UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10‑Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the For the transition period from Commission ICONIC BRANDS, INC. (Exact name of registrant as specified in its charter) Nevada 13-4362274 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 44 Seabro Avenue Amityville, NY 11701 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area 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 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x (Do not check if a smaller reporting company) Emerging growth company x 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 As of ICONIC BRANDS, INC. 4 Management’s Discussion and Analysis of Financial Condition and Results of Operations 5 11 11 12 12 12 12 13 13 14 2 PART I – FINANCIAL INFORMATION This Quarterly Report includes forward‑looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements are based on management’s beliefs and assumptions, and on information currently available to management. Forward‑looking statements include the information concerning our possible or assumed future results of operations set forth under the heading: “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward‑looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used. Forward‑looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward‑looking statements. Readers are cautioned not to put undue reliance on any forward‑looking statements. 3Form 10-QQuarterly Period Endedquarterly period ended March 31, 2013ORo¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934________ to________file number 000-53162ICONIC BRANDS, INC.(Exact name of registrant as specified in its charter)Nevada13-4362274 Incorporation IRSc/o David Lubin & Associates, PLLC10 Union AvenueSuite 5Lynbrook, New York 11563 (Address of principal executive offices) (Zip Code)(516) 887-8200(Registrant'scode)ox No x¨Web site,Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ox No x¨ooox¨ No oxIndicate the numbershares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 49,555,062May 9, 2019, there were 8,673,874 shares of common stock, $0.0001$0.001 par value, issued and outstanding as of June 5, 2013TABLE OF CONTENTSPART I – Financial Information Item 1.Financial Statements3Item 2.19Item 3.21Item 4.21Item 1.22Item 1A.Risk Factors22Item 2.22Item 3.22 Item 4.Mine Safety Disclosures22 Item 5.Table of ContentsOther Information22 Item 6.Exhibits23 Table of Contents 2PART I - FINANCIAL INFORMATION
ICONIC BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2013,2019 and the related consolidated statements of operations and cash flows for the three-month period then ended, and for the development stage period from January 1, 2011 to March 31, 2013. These consolidated financial statements are the responsibility of the company’s management.
FINANCIAL STATEMENTS | Page(s) | ||
March 31, | December 31, | |||||||
2013 | 2012 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | - | $ | - | ||||
Current assets of discontinued operations (see Note 8) | - | - | ||||||
Total current assets | - | - | ||||||
Total assets | $ | - | $ | - | ||||
Liabilities and Stockholders' Deficiency | ||||||||
Current liabilities: | ||||||||
Current portion of debt | $ | 259,304 | $ | 294,040 | ||||
Accounts payable | 91,637 | 92,009 | ||||||
Accrued interest on Iconic Brands, Inc. debt | 30,379 | 77,233 | ||||||
Current liabilities of discontinued operations (see Note 8) | - | 3,690,823 | ||||||
Total current liabilities | 381,320 | 4,154,105 | ||||||
Long term debt | - | 71,869 | ||||||
Long term debt of discontinued operations (see Note 8) | - | 1,477,338 | ||||||
Series B preferred stock, $2.00 per share stated value; designated 1,000,000 shares, | ||||||||
issued and outstanding 916,603 and 916,603 shares, respectively | 1,833,206 | 1,833,206 | ||||||
Total liabilities | 2,214,526 | 7,536,518 | ||||||
Stockholders' deficiency: | ||||||||
Preferred stock, $.00001 par value; authorized 100,000,000 shares, | ||||||||
Series A, designated 1 share, issued and outstanding 1 and 1 shares, respectively | 1 | 1 | ||||||
Common stock, $.00001 par value; authorized 100,000,000 shares, | ||||||||
issued and committed to be issued and outstanding 54,361,412 and 54,361,412 shares, respectively | 544 | 544 | ||||||
Additional paid-in capital | 8,955,666 | 8,955,666 | ||||||
Accumulated deficit prior to development stage period | (16,124,330 | ) | (16,124,330 | ) | ||||
Retained earnings (accumulated losses) during the development stage period January 1, 2011 to March 31, 2013 | 4,953,593 | (368,399 | ) | |||||
Total stockholders' deficiency | (2,214,526 | ) | (7,536,518 | ) | ||||
Total liabilities and stockholders' deficiency | $ | - | $ | - |
F-1 | ||||||||
Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 | F-2 | |||||||
Three Months Ended March 31, | Development Stage Period January 1, 2011to March 31, | |||||||||||
2013 | 2012 | 2013 | ||||||||||
Sales | $ | - | $ | - | $ | - | ||||||
Expenses: | ||||||||||||
Professional fees | 21,500 | - | 99,620 | |||||||||
Other general and administrative expenses (including stock-based compensation of $0, $4,535 and $36,282, respectively) | - | 2,881 | 42,629 | |||||||||
Interest expense on Iconic Brands, Inc. debt (including amortization of debt discounts of $3,490, $4,122 and $36,466, respectively) | 10,009 | 11,509 | 101,514 | |||||||||
Total expenses | 31,509 | 14,390 | 243,763 | |||||||||
Loss from continuing operations | (31,509 | ) | (14,390 | ) | (243,763 | ) | ||||||
Income (loss) from discontinued operations (see Note 8) | 5,353,501 | (19,746 | ) | 5,197,356 | ||||||||
Net income (loss) | $ | 5,321,992 | $ | (34,136 | ) | $ | 4,953,593 | |||||
Basic income (loss) per common share: | ||||||||||||
Continuing operations | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
Discontinued operations | 0.10 | (0.00 | ) | |||||||||
Total | $ | 0.10 | $ | (0.00 | ) | |||||||
Diluted income (loss) per common share: | ||||||||||||
Continuing operations | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
Discontinued operations | 0.00 | (0.00 | ) | |||||||||
Total | $ | 0.00 | $ | (0.00 | ) | |||||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | 54,361,412 | 54,361,412 | ||||||||||
Diluted | 13,126,483,801 | 54,361,412 |
Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 | F-3 | ||||||
F-4 to F-18 |
Three Months Ended March 31, | Development Stage Period January 1, 2011 to March 31, | |||||||||||
2013 | 2012 | 2013 | ||||||||||
Cash flows from operating activities | ||||||||||||
Net income (loss) | $ | 5,321,992 | $ | (34,136 | ) | $ | 4,953,593 | |||||
Loss (income) from discontinued operations | (5,353,501 | ) | 19,746 | (5,197,356 | ) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Amortization of debt discounts charged to interest expense | 3,490 | 4,122 | 36,466 | |||||||||
Stock -based compensation | - | 4,535 | 36,282 | |||||||||
Legal, audit and accounting, and consulting fees paid by two lenders on behalf of the Company | 6,872 | - | 81,162 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts payable | (372 | ) | (1,654 | ) | 8,796 | |||||||
Accrued expenses and other current liabilities | 6,519 | 7,387 | 65,048 | |||||||||
Net cash used in operating activities - continuing operations | (15,000 | ) | - | (16,009 | ) | |||||||
Net cash provided by operating activities - discontinued operations | - | - | 784 | |||||||||
Net cash used in operating activities | (15,000 | ) | - | (15,225 | ) | |||||||
Cash flows from investing activities | ||||||||||||
Loans from continuing operations to discontinued operations | - | - | - | |||||||||
Net cash provided by (used in) investing activities - continuing operations | - | - | - | |||||||||
Net cash provided by (used in) investing activities - discontinued operations | - | - | - | |||||||||
Net cash provided by (used in) investing activities | - | - | - | |||||||||
Cash flows from financing activities: | ||||||||||||
Increases in debt | 15,000 | - | 15,000 | |||||||||
Repayment of debt | - | - | - | |||||||||
Net cash provided by (used in) financing activities - continuing operations | 15,000 | - | 15,000 | |||||||||
Net cash provided by (used in) financing activities - discontinued operations | - | - | - | |||||||||
Net cash provided by (used in) financing activities | 15,000 | - | 15,000 | |||||||||
Decrease in cash and cash equivalents | - | - | (225 | ) | ||||||||
Cash and cash equivalents, beginning of period | - | - | 225 | |||||||||
Cash and cash equivalents, end of period | - | - | - | |||||||||
Less cash and cash equivalents of discontinued operations at end of period | - | - | - | |||||||||
Cash and cash equivalents of continuing operations at end of period | $ | - | $ | - | $ | - | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Interest paid | $ | - | $ | - | $ | - | ||||||
Income taxes paid | $ | - | $ | - | $ | - | ||||||
Non-cash, operating, investing and financing activities: | ||||||||||||
Legal, audit and accounting, and consulting fees paid by two lenders on behalf of the Company | $ | 6,872 | $ | - | $ | 81,162 | ||||||
Shares of common stock issued to noteholders in satisfaction of debt and accrued interest | $ | - | $ | - | $ | 3,500 |
4 |
Table of Contents |
Iconic Brands, Inc. and Subsidiary
March 31, December 31, Assets Current assets: Cash and cash equivalents Accounts receivable Inventory Total current assets Right-of-use asset Total assets Liabilities and Stockholders' Deficiency Current liabilities: Current portion of operating lease liability Accounts payable and accrued expenses Loans payable to officer and affiliated entity-noninterest bearing and due on demand Note payable to consultant due December 31, 2019 (Note 10) Total current liabilities Non-current portion of operating lease liability Derivative liability on warrants Total liabilities Commitments and contingencies (Note 12) Stockholders' deficiency: Preferred stock, $.001 par value; authorized 100,000,000 shares: Series A, 1 and 1 share issued and outstanding, respectively Series C, 0 and 1,000 shares issued and outstanding, respectively Series D, 0 and 10 shares issued and outstanding, respectively Series E, 7,965,514 and 6,602,994 shares issued and outstanding, respectively Common stock, $.001 par value; authorized 2,000,000,000 shares, 8,244,515 and 5,440,312 shares issued and outstanding respectively Common stock to be issued to Escrow Agent, $.001 par value; 0 and 534,203 shares, respectively Additional paid-in capital Accumulated deficit Total Iconic Brands, Inc. stockholders’ deficiency Noncontrolling interests in subsidiaries and variable interest Total stockholders' deficiency Total liabilities and stockholders' deficiency 2019 2018 (Unaudited) $ 162,517 $ 191,463 103,940 113,506 216,502 258,270 482,959 563,239 89,673 - $ 572,632 $ 563,239 $ 46,879 $ - 1,531,972 1,311,475 28,091 28,091 50,000 - 1,656,942 1,339,566 42,794 - - 2,261,039 1,699,736 3,600,605 1 1 - 1 - - 7,966 6,603 8,244 5,440 - 534 19,426,135 18,798,438 (19,644,453 ) (21,233,083 ) (202,107 ) (2,422,066 ) (924,997 ) (615,300 ) (1,127,104 ) (3,037,366 ) $ 572,632 $ 563,239
See notes to consolidated financial statements.
