UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2022

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

 

icnb_10qimg1.jpg

 

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)

 

(631) 464-4050

(Registrant’s telephone number, including area code)

 

N/A

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

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

N/A

N/A

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

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 Exchange Act.   ☐

 

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

 

As of August 22, 2022, the registrant had 106,892,138 shares of common stock, $0.001 par value per share, issued and outstanding.

 

 

 

 

ICONIC BRANDS, INC.

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

ITEM 1

Financial Statements

4

 

Condensed Consolidated Unaudited Balance Sheets as of June 30, 2022 and December 31, 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Unaudited Statements of Operations for the three and six months ended June 30, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Unaudited Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021

 

6

 

 

 

 

 

 

Condensed Consolidated Unaudited Statements of Cash Flows for the six months ended June 30, 2022 and 2021

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Unaudited Financial Statements

 

8

 

 

 

 

 

 

ITEM 2

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

22

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

30

ITEM 4

Controls and Procedures

30

PART II - OTHER INFORMATION

 

ITEM 1

Legal Proceedings

31

ITEM 1A

Risk Factors

31

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

31

ITEM 3

Defaults Upon Senior Securities

31

ITEM 4

Mine Safety Disclosures

31

ITEM 5

Other Information

31

ITEM 6

Exhibits

32

Signatures

33

 

 
2

Table of Contents

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

 
3

Table of Contents

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

ICONIC BRANDS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

 

 

June 30,

2022

 

 

December 31,

2021

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash

 

$4,697,929

 

 

$2,190,814

 

Accounts receivable

 

 

5,397,624

 

 

 

852,321

 

Inventory

 

 

2,858,992

 

 

 

1,228,351

 

Prepaid expense and other current assets

 

 

526,015

 

 

 

74,517

 

Total current assets

 

 

13,480,560

 

 

 

4,346,003

 

 

 

 

 

 

 

 

 

 

Right-of-use assets, net

 

 

5,312,320

 

 

 

3,074,864

 

Leasehold improvements, furniture, and equipment, net

 

 

7,286,278

 

 

 

5,556,964

 

Intangible assets

 

 

20,016,386

 

 

 

21,609,586

 

Goodwill

 

 

15,976,877

 

 

 

15,976,877

 

Other assets

 

 

421,198

 

 

 

142,362

 

Total assets

 

$62,493,619

 

 

$50,706,656

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$6,221,635

 

 

$2,713,046

 

Notes payable

 

 

5,045,466

 

 

 

5,045,466

 

Factoring liability

 

 

1,470,007

 

 

 

-

 

Deferred revenue

 

 

177,299

 

 

 

135,034

 

Other current liabilities

 

 

177,233

 

 

 

132,234

 

Current portion of operating lease liability

 

 

550,251

 

 

 

380,487

 

Contingent consideration

 

 

-

 

 

 

8,244,642

 

Total current liabilities

 

 

13,641,891

 

 

 

16,650,909

 

 

 

 

 

 

 

 

 

 

Operating lease liability, long term

 

 

5,073,218

 

 

 

2,835,828

 

Notes payable, long term

 

 

147,001

 

 

 

147,001

 

Contingent consideration, long term

 

 

20,204,505

 

 

 

11,959,863

 

Total liabilities

 

 

39,066,615

 

 

 

31,593,601

 

 

 

 

 

 

 

 

 

 

Stockholders’ and members’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series A-2, 38,180 shares issued and outstanding at June 30, 2022; 26,623 shares issued and outstanding at December 31, 2021

 

 

38

 

 

 

27

 

Common stock, $0.001 par value; authorized 2,000,000,000 shares, 97,086,968 shares issued and outstanding at June 30, 2022 and 90,542,764 shares issued and outstanding at December 31, 2021

 

 

97,088

 

 

 

90,544

 

Additional paid-in capital

 

 

68,300,172

 

 

 

56,749,055

 

Accumulated deficit

 

 

(44,099,244)

 

 

(36,961,344)

Noncontrolling interests

 

 

(871,050)

 

 

(765,227)

Total stockholders’ equity

 

 

23,427,004

 

 

 

19,113,055

 

Total liabilities and stockholders’ equity

 

$62,493,619

 

 

$50,706,656

 

 

 

 

 

 

 

 

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

 
4

Table of Contents

 

ICONIC BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$6,654,221

 

 

$584,914

 

 

$10,701,018

 

 

$1,219,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

4,920,674

 

 

 

325,206

 

 

 

7,125,713

 

 

 

643,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

1,733,547

 

 

 

259,708

 

 

 

3,575,305

 

 

 

575,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

5,252,741

 

 

 

1,804,781

 

 

 

9,711,628

 

 

 

2,678,751

 

Selling and marketing

 

 

336,485

 

 

 

91,419

 

 

 

688,462

 

 

 

212,587

 

Total operating expenses

 

 

5,589,226

 

 

 

1,896,200

 

 

 

10,399,590

 

 

 

2,891,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(3,855,679)

 

 

(1,636,492)

 

 

(6,824,285)

 

 

(2,315,730)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

28,458

 

Interest expense

 

 

(244,152)

 

 

(30,754)

 

 

(427,286)

 

 

(30,754)

Other income, net

 

 

7,848

 

 

 

-

 

 

 

7,848

 

 

 

-

 

Total other income (expense)

 

 

(236,304)

 

 

(30,754)

 

 

(419,438)

 

 

(2,296)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(4,091,983)

 

$(1,667,246)

 

$(7,243,723)

 

$(2,318,026)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to noncontrolling interests in subsidiaries

 

 

(12,004)

 

 

8,772

 

 

 

(105,823)

 

 

24,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Iconic Brands, Inc.

