428,465)

 

 

428,465

 

 

 

-

 

 

 

(1,000,000)
Common stock issued to settle notes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,268

 

 

 

4

 

 

 

547,200

 

 

 

547

 

 

 

-

 

 

 

-

 

 

 

4,438,157

 

 

 

4,438,708

 

 

 

-

 

 

 

-

 

 

 

4,438,708

 

Shares issued in exchange for old warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,283,899

 

 

 

8,284

 

 

 

-

 

 

 

-

 

 

 

(8,284)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Retirement of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000,000)

 

 

(1,000)

 

 

1,000,000

 

 

 

516,528

 

 

 

(515,528)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercise of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

50

 

 

 

-

 

 

 

-

 

 

 

15,575

 

 

 

15,625

 

 

 

-

 

 

 

-

 

 

 

15,625

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(40,882)

 

 

(10,463,994)

 

 

(10,504,876)
Balance, December 31, 2021

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,623

 

 

 

27

 

 

 

90,542,764

 

 

 

90,544

 

 

 

-

 

 

 

-

 

 

 

56,749,055

 

 

 

56,839,626

 

 

 

(765,227)

 

 

(36,961,344)

 

 

19,113,055

 

 

 See accompanying notes to Consolidated Financial Statements.

 

 
F-7

Table of Contents

 

ICONIC BRANDS, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

 

 

Years ended December 31,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$(10,504,876 )

 

$(3,681,564 )

Adjustment to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

119,746

 

 

 

29,196

 

Gain on forgiveness of PPP loan

 

 

(28,458 )

 

 

-

 

Amortization of debt discounts

 

 

30,032

 

 

 

-

 

Amortization of right-of-use assets

 

 

283,256

 

 

 

-

 

Amortization of intangibles

 

 

1,327,614

 

 

 

-

 

Equity based compensation

 

 

2,469,592

 

 

 

557,768

 

Gain from the cancellation of accrued royalties

 

 

 (577,590)

 

 

 

 -

 

Loss on investment in and receivable from Can B Corp

 

 

-

 

 

 

483,472

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,914,745

 

 

 

239,289

 

Inventory

 

 

474,085

 

 

 

66,300

 

Operating lease liabilities

 

 

(145,571 )

 

 

-

 

Accounts payable and accrued expenses

 

 

(2,240,393 )

 

 

1,234,686

 

Prepaid expense and other current assets

 

 

57,012

 

 

-

 

Other assets

 

 

(142,362

)

 

 

-

 

Other current liabilities

 

 

132,234

 

 

 

-

 

Deferred revenue

 

 

(259,725 )

 

 

-

 

Net cash used in operating activities

 

 

(4,090,659 )

 

 

(1,070,853 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of TopPop, net of cash acquired (Note 4)

 

 

(3,694,273 )

 

 

-

 

Cash paid for outstanding shares of United Spirits

 

 

(1,000,000 )

 

 

-

 

Purchase of fixed assets and leasehold improvements

 

 

(3,536,633 )

 

 

(19,708 )

Net cash used in investing activities

 

 

(8,230,906 )

 

 

(19,708 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Common stock and Series A-2 Preferred stock issued for Cash, net of fees

 

 

15,603,385

 

 

 

-

 

Repayment of note payable

 

 

(2,315,380 )

 

 

(40,000 )

Proceeds from issuance of notes payable

 

 

976,708

 

 

 

28,458

 

Proceeds from exercise of warrants

 

 

15,625

 

 

 

-

 

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

 

 

-

 

 

 

1,325,000

 

    Redemption of Series F Preferred stock

 

 

(225,000 )

 

 

-

 

Repayment of loan payable to related party

 

 

-

 

 

 

(29,494 )

Net cash provided by financing activities

 

 

14,055,338

 

 

 

1,283,964

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

1,733,773

 

 

 

193,403

 

Cash at beginning of year

 

 

457,041

 

 

 

263,638

 

Cash at end of year

 

$2,190,814

 

 

 

