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 Quarterly Period Ended March 31, 2013
or
o¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________
Commission file number 000-53162
ICONIC BRANDS, INC. | ||
(Exact name of registrant as specified in its charter) |
Nevada | 13-4362274 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
44 Seabro Avenue Amityville, NY | 11701 | |
(Address of principal executive offices) | (Zip Code) |
(866) 219-8112
(Address of principal executive offices) (Zip Code)
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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 ox No x¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | x | Smaller reporting company | x |
Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x¨ No ox
Securities registered pursuant to Section 12(b) of the issuer's classesAct:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
As of common stock, as ofNovember 13, 2019, the latest practicable date: 49,555,062registrant had 13,335,924 shares of common stock, $0.0001$0.001 par value per share, issued and outstanding as of June 5, 2013
ICONIC BRANDS, INC.
F-1 | ||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 | |||||
13 | ||||||
13 | ||||||
14 | ||||||
14 | ||||||
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15 | ||||||
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Certifications |
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would.” These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K, and our other filings with the U.S. Securities and Exchange Commission.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable law.
ICONIC BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2019 and 2018
FINANCIAL STATEMENTS | Page(s) | ||
Consolidated |
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 | $ | 315,804 | $ | 294,040 | ||||
Accounts payable | 91,637 | 92,009 | ||||||
Accrued interest on Iconic Brands, Inc. debt | 59,282 | 77,233 | ||||||
Current liabilities of discontinued operations (see Note 8) | - | 3,690,823 | ||||||
Total current liabilities | 466,723 | 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 | 2,299,929 | 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 | 4,868,190 | (368,399 | ) | |||||
Total stockholders' deficiency | (2,299,929 | ) | (7,536,518 | ) | ||||
Total liabilities and stockholders' deficiency | $ | - | $ | - |
F-2 | |||
Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 | F-3 | ||
F-4 | |||
Three Months Ended March 31, | Development Stage Period January 1, 2011 to 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) | 5,268,098 | (19,746 | ) | 5,111,953 | ||||||||
Net income (loss) | $ | 5,236,589 | $ | (34,136 | ) | $ | 4,868,190 | |||||
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 nine months ended September 30, 2019 and 2018 | F-7 | ||
F-8 |
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) | $ | 5,236,589 | $ | (34,136 | ) | $ | 4,868,190 | |||||
Loss (income) from discontinued operations | (5,268,098 | ) | 19,746 | (5,111,953 | ) | |||||||
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 |
Consolidated Balance Sheets
September 30, December 31, 2019 2018 (Unaudited) Cash and cash equivalents Accounts receivable (less allowance for doubtful accounts of $26,513 and $0, respectively) Inventories Notes receivable from related parties of Green Grow Farms, Inc. Total current assets Intellectual property and production rights intangible asset Current portion of operating lease liability Accounts payable and accrued expenses Loans payable to officer and affiliated entity-non-interest bearing and due on demand Notes payable 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, 3,442,116 and 6,602,994 shares issued and outstanding, respectively Series F ($1,000 per share stated value), 3,664 and 0 shares issued and outstanding, respectively Assets Current assets: $ 1,370,302 $ 191,463 192,937 113,506 719,148 258,270 287,700 - 2,570,087 563,239 Right-of-use asset 66,817 - Leasehold improvements 15,000 - 1,450,000 Total assets $ 4,101,904 $ 563,239 Liabilities and Stockholders' Equity (Deficiency) Current liabilities: $ 49,272 $ - 1,670,949 1,311,475 11,722 28,091 250,000 - Total current liabilities 1,981,943 1,339,566 Non-current portion of operating lease liability 17,545 - Derivative liability on warrants - 2,261,039 Total liabilities 1,999,488 3,600,605 Commitments and contingencies (Note 12) Stockholders' equity (deficiency): 1 1 - 1 - - 3,442 6,603 3,664,250 Common stock, $.001 par value; authorized 2,000,000,000 shares, 13,502,324 and 5,440,312 shares issued and outstanding respectively 13,502 5,440 Common stock to be issued to Escrow Agent, $.001 par value; 0 and 534,203 shares, respectively - 534 Additional paid-in capital 20,774,601 18,798,438 Accumulated deficit (21,302,141 ) (21,233,083 ) Total Iconic Brands, Inc. stockholders equity (deficiency) 3,153,655 (2,422,066 ) Noncontrolling interests in subsidiaries and variable interest (1,051,239 ) (615,300 ) Total stockholders' equity deficiency 2,102,416 (3,037,366 ) Total liabilities and stockholders' equity (deficiency) $ 4,101,904 $ 563,239
See notes to consolidated financial statements.
F-2 |
Table of Contents |
Iconic Brands, Inc. and Subsidiaries
Consolidated Financial Statements
(Unaudited)
Three Months Three Months Nine Months Nine Months Ended September 30, Ended September 30, Ended September 30, Ended September 30, 2019 2018 2019 2018 Cost of Sales Officers compensation Professional and consulting fees (including stock-based compensation of $0, $0, $775,900 and $23,250, respectively) Royalties Special promotion program with customer Marketing and advertising Occupancy costs Travel and entertainment Other Total operating expenses Income (expense) from derivative liability Interest expense Amortization of debt discounts Other income Total other income (expense) - net Basic and diluted Basic and diluted Sales $ 267,619 $ 217,139 $ 534,826 $ 422,409 120,790 125,304 271,031 244,556 Gross profit 146,829 91,835 263,795 177,853 Operating expenses: 103,750 429,588 393,250 432,795 147,048 76,370 1,014,133 147,777 25,243 21,074 178,710 (47,338 ) - - - 597,138 305,222 58,724 389,103 310,779 47,312 48,070 102,867 128,564 92,400 34,683 236,114 143,984 430,023 43,849 715,654 147,411 1,150,998 712,358 3,029,831 1,861,110 Income (loss) from operations (1,004,169 ) (620,523 ) (2,766,036 ) (1,683,257 ) Other income (expense): - 304,224 - 314,072 - (10,139 ) - (29,699 ) - (6,135 ) - (107,846 ) - 12,665 - 12,665 - 300,615 - 189,192 Net income (loss) (1,004,169 ) (319,908 ) (2,766,036 ) (1,494,065 ) Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity 35,846 12,494 435,939 451,593 Net income (loss) attributable to Iconic Brands, Inc. $ (968,323 ) $ (307,414 ) $ (2,330,097 ) $ (1,042,472 ) Net income (loss) per common share: $ (0.08 ) $ (0.05 ) $ (0.24 ) $ (0.16 ) Weighted average common shares outstanding and to be issued to Escrow Agent: 12,525,768 6,376,120 9,742,957 6,346,400
See notes to consolidated financial statements.
