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 September 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 November 29, 2022, the registrant had 107,916,138 shares of common stock, $0.001 par value per share (“Common Stock”), 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 September 30, 2022 and December 31, 2021

 

4

 

 

 

 

 

 

 

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

 

5

 

 

 

 

 

 

 

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

 

6

 

 

 

 

 

 

Condensed Consolidated Unaudited Statements of Cash Flows for the nine months ended September 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

23

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

31

ITEM 4

Controls and Procedures

31

PART II - OTHER INFORMATION

 

ITEM 1

Legal Proceedings

32

ITEM 1A

Risk Factors

32

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

32

ITEM 3

Defaults Upon Senior Securities

32

ITEM 4

Mine Safety Disclosures

32

ITEM 5

Other Information

32

ITEM 6

Exhibits

33

Signatures

34

 

 
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)

 

 

 

 

 

September 30,

2022

 

 

December 31,

2021

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash

 

$2,798,401

 

 

$2,190,814

 

Accounts receivable

 

 

4,632,615

 

 

 

852,321

 

Inventory

 

 

1,851,401

 

 

 

1,228,351

 

Prepaid expense and other current assets

 

 

563,525

 

 

 

74,517

 

Total current assets

 

 

9,845,942

 

 

 

4,346,003

 

 

 

 

 

 

 

 

 

 

Right-of-use assets, net

 

 

5,129,412

 

 

 

3,074,864

 

Leasehold improvements, furniture, and equipment, net

 

 

7,553,053

 

 

 

5,556,964

 

Intangible assets

 

 

19,219,733

 

 

 

21,609,586

 

Goodwill

 

 

5,282,429

 

 

 

15,976,877

 

Other assets

 

 

421,198

 

 

 

142,362

 

Total assets

 

$47,451,767

 

 

$50,706,656

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$6,467,349

 

 

$2,713,046

 

Notes payable

 

 

5,080,467

 

 

 

5,045,466

 

Factoring liability

 

 

1,063,323

 

 

 

-

 

Deferred revenue

 

 

136,626

 

 

 

135,034

 

Other current liabilities

 

 

177,233

 

 

 

132,234

 

Current portion of operating lease liability

 

 

538,001

 

 

 

380,487

 

Contingent consideration

 

 

7,219,844

 

 

 

8,244,642

 

Total current liabilities

 

 

20,682,843

 

 

 

16,650,909

 

 

 

 

 

 

 

 

 

 

Operating lease liability, long term

 

 

4,916,909

 

 

 

2,835,828

 

Notes payable, long term

 

 

158,666

 

 

 

147,001

 

Contingent consideration, long term

 

 

-

 

 

 

11,959,863

 

Total liabilities

 

 

25,758,418

 

 

 

31,593,601

 

 

 

 

 

 

 

 

 

 

Stockholders’ and members’ equity:

 

 

 

 

 

 

 

 

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

 

 

 -

 

 

 

 -

 

Series A-2 Preferred Stock, 37,773 shares issued and outstanding at September 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, 107,212,138 shares issued and outstanding at September 30, 2022 and 90,542,764 shares issued and outstanding at December 31, 2021

 

 

107,213

 

 

 

90,544

 

Additional paid-in capital

 

 

71,735,014

 

 

 

56,749,055

 

Accumulated deficit

 

 

(49,276,866)

 

 

(36,961,344 )

Noncontrolling interests

 

 

(872,050)

 

 

(765,227 )

Total stockholders’ equity

 

 

21,693,349

 

 

 

19,113,055

 

Total liabilities and stockholders’ equity

 

$47,451,767

 

 

$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 September 30,

 

 

Nine months ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUE

 

 

 

 

(Restated)

 

 

 

 

 

(Restated)

 

Sales

 

$3,162,422

 

 

$2,846,437

 

 

$13,863,440

 

 

$4,065,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

2,546,965

 

 

 

2,151,088

 

 

 

9,672,678

 

 

 

2,794,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

615,457

 

 

 

695,349

 

 

 

4,190,762

 

 

 

1,270,957

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

4,493,080

 

 

 

1,355,637

 

 

 

14,204,208

 

 

 

3,843,608

 

Selling and marketing

 

 

148,377

 

 

 

1,256,589

 

 

 

836,839

 

 

 

1,659,956

 

Total operating expenses

 

 

4,641,457

 

 

 

2,612,226

 

 

 

15,041,047

 

 

 

5,503,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,026,000)

 

 

(1,916,877)