 

 

(4,079,979)

 

 

(1,676,018)

 

 

(7,137,900)

 

 

(2,342,972)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$(0.04)

 

$(0.10)

 

$(0.07)

 

$(0.14)

Weighted average number of shares outstanding

 

 

97,086,968

 

 

 

17,447,474

 

 

 

96,009,340

 

 

 

16,878,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

 
5

Table of Contents

 

ICONIC BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

  

 

 

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

 

 

 

 

Non-Controlling

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

Subtotal

 

 

interests

 

 

Deficit

 

 

Total

 

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

 

$

(516,528 )

 

$

22,430,430

 

 

25,822,037

 

 

$

(1,152,810 )

 

(26,497,350 )

 

$

(1,828,123 )

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,901,670

 

 

 

1,902

 

 

 

-

 

 

 

-

 

 

 

767,850

 

 

 

769,752

 

 

 

-

 

 

 

-

 

 

 

769,752

 

Retirement of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000,000 )

 

 

(1,000 )

 

 

1,000

 

 

 

516,528

 

 

 

(515,528 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,946

 

 

 

(2,342,972 )

 

 

(2,318,026 )

Balance, June 30, 2021

 

 

1

 

 

$

1

 

 

 

2,115,224

 

 

$

2,115

 

 

 

2,414

 

 

$

2,413,750

 

 

 

1,475

 

 

$

1,475,000

 

 

 

-

 

 

 

-

 

 

 

18,170,551

 

 

$

18,171

 

 

 

-

 

 

$

-

 

 

$

22,682,752

 

 

$

26,591,789

 

 

$

(1,127,864 )

 

$

(28,840,322 )

 

$

(3,376,397 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

1

 

 

$

1

 

 

 

2,115,224

 

 

2,115

 

 

 

2,414

 

 

$

2,413,750

 

 

 

1,475

 

 

$

1,475,000

 

 

 

-

 

 

 

-

 

 

 

16,670,551

 

 

$

16,671

 

 

 

-

 

 

$

-

 

 

$

22,095,252

 

 

$

26,002,789

 

 

$

(1,136,636 )

 

$

(27,164,304 )

 

$

(2,298,151 )

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,500,000

 

 

 

1,500

 

 

 

-

 

 

 

-

 

 

 

587,500

 

 

 

589,000

 

 

 

-

 

 

 

-

 

 

 

589,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,772

 

 

 

(1,676,018 )

 

 

(1,667,246 )

Balance, June 30, 2021

 

 

1

 

 

$

1

 

 

 

2,115,224

 

 

$

2,115

 

 

 

2,414

 

 

2,413,750

 

 

 

1,475

 

 

1,475,000

 

 

 

-

 

 

 

-

 

 

 

18,170,551

 

 

$

18,171

 

 

 

-

 

 

$

-

 

 

$

22,682,752

 

 

$

26,591,789

 

 

$

(1,127,864 )

 

$

(28,840,322 )

 

$

(3,376,397 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,258

 

 

 

12

 

 

 

4,301,004

 

 

 

4,301

 

 

 

-

 

 

 

-

 

 

 

10,993,763

 

 

 

10,998,076

 

 

 

-

 

 

 

-

 

 

 

10,998,076

 

Conversion of Series A-2 Preferred Stock for Common Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(701 )

 

 

(1 )

 

 

2,243,200

 

 

 

2,243

 

 

 

-

 

 

 

-

 

 

 

(2,242 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

559,596

 

 

 

559,596

 

 

 

-

 

 

 

-

 

 

 

559,596

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(105,823 )

 

 

(7,137,900 )

 

 

(7,243,723 )

Balance, June 30, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,180

 

 

$

38

 

 

 

97,086,968

 

 

$

97,088

 

 

 

-

 

 

$

-

 

 

$

68,300,172

 

 

$

68,397,298

 

 

$

(871,050)

 

$

(44,099,244)

 

$

23,427,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,180

 

 

$

38

 

 

 

97,086,968

 

 

$

97,088

 

 

 

-

 

 

$

-

 

 

$

68,021,374

 

 

$

68,118,500

 

 

$

(859,046)

 

$

(40,019,265)

 

$

27,240,189

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

278,798

 

 

 

278,798

 

 

 

-

 

 

 

-

 

 

 

278,798

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,004)

 

 

(4,079,979)

 

 

(4,091,983)

Balance, June 30, 2022

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,180

 

 

38

 

 

 

97,086,968

 

 

$

97,088

 

 

 

-

 

 

-

 

 

68,300,172

 

 

$

68,397,298

 

 

(871,050 )

 

$

(44,099,244 )

 

23,427,004

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

 
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Table of Contents

 

ICONIC BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$(7,243,723)

 

$(2,318,026 )

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

341,063

 

 

 

3,981

 

Amortization of operating lease right-of-use assets

 

 

380,018

 

 

 

-

 

Amortization of debt discount

 

 

-

 

 

 

30,032

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

(28,458 )

Amortization of intangibles

 

 

1,593,200

 

 

 

-

 

Equity based compensation

 

 

559,596

 

 

 

769,752

 

Change in allowance for doubtful accounts

 

 

47,000

 

 

 

-

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,592,303)

 

 

63,142

 

Inventory

 

 

(1,630,641)

 

 

(138,273 )

Operating lease liabilities

 

 

(210,320)

 

 

-

 

Accounts payable and accrued expenses  

 

 

3,508,589

 

 

 

510,968

 

Prepaid expense and other current assets

 

 

(451,498)

 

 

-

 

Other assets

 

 

(278,836)

 

 

-

 

Other current liabilities

 

 

44,999

 

 

 

-

 

Deferred revenue

 

 

42,265

 

 

 

-

 

Net cash used in operating activities

 

 

(7,890,591)

 

 

(1,106,882)

 

 

 

 

 

 

 

 

 

CASH FLOWS USED IN INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Additions to leasehold improvements, furniture, and equipment