F-3 |
Table of Contents |
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity (Deficiency)
(Unaudited)
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Series A Preferred Stock $.001 par |
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Series C Preferred Stock $.001 par |
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Series D Preferred Stock $.001 par |
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Series E Preferred Stock $.001 par |
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Series F Preferred Stock $1,000 stated value per share |
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Common Stock $.001 par |
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Common Stock to be issued to Escrow Agent $0.001 par |
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Additional Paid-in |
| Non- controlling Interests in Sub- sidiaries and Variable Interest |
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Accumulated |
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| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Entity |
| Deficit |
| Total |
| ||||||||||||||||||
Nine Months Ended September 30, 2019 |
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Balances, January 1, 2019 (as previously reported) |
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| 1 |
| $ | 1 |
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| 1,000 |
| $ | 1 |
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| 10 |
| $ | - |
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| 6,602,994 |
| $ | 6,603 |
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| 5,440,312 |
| $ | 5,440 |
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| 534,203 |
| $ | 534 |
| $ | 18,798,438 |
| $ | (615,300 | ) | $ | (21,233,083 | ) | $ | (3,037,366 | ) |
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Cumulative effect adjustment relating to reduction of derivative liability on warrants, pursuant to ASU 2017-11 |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| 2,261,039 |
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| 2,261,039 |
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Balance, January 1, 2019 (as adjusted) |
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| 1 |
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| 1 |
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| 1,000 |
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| 1 |
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| 10 |
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| - |
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| 6,602,994 |
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| 6,603 |
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| 5,440,312 |
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| 5,440 |
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| 534,203 |
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| 534 |
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| 18,798,438 |
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| (615,300 | ) |
| (18,972,044 | ) |
| (776,327 | ) |
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Common stock issued to Escrow Agent |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| 534,203 |
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| 534 |
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| (534,203 | ) |
| (534 | ) |
| - |
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| - |
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Sale of Series E Preferred Stock and warrants in connection with Securities Purchase Agreement dated September 27, 2018 |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| 1,362,520 |
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| 1,363 |
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| - |
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| - |
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| - |
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| - |
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| 339,267 |
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| - |
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| - |
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| 340,630 |
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Issuance of common stock in connection with Settlement and Release Agreement dated Febuary 7, 2019 |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| 120,000 |
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| 120 |
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| - |
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| 91,080 |
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| - |
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| 91,200 |
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Issuance of common stock in connection with Business Development Agreement dated March 15, 2019 |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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| 150,000 |
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| 150 |
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| - |
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| - |
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| 199,350 |
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| - |
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| - |
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| 199,500 |
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Issuance of common stock in exchange for the surrender of Series C Preferred Stock on March 27, 2019 |
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| - |
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| - |
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| (1,000 | ) |
| (1 | ) |
| - |
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| - |
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| - |
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| - |
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| 1,000,000 |
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| 1,000 |
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| - |
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| - |
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| (999 | ) |
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| - |
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| - |
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Issuance of common stock in exchange for the surrender of Series D Preferred Stock on March 27, 2019 |
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| - |
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| - |
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| - |
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| - |
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| (10 | ) |
| - |
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| - |
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| - |
|
|
|
|
|
|
|
| 1,000,000 |
|
| 1,000 |
|
| - |
|
| - |
|
| (1,000 | ) |
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
|
|
| 258 |
|
| 257 |
|
Net income (loss) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (309,697 | ) |
| (672,667 | ) |
| (982,364 | ) |
F-4 |
Table of Contents |
|
| Series A Preferred Stock $.001 par |
| Series C Preferred Stock $.001 par |
| Series D Preferred Stock $.001 par |
| Series E Preferred Stock $.001 par |
| Series F Preferred Stock $1,000 stated value per share |
| Common Stock $.001 par |
| Common Stock to be issued to Escrow Agent $0.001 par |
| Additional Paid-in |
| Non-controlling Interests in Sub- sidiaries and Variable Interest |
|
Accumulated |
|
|
| ||||||||||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Entity |
| Deficit |
| Total |
| ||||||||||||||||||
Balance, March 31, 2019 |
|
| 1 |
|
| 1 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 7,965,514 |
|
| 7,966 |
|
|
|
|
|
| 8,244,515 |
|
| 8,244 |
|
| - |
|
| - |
|
| 19,426,135 |
|
| (924,997 | ) |
| (19,644,453 | ) |
| (1,127,104 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Sale of Series E Preferred Stock and warrants in connection with Securities Purchase Agreement dated September 27, 2018 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 675,000 |
|
| 675 |
|
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| 168,075 |
|
| - |
|
| - |
|
| 168,750 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of common stock in exchange for Series E Preferred Stock on April 23, 2019 and May 17, 2019 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (1,473,398 | ) |
| (1,473 | ) |
|
|
|
|
| 589,359 |
|
| 589 |
|
| - |
|
| - |
|
| 884 |
|
| - |
|
| - |
|
| - |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Exercise of warrants at $0.32 per share pursuant to Warrant Exercise Agreements dated May 9, 2019 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
| 960,000 |
|
| 960 |
|
| - |
|
| - |
|
| 306,240 |
|
| - |
|
| - |
|
| 307,200 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of common stock in connection with Share Exchange Agreement dated April 17, 2019 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
| 2,000,000 |
|
| 2,000 |
|
| - |
|
| - |
|
| 1,248,000 |
|
| - |
|
| - |
|
| 1,250,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of common stock in connection with Consulting Agreement dated April 15, 2019 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
| 50,000 |
|
| 50 |
|
| - |
|
| - |
|
| 94,950 |
|
| - |
|
| - |
|
| 95,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of common stock in connection with Consulting Agreement dated May 23, 2019 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
| 250,000 |
|
| 250 |
|
| - |
|
| - |
|
| 389,750 |
|
| - |
|
| - |
|
| 390,000 |
| ||
Adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (258 | ) |
| (258 | ) | ||
Net income (loss) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (90,396 | ) |
| (689,107 | ) |
| (779,503 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance, June 30, 2019 |
|
| 1 |
| $ | 1 |
|
| - |
| $ | - |
|
| - |
| $ | - |
|
| 7,167,116 |
| $ | 7,167 |
|
|
|
|
|
| 12,093,874 |
| $ | 12,094 |
|
| - |
| $ | - |
| $ | 21,634,034 |
| $ | (1,015,393 | ) | $ | (20,333,818 | ) | $ | 304,085 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Sale of Series F Preferred Stock and warrants in connection with Securities Purchase Agreements dated July 18, 2019 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,125 |
|
| 3,125,000 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,125,000 |
|
Placement agent commissions, expenses and stock-based compensation |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 781,250 |
|
| 781 |
|
| - |
|
| - |
|
| (323,281 | ) |
| - |
|
| - |
|
| (322,500 | ) |
Exchange of Series E Preferred Stock for Series F Preferred Stock |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (2,725,000 | ) |
| (2,725 | ) |
| 681 |
|
| 681,250 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (678,525 | ) |
| - |
|
| - |
|
| - |
|
Issuance of common stock in exchange for Series E Preferred Stock |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (1,000,000 | ) |
| (1,000 | ) |
| - |
|
| - |
|
| 400,000 |
|
| 400 |
|
| - |
|
| - |
|
| 600 |
|
| - |
|
| - |
|
| - |
|
F-5 |
Table of Contents |
|
| Series A Preferred Stock $.001 par |
| Series C Preferred Stock $.001 par |
| Series D Preferred Stock $.001 par |
| Series E Preferred Stock $.001 par |
| Series F Preferred Stock $1,000 stated value per share |
| Common Stock $.001 par |
| Common Stock to be issued to Escrow Agent $0.001 par |
| Additional Paid-in |
| Non- controlling Interests in Sub- sidiaries and Variable Interest |
| Accumulated |
|
|
| ||||||||||||||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Entity |
| Deficit |
| Total |
| ||||||||||||||||||
Issuance of common stock in exchange for Series F Preferred Stock |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (142 | ) |
| (142,000 | ) |
| 227,200 |
|
| 227 |
|
| - |
|
| - |
|
| 14,773 |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (35,846 | ) |
| (968,323 | ) |
| (1,004,169 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Balance, September 30, 2019 |
|
| 1 |
| $ | 1 |
| - |
| $ | - |
| - |
| $ | - |
|
| 3,442,116 |
| $ | 3,442 |
|
| 3,664 |
| $ | 3,664,250 |
|
| 13,502,324 |
| $ | 13,502 |
|
| - |
| $ | - |
| $ | 20,774,601 |
| $ | (1,051,239 | ) | $ | (21,302,141 | ) | $ | 2,102,416 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018 |