 

 

(10,850,285)

 

 

(4,232,607)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of contingent consideration

 

 

12,984,661

 

 

 

-

 

 

 

12,984,661

 

 

 

-

 

Loss on impairment of Goodwill

 

 

(10,694,448)

 

 

-

 

 

 

(10,694,448)

 

 

-

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

-

 

 

 

-

 

 

 

28,458

 

Interest expense

 

 

(191,764)

 

 

(452,539)

 

 

(619,050)

 

 

(483,293)

Other income (expense), net

 

 

8,935

 

 

 

(22,708)

 

 

16,783

 

 

 

(22,708)

Total other income (expense)

 

 

2,107,384

 

 

 

(475,247)

 

 

1,687,946

 

 

 

(477,543)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(1,918,616

 

$(2,392,124)

 

$(9,162,339)

 

$(4,710,150)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests in subsidiaries

 

 

(1,000)

 

 

(163,024)

 

 

(106,823)

 

 

(138,078)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Iconic Brands, Inc.

 

 

(1,917,616

 

 

(2,229,100)

 

 

(9,055,516)

 

 

(4,572,072)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend to preferred shareholders

 

 

 (3,260,006

 

 

 -

 

 

 

 (3,260,006

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

 

 (5,177,622

 

 

 (2,229,100

 

 

 (12,315,522

 

 

 (4,572,072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$(0.05

 

$(0.03)

 

$(0.12)

 

$(0.14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding, basic and diluted

 

 

104,959,149

 

 

 

69,757,489

 

 

 

98,967,135

 

 

 

34,394,031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

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

 

 

 

-

 

 

 

-

 

 

 

15,003,654

 

 

 

15,010,385

 

 

 

-

 

 

 

-

 

 

 

15,010,385

 

Issuance of common Stock for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,401,670

 

 

 

3,402

 

 

 

-

 

 

 

-

 

 

 

1,235,100

 

 

 

1,238,502

 

 

 

-

 

 

 

-

 

 

 

1,238,502

 

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 stock issued in exchange for old Series, E, F and G Preferred stock

 

 

-

 

 

 

-

 

 

 

(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

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

--

 

Buy back of Series F Preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(225)

 

 

(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

 

 

 

-

 

 

 

-

 

 

 

5,414,865

 

 

 

5,415,416

 

 

 

-

 

 

 

-

 

 

 

5,415,416

 

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)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(138,078 )

 

 

(4,572,072 )

 

 

(4,710,150)

Balance, September 30, 2021

 

 

(1)

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

26,623

 

 

$27

 

 

 

89,032,764

 

 

$89,034

 

 

 

-

 

 

$-

 

 

$56,112,558

 

 

$56,201,619

 

 

$(862,423 )

 

$(31,069,422 )

 

$24,269,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,800

 

 

 

19

 

 

 

6,711,997

 

 

 

6,712

 

 

 

-

 

 

 

-

 

 

 

15,003,654

 

 

 

15,010,385

 

 

 

-

 

 

 

-

 

 

 

15,010,385

 

Issuance of Common Stock for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,500,000

 

 

 

1,500

 

 

 

-

 

 

 

-

 

 

 

467,250

 

 

 

468,750

 

 

 

-

 

 

 

-

 

 

 

468,750

 

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 stock issued in exchange for old Series, E, F and G Preferred stock

 

 

-

 

 

 

-

 

 

 

(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

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Buy back of Series F Preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(225)

 

 

(225,000)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

225,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common Stock and Series A-2 Preferred Stock issued to settle notes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,268

 

 

 

4

 

 

 

547,200

 

 

 

547

 

 

 

-

 

 

 

-

 

 

 

5,414,865

 

 

 

5,415,416

 

 

 

-

 

 

 

-

 

 

 

5,415,416

 

Shares issued in exchange for old warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,283,899

 

 

 

8,284

 

 

 

-

 

 

 

-

 

 

 

(8,284)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Purchase of United Spirits

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,428,465

 

 

(1428,465

 

 

428,465

 

 

 

-

 

 

 

1,000,000

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(163,024 )

 

 

(2,229,100 )

 

 

(2,392,124)

Balance, September 30, 2021

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

26,623

 

 

$27

 

 

 

89,032,764

 

 

$89,034

 

 

 

-

 

 

$-

 

 

$56,112,558

 

 

$56,201,619

 

 

$(862,423 )

 

$(31,069,422 )

 

$24,269,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,108)

 

 

(1)