 

 

(2,070,377)

 

 

-

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

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

 

 

10,998,076

 

 

 

-

 

Net proceeds from factoring arrangement

 

 

1,470,007

 

 

 

-

 

Proceeds from note payable

 

 

-

 

 

 

924,280

 

Loans payable to officer and affiliated entity

 

 

-

 

 

 

(22,760)

Net cash provided by (used in) financing activities

 

 

12,468,083

 

 

 

901,520

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

2,507,115

 

 

 

(205,362 )

Cash at beginning of year

 

 

2,190,814

 

 

 

457,041

 

Cash at end of year

 

$4,697,929

 

 

$251,679

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH AND NON-CASH TRANSACTIONS:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$169,212

 

 

$722

 

     Purchase and retirement of treasury stock

 

 

 -

 

 

 

516,528

 

Recognition of right of use asset - operating lease

 

$2,617,474

 

 

$-

 

Conversion of Series A-2 Preferred Stock for Common Stock

 

$2,242

 

 

$-

 

 

 

 

 

 

 

 

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

 
7

Table of Contents

 

Iconic Brands, Inc. and Subsidiaries

Notes to Consolidated Financial Statements 

 (Unaudited)

 

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 June 30, 2022, the subsidiaries of Iconic are wholly-owned TopPop LLC (“TopPop”) and United Spirits Inc., (“United”), 54% owned BiVi LLC (“BiVi”) and Bellissima Spirits LLC (“Bellissima”) and 60% owned Empire Wine and Spirits LLC (“Empire”) which was organized on February 4, 2022.

 

BiVi is the brand owner of “BiVi 100 percent Sicilian Vodka,” and Bellissima is the 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% of 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 alcohol and non-alcohol single-serve, shelf-stable, ready-to-freeze ice pops. TopPop began operations in December 2019 (see note 3). On July 26, 2021, the company purchased all the outstanding stock of United.

 

Empire was organized in the State of Nevada on February 4, 2022. During the three and six months ended June 30, 2022, there was no business activity or transactions. 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Principles of Consolidation

 

The consolidated financial statements include the accounts of Iconic, its two 54% owned subsidiaries BiVi and Bellissima, 60% owned Empire, and its wholly-owned subsidiaries United and TopPop, (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 or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

 

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, 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 June 30, 2022

 

 

 

Quoted

Prices in

active

markets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant unobservable

inputs

(Level 3)

 

Contingent consideration

 

$-

 

 

$-

 

 

$20,204,505

 

 

 

 

December 31, 2021

 

 

 

Quoted

Prices 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 June 30, 2022 was approximately $3,757,000.

 

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

 

The Company extends unsecured credit to customers in the ordinary course of business but mitigates risk by performing credit checks and by actively pursuing past due accounts. The allowance for doubtful accounts is based on customer historical experience and the aging of the related accounts receivable. At June 30, 2022 and December 31, 2021, the allowance for doubtful accounts was $47,000 and $0, 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 June 30, 2022 and December 31, 2021 consist 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 Accounting Standards Codification (“ASC 606”) “Revenue Recognition.” Five basic steps must be followed to recognize revenue; (1) Identify contract(s) with a customer that creates enforceable rights and obligations; (2) Identify performance obligations in the contract, such as promises to transfer goods or services to a customer; (3) Determine the transaction price, (i.e. the amount of consideration in a contract to which an entity believes it is entitled in exchange for transferring promised goods or services to a customer); (4) Allocate 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) Recognize 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 consolidated financial statements.

 

Our revenue (referred to in our consolidated financial statements as “sales”) consists primarily of the sale of wine and spirits imported for cash or otherwise agreed-upon credit terms. 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. We have elected to treat shipping as a fulfillment activity. 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. 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 ASC Topic 718, “Compensation-Stock Compensation”. For the three and six months ended June 30, 2022, equity-based compensation was $278,798 and $559,596, respectively. For the three and six months ended June 30, 2021, equity-based compensation was and $589,000 and $769,752, 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 shares of common stock is computed on the basis of the weighted average number of shares of common stock outstanding during the period of the financial statements.

 

Diluted net loss per share of common stock is computed on the basis of the weighted average number of shares of common stock and dilutive securities (such as stock options, warrants, and convertible securities) outstanding. As of June 30, 2022 and 2021, the Company had 153,908,668 and 10,655,198 potentially dilutive shares of common stock related to common stock options and warrants, respectively. 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.

 

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 adoption of this new guidance did not 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

 

3. ACQUISITION OF TOPPOP

 

On July 26, 2021, the Company entered into an acquisition agreement (the “TopPop Acquisition Agreement”) with 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.

 

 
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Table of Contents

 

Upon consummation of the acquisition contemplated by the TopPop Acquisition Agreement, the TopPop Members received, in the aggregate: (a) $3,694,273 in cash by transfer of immediately available funds, (b) 26,009,600 shares of Company’s common stock, par value $0.001 per share, which shares were valued in the aggregate at $10,143,744, or $0.39 per share, (c) $5,042,467 aggregate principal amount of promissory notes of the Company (the “Promissory Notes”) and (d) future additional cash payments as earnout consideration (the “Total Consideration”). The earn-out payments, if any, will be made (i) following the 12-month period commencing on August 1, 2021 (the “First Year”), in an amount (the “First Year Earn-out Amount”) equal to each TopPop Member’s pro rata portion of the excess, if any, of: (A) 1.96 times TopPop’s EBITDA for the First Year over (B) the aggregate amount of the Promissory Notes repaid in cash during the First Year; provided, however, no First Year Earn-out Amount shall be payable if (i)(A) does not exceed (i)(B); and (ii) following the 12-month period commencing on August 1, 2022 (the “Second Year”), in an amount (the “Second Year Earn-out Amount”) equal to each TopPop Member’s pro rata portion of the excess, if any, of: (A) 1.96 times TopPop’s EBITDA for the Second Year over (B) the aggregate amount of the Promissory Notes repaid in cash during the Second Year; provided, however, no Second Year Earn-out Amount shall be payable if (ii)(A) does not exceed (ii)(B). The earn-out payments shall be made, at the election of each TopPop Member, in cash or in shares of 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. 