F-1 |
Table of Contents |
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31, 2019 Three Months Ended March 31, 2018 Sales Cost of Sales Gross profit Operating expenses: Officers compensation Professional and consulting fees Royalties Special promotion program with customer Marketing and advertising Occupancy costs Travel and entertainment Other Total operating expenses Income (loss) from operations Other income (expense): Income (expense) from derivative liability Interest expense Amortization of debt discounts Other income Total other income (expense) - net Net income (loss) Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity Net income (loss) attributable to Iconic Brands, Inc. Net income (loss) per common share: Basic and diluted Weighted average common shares outstanding and to be issued to Escrow Agent: Basic and diluted $ 121,913 $ 61,719 81,435 37,409 40,478 24,310 185,750 - 448,519 12,286 75,188 6,590 - 597,138 46,467 59,315 27,623 43,798 64,269 40,315 175,026 30,252 1,022,842 789,694 (982,364 ) (765,384 ) - 827,197 - (9,421 ) - (51,656 ) - 1,119 - 767,239 (982,364 ) 1,855 309,697 347,747 $ (672,667 ) $ 349,602 $ (0.10 ) $ 0.06 6,159,404 6,331,457
See notes to consolidated financial statements.
F-2 |
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Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended 2019 2018 Operating Activities: Net income (loss) attributable to Iconic Brands, Inc. Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Net income (loss) attributable to noncontrolling interests in subsidiaries and variable interest entity Note payable to consultant issued February 7, 2019 and charged to consulting fees Stock-based compensation Expense (income) from derivative liability Amortization of debt discounts Changes in operating assets and liabilities: Accounts receivable Inventory Prepaid expenses Accounts payable and accrued expenses Accrued interest payable Net cash used in operating activities Financing Activities: Proceeds from sale of Series E Preferred Stock and warrants Loans payable to officer and affiliated entity Net cash provided by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid Interest paid NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock to Escrow Agent in connection with Settlement Agreement and Amended Settlement Agreement Issuance of common stock in exchange for surrender of Series C and Series D Preferred Stock
March 31, $ (672,667 ) $ 349,602 (309,697 ) (347,747 ) 50,000 - 290,700 - - (827,197 ) - 51,656 9,566 223,237 41,768 4,741 - (96,275 ) 220,754 (255,211 ) - 9,421 (369,576 ) (887,573 ) 340,630 - - 9,700 340,630 9,700 (28,946 ) (877,873 ) 191,463 1,237,432 $ 162,517 $ 359,559 $ - $ - $ - $ - $ 534 $ 111,560 $ 2,000 $ -
See notes to consolidated financial statements
F-3 |
Table of Contents |
Iconic Brands, Inc.
Three months ended March 31, 2013
(Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
Iconic Brands, Inc., formerly Paw Spa, Inc. (“Iconic Brands” or “Iconic”), was incorporated in the State of Nevada on October 21, 2005. Our plan wasEffective December 31, 2016, Iconic closed on a May 15, 2015 agreement to provide mobile grooming and spa services for cats and dogs. Our services were going to include bathing, hair cutting and styling, brushing/combing, flea and tick treatments, nail maintenance and beautification, ear cleaning, teeth cleaning, hot oil treatments, and massage. We did not have any business operations and failed to generate any revenues. We abandoned this business, as we lacked sufficient capital resources. On June 10, 2009, the Company acquired Harbrew Imports, Ltd.acquire a 51% interest in BiVi LLC (“Harbrew New York”BiVi”), a New York corporation incorporated on September 8, 1999 which was a wholly owned subsidiary of Harbrew Imports, Ltd. Corp. (“Harbrew Florida”), a Florida corporation incorporated on January 4, 2007. On the Closing Date, pursuant to the terms of the Merger Agreement, the Company issued to the designees of Harbrew New York 27,352,301 shares of our Common Stock at the Closing, or approximately 64% of the 42,510,301 shares outstanding subsequent to the merger. After the merger, Harbrew New York continued as the surviving company under the laws of the state of New York and became the wholly owned subsidiary of the Company.
BiVi was organized in Nevada on May 4, 2015. Bellissima was organized in Nevada on November 23, 2015.
Reverse Stock Split
Effective January 18, 2019, the United States and globally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BasisPrinciples of Presentation
The consolidated financial statements include the accounts of Iconic, its two 51% owned subsidiaries BiVi and Bellissima, and United Spirits, Inc., a variable interest entity of Iconic (see Note 5) (collectively, the “Company”). All inter-company balances and transactions have been prepared on a “going concern” basis, which contemplates the realizationeliminated in consolidation.
(b) Use of assets and liquidationEstimates
The preparation of liabilities in the normal course of business. However, as of March 31, 2013, the Company had negative working capital of $381,320 and a stockholders’ deficiency of $2,214,526. Further, from inception to March 31, 2013, the Company incurred losses of $11,170,737. These factors create substantial doubt as to the Company’s ability to continue as a going concern. The Company plans to improve its financial condition by reorganizing and acquiring a new business. However, there is no assurance that the Company will be successful in accomplishing this objective. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
(c) Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of financial instruments to present fairlythe extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial position asinstruments disclosed herein is not necessarily representative of March 31, 2013the 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 results of operationstime. For certain instruments, including cash and cash flows forequivalents, accounts receivable, accounts payable and accrued expenses, it was estimated that the periodscarrying amount approximated fair value because of the short maturities of these instruments. All debt is carried at face value less any unamortized debt discounts.
F-4 |
Table of Contents |
Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 20132019 and 2012. 2018
(Unaudited)
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents.
(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 March 31, 2019 and December 31, 2018, the allowance for doubtful accounts was $0.
(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. Inventory at March 31, 2019 and December 31, 2018 consists of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers.
(g) Revenue Recognition
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (Topic 606) which establishes revenue recognition standards. ASU 2014-19 was effective for annual reporting periods beginning after December 15, 2017. We adopted ASU 2014-09 effective January 1, 2018. ASU 2014-09 has not had a significant effect on the Company’s financial dataposition and other information disclosed in these notesresults of operations.
Revenue from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectability is reasonably assured, and (4) delivery has occurred. Persuasive evidence of an arrangement and fixed price criteria are satisfied through purchase orders. Collectability criteria are satisfied through credit approvals. Delivery criteria are satisfied when the products are shipped to a customer and title and risk of loss passes to the interim financialcustomer in accordance with the terms of sale. The Company has no obligation to accept the return of products sold other than for replacement of damaged products. Other than quantity price discounts negotiated with customers prior to billing and delivery (which are reflected as a reduction in sales), the Company does not offer any sales incentives or other rebate arrangements to customers.
(h) Shipping and Handling Costs
Shipping and handling costs to deliver product to customers are reported as operating expenses in the accompanying statements relatedof operations. Shipping and handling costs to these periodspurchase inventory are unaudited. The resultscapitalized and expensed to cost of sales when revenue is recognized on the sale of product to customers.
F-5 |
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Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2019 and 2018
(Unaudited)
(i) Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation”. For the three months ended March 31, 20132019 and 2018, stock-based compensation was $290,700 and $0, respectively.
(j) Income Taxes
Income taxes are not necessarily indicative ofaccounted for under the results to be expected for any subsequent quarter of the entire year ending December 31, 2013. The balance sheet at December 31, 2012 has been derived from the audited financial statements at that date.
(k) Net Income (Loss) per Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding and to be issued to Escrow Agent (see Note 10) during the period.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and to be issued to Escrow Agent (see Note 10) and dilutive securities (such as stock options, warrants, and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
Numerator: | ||||
Net income – basic | $ | 5,321,992 | ||
Add: Interest expense on convertible notes | 10,069 | |||
Net income – diluted | $ | 5,332,061 | ||
Denominator: | ||||
Weighted average shares outstanding – basic | 54,361,412 | |||
6% convertible notes and accrued interest | 3,533,200,000 | |||
12% convertible notes and accrued interest | 9,487,000,000 | |||
Series B preferred stock owned by Capstone Capital Group I, LLC | 50,922,389 | |||
Warrants | 1,000,000 | |||
Weighted average shares outstanding - diluted | 13,126,483,801 |
(l) Recently Issued Accounting Pronouncements
Effective January 1, 2019, we adopted ASU 2016-2 (Topic 842) which establishes a new lease accounting model for lessees. Under the new guidance, lessees are required to recognize right of use assets and liabilities for most leases having terms of 12 months or more. We adopted this new accounting guidance using the effective date transition method, which permits entities to apply the new lease standards using a modified retrospective transition approach at the date of adoption. As such, historical periods will continue to be measured and presented under the previous guidance while current and future periods are subject to this new accounting guidance. Upon adoption we recorded a $100,681 right-of-use asset related to our one operating lease (see Note 12 F) and a $100,681 lease liability.