|
| 1 |
| $ | 1 |
|
| 1,000 |
| $ | 1 |
|
| 10 |
| $ | - |
|
| - |
| $ | - |
|
|
|
|
|
|
|
| 4,417,567 |
| $ | 4,417 |
|
| 1,913,890 |
| $ | 1,914 |
| $ | 15,760,206 |
| $ | 78,064 |
| $ | (17,075,829 | ) | $ | (1,231,226 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to Escrow Agent |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
| 446,240 |
|
| 446 |
|
| (446,240 | ) |
| (446 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (347,747 | ) |
| 349,602 |
|
| 1,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance , March 31, 2018 |
|
| 1 |
|
| 1 |
|
| 1,000 |
|
| 1 |
|
| 10 |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
| 4,863,807 |
|
| 4,863 |
|
| 1,467,650 |
|
| 1,468 |
|
| 15,760,206 |
|
| (269,683 | ) |
| (16,726,227 | ) |
| (1,229,371 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to Escrow Agent |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
| 933,447 |
|
| 934 |
|
| (933,447 | ) |
| (934 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of Series E Preferred Stock and warrants |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,200,000 |
|
| 1,200 |
|
|
|
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| 298,800 |
|
| - |
|
| - |
|
| 300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Exchange Agreement dated May 21, 2018 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,200,000 |
|
| 1,200 |
|
|
|
|
|
|
|
| (480,000 | ) |
| (480 | ) |
| - |
|
| - |
|
| (720 | ) |
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued to law firm for services |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| 23,250 |
|
| - |
|
| - |
|
| 23,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (91,352 | ) |
| (688,660 | ) |
| (780,012 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018 |
|
| 1 |
|
| 1 |
|
| 1,000 |
|
| 1 |
|
| 10 |
|
| - |
|
| 2,400,000 |
|
| 2,400 |
|
| - |
|
| - |
|
| 5,317,254 |
|
| 5,317 |
|
| 534,203 |
|
| 534 |
|
| 16,081,536 |
|
| (361,035 | ) |
| (17,414,887 | ) |
| (1,686,133 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt conversion |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 122,510 |
|
| 123 |
|
| - |
|
| - |
|
| 76,445 |
|
| - |
|
| - |
|
| 76,568 |
|
Net income (loss) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
| - |
|
| - |
|
| - |
|
| - |
|
| (12,495 | ) |
| (703,414 | ) |
| (715,909 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018 |
|
| 1 |
| $ | 1 |
|
| 1,000 |
|
| 1 |
|
| 10 |
| $ | - |
|
| 2,400,000 |
| $ | 2,400 |
|
| - |
| $ | - |
|
| 5,439,764 |
| $ | 5,440 |
|
| 534,203 |
| $ | 534 |
| $ | 16,157,981 |
| $ | (373,530 | ) | $ | (18,118,301 | ) | $ | (2,325,474 | ) |
See notes to consolidated financial statements
F-6 |
Table of Contents |
Iconic Brands, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, 2019 2018 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 consulting fees Expense (income) from derivative liability Amortization of debt discounts Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses Notes receivable from related parties of Green Grow Farms, Inc. Accounts payable and accrued expenses Accrued interest payable Net cash used in operating activities Leasehold improvements Net cash used in investting activities Proceeds from sale of Series F Preferred Stock and warrants (net of placement agent fees of $322,500) Proceeds from sale of Series E Preferred Stock and warrants Proceeds from exercise of warrants Loans payable to officer and affiliated entity Net cash provided by financing activities Income taxes paid Interest paid Issuance of common stock to Escrow Agent in connection with Settlement Agreement and Amended Settlement Agreement Series E Preferred Stock issued in exchange for common stock pursuant to Share Exchange Agreement dated May 21, 2018 Issuance of common stock in exchange for surrender of Series C and Series D Preferred Stock Issuance of common stock in exchange for Series E Preferred Stock Issuance of common stock and note payable in connection with acquisition of 51% of Green Grow Farms, Inc. Exchange of Series E Preferred Stock for Series F Preferred Stock Issuance of common stock to placement agent Issuance of common stock in exchange for Series F Preferred StockOperating Activities: Net income (loss) attributable to Iconic Brands, Inc. $ (2,330,097 ) $ (1,042,472 ) (435,939 ) (451,593 ) 50,000 - 775,700 23,250 - (314,072 ) - 107,846 (79,431 ) 189,939 (460,878 ) (218,042 ) - (25,000 ) (287,700 ) - 359,473 235,487 - 29,698 (2,408,872 ) (1,464,959 ) Investing Activities: (15,000 ) - (15,000 ) - Financing Activities : 2,802,500 - 509,380 300,000 307,200 (16,369 ) 62,107 3,602,711 362,107 Increase (decrease) in cash and cash equivalents 1,178,839 (1,102,852 ) Cash and cash equivalents, beginning of period 191,463 1,237,432 Cash and cash equivalents, end of period $ 1,370,302 $ 134,580 SUPPLEMENTAL CASH FLOW INFORMATION: $ - $ - $ - $ - NON-CASH INVESTING AND FINANCING ACTIVITIES: $ 534 $ 344,921 $ - $ 120,000 $ 2,000 $ - $ 989 $ - $ 1,450,000 $ - $ 681,250 $ - $ 781 $ - $ 227 $ -
See notes to consolidated financial statements
F-7 |
Table of Contents |
ICONIC BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2019 and 2018
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 three 51% owned subsidiaries BiVi, Bellissima, and Green Grow Farms Inc. (“Green Grow”), 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 $466,723 and a stockholders’ deficiency of $2,299,929. Further, from inception to March 31, 2013, the Company incurred losses of $11,256,140. 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 the extent practicable for interim financial informationinstruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is carried at face value less any unamortized debt discounts.
(d) Cash and Cash Equivalents
The Company considers all liquid investments purchased with instructionsoriginal maturities of ninety days or less to Form 10-Q. be cash equivalents.
F-8 |
Table of Contents |
(e) Accounts Receivable, Net of Allowance for Doubtful Accounts
The Company extends unsecured credit to customers in the ordinary course of business but mitigates risk by performing credit checks and by actively pursuing past due accounts. The allowance for doubtful accounts is based on customer historical experience and the aging of the related accounts receivable. At September 30, 2019 and December 31, 2018, the allowance for doubtful accounts was $26,513 and $0, respectively.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market, with due consideration given to obsolescence and to slow moving items. Inventory at December 31, 2018 consists of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers. Inventory at September 30, 2019 also includes cases of alcoholic beverages and packaging materials relating to our Hooters line of products introduced in August 2019 and raw materials to be harvested by our 51% owned subsidiary Green Grow.
(g) Intellectual Property and Production Rights Intangible AssetThe intellectual property and production rights intangible asset was acquired in connection with our acquisition of a 51% equity interest in Green Grow Farms, Inc. on May 9, 2019 (see Note 8). This intangible asset will be amortized over its five (5) year estimated economic life commencing October 1, 2019.
(h) Long-Lived Assets
The Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain circumstances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
(i) 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 position and results 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 customer 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.
(j) Shipping and Handling Costs
Shipping and handling costs to deliver product to customers are reported as operating expenses in the accompanying statements of operations. Shipping and handling costs to purchase inventory are capitalized and expensed to cost of sales when revenue is recognized on the sale of product to customers.
(k) 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 nine months ended September 30, 2019 and 2018, stock-based compensation was $775,700 and $23,250, respectively.
(l) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflectit is not more likely than not that some portion or all adjustments necessary to present fairly the financial position as of March 31, 2013 and the results of operations and cash flows for the periods ended March 31, 2013 and 2012. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended March 31, 2013 are not necessarily indicative of the results todeferred tax assets will 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.
(m) 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 13) 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 13) 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 | $ | 5,236,589 | ||
Add: Interest expense on convertible notes | 10,069 | |||
Net income – diluted | $ | 5,246,658 | ||
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 |
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 15e) 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 12) 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.
(o) Going Concern
The accompanying financial statements have been reclassifiedprepared 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 September 30, 2019 of $21,302,141 and has experienced periodic cash flow difficulties, all of which raise substantial doubt regarding the Company’s ability to conformcontinue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining additional working capital and attaining profitable operations. The management of the Company has developed a strategy which it believes will accomplish these objectives and which will enable the Company to continue operations for the coming year. However, there is no assurance that these objectives will be met. These financial statements do not include any adjustments relating to the current year presentation.
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 and chief executive officer of Iconic Brands, Inc.
4. INVESTMENT IN BELLISSIMA SPIRITS LLC
On December 13, 2016, Iconic entered into a Securities Purchase Agreement with Bellissima Spirits LLC (“Bellissima”) and Subsidiary
in Bellissima in exchange for the issuance of a total of 10 shares of newly designated Iconic Series D Convertible Preferred Stock. Each share of Iconic Series D Convertible Preferred Stock was convertible into the equivalent of 5.1% of Iconic common stock issued and outstanding at the time of conversion.
Prior to Consolidated Financial Statements
F-10 |
Table of Contents |
5. UNITED SPIRITS, INC.
United Spirits, Inc. (“United”) is owned and managed by Richard DeCicco, the controlling shareholder and chief executive officer of Iconic. United provides distribution services for Iconic, BiVi and Bellissima (see Note 15d) and is considered a variable interest entity (“VIE”) of Iconic. Since Iconic has been determined to continuing operations:
September 30, 2019 December 31, 2018 Total Liabilities Balance Sheets Cash and cash equivalents $ 55,658 $ 38,793 Intercompany receivable from Iconic (A) 114,507 204,461 Right-of-use asset 66,817 - Total assets $ 236,982 $ 243,254 Accounts payable and accrued expense $ 197,029 $ 11,338 Loans payable to officer and affiliated entity 54,668 71,037 Intercompany payable to Bellissima (A) 320,260 335,257 Intercompany payable to BiVi (A) 66,876 56,854 Operating lease liability 66,817 - 705,650 474,486 Noncontrolling interest in VIE (468,668 ) (231,333 ) Total liabilities and stockholders deficiency $ 236,982 $ 243,153
|
| Nine months ended September 30, |
| |||||
Statements of operations: |
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
| ||
Intercompany distribution income (A) |
| $ | 8,934 |
|
| $ | 7,665 |
|
|
|
|
|
|
|
|
|
|
Royalty expense |
|
| 127,500 |
|
|
| - |
|
Officers compensation |
|
| 82,000 |
|
|
| - |
|
Other operating expenses net |
|
| 36,870 |
|
|
| 7,479 |
|
Total operating expenses |
|
| 246,370 |
|
|
| 7,479 |
|
Net income (loss) |
| $ | (237,436 | ) |
| $ | 186 |
|
(A) Eliminated in consolidation
F-11 |
Table of Contents |
6. INVENTORIES
Inventories consist of:
September 30, 2019 December 31, 2018 Hooters brands Bellissima brands BiVi brands Total finished goods Hooters brands Green Grow plants Total raw materials Finished goods: $ 324,255 $ - 132,602 206,988 46,620 51,282 503,477 258,270 Raw materials: 85,671 - 130,000 - 215,671 - Total $ 719,148 $ 258,270