457,041

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Common and preferred shares issued in exchange for old Series, E, F and G Preferred shares

 

$3,665,865

 

 

$-

 

Purchase and retirement of treasury stock

 

$(516,528 )

 

$516,528

 

Common stock issued to settle notes payable

 

$4,438,708

 

 

$-

 

Recognition of right of use asset - operating lease

 

$3,312,739

 

 

$-

 

Issuance of common stock in exchange for Series E Preferred stock

 

$-

 

 

$675

 

Issuance of common stock in exchange for Series F Preferred Stock

 

$-

 

 

$742,000

 

 

See accompanying notes to Consolidated Financial Statements.

 

 
F-8

Table of Contents

  

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years ended December 31, 2021 and December 31, 2020

 

1. ORGANIZATION AND NATURE OF BUSINESS

 

Iconic Brands, Inc., (“the Company”, or “Iconic”), was incorporated in the State of Nevada on October 21, 2005. As of December 31, 2021, the subsidiaries of Iconic are wholly-owned TopPop LLC (“TopPop”) and United Spirits Inc., (“United”), and 51% owned BiVi LLC (“BiVi”) and Bellissima Spirits LLC (“Bellissima”).

 

BiVi is the brand owner of “BiVi 100 percent Sicilian Vodka,” and Bellissima isthe brand owner of Bellissima sparkling wines. BiVi was organized in Nevada on May 4, 2015. Bellissima was organized in Nevada on November 23, 2015.

 

On July 26, 2021, the Company acquired 100% TopPop LLC (“TopPop”). TopPop is organized as a limited liability company in the State of New Jersey on September 5, 2019. TopPop’s primary operation is the manufacture and packaging of single-serve, shelf-stable, ready-to-freeze ice pops, both alcohols infused and non-alcoholic. TopPop began operations in December 2019 (see note 4).  Also on July 26, 2021, the company purchased all the outstanding stock of United (see note 5).

 

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, its wholly owned subsidiaries United Spirits, Inc. (see Note 5), and TopPop, LLC (see Note 4) (collectively, the “Company”). All inter-company balances and transactions have been eliminated in consolidation.

 

(b) Use of Estimates

 

The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

(c) 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 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, and notes payable, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.

 

 
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Table of Contents

 

Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:

 

Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.

 

Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.

 

Level 3– Based on unobservable inputs that reflect the entity’s own assumptions about the assumptions that a market participant would use in pricing the asset or liability.

 

We did not have any transfers between levels during the periods presented.

 

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy. The only financial instrument measured at fair value is the contingent consideration:

 

 

 

As of December 31, 2021

 

 

 

Quoted Priced in active markets

(Level 1)

 

 

Significant other observable inputs (Level 2)

 

 

Significant unobservable inputs (Level 3)

 

Contingent consideration

 

$-

 

 

$-

 

 

$20,204,505

 

 

The fair value of the contingent consideration is based on the projected earnings of the business.

 

(d) Cash

 

The total amount of bank deposits (checking and savings accounts) that was not insured by the FDIC at year end was $1,442,162.

 

(e) Accounts Receivable

 

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 December 31, 2021 and December 31, 2020, the allowance for doubtful accounts was $0 and $83,617, respectively.

 

(f) 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. Inventories at December 31, 2021 and December 31, 2020 consists of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers and cases of alcoholic beverages. Toppop inventory consists of raw materials, work in process and finished goods relating to the production cycle.

 

 
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Table of Contents

 

(g) Revenue Recognition

 

It is the Company’s policy that revenues from product sales are recognized in accordance with ASC 606 “Revenue Recognition.” Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating the transaction price to the performance obligations in the contract, which requires the company to allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation. Adoption of ASC 606 has not changed the timing and nature of the Company’s revenue recognition and there has been no material effect on the Company’s financial statements.