On July 13, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2017-11. Among other things, ASU 2017-11 provides guidance that eliminates the requirement to consider “down round” features when determining whether certain financial instruments or embedded features are indexed to an entity’s stock and need to be classified as liabilities. ASU 2017-11 provides for entities to recognize the effect of a down round feature only when it is triggered and then as a dividend and a reduction to income available to common stockholders in basic earnings per share. The guidance is effective for annual periods beginning after December 15, 2018; early adoption is permitted. Accordingly, effective January 1, 2019, the Company has reflected a $2,261,039 reduction of the derivative liability on warrants (see Note 9) and a $2,261,039 cumulative effect adjustment reduction of accumulated deficit.
Certain other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.
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Iconic Brands, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Three months ended March 31, 2013
(Unaudited)
(m) Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained significant net losses which have resulted in an accumulated deficit at March 31, 2019 of $19,644,453 and has experienced periodic cash flow difficulties, all of which raise substantial doubt regarding the Company’s ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining additional working capital. The management of the Company has developed a strategy which it believes will accomplish this objective through additional equity investments which will enable the Company to continue operations for the coming year. However, there is no assurance that these objectives will be met. These financial statements do not include any adjustments relating to continuing operations:
3. INVESTMENT IN BIVI LLC
On May 15, 2015, Iconic entered into a Securities Exchange Agreement by and among the members of BiVi LLC, a Nevada limited liability company (“BiVi”), under which Iconic acquired a 51% majority interest in BiVi in exchange for the issuance of (a) 4,000 shares of restricted common stock and (b) 1,000 shares of newly created Series C Convertible Preferred Stock.
Prior to May 15, 2015, BiVi was beneficially owned and controlled by Richard DeCicco, the controlling shareholder, President, CEO and Director of Iconic Brands, Inc. consisted
4. INVESTMENT IN BELLISSIMA SPIRITS LLC
On December 13, 2016, Iconic entered into a Securities Purchase Agreement with Bellissima Spirits LLC (“Bellissima”) and Bellissima’s members under which Iconic acquired a 51% Majority Interest in Bellissima in exchange for the issuance of the following at March 31, 2013 and December 31, 2012:
March 31, 2013 | December 31, 2012 | ||||||||
Convertible promissory note, interest at 7%, due September 13, 2014, net of | |||||||||
unamortized discount of $0 and $28,131, respectively | (A) | $ | - | $ | 71,869 | ||||
Loans payable, interest at 0%, due on demand | (C) | 144,112 | 137,540 | ||||||
Convertible promissory note, interest at 6%, due June 30, 2010 | (B) | 30,000 | 30,000 | ||||||
Convertible promissory notes, interest at 12%, due June 30, 2010 | (B) | 70,000 | 70,000 | ||||||
Convertible promissory note, interest at 8% (default rate of 22%), due | |||||||||
February 7, 2011 (in default) | (A) | - | 56,500 | ||||||
Convertible promissory note, interest at 9%, due January 31, 2014, net of | |||||||||
unamortized discount of $1,308 at March 31, 2013 | (D) | 15,192 | - | ||||||
Total | 259,304 | 365,909 | |||||||
Less current portion of debt | (259,304 | ) | (294,040 | ) | |||||
Long term debt | $ | - | $ | 71,869 |
Prior to December 13, 2016, Bellissima was controlled by Richard DeCicco, the controlling shareholder, President, CEO and Director of Iconic.
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Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2019 and 2018
(Unaudited)
5. UNITED SPIRITS, INC.
United Spirits, Inc. (“United”) is owned and managed by Richard DeCicco, the controlling shareholder, President, CEO, and Director of Iconic. United provides distribution services for BiVi and Bellissima (see Note 12) and is considered a variable interest entity (“VIE”) of Iconic. Since Iconic has been determined to be the primary beneficiary of United, we have included United’s assets, liabilities, and operations in the accompanying consolidated financial statements of Iconic. Summarized financial information of United follows:
March 31, December 31, 2019 2018 Balance Sheets: Cash and cash equivalents $ 43,506 $ 38,793 Intercompany receivable from Iconic (A) 129,932 204,461 Right-of-use asset 89,673 - Total assets $ 263,111 $ 243,254 Accounts payable and accrued expense $ 148,199 $ 11,338 Loans payable to officer and affiliated entity 71,036 71,037 Intercompany payable to Bellissima (A) 283,817 335,257 Intercompany payable to BiVi (A) 54,322 56,854 Operating lease liability 89,673 - Total Liabilities 647,047 474,487 Noncontrolling interest in VIE (383,936 ) (231,333 ) Total liabilities and stockholders deficiency $ 263,111 $ 243,254
|
| Three months ended |
| |||||
Statements of operations: |
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
| ||
Intercompany distribution income (A) |
| $ | 2,075 |
|
| $ | 1,119 |
|
|
|
|
|
|
|
|
|
|
Royalty expense |
|
| 63,750 |
|
|
| - |
|
Officers compensation |
|
| 82,000 |
|
|
| - |
|
Other operating expenses net |
|
| 9,028 |
|
|
| 4,276 |
|
Total operating expenses |
|
| 154,778 |
|
|
| 4,276 |
|
Net income (loss) |
| $ | (152,703 | ) |
| $ | (3,157 | ) |
(A) Eliminated in consolidation
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
|
| March 31, |
|
| December 31, 2018 |
| ||
Accounts payable |
| $ | 167,451 |
|
| $ | 175,405 |
|
Accrued officers compensation |
|
| 915,000 |
|
|
| 811,250 |
|
Accrued royalties |
|
| 249,684 |
|
|
| 174,985 |
|
Other |
|
| 199,837 |
|
|
| 149,835 |
|
Total |
| $ | 1,531,972 |
|
| $ | 1,311,475 |
|
F-8 |
Table of Contents |
Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2019 and 2018
(Unaudited)
7. DEBT
Effective October 4, 2018, the remaining debt and accrued interest thereon was satisfied through (1) the issuance of a total of 2,077,994 shares of our Series E convertible preferred stock (which are convertible into a total of 831,198 shares of common stock) plus warrants to acquire 831,198 shares of our common stock (for $519,499 debt and accrued interest), (2) the Company’sissuance of a total of 122,510 shares of our common stock (for $76,569 debt and accrued interest), and (3) cash (for $90,296 debt and accrued interest).
8. DERIVATIVE LIABILITY ON CONVERTIBLE DEBT
In September 2018, the Company entered into Securities Exchange Agreements and other agreements with holders of all convertible debt then outstanding to have such debt satisfied (which occurred effective October 4, 2018 – see Note 7). Accordingly, the Company reduced the then derivative liability from $255,294 at September 30, 2018 to $0.
9. DERIVATIVE LIABILITY ON WARRANTS
From September 2017 to November 2017, in connection with the sale of a total of 480,000 shares of common stock (see Note 10), the Company issued a total of 480,000 Common Stock Purchase Warrants (the “Warrants”) to the respective investors. The Warrants are exercisable into ICNB common stock at a price of $0.50 per share. The $56,500 face value of the 8% convertible note outstanding at December 31, 2012 was convertible into shares of the Company’s common stock at a variable conversion price equal to 60% of the Market Price, as defined. As a result of the discharge of the claims scheduled in the voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code on March 13, 2013 (see Notes 6 and 8), we have reversed this debt and recognized a gain from the United States Bankruptcy Court Discharge of Indebtedness (included in income from discontinued operations).
Effective May 21, 2018, in connection with the Company to issue 13,020,200,000 common shares to this lender (or over 99% of the 13,074,561,412 shares of Company Common Stock outstanding after this lender’s conversion). However, by virtue of his ownership of the 1 share of Series A Preferred Stock, Mr. DeCicco would retain voting control of the Company.
Three Months ended March 31, | Year Ended December 31, | |||||||||||
2013 | 2012 | 2011 | ||||||||||
Legal fees | $ | 2,500 | $ | 5,270 | $ | 27,500 | ||||||
Audit and accounting fees | 2,500 | 7,500 | 17,500 | |||||||||
Company’s stock transfer agent | 1,872 | 10,432 | - | |||||||||
Consulting fees | - | 2,038 | 4,050 | |||||||||
Total | $ | 6,872 | $ | 25,240 | $ | 49,050 |
Past due | $ | 100,000 | ||
Year ending March 31, 2014 | 160,612 | |||
Total | 260,612 | |||
Less debt discounts | (1,308 | ) | ||
Net | $ | 259,304 |
March 31, 2013 | December 31, 2012 | |||||||
Convertible note, interest at 7% | $ | - | $ | 23,088 | ||||
Convertible note, interest at 6% | 5,332 | 4,889 | ||||||
Convertible notes, interest at 12% | 24,877 | 22,805 | ||||||
Convertible note, interest at 8% (default rate of 22%) | - | 26,451 | ||||||
Convertible note, interest at 9% | 170 | - | ||||||
Total | $ | 30,379 | $ | 77,233 |
March 31, 2013 | December 31, 2012 | |||||||
Promissory note, interest at 20%, due January 29, 2009 (in default) | $ | - | $ | 100,000 | ||||
Convertible promissory notes, interest at 10%, due October 25, 2007 | ||||||||
to November 27, 2007 (in default) (A) | - | 75,000 | ||||||
Promissory notes, interest at 13%, due May 31, 2010 (in default) (B) | - | 220,000 | ||||||
Due Donald Chadwell (5% stockholder at December 31, 2012), interest at 0%, | ||||||||
no repayment terms | - | 763,000 | ||||||
Due Richard DeCicco (officer, director and 29% stockholder at December 31, | ||||||||
2012) and affiliates, interest at 0%, no repayment terms | - | 714,338 | ||||||
Convertible notes, interest at 7% (default rate of 14%), due August 27, 2012 | ||||||||
to November 27, 2012 (in default) (A) | - | 150,000 | ||||||
Total | - | 2,022,338 | ||||||
Less current portion of debt | - | (545,000 | ) | |||||
Long term debt | $ | - | $ | 1,477,338 |
The 13% promissory notes specify that the loan proceeds were for the purpose of purchasing containers of Danny DeVito’s Premium Limoncello and that the holder would have been repaid the principal from the receivablesdown round provision of the salesabove Warrants requires a reduction in the exercise price if there are future issuances of common stock equivalents at a lower price than the $2.50 exercise price of the Danny DeVito Premium Limoncello productWarrants. Accordingly, we recorded the $2,261,039 fair value of the Warrants at December 31, 2018 as they were collected bya derivative liability. The $1,565,039 increase in the Company.