7. NOTES RECEIVABLE FROM RELATED PARTIES OF GREEN GROW FARMS, INC.
The notes receivable at September 30, 2019 arose from cash advances in the three months ended September 30, 2019 and consist of:
Promissory note from Apolise LLC dated July 1, 2019 in the amount of up to $300,000, interest at 4% and principal due July 31, 2020 |
| $ | 174,000 |
|
Promissory note from Peter Scalise dated July 27, 2019 in the amount of up to $200,000, interest at 4% and principal due July 26, 2020 |
|
| 50,200 |
|
Promissory note from Equity Markets Adv LLC dated July 27, 2019 in the amount of up to $200,000, interest at 4% and principal due July 26, 2020 |
|
| 50,000 |
|
Payment for Green Grow Farms Texas LLC |
|
| 13,500 |
|
Total |
| $ | 287,500 |
|
8. ACQUISITION OF 51% OF GREEN GROW FARMS, INC. AND INTANGIBLE ASSET
On May 9, 2019, Iconic closed on 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 Brands, Inc. consistedacquired a 51% equity interest in Green Grow in exchange for (i) a cash amount due NY Farms of $200,000 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 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 | 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 | 315,804 | 365,909 | |||||||
Less current portion of debt | (315,804 | ) | (294,040 | ) | |||||
Long term debt | $ | - | $ | 71,869 |
F-12 |
Table of Contents |
Green Grow was incorporated in New York on February 28, 2019 and has had no revenues since inception. On September 6, 2019, Green Grow was granted a license by New York State to grow hemp. On September 11, 2019, Green Grow signed a Sublease Agreement and Operating Agreement with Romanski Farms, Inc. to use certain real property in Baiting Hollow, New York to plant and grow hemp for CBD extraction. The lease has a term of one year and provides for monthly rent of $1,133 to be paid by Green Grow.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
September 30, 2019 December31, 2018 Accounts payable Accrued officers compensation Accrued royalties Other Total $ 165,163 $ 175,405 1,122,500 811,250 325,751 174,985 57,535 149,835 $ 1,670,949 $ 1,311,475
10. DEBT
Effective October 4, 2018, the then 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 note outstanding at December 31, 2012 waspreferred 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).
At September 30, 2019, notes payable consist of:
Amount due New York Farms Group Inc. pursuant to Share Exchange Agreement dated April 17, 2019 (closed May 9, 2019) relating to the acquisition of 51% of Green Grow Farms, Inc. |
| $ | 200,000 |
|
|
|
|
|
|
Amount due to a former Bellissima consultant pursuant to a Settlement and Release Agreement dated February 7, 2019, due December 31, 2019 |
|
| 50,000 |
|
|
|
|
|
|
Total |
| $ | 250,000 |
|
11. DERIVATIVE LIABILITY ON CONVERTIBLE DEBT
In September 2018, the then 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 10). Accordingly, the Company reduced the then derivative liability from $255,294 at September 30, 2018 to $0.
12. 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 13), the Company issued a total of 480,000 Common Stock Purchase Warrants (the “Warrants”) to the respective investors. The Warrants were 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 is 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 the 71,869 carrying value of the $100,000 face value 7% convertible note less $28,131 unamortized discount 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%) | 28,903 | 26,451 | ||||||
Convertible note, interest at 9% | 170 | - | ||||||
Total | $ | 59,282 | $ | 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 |
F-13 |
Table of Contents |
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 required a reduction in the exercise price if there were 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 by the Company.
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 |
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 issuedadopted ASU 2017-11 and reduced the $2,261,039 derivative liability on warrants at December 31, 2018 to the designees$0 and recognized a $2,261,039 cumulative effect adjustment reduction of Harbrew New York 27,352,301 shares of Common Stock at the Closing. Of this amount:
1 share of Series A 3. 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 September 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 1,000 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 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.
Also effective May 21, 2018, the Company sold a total of 1,200,000 shares of Series BE 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 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 first tranche, the Company entered into Securities Exchange Agreements with holders of convertible notes totaling $519,499 who exchanged their convertible notes for an aggregate of 2,077,994 shares of our Series E 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 holders of convertible notes totaling $90,296 were paid off with cash.
F-14 |
Table of Contents |
On November 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, 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 represent 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.
On April 25, 2019 and September 4, 2019, the Company received payments of $71,875 and $96,875 respectively (totaling $168,750) in exchange for 287,500 and 387,500 shares of Series E Preferred Stock (totaling 675,000 shares) respectively at $0.25 per share. These payments represent 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.
On April 23, 2019, a stockholder converted 673,398 shares of Series E Preferred Stock into 269,359 shares of Iconic common stock.
On May 17, 2019, a stockholder converted 800,000 shares of Series E Preferred Stock into 320,000 shares of Iconic common stock.
On July 18, 2019, Iconic entered into Securities Purchase Agreements with certain accredited investors (the “Investors”) for the sale of an aggregate of 3,125 shares of newly designated Series F Convertible Preferred Stock plus 5,000,000 warrants at a price of $1,000 per share of Series F Convertible Preferred Stock or for a total of $3,125,000 (which was collected in full from July 18, 2019 to August 2, 2019). On August 2, 2019, Iconic paid $322,500 in commissions and expenses to the placement agent of this offering. Each share of Series F Convertible Preferred Stock has a liquidation preferencestated value of $2.00 per share,$1,000, is convertible into 1,600 shares of common stock (subject to adjustment under certain circumstances), has no voting rights, is entitled to dividends on an as-converted-to common stock basis, is entitled to a distribution preference of $1,000 upon liquidation, and is convertiblenot redeemable. Each warrant is exercisable into one share of common stock at an exercise price of $0.625 per share (subject to adjustment under certain circumstances) for a period of five years from the date of issuance.
We also entered into separate Registration Rights Agreements with the Investors, pursuant to which the Company agreed to undertake to file a registration statement to register the resale of the shares underlying the Series F Convertible Preferred Stock and Warrants within thirty (30) days following the closing date (the “Filing Date”), to cause such registration statement to be declared effective within 60 days following the earlier of (i) the date that the registration statement is filed with the Securities and Exchange Commission and (ii) the Filing Date, and to maintain the effectiveness of the registration statement until all of such shares of Common Stock athave been sold or are otherwise able to be sold pursuant to Rule 144 under the lowerSecurities Act, without any restrictions. If we fail to file the registration statement or have it declared effective by the dates set forth above, among other things, the Company is obligated to pay the Investors liquidated damages in the amount of (1) $2.001% of their subscription amount, per share or, (2)month, until such events are satisfied.
Concurrently with the volume weighted average price per share (“VWAP”) forclosing of the 20 trading days immediately prior to the Conversion Date. Thefinancing transaction described above, we entered into Securities Exchange Agreements with certain holders of our Series BE Convertible Preferred Stock has been classified asand exchanged their 2,725,000 shares of Series E Convertible Preferred Stock for an aggregate of 681.25 shares of our Series F Convertible Preferred Stock.
From July 26, 2019 to August 28, 2019, three investors converted a liability (pursuant to ASC 480-10-25-14(a)) since it embodiestotal of 1,000,000 shares of Series E Preferred Stock into a conditional obligation that the Company may settle by issuing a variable numbertotal of equity shares and the monetary value of the obligation is based on a fixed monetary amount known at inception.
From September 19, 2019 to September 27, 2019, three investors converted a total of 14.20 shares of Series E Preferred Stock into a total of 227,200 shares of Iconic common stock.
F-15 |
Table of Contents |
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 September 30, 2017, the Company issued an aggregate of 284,777 shares of its 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 10).
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 issuedpursuant 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 committed to be issued at March 31, 2013 and December 31, 2012, 4,806,350 shares were committed to be issued butis not yet issued, as follows:
Contents |
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 a $50,000 note payable due December 31, 2019 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 of common stock ($91,200) was recordedexpensed as consulting fees in the three months ended March 31, 20132019.
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 2012Ms. Faltings.
Effective April 15, 2019 the Company issued 50,000 shares of its common stock to a consulting firm entity pursuant to a Consulting Agreement. The $95,000 fair value of the 50,000 shares of Iconic common stock was expensed as consulting fees in the three months ended September 30, 2019.
On April 23, 2019, a stockholder converted 673,398 shares of Series E Preferred Stock into 269,359 shares of Iconic common stock.
On May 8, 2019, Iconic executed Warrant Exercise Agreements 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 Agreements, 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.
On May 9, 2019, Iconic closed on 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 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. The $1,450,000 total consideration (i.e., the $200,000 note payable plus the $1,250,000 fair value of the 2,000,000 shares of Iconic common stock) of the acquisition over the $0 identifiable net assets of Green Grow at May 9, 2019 has been recognized as an intellectual property and production rights intangible asset (see Note 8).
On May 17, 2019, a stockholder converted 800,000 shares of Series E Preferred Stock into 320,000 shares of Iconic common stock.