 

Our revenue (referred to in our financial statements as “sales”) consists primarily of the sale of wine and spirits imported for cash or otherwise agreed-upon credit terms along with ready to freeze products manufactured by us. Our customers consist primarily of retailers. Our revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are shipped or delivered to the customer, depending upon the method of distribution, and shipping terms. For sales to QVC, product shipping is treated as fulfillment charges since products are being shipped by a third-party supplier. Revenue is measured as the amount of consideration we expect to receive in exchange for the sale of our product. The Company has no obligation to accept the return of products sold other than for replacement of damaged products. Historically, the Company has not had significant amounts of damaged products to replace. 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. Revenue associated with manufacturing and packaging business is recognized at a point in time when obligations under the terms of a contact with a customer are satisfied.

 

(h) 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.

 

(i) Equity-Based Compensation

 

Equity-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation”. For the years ended December 31, 2021 and 2020, stock-based compensation was $2,469,592 and $557,768 respectively.

 

(j) 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.

 

 
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Table of Contents

 

(k) Net Loss per Share

 

Basic net loss per common share is computed on the basis of the weighted average number of common shares outstanding during the period of the financial statements.

 

Diluted net loss per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as stock options, warrants, and convertible securities) outstanding. At December 31, 2021 and 2020, the Company had 32,564,030 and 0 potentially dilutive shares of common stock related to common stock options and warrants, respectively, as determined using the treasury stock method. Dilutive securities having an anti-dilutive effect on diluted net loss per share are excluded from the calculation.

 

(l) Recently Issued Accounting Pronouncements

 

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.

 

In December 2019, the FASB issued amended guidance in the form of ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. The Company adopted this guidance on January 1, 2021. The adoption of this guidance did not have a material impact on its consolidated financial statements and related disclosures.

 

On August 5, 2020, the FASB issued ASU No. 2020-06 which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 simplifies the guidance in U.S. GAAP on the issuer’s accounting for convertible debt instruments. Such guidance includes multiple disparate sets of classification, measurement, and derecognition requirements whose interactions are complex. ASU 2020-06 is effective for annual periods beginning after December 15, 2021 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The company is in the initial stage of evaluating the impact of this new standard however it does not believe the guidance will have a material impact on our financial statements.

 

(m) Business Acquisition Accounting

 

The Company applies the acquisition method of accounting for those that meet the criteria of a business combination.  The Company allocates the purchase price of its business acquisition based on the fair value of identifiable tangible and intangible assets.  The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill.  Transaction costs are expensed as incurred in general and administrative expenses.

 

(l) Leasehold improvements, furniture, and equipment, net

 

Leasehold improvements, furniture, and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets

 

 
F-12

Table of Contents

 

Schedule of estimated useful lives

 

 

Years

Machinery and equipment

3 - 10

Leasehold improvements

Lesser of term of lease or useful life

Furniture and fixtures

3 - 5

 

3. LOSS ON INVESTMENT IN AND RECEIVABLE FROM CAN B CORP.

 

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 equaled $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.

 

Effective March 6, 2020, CANB effected a 1 share for 300 shares reverse stock split resulting in a reduction of the number of the Company’s shares of CANB common stock from 37,500,000 shares to 125,000 shares. On July 8, 2020, CANB delivered 418,714 additional shares of CANB common stock required under the December 31, 2019 agreement. The fair value of the 543,714 shares of CANB common stock at December 31, 2020 was $1,073,835 and the Company recognized an unrealized gain of $73,835 for the year ended December 31, 2020.

 

On July 29, 2020, the Company executed an exchange agreement with CANB and delivered the 543,714 shares of CANB common stock to CANB in exchange for CANB’s delivery of 1,000,000 shares of common stock to the Company. The July 29, 2020 closing price of CANB common stock was $0.95 per share. In the balance sheet as of December 31, 2020, the Company recorded treasury stock in the amount of $516,528. The Company recognized a loss of $557,307 from the Company’s investment in CANB common stock in the year ended December 31, 2020.