Assumptions used to calculate the fair value of the Warrants at December 31, 2018 include (1) stock price of $0.95 per share, (2) exercise prices from $0.625 to $2.50 per share, (3) terms ranging from 2.25 years to 4.5 years, (4) expected volatility of 148%, and (5) risk free interest rates range from 2.46% to 2.51%.
Effective January 1, 2019 (see Note 2), the Company adopted ASU 2017-11 and reduced the $2,261,039 derivative liability on warrants at December 31, 2018 to $0 and recognized a $2,261,039 cummulative effect adjustment reduction of accumulated deficit.
F-9 |
Table of Contents |
Iconic Brands, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Three months ended March 31, 2013
(Unaudited)
March 31, 2013 | December 31, 2012 | |||||||
Convertible note, interest at 7% | $ | - | $ | 69,877 | ||||
Promissory note, interest at 20% | - | 70,080 | ||||||
Promissory notes, interest at 13% | - | 87,736 | ||||||
Convertible promissory notes, interest at 10% | - | 47,270 | ||||||
Total | $ | - | $ | 274,963 |
10. CAPITAL STOCK
Preferred Stock valued at $100,000 to the Company’s Chief Executive Officer for services and 916,603 shares of Series B Preferred Stock valued at $1,833,206 to Capstone as part of the Termination Agreement.
The one share of Series A Preferred Stock, which was issued to Richard DeCicco on June 10, 2009, entitles the holder to two votes for every share of Common Stock Deemed Outstanding and has no conversion or dividend rights.
The 1000 shares of Series C Preferred Stock, which were issued to Richard DeCicco on May 15, 2015 pursuant to the Securities Exchange Agreement (see Note 3) for the Company’s 51% investment in BiVi, entitled the holder in the event of a Sale (as defined) to receive out of the proceeds of such Sale (in whatever form, be it cash, securities, or other assets), a distribution from the Company equal to 76.93% of all such proceeds received by the Company prior to any distribution of such proceeds to all other classes of equity securities, including any series of preferred stock designated subsequent to this Series C Preferred Stock. Effective March 27, 2019, pursuant to a Preferred Stock Exchange Agreement, Mr. DeCicco exchanged the 1000 shares of Series C Preferred Stock for 1,000,000 shares of Company common stock.
The 10 shares of Series D Preferred Stock, which were issued to Richard DeCicco and Roseann Faltings (5 shares each) on December 13, 2016 pursuant to the Securities Purchase Agreement (See Note 4) for the Company’s 51% investment in Bellissima, entitled the holders to convert each share of Series D Preferred Stock to the equivalent of 5.1% of the common stock issued and outstanding at the time of conversion. Effective March 27, 2019, pursuant to a Preferred Stock Exchange Agreement, Mr. DeCicco and Ms. Faltings exchanged the 10 shares of Series D Preferred Stock for 1,000,000 shares of Company common stock (500,000 shares each).
Effective May 21, 2018, the Company entered into a Share Purchase Agreement with the four investors who purchased 480,000 shares of common stock pursuant to a Securities Purchase Agreement dated October 27, 2017. The Exchange Agreement provided for the exchange of the 480,000 shares of common stock for 1,200,000 shares of Series E Preferred stock. Each share of the Series BE Preferred Stock has a liquidation preference of $2.00 per share, has no voting rights, and is convertible into Common0.4 shares of common stock, is entitled to 0.4 votes on all matters to come before the common stockholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, is entitled to a distribution preference of $0.25 upon liquidation, and is not redeemable.
Also effective May 21, 2018, the Company sold a total of 1,200,000 shares of Series E Preferred Stock and 480,000 warrants to the four investors referred to in the preceding paragraph for $300,000 cash pursuant to an Amendment No. 1 to Securities Purchase Agreement.
Effective October 4, 2018, the Company closed on the first tranche of the Securities Purchase Agreement dated September 27, 2018 with nine (9) accredited investors for the sale of an aggregate of 4,650,000 shares of our Series E convertible preferred stock and warrants to acquire 1,860,000 shares of our common stock (at an exercise price of $1.25 per share for a period of five years) for gross proceeds of $1,162,500. The first tranche sale was for 1,550,000 shares of our Series E convertible preferred stock and warrants to acquire 620,000 shares of our common stock for gross proceeds of $387,500.
As a condition to the closing at the lower of (1) $2.00 per share or, (2) the volume weighted average price per share (“VWAP”) for the 20 trading days immediately prior to the Conversion Date. The Series B Preferred Stock has been classified as a liability (pursuant to ASC 480-10-25-14(a)) since it embodies a conditional obligation thatfirst tranche, the Company may settle by issuing a variable numberentered into Securities Exchange Agreements with holders of equityconvertible notes totaling $519,499 who exchanged their convertible notes for an aggregate of 2,077,994 shares of our Series E convertible preferred stock plus warrants to acquire 831,198 shares of our common stock. Also, holders of convertible notes totaling $76,569 exchanged their notes for an aggregate of 122,510 shares of our common stock and the monetary valueholders of the obligation is based on a fixed monetary amount known at inception.
F-10 |
Table of Contents |
Iconic Brands, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Three months ended March 31, 2013
(Unaudited)
On JanuaryNovember 30, 2018 and December 20, 2018, the Company received two payments of $71,875 and $71,875 respectively (totaling $143,750) in exchange for 287,500 and 287,500 shares of Series E Preferred Stock (totaling 575,000 shares) respectively at $0.25 per share. These payments represented advance payments in connection with the second tranche of the Securities Purchase Agreement dated September 27, 2018 which closed February 7, 2019.
Effective February 7, 2019, the Company closed on the second tranche of the Securities Purchase Agreement dated September 27, 2018. The Company received the remaining $243,750 (of the $387,500 total second tranche proceeds) and issued the investors the remaining total of 975,000 shares of Series E Preferred Stock (of the 1,550,000 total second tranche shares) and warrants to acquire 620,000 shares of our common stock.
On February 12, 2019 and March 18, 2011,2019, the Company received two payments of $71,880 and $25,000 respectively (totaling $96,880) in exchange for 287,520 and 100,000 shares of Series E Preferred Stock (totaling 387,520 shares) respectively at $0.25 per share. These payments represented advance payments in connection with the third tranche of the Securities Purchase Agreement dated September 27, 2018. The third tranche of 387,500 is expected to occur when certain closing conditions are satisfied.
Common Stock
On March 28, 2017, the Company executed a Settlement Agreement and Release (the “Settlement Agreement”) with 4 holders of convertible notes payable. Notes payable and accrued interest totaling $892,721 were satisfied through the Company’s agreement to irrevocably reserve a total of 1,931,707 shares of its common stock and to deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.
On May 5, 2017, the Company executed an Amended Settlement Agreement and Release (the “Amended Settlement Agreement”) replacing the Settlement Agreement and Release dated March 28, 2017 (see preceding paragraph). The Amended Settlement Agreement is with 5 holders of convertible notes payable (the 4 holders who were parties to the Settlement Agreement and Release dated March 28, 2017 and one additional holder) and provided for the satisfaction of notes payable and accrued interest totaling $1,099,094 (a $206,373 increase from the $892,721 amount per the Settlement Agreement and Release dated March 28, 2017) through the Company’s agreement to irrevocably reserve a total of 2,452,000 shares of its common stock (a 520,293 shares increase from the 1,931,707 shares per the Settlement Agreement and Release dated March 28, 2017) and deliver such shares in separate tranches to the Escrow Agent upon receipt of a conversion notice delivered by the Escrow Agent to the Company.
In the quarterly period ended June 30, 2017, the Company issued 1,842,105an aggregate of 284,777 shares of Iconicits common stock to Asher Enterprises, Inc. (“Asher”)the Escrow Agent pursuant to Asher’s Noticethe Amended Settlement Agreement. In the quarterly period ended September 30, 2017, the Company issued an aggregate of Conversion253,333 shares of its common stock to convert $3,500 debtthe Escrow Agent pursuant to the Amended Settlement Agreement.
From September 2017 to November 2017, pursuant to a Securities Purchase Agreement dated October 27, 2017 (the “SPA”), the Company issued a total of 480,000 shares of its common stock and 480,000 warrants to four investors for a total of $300,000 cash. The Warrants are exercisable into ICNB common stock at a price of $0.0019$2.50 per share, resultingexpire five years from date of issuance, and contain “down round” price protection (see Note 9).
F-11 |
Table of Contents |
Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2019 and 2018
(Unaudited)
On January 2, 2018, the Company issued 103,447 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On January 19, 2018, the Company issued 216,127 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On March 14, 2018, the Company issued 126,667 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On April 5, 2018, the Company issued 172,000 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On April 9, 2018, the Company issued 280,296 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On April 12, 2018, the Company issued 481,151 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On August 14, 2018, the Company issued 51,938 shares of its common stock in settlement of convertible notes payable and accrued interest payable totaling $32,461.
On September 7, 2018, the reductionCompany issued 70,572 shares of debt due to Asher from $60,000 to $56,500.