Effective May 23, 2019, the Company issued 250,000 shares of its common stock to a consulting firm entity pursuant to a Consulting Agreement. The $390,000 fair value of the 250,000 shares of Iconic common stock was expensed as consulting fees in the three months ended September 30, 2019.
From July 26, 2019 to August 28, 2019, three holders converted a total of 1,000,000 shares of Series E Preferred Stock into a total of 400,000 shares of Iconic common stock.
On September 3, 2019, the Company issued a total of 781,250 shares of common stock to the placement agent and five associated individuals for services relating to the offering of 3,125 shares of Series F Preferred Stock which concluded on August 2, 2019 (see Preferred Stock above).
From September 19, 2019 to September 27, 2019, three holders converted a total of 142 shares of Series F Preferred Stock into a total of 227,200 shares of Iconic common stock.
F-17 |
Table of Contents |
Warrants
A summary of warrants activity for the period January 1, 2017 to September 30, 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 | |||
Exercise of warrants in connection with Warrant | ||||
Exercise Agreements dated May 8, 2019 | (960,000 | ) | ||
Issuance of New Warrants in connection with | ||||
Warrant Exercise Agreements dated May 8, 2019 | 1,920,000 | |||
Balance, June 30, 2019 | 4,475,198 | |||
Issued in the three months ended September 30, 2019 | 5,000,000 | |||
Balance, September 30, 2019 | 9,975,198 |
Issued and outstanding warrants at September 30, 2019 consist of:
Year Granted |
| Number Common Shares Equivalent |
|
| Exercise Price Per Share |
|
| Expiration Date | |||
2017 |
|
| 54,000 |
|
| $ | 2.50 |
|
| June 22, 2022 to June 30, 2022 | |
2018 |
|
| 400,000 |
|
| $ | 0.625 |
|
| March 28, 2021 | |
2018 |
|
| 30,000 |
|
| $ | 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 | |
2019 |
|
| 1,920,000 |
|
| $ | 2.25 |
|
| May 8, 2024 | |
2019 |
|
| 5,000,000 |
|
| $ | 0.625 |
|
| August 2, 2024 | |
|
|
|
|
|
|
|
|
|
|
| |
Total |
|
| 9,475,198 |
|
|
|
|
|
|
|
* These warrants contain a “down round” provision and thus the exercise price is reduceable to $0.625 per share as a result of the Series F Preferred Stock financing which closed on August 2, 2019.
F-18 |
Table of Contents |
In connection with the Company’s issuance of a total of $135,019 convertible notes payable in the three months ended September 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 September 22, 2022 to September 30, 2022.
As discussed in Note 12, the Company issued a total of 480,000 warrants to four investors from September 2017 to November 2017. The Warrants, which were exercised May 8, 2019 pursuant to Warrant Exchange Agreements (see below), were exercisable into ICNB common stock at a price of $2.50 per share and were to 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 year ended December 31, 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 September 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, which were exercised May 8, 2019 pursuant to Warrant Exchange Agreements (see below), were exercisable into ICNB common stock at a price of $2.50 per share and were to expire five years from date of issuance.
Effective October 4, 2018, the remaining debt (see Note 10) 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.
On May 8, 2019, Iconic executed Warrant Exercise Agreements with four holders of Company warrants. The holders exercised a total of 960,000 warrants (which were acquired from September 2017 to November 2017 and on May 21, 2018) at an agreed price of $0.32 per share and paid the Company a total of $307,200. Pursuant to the Warrant Exercise Agreements, 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.
As discussed in Preferred Stock above, the Company issued a total of 5,000,000 warrants to investors as part of the offering of 3,125 shares of Series F Preferred Stock which concluded on August 2, 2019. Each warrant is exercisable into one share of common stock at an exercise price of $0.625 per share (subject to adjustment under certain circumstances) for a period of five years from the date of issuance.
F-19 |
Table of Contents |
14. INCOME TAXES
No income taxes were recorded in the periods presented since the Company incurred nethad taxable losses in these periods.
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:
|
| Nine months ended September 30, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Expected tax at 21% |
| $ | (580,868 | ) |
| $ | (313,754 | ) |
Nondeductible stock-based compensation |
|
| 162,897 |
|
|
| - |
|
Nondeductible expense (nontaxable income) from derivative liability |
|
| - |
|
|
| 65,955 |
|
Nondeductible amortization of debt discount |
|
| - |
|
|
| 22,648 |
|
Increase (decrease) in valuation allowance |
|
| 417,971 |
|
|
| 225,151 |
|
|
|
|
|
|
|
|
|
|
Income tax provision |
| $ | - |
|
| $ | - |
|
Significant components of the Company's deferred income tax assets are as follows:
September 30, December 31, 2019 2018 Net operating loss carryforward Less valuation allowance Deferred income tax assets - net $ 4,176,379 $ 3,758,408 (4,176,379 ) (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, 2013September 30, 2019 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.September 30, 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.
15. 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 act as surety for BiVi’s obligations under certain sections of the License Agreement and to indemnify the BiVi Licensor and Palminteri against third party claims.
On November 12, 2015, Bellissima Spirits 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 Bellissima
Pursuant to the License Agreement with the Bivi Licensor (see Note 15a. above), BiVi is obligated to pay the BiVi Licensor a development stage company)
F-20 |
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Pursuant to the License Agreement and Amendment No. 1 to the License Agreement effective September 30, 2017 with the Bellissima Licensor (see Note 15a. above), Bellissima is obligated to pay the Bellissima Licensor a Royalty Fee equal to 10% of monthly gross sales (12.5% for sales in excess of defined Case Break Points) of Bellissima Brand products payable monthly. The Bellissima Licensor has the right to terminate the endorsement if Bellissima fails to sell 10,000 cases of Bellissima Brand products in year 1, 15,000 cases in year 2, or 20,000 cases in year 3 and each subsequent year.
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, 2013
The cumulative tax effectAgreement 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 4, $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 Licensor to be credited towards royalty fees payable to Licensor. On September 6, 2018, the $30,000 advance payment was paid to the Licensor. The Agreement also provides for United’s payment of a marketing contribution equal to 2% of the prior year’s net sales of the Licensed Products. If United fails to spend the required marketing contribution in any calendar year, the deficiency will be paid to Licensor.
For the three and nine months ended September 30, 2019, royalties expense under this Agreement was $2,277 and $129,777, respectively.
d. Distribution Agreements
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 Distribution 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 managed by Richard DeCicco, the controlling shareholder and chief executive officer 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.
In August 2019, Iconic and United agreed to have United distribute and wholesale Hooters brand products under the same terms contained in the Distribution Agreement with BiVi described in the second 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 June 30, 2020). The DeCicco Employment Agreement provides for a base salary at the expected rate of 34%$265,000 per annum and a compensation stock award of significant items comprising our net deferred tax amount is as follows:
March 31, 2013 | March 31, 2012 | |||||||
Federal income tax benefit attributable to: | ||||||||
Net operating loss carryover | $ | 3,827,088 | $ | 5,556,669 | ||||
Less: variation allowance | $ | 3,827,088 | $ | 5,556,669 | ||||
Net provision for Federal income taxes | $ | 0 | $ | 0 |
Prior to April 1, 2018, the Company recognized no interestused the services of its chief executive officer Richard DeCicco and penalties.
As of September 30, 2019 and December 31, 2018, accrued officers compensation was $1,122,500 and $811,250, respectively.
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f. Lease Agreements
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 Company is subjectextension has a term of three years from February 1, 2018 to income taxJanuary 31, 2021 and provides for monthly rent of $4,478.
At September 30, 2019, the future minimum lease payments under this non-cancellable operating lease were:
Year ending December 31, 2019 Year ending December 31, 2020 Year ending December 31, 2021 Total $ 13,434 53,736 4,478 $ 71,648
The operating lease liability of $66,817 at September 30, 2019 as presented in the U.S., and certain state jurisdictions. The Company has not been audited byConsolidated Balance Sheet represents the U.S. Internal Revenue Service, or any states in connection with income taxes. The periods from December 31, 2004 to December 31, 2012 remain open to examination by the U.S. Internal Revenue Service, and state authorities. In addition, federal and state tax authorities can generally reducediscounted (at our net operating loss (but not create taxable income) for a period outside of the statue of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statue of limitations. The Company has not filed its 2011 tax return.
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 | - |
On June 1, 2019, Green Grow signed a Sublease Agreement and Operating Agreement with Romanski Farms, Inc. to use certain real property in Baiting Hollow, New York to plant and grow hemp for CBD extraction. The lease has a term of one year and provides for monthly rent of $1,133 to be paid by Green Grow.
On July 26, 2019, Green Grow entered into a Sublease Agreement and a Contract Farming Agreement with a third party entity (the “Farmer”) to use 5 acres of property located in Riverhead, New York to plant and grow hemp for CBD Extraction. The lease has a term of five months and provides for monthly rent of $3,000 to be paid by Green Grow. The Contract Farming Agreement has a term ending December 31, 2013 is $0.