 

4. ACQUISITION OF TOPPOP

 

On July 26, 2021, the Company entered into an acquisition agreement (the “TopPop Acquisition Agreement”) with TopPop LLC, a New Jersey limited liability company (“TopPop”), and each of FrutaPop LLC (“Frutapop”), Innoaccel Investments LLC (“Innoaccel”) and Thomas Martin (“Martin” and, together with Frutapop and Innoaccel, the “TopPop Members”), pursuant to which the TopPop Members sold to the Company and the Company acquired, all of the issued and outstanding membership interests of TopPop.

 

TopPop is a brand owner and contract manufacturing and packaging company specializing in flexible packaging solutions in the food, beverage and health categories. Its first branded and contract products are alcohol-infused ice pops. Its manufacturing facility in Marlton, New Jersey is registered by the Federal Drug Administration and holds a Safe Quality Food certification.

 

Upon consummation of the acquisition contemplated by the TopPop Acquisition Agreement, the TopPop Members received, in the aggregate: (a) $3,694,273 in cash, net of cash acquired, by transfer of immediately available funds, (b) 26,009,600 shares of Company’s common stock, par value $0.001 per share (the “Common Stock”), which shares were valued in the aggregate at $10,143,744, or $0.39 per share at the date of acquisition, (c) $5,042,467 aggregate principal amount of promissory notes of the Company (the “Promissory Notes”) and (d) future additional payments as earnout consideration valued at $20,204,505 to be paid in cash and stock. The earn-out payments, if any, will be made (i) following the 12-month period commencing on August 1, 2021, in an aggregate amount equal to the excess, if any, of: (A) 1.96 times TopPop’s EBITDA for the period over (B) the aggregate amount of the closing promissory notes repaid in cash during period; provided, however, no such amount shall be payable if (i)(A) does not exceed (i)(B); and (ii) following the 12-month period commencing on August 1, 2022, in an aggregate amount equal to the excess, if any, of: (A) 1.96 times TopPop’s EBITDA for such period over (B) the aggregate amount of the closing promissory notes repaid in cash during the period; provided, however, no such amount shall be payable if (ii)(A) does not exceed (ii)(B). The earn-out payments will be made, at the election of each former TopPop member, in cash or in shares of our common stock or a combination thereof, less any reserve for possible indemnification payments, provided that not less than 45% of the value of each earn-out payment shall be paid in common stock. If paid in shares of common stock, such shares shall be valued at the then-prevailing market rate.

 

 
F-13

Table of Contents

 

The Promissory Notes bear interest at the rate of 10% per annum and mature on July 26, 2022. The Promissory Notes are not subject to pre-payment penalties; however, the Company may not pre-pay any amount on any Promissory Note without pre-paying a pro-rata portion of all Promissory Notes. In connection with the Promissory Notes, the Company granted to the TopPop Members a security interest in all of the Company’s membership interests of TopPop pursuant to certain pledge agreements (the “Pledge Agreements”) with each of the TopPop Members, each dated July 26, 2021. The Promissory Notes are not convertible into equity securities of the Company.

 

The Company accounted for the Acquisition of TopPop as a business combination using the purchase method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, we used our best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. 

 

Fair value of the acquisition

 

The preliminary purchase price and related purchase price allocation (which are still in process and subject to change) are as follows:

 

Purchase price:

 

 

 

Cash, net of cash acquired

 

$3,694,273

 

Fair value of common stock

 

 

10,143,744

 

Contingent consideration

 

 

20,204,505

 

Note payable

 

 

5,042,467

 

Total purchase price

 

 

39,084,989

 

 

 

 

 

 

Assets acquired:

 

 

 

 

Accounts receivable

 

 

5,432,608

 

Furniture and equipment

 

 

1,848,580

 

Inventory

 

 

1,194,936

 

Equipment deposit

 

 

320,810

 

Security deposit

 

 

131,529

 

Tradename / Trademarks

 

 

6,867,000

 

IP/Technology

 

 

849,000

 

Non-compete agreement

 

 

807,200

 

Customer Base

 

 

14,414,000

 

Total assets acquired:

 

 

31,865,663

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

Accounts payable

 

 

(2,435,412)

Notes payable

 

 

(5,927,380)

Deferred revenue

 

 

(394,759)

Total Liabilities assumed

 

 

(8,757,551)

Net assets acquired

 

 

23,555,342

 

Excess purchase price “Goodwill”

 

$15,976,877

 

 

 
F-14

Table of Contents

 

The excess purchase price has been recorded as “goodwill” included as part of “Intangible assets” in the amount of $15,976,877. The estimated useful life of the identifiable intangible assets is four to ten years. The goodwill is amortizable for tax purposes.