 

The Company originally calculated the First Year Earn-out Amount to be $8,244,642 and the Second Year Earn-out Amount to be $11,959,863. In connection with the requirement to record the contingent consideration at fair value for every reporting period, information as of and during the period ended June 30, 2022 required the Company to conclude that there will be no contingent consideration required to be made at the end of the First Year, while the entire amount of contingent consideration previously recorded will be required to be made at the end of the Second Year. This is the result of delays in the revenue targets but no material changes in the underlying projections previously used in connection with the valuation of such contingent consideration. Therefore, the Company estimates that the total contingent consideration is $20,204,505 and will be owed at the end of the Second Year.

 

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 with each of the TopPop Members, each dated July 26, 2021. The Promissory Notes are not convertible into equity securities of the Company. Under the terms of the Promissory Notes, there is a five-day grace period to July 31, 2022 before an event of default occurs. Upon an event of default, the holders may exercise all rights and remedies available under the terms of the Promissory Notes or applicable laws, including to foreclose on certain collateral consisting of the membership interests of TopPop. Holders of approximately $3.55 million of these notes have agreed to extend the term for 30 days and have indicated that they will not seek cash settlement prior to August 2023. The Company expects to be able get further extension of notes if needed. The Company has not received any demand for payment on any of the other notes.

 

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.

 

 
12

Table of Contents

 

Fair value of the acquisition

 

The following table summarizes the allocation of the purchase price as of the TopPop acquisition:

 

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

 

 

23,108,112

 

Excess purchase price “Goodwill”

 

$15,976,877

 

 

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 14 for the required pro forma information related to the business combination.

 

 
13

Table of Contents

 

Intangible assets

 

Intangible assets consist of the following:

 

 

 

 

 

 

Estimated

Useful

 

June 30,

 

 

December 31,

 

 

 

Lives

 

2022

 

 

2021

 

Tradename - Trademarks

 

5 years

 

$6,867,000

 

 

$6,867,000

 

Intellectual Property

 

5 years

 

 

849,000

 

 

 

849,000

 

Customer Base

 

10 years

 

 

14,414,000

 

 

 

14,414,000

 

Non-Competes

 

4 years

 

 

807,200

 

 

 

807,200

 

 

 

 

 

 

22,937,200

 

 

 

22,937,200

 

Less: accumulated amortization

 

 

 

 

2,920,814

 

 

 

1,327,614

 

 

 

 

 

$20,016,386

 

 

$21,609,586

 

 

Intangible assets are amortized on a straight-line basis over the useful lives of the assets. Amortization expense amounted to $796,600 and $1,593,200 for the three and six months ended June 30, 2022, respectively. There was no amortization expense during the six months ended June 30, 2021.

 

Future amortization of intangible assets for the remainder of the current fiscal year and the next five years and thereafter:

 

Amount

 

Remainder of the year ended December 31, 2022

 

$1,593,200

 

2023

 

 

3,186,400

 

2024

 

 

3,186,400

 

2025

 

 

3,102,317

 

2026

 

 

2,341,600

 

2027

 

 

1,441,400

 

Thereafter

 

 

5,165,069

 

 Total

 

$20,016,386

 

 

4. LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT, NET

 

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

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Machinery and equipment

 

$7,114,980

 

 

$5,352,009

 

Leasehold improvements

 

 

325,171

 

 

 

154,389

 

Supplies

 

 

238,741

 

 

 

140,004

 

Furniture and fixtures

 

 

74,068

 

 

 

36,181

 

 

 

 

7,752,960

 

 

 

5,682,583

 

Less accumulated depreciation

 

 

(466,682)

 

 

(125,619 )

 

 

$7,286,278

 

 

$5,556,964

 

 

Depreciation expense related to leasehold improvements, furniture, and equipment amounted to $262,715 and $341,063 for the three and six months ended June 30, 2022, respectively.

 

 
14

Table of Contents

 

5. INVENTORIES

 

 Inventories consisted of:

 

 

 

June 30,

2022

 

 

December 31,

2021

 

Finished goods:

 

 

 

 

 

 

Bellissima brands

 

$965,747

 

 

$384,717

 

TopPop

 

 

929,121

 

 

 

728,305

 

Total finished goods

 

 

1,894,868

 

 

 

1,113,022

 

 

 

 

 

 

 

 

 

 

Work-in-process:

 

 

 

 

 

 

 

 

TopPop

 

 

64,313

 

 

 

88,066

 

Raw materials:

 

 

 

 

 

 

 

 

TopPop

 

 

529,211

 

 

 

27,263

 

Bellissima brands

 

 

370,600

 

 

 

-

 

Total raw materials

 

 

899,811

 

 

 

27,263

 

Total

 

$2,858,922

 

 

$1,228,351

 

 

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of:

 

 

 

June 30,

2022

 

 

December 31,

2021

 

Accounts payable

 

$4,477,452

 

 

$1,367,787

 

Accrued officers’ compensation

 

 

731,127

 

 

 

780,701

 

Accrued interest

 

 

470,949

 

 

 

215,056

 

Accrued commissions

 

 

238,755

 

 

 

88,318

 

Accrued royalties

 

 

172,159

 

 

 

178,013

 

Other

 

 

131,193

 

 

 

83,171

 

Total

 

$6,221,635

 

 

$2,713,046

 

 

On April 15, 2022, the Company was late in filing its Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on June 15, 2022. On May 20, 2022, the Company was late in filing it Quarterly Report on Form 10-Q for the period ended March 31, 2022, which was filed on August 2, 2022. Under the terms of the Securities Purchase Agreement signed on July 26, 2021, the Company will incur a late filing penalty. The penalty was calculated at $603,000 and is included on the Balance Sheet and of June 30, 2022 in accounts payable and accrued expenses and classified as general and administrative expenses on the Statement of Operations for the three and six months ended June 30, 2022.