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 |
g. Major customers.
For the assetsnine months ended September 30, 2019, three customers accounted for 13%, 12% and liabilities and operations10%, respectively of sales.
16. SUBSEQUENT EVENTS
From October 1, 2019 to October 21, 2019, four holders converted a total of 134.75 shares of Series F Preferred Stock into a total of 215,600 shares of Iconic Imports, Inc. have been presented as discontinued operations in the accompanying consolidated financial statements for the periods presented.
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 | 5,281,236 | - | ||||||
Interest expense (including amortization of debt discounts of $0 and $3,143, respectively) | (13,138 | ) | (19,746 | ) | ||||
Income (loss) before income tax provision | 5,268,098 | (19,746 | ) | |||||
Income tax provision | - | - | ||||||
Income (loss) from discontinued operations | $ | 5,268,098 | $ | (19,746 | ) |
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 | ) |
F-22 |
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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 global 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 subsidiary, is made up of BiVi 100 percent Sicilian Vodka. BiVi LLC’s mission is to promote and support the sales 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 use 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.
Each of Bivi and Bellissima have granted United Spirits, a variable interest entity of the Company, the exclusive right to sell their products globally.
United Spirits, a variable interest entity of the Company, entered into a Brand Licensing Agreement with HI Limited Partnership to manufacture, market, distribute and sell a line of alcoholic products using certain “Hooters” marks throughout North America,, Europe, Asia and Australia. Hooters brand products include a line of premium spirits designed by the Company’s management, currently consisting of Vodka, Gin, American Whiskey, Silver and Gold Tequila products from Mexico, and light and dark rum products from Puerto Rico, as well as a craft Cinnamon Whiskey. United Spirits has granted us the exclusive right to selectmarket and applydistribute the Hooters brand products to (a) “Hooters” branded restaurants, (b) liquor distributors and (c) off-premise, retail establishments.
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 issued and outstanding shares of common stock at December 31, 2018 from 1,359,941,153 shares to 5,440,312 shares. The discussion below and the accompanying financial statements have been retrospectively adjusted to reflect this reverse stock split.
Going Concern
As a result of our current financial condition, we have received a report from our independent registered public accounting policiesfirm for our financial statements for the years ended December 31, 2018 and 2017 that best provideincludes an explanatory paragraph describing the frameworkuncertainty as to reportour 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 resultssale of our stock. There is no assurance that our cash flow will be adequate to satisfy our operating expenses and capital requirements.
4 |
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Results of Operations for the Three months Ended September 30, 2019 and 2018
Introduction
We had sales of $267,619 for the three months ended September 30, 2019 and $217,139 for the three months ended September 30, 2018, an increase of $50,480. Our operating expenses were $1,150,998 for the three months ended September 30, 2019, compared to $712,358 for the three months ended September 30, 2018, an increase of $438,640 or approximately 62%. Our net income (loss) was $(1,004,169) for the three months ended September 30, 2019, compared to $(319,908) for the three months ended September 30, 2018, an increase of $684,261 or approximately 214%.
Revenues and Net Operating Loss
Our operations for the three months ended September 30, 2019 and 2018 were as follows:
|
| Three months |
|
| Three months |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
| ||
Sales |
| $ | 267,619 |
|
|
| 217,139 |
|
Cost of sales |
|
| 120,790 |
|
|
| 125,304 |
|
Gross profit |
|
| 146,829 |
|
|
| 91,835 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Officers compensation |
|
| 103,750 |
|
|
| 429,588 |
|
Professional and consulting fees |
|
| 147,048 |
|
|
| 76,370 |
|
Royalties |
|
| 25,243 |
|
|
| 21,074 |
|
Special promotion program with customer |
|
| - |
|
|
| - |
|
Marketing and advertising |
|
| 305,222 |
|
|
| 58,724 |
|
Occupancy costs |
|
| 47,312 |
|
|
| 48,070 |
|
Travel and entertainment |
|
| 92,400 |
|
|
| 34,683 |
|
Other |
|
| 430,023 |
|
|
| 43,849 |
|
Total operating expenses |
|
| 1,150,998 |
|
|
| 712,358 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| (1,004,169 | ) |
|
| (620,523 | ) |
|
|
|
|
|
|
|
|
|
Total Other income (expense) - net |
|
| - |
|
|
| 300,615 |
|
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
| (1,004,169 | ) |
|
| (319,908 | ) |
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity |
|
| 35,846 |
|
|
| 12,494 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Iconic Brands, Inc. |
| $ | (968,823 | ) |
|
| (307,414 | ) |
5 |
Table of Contents |
Sales
Our sales are comprised of sales of BiVi Sicilian Vodka, Bellissima Prosecco and Sparkling Wine, and the line of Hooters brand products introduced in August 2019. Sales were $267,619 for the three months ended September 30, 2019 and $217,139 for the three months ended September 30, 2018, an increase of $50,480 or approximately 23%. The increase in sales was a result of primarily due to the August 2019 introduction of Hooters brand products.
Cost of Sales
Cost of sales was $120,790, or approximately 45% of sales, for the three months ended September 30, 2019 and $125,304, or approximately 58% of sales, for the three months ended September 30, 2018. Cost of sales includes the cost of the products purchased from our suppliers, freight-in costs and import duties.
Officers Compensation
Officers compensation was $103,750 for the three months ended September 30, 2019 and $429,588 for the three months ended September 30, 2018, a decrease of $325,838. Officers compensation in 2018 includes a catch-up accrual of $207,500 relating to employment agreements executed April 1, 2018 with our two officers.
Professional and Consulting Fees
Professional and consulting fees were $147,048 for the three months ended September 30, 2019 and $76,370 for the three months ended September 30, 2018, an increase of $70,678. Professional and consulting fees consist primarily of legal and accounting and auditing services. The increase was a result of costs associated with getting our financial position.statements audited, filing a registration statement, and becoming a fully-reporting issuer.
Royalties
Royalties were $25,243, or approximately 9% of sales, for the three months ended September 30, 2019 and $21,074 for the three months ended September 30, 2018, an increase of $4,169. Royalties increased primarily due to increased sales in 2019.
Marketing and Advertising
Marketing and advertising expenses were $305,222 for the three months ended September 30, 2019 and $58,724 for the three months ended September 30, 2018, an increase of $246,498 or approximately 420%. The selectionincrease was a result of a one-time marketing fee of $250,000 incurred in August 2019 in connection with the Hooters sponsorship of a Nascar event.
Occupancy Costs
Occupancy costs were $47,312 for the three months ended September 30, 2019 and application$48,070 for the three months ended September 30, 2018, a decrease of those policies requires management$758.
Travel and Entertainment
Travel and entertainment expenses were $92,400 for the three months ended September 30, 2019 and $34,683 for the three months ended September 30, 2018, an increase of $57,717 or approximately 166%. The increase was a result of travel related to new product development.
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Table of Contents |
Other Operating Expenses
Other operating expenses were $430,023 for the three months ended September 30, 2019 and $43,849 for the three months ended September 30, 2018, an increase of $386,174 or approximately 881%. The increase was primarily related to increased investor relations expenses.
Income (Loss) from Operations
We had a (loss) from operations of ($1,004,169) for the nine months ended September 30, 2019 and ($620,523) for the nine months ended September 30, 2018, an increase of $383,646 or approximately 62%. Our loss from operations increased, as set forth above, primarily because certain operating expenses, marketing and advertising and other operating expenses, increased.
Other Income/Expense
Total other income was $0 for the nine months ended September 30, 2019 and $300,615 for the three months ended September 30, 2018. The decrease was primarily due to the absence in 2019 of any 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 were indeterminate. Accordingly, we recorded the fair value of the embedded conversion features at December 31, 2017 and September 30, 2018 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 Income (Loss)
We had a net (loss) of ($1,004,169) for the three months ended September 30, 2019 and ($319,908) for the three months ended September 30, 2018, an increase of $684,261 or approximately 214%. Our net loss increased, as set forth above, primarily because certain operating expenses, primarily marketing and advertising and other operating expenses, increased, and because of the decrease in our derivative liability income.
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, BiVi and Green Grow (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 $35,846 for the three months ended September 30, 2019 and $12,494 for the three months ended September 30, 2018, an increase of $23,352.
Net Loss Attributable to Iconic Brands, Inc.
The net loss attributable to Iconic Brands, Inc. was ($968,323) for the three months ended September 30, 2019 and ($307,414) for the three months ended September 30, 2018, an increase of $660,909 or approximately 215%. The net loss from Iconic Brands increased primarily as a result of higher marketing and advertising expenses ($246,498), higher other operating expenses ($386,174), and lower other income ($300,615), offset partially by lower officers compensation ($335,838).