Effective May 21, 2018, the 54,361,412Company entered into a Share Purchase Agreement with the four investors who purchased 480,000 shares of common stock pursuant to a Securities Purchase Agreement dated October 27, 2017. The Exchange Agreement provided for the exchange of the 480,000 shares of common stock for 1,200,000 shares of Series E Preferred stock. Each share of Series E Preferred Stock is convertible into 0.4 shares of common stock, is entitled to 0.4 votes on all matters to come before the common stockholders or shareholders generally, is entitled to dividends on an as-converted-to-common stock basis, is entitled to a distribution preference of $0.25 upon liquidation, and is not redeemable.
On January 16, 2019, the Company issued 436,125 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On January 24, 2019, the Company issued 98,078 shares of its common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. This issuance completed the Company’s obligation to deliver shares of our common stock to the Escrow Agent.
On February 7, 2019, the Company agreed to issue 120,000 shares of its common stock (issued April 18, 2019) and committed to be issued at March 31, 2013 anda $50,000 note payable due December 31, 2012, 4,806,3502019 to a former Bellissima consultant pursuant to a Settlement and Release Agreement. The $141,200 total fair value of the note ($50,000) and the 120,000 shares were committed to be issued but not yet issued,of common stock ($91,200) was expensed as follows:
F-12 |
Table of Contents |
Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2019 and 20122018
(Unaudited)
On March 15, 2019, the Company agreed to issue 150,000 shares of its common stock (issued April 8, 2019) to a consulting firm entity pursuant to a Business Development Agreement. The $199,500 fair value of the 150,000 shares of common stock was expensed as consulting fees in the three months ended March 31, 2019.
On March 27, 2019, the Company issued 1,000,000 shares of its common stock to Chief Executive Officer Richard DeCicco in exchange for the surrender of the 1,000 shares of Series C Preferred Stock owned by Mr. DeCicco.
On March 27, 2019, the Company issued a total of 1,000,000 shares of its common stock (500,000 shares to Chief Executive Officer Richard DeCicco; 500,000 shares to Vice President Roseann Faltings) in exchange for the surrender of the 5 shares each of Series D Preferred Stock owned by Mr. DeCicco and Ms. Faltings.
Warrants
A summary of warrants activity for the period January 1, 2017 to March 31, 2019 follows:
Common shares Equivalent | ||||
Balance, January 1, 2017 | - | |||
Issued in year ended December 31, 2017 | 534,000 | |||
Balance, December 31, 2017 | 534,000 | |||
Issued in year ended December 31, 2018 | 2,361,198 | |||
Balance, December 31, 2018 | 2,895,198 | |||
Issued in the three months ended March 31, 2019 | 620,000 | |||
Balance, March 31, 2019 | 3,515,198 |
Issued and outstanding warrants at March 31, 2019 consist of:
Year Granted |
| Number Common |
|
| Exercise Price |
|
| Consist of | |||
2017 |
|
| 54,000 |
|
| $ | 2.50 |
|
| June 22, 2022 to June 30, 2022 | |
2017 |
|
| 480,000 |
|
| $ | 2.50 |
|
| September 2022 to November 2022 | |
2018 |
|
| 400,000 |
|
| $ | 0.625 |
|
| March 28, 2021 | |
2018 |
|
| 30,000 |
|
| $ | 2.50 |
|
| May 21, 2023 | |
2018 |
|
| 480,000 |
|
| $ | 2.50 |
|
| May 21, 2023 | |
2018 |
|
| 831,198 |
|
| $ | 1.25 |
|
| September 20, 2023 | |
2018 |
|
| 620,000 |
|
| $ | 1.25 |
|
| September 20, 2023 | |
2019 |
|
| 620,000 |
|
| $ | 1.25 |
|
| February 7, 2024 | |
|
|
|
|
|
|
|
|
|
|
| |
Total |
|
| 3,515,198 |
|
|
|
|
|
|
|
F-13 |
Table of Contents |
Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2019 and 2018
(Unaudited)
In connection with the Company’s issuance of a total of $135,019 convertible notes payable in the three months ended June 30, 2017, the Company issued a total of 54,000 Common Stock Purchase Warrants (the ‘Warrants”) to the respective lenders. The Warrants are exercisable into ICNB common stock at a price of $2.50 per share and expire at dates ranging from June 22, 2022 to June 30, 2022.
As discussed in Note 9, the Company issued a total of 480,000 warrants to four investors from September 2017 to November 2017. The Warrants are exercisable into ICNB common stock at a price of $2.50 per share and expire five years from date of issuance.
Effective March 28, 2018, the Company issued 400,000 warrants to a lawyer for services rendered. The warrants are exercisable into ICNB common stock at a price of $0.625 per share and expire three years from date of issuance. The $250,000 fair value of the warrants was expensed in the three months ended June 30, 2018.
Effective May 21, 2018, the Company issued 30,000 warrants to a law firm for services rendered. The warrants are exercisable into ICNB common stock at a price of $2.50 per share and expire five years from date of issuance. The $23,250 fair value of the warrants was expensed in the three months ended June 30, 2018.
As discussed in Preferred Stock above, the Company issued a total of 480,000 warrants to four investors effective May 21, 2018 in connection with the sale of 1,200,000 shares of Series E Preferred stock for $300,000 cash. These warrants are exercisable into ICNB common stock at a price of $2.50 per share and expire five years from date of issuance.
Effective October 4, 2018, the remaining debt (see Note 7) and accrued interest thereon was satisfied through (1) the issuance of a total of 2,077,994 shares of our Series E convertible preferred stock (which are convertible into a total of 831,198 shares of common stock) plus warrants to acquire 831,198 shares of our common stock (for $519,499 debt and accrued interest), (2) the issuance of a total of 122,510 shares of our common stock (for $76,569 debt and accrued interest), and (3) cash (for $90,296 debt and accrued interest).
Effective October 4, 2018, the Company closed on the first tranche of the Securities Purchase Agreement dated September 27, 2018 with nine (9) accredited investors for the sale of an aggregate of 4,650,000 shares of our Series E convertible preferred stock and warrants to acquire 1,860,000 shares of our common stock (at an exercise price of $1.25 per share for a period of five years) for gross proceeds of $1,162,500. The first tranche sale was for 1,550,000 shares of our Series E convertible preferred stock and warrants to acquire 620,000 shares of our common stock for gross proceeds of $387,500. The second tranche of $387,500 closed on February 7, 2019 and also was for 1,550,000 shares of our Series E convertible preferred stock and warrants to acquire 620,000 shares of our common stock.
11. INCOME TAXES
No income taxes were recorded in the periods presented since the Company incurred nethad taxable losses in these periods.
F-14 |
Table of Contents |
Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2019 and 2018
(Unaudited)
The provision for (benefit from) income taxes differs from the amount computed by applying the statutory United States federal income tax rate of 21% for the periods presented to income (loss) before income taxes. The sources of the difference are as follows:
Three months ended March 31, 2019 2018 Expected tax at 21% Nondeductible stock-based compensation Nondeductible expense (nontaxable income) from derivative liability Nondeductible amortization of debt discount Increase (decrease) in valuation allowance Income tax provision $ (141,260 ) $ 73,416 61,047 - - (173,711 ) - 10,848 80,213 89,447 $ - $ -
Significant components of the Company's deferred income tax assets are as follows:
March 31, December 31, 2019 2018 Net operating loss carryforward Less valuation allowance Deferred income tax assets - net $ 3,838,621 $ 3,758,408 (3,838,621 ) (3,758,408 ) $ - $ -
Based on management’s present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset attributable to the future utilization of the net operating loss carryforward as of March 31, 20132019 will be realized. Accordingly, the Company has maintained a 100% valuation allowance against the deferred tax asset in the consolidated financial statements at March 31, 2013.2019. The Company will continue to review this valuation allowance and make adjustments as appropriate.
Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
All tax years remain subject to examination by major taxing jurisdictions.
F-15 |
Table of Contents |
Iconic Brands, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 2013 | March 31, 2012 | |||||||
Federal income tax benefit attributable to: | ||||||||
Net operating loss carryover | $ | 3,798,051 | $ | 5,556,669 | ||||
Less: variation allowance | $ | 3,798,051 | $ | 5,556,669 | ||||
Net provision for Federal income taxes | $ | 0 | $ | 0 |
Three months ended March 31, 2013.
(Unaudited)
12. COMMITMENTS AND CONTINGENCIES
a. Iconic Brands,Guarantees
On May 26, 2015, BiVi LLC (“BiVi”) entered into a License Agreement with Neighborhood Licensing, LLC (the “BiVi Licensor”), an entity owned by Chazz Palminteri (“Palminteri”), to use Palminteri’s endorsement, signature and other intellectual property owned by the BiVi Licensor. Iconic has agreed to guarantee and acpt as surety for BiVi’s obligations under certain sections of the License Agreement and to indemnify the BiVi Licensor and Palminteri against third party claims.
On November 12, 2015, Bellissima Spirits LLC (“Bellissima”) entered into a License Agreement with Christie Brinkley, Inc. (the “Bellissima Licensor”), an entity owned by Christie Brinkley (“Brinkley”), to use Brinkley’s endorsement, signature, and Subsidiary
b. Royalty Obligations of BiVi and warrant activityBellissima
Pursuant to the License Agreement with the Bivi Licensor (see Note 12a. above), BiVi is obligated to pay the BiVi Licensor a Royalty Fee equal to 5% of monthly gross sales of BiVi Brand products payable monthly subject to an annual Minimum Royalty Fee of $100,000 in year 1, $150,000 in year 2, $165,000 in year 3, $181,500 in year 4, $199,650 in year 5, and $219,615 in year 6 and each subsequent year.
Pursuant to the License Agreement and Amendment No. 1 to the License Agreement effective June 30, 2017 with the Bellissima Licensor (see Note 12a. 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 years endedright to terminate the endorsement if Bellissima fails to sell 10,000 cases of Bellissima Brand products in year 1, 15,000 cases in year 2, or 20,000 cases in year 3 and each subsequent year.
c. Brand Licensing Agreement relating to Hooters Marks
On July 23, 2018, United Spirits, Inc. (“United”) executed a Brand Licensing Agreement (the “Agreement”) with HI Limited Partnership (“the Licensor”). The Agreement provides United a license to use certain “Hooters” Marks to manufacture, market, distribute, and sell alcoholic products.