 

7. NOTES PAYABLE

 

In connection with the July 2021 acquisition of 100% of the equity of TopPop, on July 26, 2021, the Company issued to the sellers promissory notes in the aggregate principal amount of $4,900,000 (the “TopPop Notes”). The TopPop Notes bear interest at the rate of 10% per annum, matured on July 26, 2022 and are secured by all of the outstanding membership interest in TopPop. Holders of approximately $3.55 million of these notes have agreed to extend the term for 30 days and have indicated that they will not seek cash settlement prior to August 2023. The Company expects to be able get further extension of notes if needed. The Company has not received any demand for payment on any of the other notes.

 

On July 26, 2021, the Company assumed an SBA note from the acquisition of TopPop. The note bears an interest rate of 3.75% per annum and matures on January 22, 2051

 

As of June 30, 2022, notes payable consisted of a $150,000 SBA note and the $5,042,467 notes to former owners of TopPop.

 

The future payments on principal of notes payable are as follows:

 

Amount

 

Remainder of the year ending December 31, 2022

 

$5,045,466

 

Year ending December 31, 2023

 

 

3,114

 

Year ending December 31, 2024

 

 

3,233

 

Year ending December 31, 2025

 

 

3,356

 

Year ending December 31, 2026

 

 

3,484

 

Thereafter

 

 

133,814

 

Total

 

$5,192,467

 

 

Interest expense on these notes for the three and six months ended June 30, 2022 was $125,308 and $249,261, respectively. Interest expense on notes payable for the three and six months ended June 30, 2021 was $30,754 for both periods.

 

 
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8. FACTORING LIABILITY

 

During the six months ended June 30, 2022, the Company entered into a purchase and sale agreement with Prestige Capital Finance, LLC (“Prestige”). Under the agreement, Prestige buys all of the Company’s right, title, and interest in specific accounts receivable. Prestige has full recourse against the Company for advances if payments are not received for any reason. All credit risk is borne by the Company and not by Prestige. Prestige pays a down payment to the Company of 80% of the face value of the specified receivables. The maximum outstanding balance of the advance is $2,000,000. Prestige’s final purchase price of the accounts receivable is at a discount which is deducted from the face value of each account upon collection. The discount fee is based upon the number of days the account receivable is outstanding from the date of the down payment. The discount fee ranges from 1.95% if the receivable is paid within 30 days to 5.85% if paid within 90 days, plus an additional 1.5% for each 10-day period thereafter until the account is paid in full.

 

The outstanding balance is secured by an interest in virtually all assets of the Company, with a first security interest in accounts receivable. The agreement remains in effect through January 10, 2023 and will be automatically renewed for successive periods of one year each unless either party terminates the agreement in writing at least 60 days prior to the expiration of the initial term or any renewal term. Prestige may cancel the agreement at any time upon 60 days’ notice.

 

The Company accounts for this agreement as a financing arrangement, with the down payments recorded as debt and repayment made when the applicable receivable is collected. As of June 30, 2022, there was an outstanding balance of $1,470,007 and accrued interest of $6,922. Interest expense for incurred during the three and six months ended June 30, 2022 was $132,905 and $189,787, respectively.

 

9. CAPITAL STOCK

 

Treasury Stock

 

During the first quarter in 2021, the Company retired 1,000,000 shares of treasury stock with a value of $516,528.

 

Preferred Stock and Common Stock

 

On July 26, 2021, the Company filed a Certificate of Designation, Preferences and Rights of the Series A-2 Convertible Preferred Stock, par value $0.001 per share (“Series A-2 Preferred Stock”) with the Secretary of State of Nevada, designating up to 45,000 shares of the Company’s preferred stock as Series A-2 Preferred Stock. The holders shall be entitled to receive, and the Company shall pay, dividends on shares of Series A-2 Preferred Stock equal (on an as-if-converted-to common stock basis) to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. The Series A-2 Preferred Stock shall have no voting rights.

 

On January 5, 2022, the Company closed the second tranche of the equity financing and issued 12,258 shares of Series A-2 Preferred Stock, 4,301,004 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 $10.9 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.

 

Between January 2022 and March 2022, stockholders converted 701 shares of Series A-2 Preferred Stock into 2,243,200 shares of common stock, par value $.001 per share, at $0.31 per share.

 

On March 23, 2021, the Company issued 401,670 shares of its common stock to an investors relations firm for services rendered to the Company. The $180,752 fair value of the 401,670 shares of common stock was expensed as investor relations.

 

On May 12, 2021, the Company issued a total of 1,100,000 shares of its common stock to 10 individuals for prior services rendered to the Company. The $429,000 fair value of the 1,100,000 shares of Iconic common stock was expensed as consulting fees in the six months ended June 30, 2021.

 

On May 19, 2021, the Company issued 300,000 shares of its common stock to Richard DeCicco and 100,000 shares of its common stock to Roseann Faltings for prior services rendered to the Company. The $160,000 fair value of the 400,000 shares of Iconic common stock was expensed as officers’ compensation in the six months ended June 30, 2021.

 

Warrants

 

In connection with the second tranche of the equity financing, on January 5, 2022, the Company granted 40,018,583 warrants to purchase common stock. The warrants expire in five years and have an exercise price of $0.31 per share.