Results of Operations for the Nine months Ended September 30, 2019 and 2018
Introduction
We had sales of $534,826 for the nine months ended September 30, 2019 and $422,409 for the nine months ended September 30, 2018, an increase of $112,417 or approximately 27%. Our operating expenses were $3,029,831 for the nine months ended September 30, 2019, compared to $1,861,110 for the nine months ended September 30, 2018, an increase of $1,168,721 or approximately 63%. Our net loss was $2,766,036 for the nine months ended September 30, 2019, compared to $1,494,065 for the nine months ended September 30, 2018, an increase of $1,271,971 or approximately 85%.
7 |
Table of Contents |
Revenues and Net Operating Loss
Our operations for the nine months ended September 30, 2019 and 2018 were as follows:
|
| Nine months |
|
| Nine months |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2019 |
|
| 2018 |
| ||
|
|
|
|
|
|
| ||
Sales |
| $ | 534,826 |
|
| $ | 422,409 |
|
Cost of sales |
|
| 271,031 |
|
|
| 244,556 |
|
Gross profit |
|
| 263,795 |
|
|
| 177,853 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Officers compensation |
|
| 393,250 |
|
|
| 432,795 |
|
Professional and consulting fees |
|
| 1,014,133 |
|
|
| 147,777 |
|
Royalties |
|
| 178,710 |
|
|
| (47,338 | ) |
Special promotion program with customer |
|
| - |
|
|
| 597,138 |
|
Marketing and advertising |
|
| 389,103 |
|
|
| 310,779 |
|
Occupancy costs |
|
| 102,867 |
|
|
| 128,564 |
|
Travel and entertainment |
|
| 236,114 |
|
|
| 143,984 |
|
Other |
|
| 715,654 |
|
|
| 147,411 |
|
Total operating expenses |
|
| 3,029,831 |
|
|
| 1,861,110 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| (2,766,036 | ) |
|
| (1,683,257 | ) |
|
|
|
|
|
|
|
|
|
Total other income (expense) - net |
|
| - |
|
|
| 189,192 |
|
|
|
|
|
|
|
|
|
|
Net Income (loss) |
|
| (2,766,036 | ) |
|
| (1,494,065 | ) |
|
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests in subsidiaries and variable interest entity |
|
| 435,939 |
|
|
| 451,593 |
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|
|
|
|
|
|
|
|
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Net income (loss) attributable to Iconic Brands, Inc. |
| $ | (2,330,097 | ) |
| $ | (1,042,472 | ) |
Sales
Our sales are comprised of sales of BiVi Sicilian Vodka, Bellissima Prosecco and Sparkling Wine and the line of Hooters products introduced in August 2019. Sales were $534,826 for the nine months ended September 30, 2019 and $422,409 for the nine months ended September 30, 2018, an increase of $112,417 or approximately 27%. The increase in sales was a result of higher Bellissima volume in 2019 and Hooters brand product sales commencing in August 2019.
Cost of Sales
Cost of sales was $271,031 , or approximately 51% of sales, for the nine months ended September 30, 2019 and $244,556, or approximately 58% of sales, for the nine months ended September 30, 2018. Cost of sales includes the cost of the products purchased from our suppliers, freight-in costs and import duties.
Officers Compensation
Officers compensation was $393,250 for the nine months ended September 30, 2019 and $432,795 for the nine months ended September 30, 2018, a decrease of $39,545.
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Professional and Consulting Fees
Professional and consulting fees were $1,014,133 for the nine months ended September 30, 2019 and $147,777 for the nine months ended September 30, 2018, an increase of $866,356. Professional and consulting fees consist primarily of legal and accounting and auditing services. The increase was a result of costs associated with getting our financial statements audited, filing a registration statement, and becoming a fully-reporting issuer.
Royalties
Royalties were $178,710, or approximately 33% of sales, for the nine months ended September 30, 2019 and $(47,338) for the nine months ended September 30, 2018, an increase of $226,048. Royalties increased primarily due to the minimum royalty fees relating to the Hooters agreement signed July 23, 2018 and downward royalty adjustments in the three months ended September 30, 2018 as a result of Bellisima special promotion program expenses incurred in the three months ended March 31, 2018.
Special Promotion Program with Customer
For the nine months ended September 30, 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 nine months ended September 30, 2019, and do not expect to incur such an expense in the foreseeable future.
Marketing and Advertising
Marketing and advertising expenses were $389,103 for the nine months ended September 30, 2019 and $310,779 for the nine months ended September 30, 2018, an increase of $78,324 or approximately 25%. The increase was a result of the $250,000 one-time marketing fee incurred in August 2019 in connection with the Hooters sponsorship of a Nascar event, offset partially by lower other marketing in 2019.
Occupancy Costs
Occupancy costs were $102,867 for the nine months ended September 30, 2019 and $128,564 for the nine months ended September 30, 2018, a decrease of $25,697 or approximately 20%. The decrease was a result of lower warehouse rental costs.
Travel and Entertainment
Travel and entertainment expenses were $236,114 for the nine months ended September 30, 2019 and $143,984 for the nine months ended September 30, 2018, an increase of $92,130 or approximately 64%. The increase was a result of travel related to new product development.
Other Operating Expenses
Other operating expenses were $715,654 for the nine months ended September 30, 2019 and $147,411 for the nine months ended September 30, 2018, an increase of $568,243 or approximately 385%. The increase was a result of (i) increased investor relations expenses and (ii) higher salaries due to increased head count.
Income (Loss) from Operations
We had a (loss) from operations of ($2,766,036) for the nine months ended September 30, 2019 and ($1,683,257) for the nine months ended September 30, 2018, an increase of $1,082,779 or approximately 64%. Our loss from operations increased, as set forth above, primarily because certain operating expenses, primarily professional and consulting fees and other operating expenses, increased.
Other Income/Expense
Total other income was $0 for the nine months ended September 30, 2019 and $189,192 for the nine months ended September 30, 2018. The decrease was primarily due to reductions of our derivative liability income, offset by increases in interest and amortization costs associated with our convertible notes.
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 were indeterminate. Accordingly, we recorded the fair value of the embedded conversion features at December 31, 2017 and September 30, 2018 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.
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Net Income (Loss)
We had a net loss of ($2,766,036) for the nine months ended September 30, 2019 and ($1,494,065) for the nine months ended September 30, 2018, an increase of $1,271,971 or approximately 85%. Our net loss increased, as set forth above, primarily because certain operating expenses, primarily professional and consulting fees and other operating expenses, increased, and because of the decrease in our derivative liability income.
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, BiVi and Green Grow (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 $435,939 for the nine months ended September 30, 2019 and $451,593 for the nine months ended September 30, 2018, a decrease of $15,654.
Net Loss Attributable to Iconic Brands, Inc.
The net loss attributable to Iconic Brands, Inc. was ($2,330,097) for the nine months ended September 30, 2019 and ($1,042,472) for the nine months ended September 30, 2019, an increase of $1,287,625 or approximately 124%.
Liquidity and Capital Resources
Introduction
During the nine months ended September 30, 2019 and September 30, 2018, we had negative operating cash flows. Our cash on hand as of September 30, 2019 was $1,370,302, which was derived from the sale of Series F preferred stock and warrants. Our monthly cash flow burn rate for 2018 was approximately $146,000, and our monthly burn rate through the nine months ended September 30, 2019 was approximately $268,000. 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.
Our cash, current assets, total assets, current liabilities, and total liabilities as of September 30, 2019 and December 31, 2018, respectively, were as follows:
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| September 30, |
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| December 31, |
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| |||
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| 2019 |
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| 2018 |
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| Change |
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Cash |
| $ | 1,370,302 |
|
| $ | 191,463 |
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| $ | 1,178,839 |
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Total Current Assets |
|
| 2,570,087 |
|
|
| 563,239 |
|
|
| 2,006,848 |
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Total Assets |
|
| 4,101,904 |
|
|
| 563,239 |
|
|
| 3,538,665 |
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Total Current Liabilities |
|
| 1,981,943 |
|
|
| 1,339,566 |
|
|
| 642,377 |
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Total Liabilities |
| $ | 1,999,488 |
|
| $ | 3,600,605 |
|
| $ | (1,601,117 | ) |
Our cash increased $1,178,839 and total current assets increased $2,006,848. Our total current liabilities increased $642,377 as our accounts payable and accrued expenses increased, reflecting our increase in professional and consulting fees. Our total liabilities decreased $1,601,117. Our stockholders’ (deficiency) equity increased from ($3,037,366) to $2,102,416 due primarily to proceeds from the sale of preferred stock.
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 assurance, however, that we will be successful in these efforts.
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Cash Requirements
Our cash on hand as of September 30, 2019 was $1,370,302. Based on our minimal sales and annualized monthly burn rate of approximately $268,000 per month, we will need to raise additional funding through strategic relationships, public or private equity or debt financings. If such funding is not available, or not available on terms acceptable to us, our current development plans may be curtailed.