The Initial Term of the Agreement is from July 23, 2018 through December 31, 20112020. Provided that United is not in breach of any terms of the Agreement, United may extend the Term for an additional 3 years through December 31, 2023.
The Agreement provides for United’s payment of Royalty Fees (payable quarterly) to the Licensor equal to 6% of the net sales of the licensed products subject to a minimum royalty fee of $65,000 for Agreement year 1 (ending December 31, 2018), $255,000 for Agreement year 2, $315,000 for Agreement year 3 and 20124, $360,000 for Agreement year 5, and $420,000 for Agreement year 6.
The Agreement also provided for United’s payment of an advance payment of $30,000 to the three months ended March 31, 2013 follows:
Stock | ||||||||
Options | Warrants | |||||||
Outstanding at December 31, 2010 | 1,300,000 | 20,722,184 | ||||||
Granted and Issued | - | - | ||||||
Exercised | - | - | ||||||
Forfeited/expired/cancelled | (300,000 | ) | (1,400,000 | ) | ||||
Outstanding at December 31, 2011 | 1,000,000 | 19,322,184 | ||||||
Granted and issued | - | - | ||||||
Exercised | - | - | ||||||
Forfeited/expired/cancelled | - | (5,162,500 | ) | |||||
Outstanding at December 31, 2012 | 1,000,000 | 14,159,684 | ||||||
Granted and issued | - | - | ||||||
Exercised | - | - | ||||||
Forfeited/expired/cancelled | - | (385,000 | ) | |||||
Outstanding at March 31, 2013 | 1,000,000 | 13,774,684 |
Date | Number | Number | Exercise | Expiration | |||||||||||||||
Granted | Outstanding | Exercisable | Price | Date | |||||||||||||||
January 1, 2008 | 1,000,000 | - | $ | 0.10 | (a) | June 30, 2013 | |||||||||||||
Total | 1,000,000 | - |
Date | Number | Number | Exercise | Expiration | |||||||||
Issued | Outstanding | Exercisable | Price | Date | |||||||||
June 10, 2008 | 27,500 | 27,500 | $ | 1.00 | June 10, 2013 | ||||||||
June 10, 2008 | 27,500 | 27,500 | $ | 1.50 | June 10, 2013 | ||||||||
June 10, 2008 | 25,000 | 25,000 | $ | 1.00 | December 10, 2013 | ||||||||
June 10, 2008 | 25,000 | 25,000 | $ | 1.50 | December 10, 2013 | ||||||||
June 11, 2008 | 30,000 | 30,000 | $ | 1.00 | December 11, 2013 | ||||||||
June 11, 2008 | 30,000 | 30,000 | $ | 1.50 | December 11, 2013 | ||||||||
July 2, 2008 | 110,000 | 110,000 | $ | 1.00 | January 2, 2014 | ||||||||
July 2, 2008 | 110,000 | 110,000 | $ | 1.50 | January 2, 2014 | ||||||||
July 23, 2008 | 50,000 | 50,000 | $ | 1.00 | January 23, 2014 | ||||||||
July 23, 2008 | 50,000 | 50,000 | $ | 1.50 | January 23, 2014 | ||||||||
August 11, 2008 | 1,000,000 | 1,000,000 | $ | 1.00 | August 11, 2013 | ||||||||
August 12, 2009 | 400,000 | 400,000 | $ | 1.00 | August 12, 2014 | ||||||||
August 12, 2009 | 533,334 | 533,334 | $ | 1.50 | August 12, 2014 | ||||||||
August 19, 2009 | 1,000,000 | 1,000,000 | $ | 0.01 | August 19, 2014 | ||||||||
August 19, 2009 | 1,000,000 | 1,000,000 | $ | 1.00 | August 19, 2014 | ||||||||
September 14, 2009 | 200,000 | 200,000 | $ | 1.00 | September 14, 2014 | ||||||||
September 14, 2009 | 200,000 | 200,000 | $ | 1.50 | September 14, 2014 | ||||||||
January 6, 2010 | 100,000 | 100,000 | $ | 0.22 | January 6, 2015 | ||||||||
January 13, 2010 | 100,000 | 100,000 | $ | 0.23 | January 13, 2015 | ||||||||
February 8, 2010 | 500,000 | 500,000 | $ | 1.00 | February 8, 2015 | ||||||||
February 8, 2010 | 500,000 | 500,000 | $ | 1.50 | February 8, 2015 | ||||||||
March 16, 2010 | 2,000,000 | 2,000,000 | $ | 0.25 | March 16, 2015 | ||||||||
April 15, 2010 | 1,200,000 | 1,200,000 | $ | 0.20 | April 15, 2013 | ||||||||
April 19, 2010 | 4,556,350 | 4,556,350 | $ | 0.20 | April 19, 2013 | ||||||||
Total | 13,774,684 | 13,774,684 |
For the three months ended March 31, 2013 and 2012, income (loss) from discontinued operations consisted of:
2013 | 2012 | |||||||
Revenues | $ | - | $ | - | ||||
Cost of goods sold | - | - | ||||||
Gross profit | - | - | ||||||
Selling, general and administrative expenses | - | - | ||||||
Operating income | - | - | ||||||
Gain from United States Bankruptcy Court discharge of indebtedness | 5,366,639 | - | ||||||
Interest expense (including amortization of debt discounts of $0 and $3,143, respectively) | (13,138 | ) | (19,746 | ) | ||||
Income (loss) before income tax provision | 5,353,501 | (19,746 | ) | |||||
Income tax provision | - | - | ||||||
Income (loss) from discontinued operations | $ | 5,353,501 | $ | (19,746 | ) |
F-16 |
Table of Contents |
Iconic Brands, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Three months ended March 31, 2013
(Unaudited)
d. Distribution Agreement
On May 1, 2015, BiVi entered into a Distribution Agreement with United Spirits, Inc. (“United”) for United to distribute and wholesale BiVi’s product and to act as the licensed importer and wholesaler. The assetsDistribution Agreement provides United the exclusive right for a term of ten years to sell BiVi’s product for an agreed distribution fee equal to $1.00 per case of product sold. United is owned and liabilitiesmanaged by Richard DeCicco, the controlling shareholder, President, CEO, and Director of Iconic.
In November 2015, Bellissima and United agreed to have United distribute and wholesale Bellissima’s Products under the same terms contained in the Distribution Agreement with BiVi described in the preceding paragraph.
e. Compensation Arrangements
Effective April 1, 2018, the Company executed Employment Agreements with its Chief Executive Officer Richard DeCicco (“DeCicco”) and its Vice President of Sales and Marketing Roseann Faltings (“Faltings”). Both agreements have a term of 24 months (to March 31, 2020). The DeCicco Employment Agreement provides for a base salary at the rate of $265,000 per annum and a compensation stock award of 300,000 shares of Iconic Importscommon stock issuable upon the effective date of the planned reverse stock split. The Faltings Employment Agreement provides for a base salary at the rate of $150,000 per annum and a compensation stock award of 100,000 shares of Iconic common stock issuable upon the effective date of the planned reverse stock split. For the year ended December 31, 2018, we accrued a total of $311,250 officers compensation pursuant to these two Employment Agreements. In 2018, the accrued compensation was allocated 50% to Iconic ($155,625), 40% to Bellissima ($124,500), and 10% to BiVi ($31,125). For the three months ended March 31, 2019, we accrued a total of $103,750 officers compensation pursuant to these two Employment Agreements which was allocated 50% to Iconic ($51,875), 40% to Bellissima ($41,500), and 10% to BiVi ($10,375).
Prior to April 1, 2018, the Company used the services of its chief executive officer Richard DeCicco and its assistant secretary Roseann Faltings under informal compensation arrangements (without any employment agreements).
As of March 31, 2019 and December 31, 2018, accrued officers compensation was $915,000 and $811,250, respectively.
f. Lease Agreement
On March 27, 2018, United Spirits, Inc. executed a lease extension for the Company’s office and warehouse space in North Amityville New York. The extension has a term of three years from February 1, 2018 to January 31, 2021 and provides for monthly rent of $4,478.
At March 31, 2019, the future minimum lease payments under this non-cancellable operating lease were:
Year ended December 31, 2019 Year ended December 31, 2020 Year ended December 31, 2021 Total 40,302 53,736 4,478 $ 98,516
The operating lease liability of $89,673 at March 31, 20132019 as presented in the Consolidated Balance Sheet represents the discounted (at our 10% estimated incremental borrowing rate) value of the future lease payments of $98,516 at March 31, 2019.
g. Major customers.
For the three months ended March 31, 2019, five customers accounted for 18%, 17%, 15%, 14%, and December11% of sales.
F-17 |
Table of Contents |
Iconic Brands, Inc.
Notes to Consolidated Financial Statements
Three months ended March 31, 2012 consisted of:
2013 | 2012 | |||||||
Assets | ||||||||
Current assets | $ | - | $ | - | ||||
Total assets | $ | - | $ | - | ||||
Liabilities | ||||||||
Current portion of debt | $ | - | $ | 545,000 | ||||
Accounts payable | - | 1,219,768 | ||||||
Accrued interest payable | - | 274,963 | ||||||
Other accrued expenses and other current liabilities | - | 1,651,092 | ||||||
Current liabilities | - | 3,690,823 | ||||||
Long – term debt | - | 1,477,338 | ||||||
Total liabilities | - | 5,168,161 | ||||||
Net liabilities | $ | - | $ | (5,168,161 | ) |
(Unaudited)
13. SUBSEQUENT EVENTS
Conversion of Series E Convertible Preferred Stock
On April 23, 2019, an investor converted 673,398 shares of Series E convertible preferred stock into 269,359 shares of Company common stock.