 

A summary of warrant activity for the period January 1, 2022, to June 30, 2022, as follows:

 

 

 

Warrants

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Contractual

Term

Outstanding

 

Outstanding at January 1, 2022

 

 

87,593,083

 

 

$0.31

 

 

 

4.23

 

Granted

 

 

40,018,583

 

 

 

0.31

 

 

 

4.52

 

Outstanding at June 30, 2022

 

 

127,611,666

 

 

 

0.31

 

 

 

4.21

 

 

 
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Options

 

During the three and six months ended June 30, 2022, the Company recognized $278,798 and $559,596, respectively, of expense for the option awards. There were no options outstanding as of June 30, 2021.

 

The following table summarizes the activity of our stock options for the six months ended June 30, 2022:

 

 

 

Shares

 

 

Weighted

Average

Exercise

Price

 

 

 Weighted

Average

Contractual

Term

Outstanding

 

Outstanding at December 31, 2021

 

 

7,408,200

 

 

$0.45

 

 

 

9.79

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited or expired

 

 

80,000

 

 

 

0.45

 

 

 

9.29

 

Outstanding at June 30, 2022

 

 

7,328,200

 

 

 

0.45

 

 

 

9.29

 

 

The aggregate intrinsic value of outstanding options as of December 31, 2021 was $298,544. The outstanding options had no aggregate intrinsic value as of June 30, 2022. The intrinsic value is calculated as the difference between the market value and the exercise price of the shares on balance sheet date. The market values based on the closing bid price as of June 30, 2022 and December 31, 2021 was $0.28 and $0.49, respectively.

 

As of June 30, 2022, there was approximately $2,537,000 of unrecognized compensation cost related to unvested stock options granted and outstanding, net of estimated forfeitures. The cost is expected to be recognized on a weighted average basis over a period of approximately three years.

 

10. LEASES

 

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

 

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

 

On January 1, 2021, Iconic executed a cancellable Lease Agreement with Dan Kay International (an entity controlled by Richard DeCicco) for the lease of the Company’s office and warehouse space in North Amityville, NY. The agreement has a term of three years from January 1, 2021 to January 1, 2024 and provides for monthly rent of $4,893.

 

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.

 

Effective February 9, 2022, TopPop executed a lease agreement to rent approximately 82,000 square feet of warehouse space in Pennsauken, NJ. The lease provided a lease term of 74 months (the first two months are rent free) commencing upon February 9, 2022 and terminating on March 31, 2028. The lease provided a security deposit to the landlord of $92,250 Per the lease agreement, TopPop was also required to post an additional deposit of $184,500. On May 31, 2022, TopPop sent the deposit to an escrow account held by the landlord’s counsel.

 

 
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The future undiscounted minimum lease payments under the noncancellable leases for the remainder of the current fiscal year and the next five years and thereafter are as follows:

 

 

 

As of June 30,

2022

 

Remainder of the year ending December 31, 2022

 

$607,919

 

Year ending December 31, 2023

 

 

1,168,312

 

Year ending December 31, 2024

 

 

1,142,884

 

Year ending December 31, 2025

 

 

1,177,170

 

Year ending December 31, 2026

 

 

1,212,485

 

Year ending December 31, 2027

 

 

1,248,889

 

Thereafter

 

 

1,425,074

 

Total undiscounted finance lease payments

 

$7,982,733

 

Less: Imputed interest

 

 

2,359,264

 

Present value of finance lease liabilities

 

$5,623,469

 

 

The operating lease liabilities of $5,623,469 and $3,216,315 as of June 30, 2022 and December 31, 2021, respectively, represents the discounted (at a 10% estimated incremental borrowing rate) value of the future lease payments at June 30, 2022 and December 31, 2021. The Company’s weighted-average remaining lease term relating to its operating leases is 4.29 years.

 

For the three and six months ended June 30, 2022, occupancy expense attributed to these leases were $395,324 and $845,462, respectively

 

For the three and six months ended June 30, 2021, occupancy expense was $28,332 and $53,840, respectively,

 

Effective June 1, 2022, the Company entered into a sublease agreement to rent out 30,000 square feet of space at one of its warehouses. The gross rent is $9 per square foot, or $22,500 per month for 36 months. During the three and six months ended June 30, 2022, the Company recognized $22,500 of rental income that is presented with general and administrative expenses on the Statement of Operations.

 

11. COMMITMENTS AND CONTINGENCIES

 

a. Iconic Guarantees

 

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

 

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

 

 
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b. Royalty Obligations of BiVi and Bellissima

 

Pursuant to the license agreement with the Bivi Licensor (see Note 11a. above), BiVi is obligated to pay the BiVi Licensor a Royalty Fee equal to 5% of monthly gross sales of BiVi Brand products payable monthly subject to an annual Minimum Royalty Fee of $100,000 in year 1, $150,000 in year 2, $165,000 in year 3, $181,500 in year 4, $199,650 in year 5, and $219,615 in year 6 and each subsequent year. The Minimum Royalty Fee has been waived until such time as the parties agree to reinstate the Minimum Royalty Fee. As of the date of this filing, the Minimum Royalty Fee was not reinstated.

 

Pursuant to the license agreement and Amendment No. 1 to the license agreement effective September 30, 2017 with the Bellissima Licensor (see Note 11a. above), Bellissima is obligated to pay the Bellissima Licensor a Royalty Fee equal to 10% of monthly gross sales (12.5% for sales in excess of defined Case Break Points) of Bellissima Brand products payable monthly. The Bellissima Licensor has the right to terminate the endorsement if Bellissima fails to sell 10,000 cases of Bellissima Brand products in year 1, 15,000 cases in year 2, or 20,000 cases in year 3 and each subsequent year. These appropriate thresholds were met during the year.