 

 

3,544,544

 

 

 

3,544

 

 

 

-

 

 

 

-

 

 

 

(3,543)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,000

 

 

 

13

 

 

 

-

 

 

 

-

 

 

 

744,544

 

 

 

744,557

 

 

 

-

 

 

 

-

 

 

 

744,557

 

Stock dividend issued on Series A-2 Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,810,826

 

 

 

8,811

 

 

 

-

 

 

 

-

 

 

 

3,251,195

 

 

 

3,260,006

 

 

 

-

 

 

 

(3,260,006 )

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(106,823 )

 

 

(9,055,516 )

 

 

(9,162,339)

Balance, September 30, 2022

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

37,773

 

 

$38

 

 

 

107,212,138

 

 

$107,213

 

 

 

-

 

 

$-

 

 

$71,735,014

 

 

$71,842,265

 

 

$(872,050 )

 

$(49,276,866 )

 

$21,693,349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

Equity-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,000

 

 

 

13

 

 

 

-

 

 

 

-

 

 

 

184,949

 

 

 

184,962

 

 

 

-

 

 

 

-

 

 

 

184,962

 

Stock dividend issued on Series A-2 Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,810,826

 

 

 

8,811

 

 

 

-

 

 

 

-

 

 

 

3,251,195

 

 

 

3,260,006

 

 

 

-

 

 

 

(3,260,006 )

 

 

-

 

Conversion of Series A-2 Preferred Stock for Common Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(407)

 

 

-

 

 

 

1,301,344

 

 

 

1,301

 

 

 

-

 

 

 

-

 

 

 

(1,301)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000 )

 

 

(1,917,616

 

 

(1,918,616)

 

Balance, September 30, 2022

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

37,773

 

 

$38

 

 

 

107,212,138

 

 

$107,213

 

 

 

-

 

 

$-

 

 

$71,735,014

 

 

$71,842,265

 

 

$(872,050 )

 

$(49,276,866 )

 

$21,693,349

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

 
6

Table of Contents

 

ICONIC BRANDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

Nine Months Ended September 30

 

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

(Restated)

 

Net loss

 

$(9,162,339)

 

$(4,710,150)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

571,106

 

 

 

36,308

 

Amortization of operating lease right-of-use assets

 

 

562,926

 

 

 

76,801

 

Amortization of debt discounts

 

 

-

 

 

 

30,032

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

(28,458)

Change in allowance for doubtful accounts

 

 

47,000

 

 

 

-

 

Provision for excess and obsolete inventory

 

 

40,000

 

 

 

-

 

Amortization of intangibles

 

 

2,389,853

 

 

 

-

 

Equity compensation

 

 

744,557

 

 

 

1,238,502

 

Change in fair value of contingent consideration

 

 

(12,984,661)

 

 

 

 

Loss on impairment of Goodwill

 

 

10,694,448

 

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,827,294)

 

 

2,937,788

 

Inventory

 

 

(663,050)

 

 

87,916

 

Equipment deposit

 

 

-

 

 

 

(1,834,520)

Operating lease liabilities

 

 

(378,879)

 

 

(80,567)

Accounts payable and accrued expenses

 

 

3,754,303

 

 

 

(1,776,018)

Prepaid expense and other current assets

 

 

(489,008)

 

 

(74,116)

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

 

 

-

 

 

 

(15,637)

Other assets

 

 

(278,836)

 

 

(25,935)

Other current liabilities

 

 

44,999

 

 

 

35,713

 

Deferred revenue

 

 

1,592

 

 

 

(43,565)

Net cash used in operating activities

 

 

(8,933,283)

 

 

(4,145,906)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Net cash paid from acquisition of TopPop

 

 

-

 

 

 

(3,547,770)

Cash paid for Acquisition of United Spirits

 

 

-

 

 

 

(1,000,000)

Fixed assets and leasehold improvements

 

 

(2,497,195)

 

 

-

 

Net cash used in investing activities

 

 

(2,497,195)

 

 

(4,547,770)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

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

 

 

10,998,076

 

 

 

15,010,385

 

Net proceeds from factoring arrangement

 

 

1,063,323

 

 

 

-

 

Proceeds from note payable

 

 

-

 

 

 

924,280

 

Repayment of note payable

 

 

(23,334)

 

 

(2,015,380)

Net cash provided by financing activities

 

 

12,038,065

 

 

 

13,919,285

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

607,587

 

 

 

5,225,609

 

Cash and cash at beginning of year

 

 