 

See Note 16 for the required pro forma information related to the business combination.

 

Intangible assets

 

Intangible assets consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Useful

 

December 31,

 

 

December 31,

 

 

 

Lives

 

2021

 

 

2020

 

Tradename - Trademarks

 

5 years

 

$6,867,000

 

 

$-

 

Intellectual Property

 

5 years

 

 

849,000

 

 

 

-

 

Customer Base

 

10 years

 

 

14,414,000

 

 

 

-

 

Non-Competes

 

4 years

 

 

807,200

 

 

 

-

 

 

 

 

 

 

22,937,200

 

 

 

-

 

Less accumulated amortization

 

 

 

 

1,327,614

 

 

 

-

 

 

 

 

 

$21,609,586

 

 

$-

 

 

Intangible assets are amortized on a straight-line basis over the useful lives of the assets. Amortization expense amounted to $1,327,614 and $0 for the years ended December 31, 2021 and 2020, respectively.

 

Future amortization of intangible assets is as follows:

 

Future amortization of intangible assets for the years ending December 31,

 

Amount

 

2022

 

 $

3,186,408

 

2023

 

 

3,186,408

 

2024

 

 

3,186,408

 

2025

 

 

3,102,323

 

2026

 

 

2,341,604

 

Thereafter

 

 

6,606,435

 

 Total

 

 $

21,609,586

 

 

 
F-15

Table of Contents

 

5. UNITED SPIRITS, INC.

 

Until July 26, 2021, United Spirits, Inc. a New York Corporation (“United”) was owned and managed by Mr. Richard DeCicco, the controlling shareholder and president of the Company. United provides distribution services for Iconic, BiVi and Bellissima (see Note 12e). Since the Company was deemed the primary beneficiary, United was considered a variable interest entity (“VIE”) and consolidated. On July 26, 2021, the Company entered into a securities purchase agreement with Mr. DeCicco pursuant to which the Company purchased from Mr. DeCicco, and Mr. DeCicco sold, all of the issued and outstanding capital stock of United to the Company. Pursuant to the United Purchase Agreement, upon the closing of the transactions contemplated thereby, Mr. DeCicco transferred, and the Company acquired, 100% of the issued and outstanding capital stock of United in exchange for a purchase price of $1,000,000. The United Purchase Agreement contains customary representations, warranties and covenants of the parties thereto, and the closing of the transactions contemplated by the United Purchase Agreement was subject to the satisfaction of certain closing conditions, including, without limitation, certain approvals from various state liquor authorities. Prior to the closing of the transactions contemplated by the United Purchase Agreement, the Company marketed and sold its wine and spirts products pursuant to an exclusive marketing and distribution agreement between the Company and United. After the closing, United became a wholly owned subsidiary of the Company and reduced the noncontrolling interest by $428,465The $1,000,000 payment and the $428,465 reduction in noncontrolling interest are presented as a component of equity.

 

6. LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT, NET

 

Leasehold improvements, furniture, and equipment, net consisted of the following:

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Machinery and equipment

 

$2,871,744

 

 

$-

 

Deposits on equipment

 

 

2,480,265

 

 

 

-

 

Leasehold improvements

 

 

154,389

 

 

 

31,000

 

Supplies

 

 

140,004

 

 

 

-

 

Furniture and fixtures

 

 

36,181

 

 

 

8,708

 

 

 

 

5,682,583

 

 

 

39,708