 

c. Brand Licensing Agreement relating to Hooters Marks

 

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

 

On November 1, 2021, the Company amended its agreement with Hooters (the “Amended Hooters Agreement”) which will be effective until December 31, 2025 with an option to extend until 2028. Under the Amended Hooters Agreement, the Company must pay Hooters 10% of net sales of all products during the term.

 

d. Marketing and Order Processing Services Agreement

 

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

 

The initial license period commenced October 2019 and expires in December 2021 (i.e., two years after first airing of a Bellissima product). Unless either party notifies the other party in writing at least 30 days prior to the end of the Initial License Period or any Renewal License Period of its intent to terminate the QVC Agreement, the License continually renews for additional two-year periods. The license automatically renewed on January 1, 2022.

 

The QVC Agreement provides for United’s payment of “Marketing Fees” (payable no less than monthly) to QVC in amounts agreed to between United and QVC from time to time. For the six months ended June 30, 2022 and 2021, the Marketing Fees expense (payable to QVC) was $86,153 and $131,450, respectively, and the direct response sales generated from QVC programs was $414,567 and $687,006, respectively. 

 

e. Concentration of sales

 

For the three and six months ended June 30, 2022 and 2021, sales consisted of:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2022

 

 

2021

 

 

2021

 

Bellissima product line:

 

 

 

 

 

 

 

 

 

 

 

 

QVC direct response sales

 

$271,878

 

 

$414,567

 

 

$281,497

 

 

$687,006

 

Other

 

 

638,084

 

 

 

1,028,490

 

 

 

288,124

 

 

 

494,857

 

Total Bellissima

 

 

909,962

 

 

 

1,443,057

 

 

 

569,620

 

 

 

1,181,862

 

BiVi product line

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

TopPop

 

 

5,744,259

 

 

 

9,257,961

 

 

 

-

 

 

 

-

 

Hooters product line

 

 

-

 

 

 

-

 

 

 

15,294

 

 

 

37,585

 

Total

 

$6,654,221

 

 

$10,701,018

 

 

$584,914

 

 

$1,219,447

 

 

TopPop’s sales to one customer consisted of 63% and 51% of its total sales for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, 82% and 9%, respectively, of TopPop’s accounts receivables were from that same customer.

 

f. Commission Agreements

 

On July 10, 2019, the Company executed a Commission Agreement with CAA-GBA USA, LLC (“CAA-GBG”). The agreement provides CAA-GBG to receive 5% revenue generated with respect to the co-packing or related manufacturing deal for Anheuser-Busch, LLC. Additionally, CAA-GBG is also entitled to receive 5% of revenue for new business identified. The initial agreement expired on July 31, 2021 and automatically renews every year. No commissions were incurred under this agreement since the date of acquisition of TopPop (July 26, 2021) through June 30, 2022. On May 23, 2022,CAA-GBG received notice of termination and the Commission Agreement ended on July 31, 2022.

 

Effective December 11, 2019, the Company executed a Commission Agreement with Christopher J. Connolly. Mr. Connolly had agreed to provide sales representation services to Company for alcohol ice pop packing opportunities in exchange for commission. The agreement provides a commission 5% of gross revenue collected. The initial term is one year from the effective date. The agreement will renew automatically for 1-year terms unless the agreement is terminated. The Company has decided to keep this agreement in place and no commissions were incurred under this agreement since the date of acquisition of TopPop (July 26, 2021) through June 30, 2022.

 

 
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12. RELATED PARTY TRANSACTIONS

 

On December 6, 2019 the Company executed a Financial Services Agreement with InnoAccel, a controlling member of the TopPop. InnoAccel had agreed to provide financial and administrative services for the company in exchange for hourly compensations.

 

The Company has agreed to keep this agreement in place and for the six months ended June 30, 2022 the Company has recorded consulting expense of $92,894.

 

13. SEGMENT REPORTING

 

FASB Codification Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has two reportable segments: sale of branded alcoholic beverages and specialty packaging. The segments are determined based on several factors, including the nature of products and services, the nature of production processes, customer base, delivery channels and similar economic characteristics.

 

An operating segment’s performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, segment selling, general and administrative expenses, research and development costs and stock-based compensation. It does not include other charges (income), net and interest and other, net.

 

 

 

Branded

Beverages

 

 

Specialty

Packaging

(TopPop)

 

 

Corporate

 

 

Total

 

Balance sheet at June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$6,647,516

 

 

$55,846,103

 

 

$-

 

 

$62,493,619

 

Liabilities

 

$3,059,337

 

 

$36,007,278

 

 

$-

 

 

$39,066,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance sheet at December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$2,925,694

 

 

$47,780,962

 

 

$-

 

 

$50,706,656

 

Liabilities

 

$2,447,005

 

 

$29,146,596

 

 

$-

 

 

$31,593,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Statement for the six months ended June 30, 2022:

 

 Branded

Beverages

 

 

 Specialty Packaging

 

 

Corporate

 

 

Total 

 

Net Sales

 

$1,391,995

 

 

$9,309,023

 

 

$-

 

 

$10,701,018

 

Cost of sales

 

$597,503

 

 

$6,528,210

 

 

$-

 

 

$7,125,713

 

Total operating expenses

 

$4,066,371

 

 

$5,695,860

 

 

$637,359

 

 

$10,399,590

 

Loss from operations

 

$(3,271,879)

 

$(2,915,047)

 

$(637,359)

 

$(6,824,585)

Interest expense

 

$-

 

 

$427,286

 

 

$-

 

 

$427,286

 

Depreciation and amortization

 

$5,628

 

 

$335,437

 

 

$-

 

 

$341,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Statement for the six months ended June 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$1,219,447

 

 

$-

 

 

$-

 

 

$1,219,447

 

Cost of Goods Sold

 

$643,839

 

 

$-

 

 

$-

 

 

$643,839

 

Total operating expenses

 

$2,649,965

 

 

$-

 

 

$241,373

 

 