2,190,814

 

 

 

457,041

 

Cash and cash at end of year

 

$

2,798,401

 

 

$

5,682,650

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH AND NON-CASH TRANSACTIONS:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

304,309

 

 

$

677,430

 

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

 

$

-

 

 

$

3,665,865

 

Purchase and retirement of treasury stock

 

$

-

 

 

$

(516,528)

Common Stock issued to settle notes payable

 

$

-

 

 

$

5,415,416

 

Recognition of right of use asset - operating lease

 

$

2,617,474

 

 

$

-

 

Purchase of equipment with promissory note

 

$

70,000

 

 

$

-

 

Conversion of Series A-2 Preferred Stock for Common Stock

 

$

3,543

 

 

$

-

 

 

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. (“Iconic”), was incorporated in the State of Nevada on October 21, 2005. As of September 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 December 1, 2015.

 

On July 26, 2021, Iconic 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, Iconic purchased all of the outstanding common stock of United.

 

Empire was organized in the State of Nevada on February 4, 2022. During the three and nine months ended September 30, 2022, Empire had no business activity or operations.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Basis of Presentation

 

The condensed unaudited consolidated interim 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.

 

The Company has continuing losses from operations, net cash used in operating activities, a working capital deficiency of $10,836,901 and accumulated deficit of $49,276,866. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the filling of this document. There are no assurances that such additional funding will be achieved and that the company will succeed in its future operations.

 

The condensed unaudited consolidated interim financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the company be unable to continue as a going concern. The company’s inability to obtain required funding in the near future or its inability to obtain funding on favorable terms will have a material adverse effect on its operations and strategic development plan for future growth. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition, and business prospects will be materially and adversely affected and the Company may have to cease operations.

 

The accompanying condensed unaudited consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

Restatement

 

While preparing its annual report for the year ended December 31, 2021, the Company identified an error in its accounting relating to the acquisition of the outstanding stock of one of the entities that are included in the consolidated financial statements. The Company erroneously recognized a $1,000,000 payment made to a shareholder and $428,465 balance in noncontrolling interest as components of general and administrative expenses.  Since these are capital transactions, the amounts should have been recognized in additional paid in capital. The tables below summarize the impact on the restatements described above on the financial information previously reported on the Company's Form 10-Q for the nine months ended September 30, 2021.  There was no impact to the cash used in operating expenses during the nine months ended September 30, 2021.

 

Three months ended September 30, 2021

Nine months ended September 30, 2021

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

As Reported

As Restated

As Reported

As Restated

General and administrative expenses

 

 

2,784,102

 

 

 

1,355,637

 

 

 

5,272,073

 

 

 

3,843,608

 

Net loss

 

$

(3,820,589

 

$

(2,392,124

)

 

$

(6,138,615

)

 

$

(4,710,150

)

Basic and diluted loss per share

$

(0.05

)

 

$

(0.03

)

 

$

(0.18

)

 

$

(0.14

)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Additional paid-in capital

 

 

       57,541,023

 

 

 

       56,112,558

 

 

 

              57,541,023

 

 

 

    56,112,558

 

Accumulated deficit

 

 

 (32,497,887

 )

 

 

(31,069,422

)

 

 

 (32,497,887

 )

 

 

(31,069,422

)

 

 

(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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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 September 30, 2022

 

 

 

Quoted

Prices in

active

markets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant unobservable

inputs

(Level 3)

 

Contingent consideration

 

$-

 

 

$-

 

 

$7,219,844

 

 

 

 

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 Company’s business. The TopPop business is a seasonal business in nature and expects largest demand in the third quarter. During the quarter ended September 30, 2022, the Company did not achieve the revenues it expected. Due to the significance of the shortfall during this period, the Company concluded that a triggering event occurred and as such, the Company reassessed the underlying assumptions used in its projected earnings. As a result of that analysis, it was determined that the fair value of the contingent consideration was reduced to $7,219,844 as of September 30, 2022 resulting in a gain from the change in fair value of contingent consideration of $12,984,661  for the three and nine months ended September 30, 2022.

 

Additionally resulting from the above, the Company recognized a loss on impairment of its goodwill of $10,694,418 during the three and nine months ended September 30, 2022.

 

(d) Cash

 

The total amount of bank deposits (checking and savings accounts) that was not insured by the FDIC at September 30, 2022 was approximately $2,038,000.