We have funded our operations from proceeds from the sale of equity and debt securities. We will require significant additional capital to make difficult, subjective and/the investments we need to execute our longer-term business plan. Our ability to successfully raise sufficient funds through the sale of debt or complex judgments concerning reported amountsequity securities when needed is subject to many risks and uncertainties and, even if we are successful, future equity issuances would result in dilution to its existing stockholders and any future debt securities may contain covenants that limit our operations or ability to enter into certain transactions.
Sources and Uses of revenueCash
Operations
We had net cash used in operating activities for the nine months ended September 30, 2019 of $(2,408,872), compared to $(1,464,959) for the nine months ended September 30, 2018. For the nine months ended September 30, 2019, the net cash used in operating activities consisted primarily of our net loss of $(2,330,097) plus a net loss attributable to non-controlling interests in our subsidiaries of $(435,939) and inventories of increase ($460,878), offset primarily by stock-based compensation of $775,700 and accounts payable and accrued expenses increase of $359,473. For the nine months ended September 30, 2018, the net cash used in operating activities consisted primarily of our net loss of $(1,042,472) plus a net loss attributable to our subsidiaries of $(451,593), income from derivative liabilities of $(314,072) and inventories increase of ($218,042), offset partially by an increase in accounts payables and accrued expenses of $235,487.
Investments
Except for $15,000 leasehold improvements incurred in 2019, we had no investing activities for the nine months ended September 30, 2019 or September 30, 2018.
Financing
Our net cash provided by financing activities for the nine months ended September 30, 2019 was $3,602,711, compared to $362,107 for the nine months ended September 30, 2018, which consisted principally of proceeds from the sale of our Series F preferred stock and warrants.
July 2019 Financing
On July 18, 2019, we entered into a Securities Purchase Agreements (collectively, the “July 2019 Purchase Agreements”) with the certain accredited investors pursuant to which we sold an aggregate of 3,125 shares of our series F convertible preferred stock (the “Series F Convertible Preferred Stock”), plus warrants (the “July 2019 Warrants”) to acquire 5,000,000 million shares of our common stock for gross proceeds of $3,125,000, before deducting placement agent and other offering expenses. Each share of Series F Convertible Preferred Stock has a stated value of $1,000 per share (the “Stated Value”), and is convertible, at any time and from time to time at the option of the holder, into such number of shares of Common Stock (subject to certain limitations) determined by dividing the Stated Value by $0.625 (the “Conversion Price”), subject to adjustment.
The Warrants are exercisable for a period of five years from the date of issuance at an exercise price of $0.625 per share, subject to adjustment hereunder (the “Exercise Price”); provided, however, in the event that 90% of the lowest VWAP (as defined in the Warrant) during the reporting periodthree (3) Trading Days immediately following the Effective Date (as defined in the Warrant and such price, the “Reset Price”) is less than the then Exercise Price, then the Exercise Price shall be reduced to equal the Reset Price; provided, further, if the initial Registration Statement is declared effective by the Commission prior to the Liquidity Date (as defined in the Warrant) and does not register all of the Registrable Securities (as defined in the Registration Rights Agreement) for resale by the Holders and in the event that 90% of the lowest VWAP during the three (3) Trading Days immediately following the Liquidity Date (the “Liquidity Market Price”) is less than the then Exercise Price, then the Exercise Price shall be further reduced to equal to Liquidity Market Price. The Investors may exercise the Warrants on a cashless basis if the shares of common stock underlying the Warrants are not then registered pursuant to an effective registration statement.
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The Conversion Price of the Series F Convertible Preferred Stock and the reported amountsexercise price of assetsthe Warrants are subject to full ratchet anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and liabilities atthe like; provided, however, that in no event shall the Conversion Price or the Exercise Price be reduced to less than $0.25 (the “Floor Price”), subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of the financial statements.July 2019 Purchase Agreement, provided if the Reset Price or Liquidity Market Price is less than the Floor Price, the Exercise Price shall equal the Floor Price. In addition, in the event that either the Effective Date or the Liquidity Date occurs, and thereafter for any reason the Holder is unable to sell any of the Registrable Securities (as defined in the Registration Rights Agreement) (assuming cashless exercise of the Warrants) pursuant to a registration statement or exemption from registration under the Securities Act for at least 30 consecutive Trading Days without limitation, then additional resets shall occur under the Warrant following each resumption of the investor’s ability to resell the Registrable Securities (each, a “Resumption Date”) until such time that a 30 consecutive Trading Day period is maintained and the Exercise Price shall be adjusted to equal the lesser of (i) the then effective Exercise Price and (ii) the greater of (A) 90% of the lowest VWAP during the three (3) Trading Days immediately following the applicable Resumption Date and (B) the Floor Price.
Each of the Selling Stockholders have contractually agreed to restrict their ability to exercise the Warrants and convert the Series F Convertible Preferred Stock such that the number of shares of the Company common stock held by each of them and their affiliates after such conversion or exercise does not exceed 4.99% or 9.99% (at the election of the Investor) of the Company’s then issued and outstanding shares of common stock. As a result, there existsas of the likelihood that materially different amountsdate of this Prospectus, a Selling Stockholder cannot own more than approximately 616,458 shares after giving effect to any issuance to the Selling Stockholder. If our total number of outstanding shares of common stock increases, or if the Selling Stockholder subsequently disposes of shares acquired from us in the open market, then we would be reportedable to sell more shares to the Selling Stockholder before reaching the 4.99% threshold.
The July 2019 Purchase Agreements also provide that until the 18 month anniversary of the Effective Date (as defined in the July 2019 Purchase Agreements), in the event of a subsequent financing (except for certain exempt issuances as provided in the July 2019 Purchase Agreements) by the Company, each Investor that invested over $200,000 pursuant to the July 2019 Purchase Agreements will have the right to participate in such subsequent financing up to an amount equal to the Investor’s proportionate share of the subsequent financing based on such Investor’s participation in this private placement on the same terms, conditions and price provided for in the subsequent financing. The July 2019 Purchase Agreements also provide that for as long as the Series F Convertible Preferred Stock or Warrants are outstanding, if the Company effects a subsequent financing, an Investor may elect, in its sole discretion, to exchange all or a portion of the Series F Convertible Preferred Stock then held by such Investor for any securities issued in a subsequent financing on a $1.00 for $1.00 basis, provided such subsequent financing is not a firm commitment underwritten offering.
From the date of the July 2019 Purchase Agreements until the date that is the earlier of (i) six (6) months following the Effective Date (as defined in the July 2019 Purchase Agreements) and (ii) the date that the VWAP for 10 consecutive Trading Days following the Effective Date is greater than $1.25, subject to adjustment, the Company shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or Common Stock Equivalents (as defined in the July 2019 Purchase Agreements).
We also entered into separate Registration Rights Agreements with the investors, pursuant to which the Company agreed to undertake to file a registration statement to register the resale of the shares underlying the Series F Convertible Preferred Stock and Warrants within thirty (30) days following the closing date (the “Filing Date”), to cause such registration statement to be declared effective within 60 days following the earlier of (i) the date that the registration statement is filed with the Securities and Exchange Commission and (ii) the Filing Date, and to maintain the effectiveness of the registration statement until all of such shares of Common Stock have been sold or are otherwise able to be sold pursuant to Rule 144 under different conditionsthe Securities Act, without any restrictions. If we fail to file the registration statement or using different assumptions.
Exchange of Series E Preferred Stock; Securities Exchange Agreements
Concurrently with the closing of the financing transaction described above, we entered into Securities Exchange Agreements with certain holders of our Series E Convertible Preferred Stock to exchange their Series E Convertible Preferred Stock for an aggregate of 681.25 shares of our Series F Convertible Preferred Stock.
Off-Balance Sheet Arrangements
As of September 30, 2019, we did not have noany off-balance sheet arrangements.
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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 September 30, 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 thatSeptember 30, 2019, 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 September 30, 2019, that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we may be subject to litigation and claims arising in the United States Bankruptcy Court for the Eastern Districtordinary course of New York filedbusiness. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on September 23, 2011 by Iconic Imports, Inc. (“Imports”), a wholly-owned subsidiary of the Company, was closed.
The Company is 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 September 30, 2019.
On September 13, 2019, the Company issued an aggregate of 781,250 shares of common stock to a FINRA-registered broker-dealer and certain individuals associated with the broker-dealer for services related to the July 2019 Offering of Series F Convertible Preferred Stock.
On September 27, 2019 a stockholder converted 50 shares of Series F Preferred Stock into 80,000 shares of common stock.
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.
None.
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). |
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: November 19, 2019 | By: | /s/ Richard J. DeCicco | |
Richard J. DeCicco | |||
Its: | Chief Executive Officer |
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