$2,891,338

 

Loss from operations

 

$(2,074,357)

 

$-

 

 

$(241,373)

 

$(2,315,730)

Depreciation and amortization

 

$3,981

 

 

$-

 

 

$-

 

 

$3,981

 

 

Income Statement for the three months ended June 30, 2022:

 

 Branded Beverages

 

 

 Specialty Packaging

 

 

Corporate

 

 

Total

 

Net Sales

 

$858,900

 

 

$5,795,321

 

 

$-

 

 

$6,654,221

 

Cost of sales

 

$383,162

 

 

$4,537,512

 

 

$-

 

 

$4,920,674

 

Total operating expenses

 

$2,448,486

 

 

$2,860,955

 

 

$279,785

 

 

$5,589,226

 

Loss from operations

 

$(1,972,748)

 

$(1,603,146)

 

$(279,785)

 

$(3,855,679)

Interest expense

 

$-

 

 

$244,152

 

 

$-

 

 

$244,152

 

Depreciation and amortization

 

$4,487

 

 

$258,228

 

 

$-

 

 

$262,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Statement for the three months ended June 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$584,914

 

 

$-

 

 

$-

 

 

$584,914

 

Cost of Goods Sold

 

$325,206

 

 

$-

 

 

$-

 

 

$325,206

 

Total operating expenses

 

$1,758,577

 

 

$-

 

 

$137,623

 

 

$1,896,200

 

Loss from operations

 

$(1,498,869)

 

$-

 

 

$(137,623)

 

$(1,636,492)

Depreciation and amortization

 

$435

 

 

$-

 

 

$-

 

 

$435

 

 

 
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14. PROFORMA FINANCIAL STATEMENTS (UNAUDITED)

 

Unaudited Supplemental Pro Forma Data

 

Unaudited pro forma results of operations for the quarters ended June 30, 2022 and 2021:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

Sales

 

$6,441,386

 

 

$6,654,221

 

 

$9,443,983

 

 

$10,701,018

 

Cost of sales

 

 

3,989,510

 

 

 

4,920,674

 

 

 

5,742,526

 

 

 

7,125,713

 

Gross Profit

 

 

2,451,876

 

 

 

1,733,547

 

 

 

3,701,457

 

 

 

3,575,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

3,732,607

 

 

 

5,252,741

 

 

 

6,506,315

 

 

 

9,711,128

 

Selling and marketing

 

 

258,951

 

 

 

336,485

 

 

 

455,980

 

 

 

688,462

 

Total Operating expenses

 

 

3,991,558

 

 

 

5,589,226

 

 

 

6,962,295

 

 

 

10,399,590

 

Operating income (loss)

 

 

(1,539,682)

 

 

(3,855,679)

 

 

(3,260,838)

 

 

(6,824,285)

Amortization of intangibles

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Interest expense

 

 

(274,879)

 

 

(244,152)

 

 

(659,423)

 

 

(427,286)

Other income

 

 

-

 

 

 

7,848

 

 

 

-

 

 

 

7,848

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

-

 

 

 

28,458

 

 

 

-

 

Total other expense

 

 

(274,879)

 

 

(244,152)

 

 

(630,965)

 

 

(419,438)

Net Loss

 

$(1,814,561)

 

$(4,091,983)

 

$(3,891,803)

 

$(7,243,723)

Net (loss) income attributable to noncontrolling interests in subsidiaries

 

 

8,772

 

 

 

(12,004)

 

 

24,946

 

 

 

(105,823)

Net Loss attributable to common stockholders:

 

 

(1,823,333)

 

 

(4,079,979)

 

 

(3,916,749)

 

 

(7,137,900)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Loss Per Common Share

 

$(0.02)

 

$(0.04)

 

$(0.05)

 

$(0.07)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding- basic and diluted

 

 

87,532,764

 

 

 

97,086,968

 

 

 

86,336,883

 

 

 

95,850,224

 

 

These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. They are not necessarily indicative of our consolidated results of operations in future periods or the results that actually would have been realized had we been a combined company during the periods presented. The pro forma results include adjustments in the quarter ended June 30, 2021, related to amortization of acquired intangible assets of $1,593,200, interest expense on notes payable of $246,361, and officer compensation of $254,800. There are no proforma adjustments for the three and six months ended June 30, 2022.

 

15. SUBSEQUENT EVENTS

 

On July 1, 2022, under the terms of the Certificate of Designation for the Series A-2 Preferred Stock filed on July 26, 2021, the Company calculated that it is obligated to pay a one-time 6% dividend on the subscription value of the initially issued Series A-2 Preferred Stock. On July 19, 2022, the Company issued shares of common stock to satisfy this dividend requirement and has calculated the number of shares to be issued as 8,810,826 at $0.37 per share.

 

As of July 1, 2022 the Company was late in filing it Quarterly Report on Form 10-Q for the period ended March 31, 2022 and under the terms of the Securities Purchase Agreement signed on July 26, 2021, the Company will incur a late filing penalty. On August 2, 2022, the Company was in compliance with this requirement. There is an additional penalty of $105,000 that will be accrued as of and for the three month period ended September 30, 2022.

 

During the period from July 1, 2022 to August 22, 2022 the Company issued 981,344 shares of restricted common stock in connection with three shareholders converting Series A-2 Preferred Stock into common stock.

 

On August 8, 2022 the Company issued 13,000 shares of restricted common stock to an employee as part of an employment agreement.

 

 

 

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

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; 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 (the “SEC”).

 

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

 

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 Quarterly Report on Form 10-Q. 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, those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and the risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. All amounts in this report are in U.S. dollars, unless otherwise noted.

 

Summary 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 also produces “cocktails-to-go” pouches and alcohol ice-pops. 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 is our 100% owned subsidiary that 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.

 

 
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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;

 

 

 

 

·