 

(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 September 30, 2022 and December 31, 2021, the allowance for doubtful accounts was $47,000 and $32,000, 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 September 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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(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 nine months ended September 30, 2022, equity-based compensation was $184,962 and $744,557, respectively. For the three and nine months ended September 30, 2021, equity-based compensation was and $468,750 and $1,238,502, 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 share 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 September 30, 2022 and 2021, the Company had 136,519,866 and 87,593,083 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.

 

(n) 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, Iconic 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 Iconic and Iconic 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 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 promissory notes of the Company (the “Promissory Notes”) and (d) future additional cash payments as earnout consideration (the “Total Consideration”). Under the TopPop acquisition agreement, earn-out payments, if any, were to 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 shares of 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, results as of and during the period ended September 30, 2022 required the Company to conclude that the value of the contingent consideration required to be made at the end of the Second Year must be decreased. The TopPop business is a seasonal business in nature and expects its largest demand in the third quarter. During the quarter ended September 30, 2022, the Company did not achieve the revenues it expected. Due to the significance of the shortfall during this period, the Company concluded that a triggering event occurred and as such, the Company reassessed the underlying assumptions used in its projected earnings. As a result of that analysis, it was determined that the fair value of the contingent consideration was reduced to $7,219,844 as of September 30, 2022.  The change resulted in a gain from the change in fair value of the contingent consideration of $12,984,661 for the three and nine months ended September 30, 2022, as stated on the Consolidated Statement of Operations.  Because of this triggering event, the Company further analyzed the value of its goodwill on the Balance Sheet as discussed further in this Note.

 

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. 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 until December 1, 2022, and have indicated that they will not seek cash settlement prior to August 2023. 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.

 

As a result of delays in the revenue targets, management conducted a reassessment during the quarter ended September 30, 2022 and identified indicators of impairment related to the acquisition of TopPop.   Upon completion, management compared the carrying values to the non-discounted pre-tax cash flow value of the TopPop business unit and it was determined that the intangibles were not impaired, but upon review of discounted cash flow value of the TopPop business unit, the fair value did not exceed the carrying value indicating an impairment of goodwill. During the three and nine months ended September 30, 2022, the Company recorded an impairment charge of $10,694,448 for goodwill.

 

 
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Table of Contents

 

Changes in the value of goodwill:

 

Balance of goodwill as of January 1, 2022

 

$15,976,877

 

Impairment of goodwill

 

 

(10,694,448)

Balance of goodwill as of September 30, 2022

 

$5,282,429

 

 

Intangible assets

 

Intangible assets consist of the following:

 

 

 

 

 

 

 

 

Estimated

Useful

 

September 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

 

 

 

 

3,717,467

 

 

 

1,327,614

 

 

 

 

 

$19,219,733

 

 

$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 $2,389,853 for the three and nine months ended September 30, 2022, respectively. There was no amortization expense during the nine months ended September 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

 

$796,600

 

2023

 

 

3,186,400

 

2024

 

 

3,186,400

 

2025

 

 

3,102,317

 

2026

 

 

2,341,600

 

2027

 

 

1,441,400

 

Thereafter

 

 

5,165,016

 

Total

 

$19,219,733

 

 

4. LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT, NET

 

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

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Machinery and equipment

 

$7,544,093

 

 

$5,352,009

 

Leasehold improvements

 

 

374,429

 

 

 

154,389

 

Supplies

 

 

239,407

 

 

 

140,004

 

Furniture and fixtures

 

 

74,068

 

 

 

36,181

 

 

 

 

8,231,997

 

 

 

5,682,583

 

Less accumulated depreciation

 

 

(678,944 )

 

 

(125,619 )

 

 

$7,553,053

 

 

$5,556,964

 

 

Depreciation expense related to leasehold improvements, furniture, and equipment amounted to $227,307 and $571,106 for the three and nine months ended September 30, 2022, respectively.

 

 
14

Table of Contents

 

5. INVENTORIES

 

 Inventories consisted of:

 

 

 

September 30,

2022

 

 

December 31,

2021

 

Finished goods:

 

 

 

 

 

 

Bellissima brands

 

$982,925

 

 

$384,717

 

TopPop

 

 

292,665

 

 

 

728,305

 

Total finished goods

 

 

1,275,590

 

 

 

1,113,022

 

 

 

 

 

 

 

 

 

 

Work-in-process:

 

 

 

 

 

 

 

 

TopPop

 

 

109,472

 

 

 

88,066

 

Raw materials:

 

 

 

 

 

 

 

 

TopPop

 

 

95,739

 

</