Exercise of Warrants
On May 8, 2019, Iconic executed a Warrant Exercise Agreement with four holders of Company warrants. The holders exercised a total of 960,000 warrants at an agreed price of $0.32 per share and paid the Company a total of $307,200. Pursuant to the Warrant Exercise Agreement, the holders were issued a total of 1,920,000 New Warrants which are exercisable into Company common stock at a price of $2.25 per share for a period of five years.
Acquisition of 51% of Green Grow Farms, Inc.
On May 9, 2019, Iconic entered into a Share Exchange Agreement (the “Agreement”) with Green Grow Farms, Inc. (“Green Grow”) and NY Farms Group Inc. (“NY Farms”). Pursuant to the Agreement, Iconic acquired a 51% equity interest in Green Grow in exchange for (i) cash consideration of $200,000, $50,000 of which was paid and the balance of which is payable within 30 days of Closing, and (ii) 2,000,000 shares of Company common stock. In addition, the Company has agreed to issue up to an additional 6,000,000 shares based upon gross revenues reached by Green Grow (at a rate of 120,000 shares per $1,000,000 of gross revenues up to a maximum of $50,000,000) within 36 months of the Closing.
F-18 |
Table of Contents |
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Form 10-Q, referencesQuarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to “Iconic Brands,” “Company,” “we,” “our” or “us” referrisks 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 Iconic Brands, Inc. unlesscarefully review and consider the context otherwise indicates.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, ourits unaudited financial statements and accompanyingrelated notes and the other financial information which are included elsewhere in this Form 10-Q, (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.
Summary Overview
We are a beverage company with expertise in developing, from inception to completion, alcoholic beverages for ourselves and third parties. We also market and place products into national distribution through long standing industry relationships. We engage in “Celebrity Branding” of beverages, procuring products from around the world and branding products with internationally recognized celebrities.
We intend to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation.
Our Products
BiVi LLC, our managementsubsidiary, is made up of BiVi 100 percent Sicilian Vodka. BiVi LLC’s mission is to selectpromote and apply accounting policies that best providesupport the frameworksales endeavors of the distribution network through targeted and national marketing endeavors and working with celebrity partner Chazz Palminteri.
Bellissima Spirits LLC, our subsidiary, entered into a License Agreement with Christie Brinkley, Inc. an entity owned by Christie Brinkley, to reportuse Brinkley’s endorsement, signature, and other intellectual property owned by Bellissima Spirits LLC. Bellissima by Christie Brinkley is a line of Organic Prosecco. The line includes a DOC Brut, Sparkling Rose and a Zero Sugar, Zero Carb option which are All Natural and Gluten Free with all Certified Organic and Vegan.
5 |
Table of Contents |
Reverse Stock Split
Effective January 18, 2019, shares of our common stock were subject to a 1-for-250 reverse stock split which reduced the resultsissued and outstanding shares of operations and financial position.common stock at December 31, 2018 from 1,359,941,153 shares to 5,439,765 shares. The selection and application of those policies requires management to make difficult, subjective and/or complex judgments concerning reported amounts of revenue and expenses during the reporting perioddiscussion below and the reported amountsaccompanying financial statements have been retrospectively adjusted to reflect this reverse stock split.
Going Concern
As a result of assetsour current financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2018 and liabilities2017 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. In order to continue as a going concern we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues. If we are not able to do this we may not be able to continue as an operating company. Until we are able to grow revenues sufficient to meet our operating expenses, we must continue to raise capital by issuing debt or through the sale of our stock. There is no assurance that our cash flow will be adequate to satisfy our operating expenses and capital requirements.
Results of Operations for the Three Months Ended March 31, 2019 and 2018
Introduction
We had sales of $121,913 for the three months ended March 31, 2019 and $61,719 for the three months ended March 31, 2018, an increase of $60,194 or 97%. Our operating expenses were $1,022,842 for the three months ended March 31, 2019, compared to $789,694 for the three months ended March 31, 2018, an increase of $233,148 or 30%. Our net income (loss) was $(672,667) for the three months ended March 31, 2019, compared to $349,602 for the three months ended March 31, 2018, a decrease of $1,022,269.
Revenues and Net Operating Loss
Our revenue, operating expenses, net operating loss, and net income for the three months ended March 31, 2019 and 2018 were as follows:
|
| Three Months |
|
| Three Months |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
| ||
Sales |
| $ | 121,913 |
|
| $ | 61,719 |
|
Cost of sales |
|
| 81,435 |
|
|
| 37,409 |
|
Gross profit |
|
| 40,478 |
|
|
| 24,310 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Officers compensation |
|
| 185,750 |
|
|
| - |
|
Professional and consulting fees |
|
| 448,519 |
|
|
| 12,286 |
|
Royalties |
|
| 75,188 |
|
|
| 6,590 |
|
Special promotion program with customer |
|
| - |
|
|
| 597,138 |
|
Marketing and advertising |
|
| 46,467 |
|
|
| 59,315 |
|
Occupancy costs |
|
| 27,623 |
|
|
| 43,798 |
|
Travel and entertainment |
|
| 64,269 |
|
|
| 40,315 |
|
Other |
|
| 175,026 |
|
|
| 30,252 |
|
Total operating expenses |
|
| 1,022,842 |
|
|
| 789,694 |
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
| (982,364 | ) |
|
| (765,384 | ) |
Other income (expense), net |
|
| - |
|
|
| 767,239 |
|
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity |
|
| 309,697 |
|
|
| 347,747 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (672,667 | ) |
| $ | 349,602 |
|
6 |
Table of Contents |
Sales
Our sales are comprised of sales of BiVi Sicilian Vodka and Bellissima Prosecco and Sparkling Wine. Sales were $121,913 for the three months ended March 31, 2019 and $61,719 for the three months ended March 31, 2018, an increase of $60,194 or 97%. The increase in sales was a result of 2019 shipments being made at full price, while in 2018 we were fulfilling a promotional offer which accounted for lower sales pricing to some customers.
Cost of Sales
Cost of sales was $81,435, or 67% of sales, for the three months ended March 31, 2019 and $37,409, or 61% of sales, for the three months ended March 31, 2018. Cost of sales includes the cost of the products purchased from our Italian suppliers, freight-in costs and import duties.
Officers Compensation
Officers compensation was $185,750 for the three months ended March 31, 2019 and zero for the three months ended March 31, 2018, an increase of $185,750.
Effective April 1, 2018, the Company executed Employment Agreements with its Chief Executive Officer Richard DeCicco (“DeCicco”) and its Vice President of Sales and Marketing Roseann Faltings (“Faltings”). Both agreements have a term of 24 months (to March 31, 2020). The DeCicco Employment Agreement provides for a base salary at the rate of $265,000 per annum and a compensation stock award of 300,000 shares of Iconic common stock issuable upon the effective date of the financial statements. Asplanned reverse stock split. The Faltings Employment Agreement provides for a base salary at the rate of $150,000 per annum and a compensation stock award of 100,000 shares of Iconic common stock issuable upon the effective date of the planned reverse stock split. For the three months ended March 31, 2019, we accrued a total of $103,750 in officers compensation pursuant to these two Employment Agreements, which was allocated 50% to Iconic ($51,875), 40% to Bellissima ($41,500), and 10% to BiVi ($10,375).
Professional and Consulting Fees
Professional and consulting fees were $448,519 for the three months ended March 31, 2019 and $12,286 for the three months ended March 31, 2018, an increase of $436,233 or 3,550%. Professional and consulting fees consist primarily of legal and accounting and auditing services. The increase was a result there existsof costs associated with getting our financial statements audited, filing a registration statement, and becoming a fully-reporting issuer.
Royalties
Royalties were $75,188, or 62% of sales, for the likelihood that materially different amounts would be reported under different conditionsthree months ended March 31, 2019 and $6,590, or using different assumptions.
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Special Promotion Program with Customer
For the three months ended March 31, 2018, we incurred an expense of $597,138 in connection with a product promotion with a large customer. We did not have a similar expense for the three months ended March 31, 2019, and do not expect to incur such an expense in the foreseeable future.
Marketing and Advertising
Marketing and advertising expenses were $46,467 for the three months ended March 31, 2019 and $59,315 for the three months ended March 31, 2018, a decrease of $12,848 or 22%. The decrease was a result of lower cost marketing efforts in 2019.
Occupancy Costs
Occupancy costs were $27,623 for the three months ended March 31, 2019 and $43,798 for the three months ended March 31, 2018, a decrease of $16,175 or 37%. The decrease was a result of lower warehouse rental costs.
Travel and Entertainment
Travel and entertainment expenses were $64,269 for the three months ended March 31, 2019 and $40,315 for the three months ended March 31, 2018, an increase of $23,954 or 59%. The increase was a result of travel related to new product development.
Other Operating Expenses
Other operating expenses were $175,026 for the three months ended March 31, 2019 and $30,252 for the three months ended March 31, 2018, an increase of $144,774 or 479%. The increase was a result of salary expense for employees not on the payroll in the same period in 2018. Other operating expenses include salaries, automobile, insurance, office expenses and expenses relating to Christie Brinkley appearances at Bellissima promotions.
Net Operating Income (Loss)
We had a net operating loss of $982,364 for the three months ended March 31, 2019 and $765,384 for the three months ended March 31, 2018, an increase of $216,980 or 28%. Our net operating loss increased, as set forth above, primarily because our sales decreased, which certain operating expenses, primarily professional and consulting fees and other operating expenses, increased.
8 |
Table of Contents |
Other Income/Expense
Other income was zero for the three months ended March 31, 2019 and $767,239 for the three months ended March 31, 2019. The decrease was primarily due to reductions of our derivative liability income.
Our previously outstanding convertible notes contained variable conversion features based on the future trading price of our common stock. Therefore, the number of shares of common stock issuable upon conversion of the notes are indeterminate. Accordingly, we recorded the $458,072 fair value of the embedded conversion features at December 31, 2017 as a derivative liability. The fair value of the derivative liability dropped to zero at December 31, 2018 after we entered into Securities Exchange Agreements with the holders of all convertible debt. For further details, see Note 8 of our consolidated financial statements for the years ended December 31, 2018 and 2017.
Net Loss attributable to Noncontrolling Interests in Subsidiaries and Variable Interest Entity
The net loss attributable to noncontrolling interests in subsidiaries and variable interest entity represents 49% of the net loss of Bellissima and BiVi (which we own 51%) and 100% of United Spirits (which we own 0%) and is accounted for as a reduction in the net loss attributable to the Company. This net loss was $309,697 for the three months ended March 31, 2019 and $347,747 for the three months ended March 31, 2018, a decrease of $38,050 or 11%. The net loss from other entities decreased as a result of all the changes discussed above.
Net Income (Loss) Attributable to Iconic Brands, Inc.
The net income (loss) attributable to Iconic Brands, Inc. was $(672,667) for the three months ended March 31, 2019 and $349,602 for the three months ended March 31, 2019, a decrease of $1,022,269.
Liquidity and Capital Resources
Introduction
During the three months ended March 31, 2019 and March 31, 2018, we had negative operating cash flows. Our cash on hand as of March 31, 2019 was $162,517, which was derived from the sale of Series E preferred stock and warrants. Our monthly cash flow burn rate for 2018 was approximately $146,000, and our monthly burn rate through the three months ended March 31, 2019 was approximately $123,000. We have strong medium to long term cash needs. We anticipate that these needs will be satisfied through the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
9 |
Table of Contents |
Our cash, current assets, total assets, current liabilities, and total liabilities as of March 31, 2019 and December 31, 2018, respectively, are as follows:
|
| March 31, |
|
| December 31, |
|
|
|
| |||
|
| 2019 |
|
| 2018 |
|
| Change |
| |||
|
|
|
|
|
|
|
|
|
| |||
Cash |
| $ | 162,517 |
|
| $ | 191,463 |
|
| $ | (28,946 | ) |
Total Current Assets |
|
| 482,959 |
|
|
| 563,239 |
|
|
| (80,280 | ) |
Total Assets |
|
| 572,632 |
|
|
| 563,239 |
|
|
| 9,393 |
|
Total Current Liabilities |
|
| 1,656,942 |
|
|
| 1,339,566 |
|
|
| 317,376 |
|
Total Liabilities |
| $ | 1,699,736 |
|
| $ | 3,600,605 |
|
| $ | (1,900,869 | ) |
Our cash and total current assets decreased slightly as we continued to sustain losses. Our total current liabilities increased as our accounts payable and accrued expenses increased, reflecting our increase in professional and consulting fees. Our total liabilities decreased significantly as we converted outstanding promissory notes to preferred stock. Our stockholders’ deficit decreased from ($3,037,366) to ($1,127,104) as a result.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no off-balance sheet arrangements.
Cash Requirements
Our cash on hand as of March 31, 2019 was $162,517. Based on our minimal sales and annualized monthly burn rate of approximately $146,000 per month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings.
Sources and Uses of Cash
Operations
We had net cash used in operating activities for the three months ended March 31, 2019 of $369,576, compared to $887,573 for the three months ended March 31, 2018. For the three months ended March 31, 2019, the net cash used in operating activities consisted primarily of our net loss of $672,667 plus a net loss attributable to our subsidiaries of $309,697, offset primarily by a change in stock-based compensation of $290,700 and accounts payable and accrued expenses of $220,754. For the three months ended March 31, 2018, the net cash used in operating activities consisted primarily of our net income of $349,602 plus a net loss attributable to our subsidiaries of $347,747, offset primarily by change in fair market value of derivative liabilities of $(827,197).
Investments
We had no investing activities for the three months ended March 31, 2019 or March 31, 2018.
10 |
Table of Contents |
Financing
Our net cash provided by financing activities for the three months ended March 31, 2019 was $340,630, compared to $9,700 for the three months ended March 31, 2018, which consisted of proceeds from the sale of our Series E preferred stock and warrants.
As a “smallersmaller reporting company” as defined by Rule 229.10(f)(1),company, we are not required to provide the information required by this Item 3.
(a) Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, are designedas defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2019, to ensure that information required to be disclosed by us in the reports that we filefiled or submitsubmitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, ofincluding to ensure that information required to be disclosed by us in the United States Securitiesreports filed or submitted by us under the Exchange Act is accumulated and Exchange Commission. Ourcommunicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e))concluded that as of March 31, 2013, the end of the period covered by this report and have concluded that2019, our disclosure controls and procedures were not effective to ensure that material information relatingat the reasonable assurance level due to the material weaknesses identified and described in our Annual Report on Internal Control Over Financial Reporting filed in our Annual Report on Form 10-K.
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all errors and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers are determined to make our disclosure controls and procedures effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company is recorded, processed, summarized,have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and reportedthat breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a timely manner.
(b) Changes in Internal ControlsControl over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, the three month period ended March 31, 2019, that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
We are not a party to or otherwise involved in any legal proceedings.
In the voluntary petition for relief under Chapter 7ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the United States Bankruptcy Coderesolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the United States Bankruptcy Court for the Eastern Districtopinion of New York filedour management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on September 23, 2011 by Iconic Imports, Inc. (“Imports”), a wholly-owned subsidiaryour financial position or results of the Company, was closed.
As a “smallersmaller reporting company” as defined by Rule 229.10(f)(1),company, we are not required to provide the information required by this Item 1A.
ITEM 2 Unregistered Sales of equity securities by the issuer and affiliated purchasers
Except as set forth below or previously reported on a Current Report on Form 8-K, we had no unregistered sales of equity securities during the three month period ended March 31, 2019.
On January 18, 2019, we effected a 1-for-250 reverse stock split (the “Reverse Stock Split”). No fractional shares were issued, and no cash or other consideration was paid in connection with the Reverse Stock Split. Instead, the Company issued one whole share of the post-Reverse Stock Split common stock to any stockholder who otherwise would have received a fractional share as a result of the Reverse Stock Split. Accordingly, we issued 64 shares of common stock in the Reverse Stock Split to avoid the issuance of fractional shares.
Series E Preferred Stock and Warrants
On September 27, 2018, we entered into a Securities Purchase Agreement (the “2018 Agreement”) with certain investors to sell 4,650,000 shares of our Series E Convertible Preferred Stock and warrants to acquire 1,860,000 shares of common stock for up to an aggregate of $1,162,500. The 2018 Agreement is also subject to a Registration Rights Agreement, and except as set forth below, the 2018 Agreement and its corresponding Registration Rights Agreement contain the same material terms as the 2017 Agreement and its Registration Rights Agreement discussed above. Pursuant to the 2018 Agreement, this purchase and sale will occur in three closings. The first closing occurred on September 27, 2018, and we received an aggregate of $387,500 in exchange for 1,550,000 shares of Series E Preferred Stock and warrants to acquire 620,000 shares of common stock. The second closing occurred on January 29, 2019, and we received another $387,500 in exchange for 1,550,000 shares of Series E Preferred Stock and warrants to acquire 620,000 shares of common stock. The third closing, for the remaining $387,500 in exchange for 1,550,000 shares of Series E Preferred Stock and warrants to acquire 620,000 shares of common stock, will occur on or within five trading days of the date that a registration statement registering all the shares of common stock issuable upon conversion of the investors’ Series E Convertible Preferred shares and exercise of their warrants.
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Common Stock
On January 16, 2019, we issued 436,125 shares of common stock to the Escrow Agent pursuant to the Amended Settlement Agreement.
On January 24, 2019, we issued 98,078 shares of common stock to the Escrow Agent pursuant to the Amended Settlement Agreement. This issuance completed our obligation to deliver shares of our common stock to the Escrow Agent.
On February 7, 2019, we agreed to issue 120,000 shares of our common stock (issued April 18, 2019) and a $50,000 note payable due December 31, 2019 to a former Bellissima consultant pursuant to a Settlement and Release Agreement.
On March 15, 2019, we agreed to issue 150,000 shares of our common stock (issued April 8, 2019) to a consulting firm entity pursuant to a Business Development Agreement.
On March 27, 2019, we issued 1,000,000 shares of our common stock to Chief Executive Officer Richard DeCicco in exchange for the surrender of the 1,000 shares of Series C Preferred Stock owned by Mr. DeCicco.
On March 27, 2019, we issued a total of 1,000,000 shares of our common stock (500,000 shares to Chief Executive Officer Richard DeCicco; 500,000 shares to Vice President Roseann Faltings) in exchange for the surrender of the 5 shares each of Series D Preferred Stock owned by Mr. DeCicco and Ms. Faltings.
All of the issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, there was no solicitation, and the investors were accredited or sophisticated.
There have been no events which are required to be reported under this Item.
Not applicable.
None.
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(a) Exhibits
Exhibit No. | Description of Exhibits | |
Certificate of Designation of Series A Convertible Preferred Stock | ||
Certificate of Designation of Series B Convertible Preferred Stock | ||
Certificate of Designation of Series C Convertible Preferred Stock | ||
Certificate of Designation of Series D Convertible Preferred Stock | ||
Certificate of Designation of Series E Convertible Preferred Stock | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
101.LAB | XBRL Labels Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
_______________
(1) | Incorporated by reference to Form SB-2 filed on November 30, 2007. |
(2) | Incorporated by reference to our Registration Statement on Form S-1 filed on September 19, 2018 (File No. 333-227420). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Iconic Brands, Inc. | |||
Dated: | By: | /s/ Richard J. DeCicco | |
Richard J. DeCicco | |||
Its: | Chief Executive |
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