UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission File Number:
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 29, 2022, the registrant had
ICONIC BRANDS, INC.
TABLE OF CONTENTS
2 |
Table of Contents |
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and “would.” These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K, and our other filings with the U.S. Securities and Exchange Commission.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by applicable law.
3 |
Table of Contents |
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ICONIC BRANDS, INC. AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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(Unaudited) |
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| September 30, 2022 |
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| December 31, 2021 |
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ASSETS |
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Current assets: |
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Cash |
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Accounts receivable |
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Inventory |
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Prepaid expense and other current assets |
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Total current assets |
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Right-of-use assets, net |
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Leasehold improvements, furniture, and equipment, net |
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Intangible assets |
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Goodwill |
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Other assets |
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Total assets |
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| $ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: |
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Accounts payable and accrued expenses |
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Notes payable |
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Factoring liability |
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Deferred revenue |
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Other current liabilities |
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Current portion of operating lease liability |
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Contingent consideration |
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Total current liabilities |
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Operating lease liability, long term |
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Notes payable, long term |
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Contingent consideration, long term |
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Total liabilities |
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Stockholders’ and members’ equity: |
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Preferred stock, $ |
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Series A-2 Preferred Stock, |
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Common Stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Noncontrolling interests |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
| $ |
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| $ |
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See accompanying notes to Unaudited Condensed Consolidated Financial Statements. |
4 |
Table of Contents |
ICONIC BRANDS, INC. AND SUBSIDIARIES | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited) | ||||||||||||||||
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| Three months ended September 30, |
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| Nine months ended September 30, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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REVENUE |
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| (Restated) |
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| (Restated) |
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Sales |
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| $ |
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Cost of goods sold |
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Gross Profit |
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OPERATING EXPENSES |
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General and administrative expenses |
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Selling and marketing |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Change in fair value of contingent consideration |
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Loss on impairment of Goodwill |
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Gain on forgiveness of PPP loan |
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Interest expense |
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Other income (expense), net |
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Total other income (expense) |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Net loss attributable to noncontrolling interests in subsidiaries |
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Net loss attributable to Iconic Brands, Inc. |
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Dividend to preferred shareholders |
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Net loss attributable to common stockholders |
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Basic and diluted loss per common share |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Weighted average number of shares outstanding, basic and diluted |
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See accompanying notes to Unaudited Condensed Consolidated Financial Statements. |
5 |
Table of Contents |
ICONIC BRANDS, INC. AND SUBSIDIARIES | |||||||||||||||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) |
|
| Series A Preferred Stock |
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| Series E Preferred Stock |
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| Series F Preferred Stock |
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| Series G Preferred Stock |
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| Series A-2 Preferred Stock |
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| Common Stock |
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| Treasury Stock |
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| Additional paid-in |
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| Non-Controlling |
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| Accumulated |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| capital |
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| Subtotal |
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| interests |
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| Deficit |
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| Total |
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Balance, December 31, 2020 |
|
| - |
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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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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||||||||||
Common Stock and Series A-2 Preferred stock issued for Cash, net of fees |
|
| - |
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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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Issuance of common Stock for services |
|
| - |
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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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Common Stock issued to purchase TopPop |
|
| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Common Stock issued for the exchange of Series A Preferred Stock |
|
| ( | ) |
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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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Common and preferred stock issued in exchange for old Series, E, F and G Preferred stock |
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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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Buy back of Series F Preferred stock |
|
| - |
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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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Purchase of United Spirits |
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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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| (1,428,465) |
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Common Stock issued to settle notes payable |
|
| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Shares issued in exchange for old warrants |
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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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Retirement of treasury stock |
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| - |
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| - |
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| - |
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| - |
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| - |
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Net income (loss) |
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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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| ( | ) | |||||||||
Balance, September 30, 2021 |
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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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Balance, June 30, 2021 |
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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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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | ||||||||||||||
Common Stock and Series A-2 Preferred Stock issued for Cash, net of fees |
|
| - |
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|
| - |
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|
| - |
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| - |
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| - |
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Issuance of Common Stock for services |
|
| - |
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| - |
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|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Common Stock issued to purchase TopPop |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Common Stock issued for the exchange of Series A Preferred Stock |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Common and preferred stock issued in exchange for old Series, E, F and G Preferred stock |
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Buy back of Series F Preferred stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Common Stock and Series A-2 Preferred Stock issued to settle notes payable |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Shares issued in exchange for old warrants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Purchase of United Spirits |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| (1,428,465 | ) |
|
| (1428,465 | ) |
|
|
|
|
|
|
|
| 1,000,000 |
| |||||||||
Net income (loss) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |||||||||
Balance, September 30, 2021 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||||||
Common Stock and Series A-2 Preferred Stock issued for Cash, net of fees |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Conversion of Series A-2 Preferred Stock for Common Stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Stock dividend issued on Series A-2 Preferred Stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |||||||||
Balance, September 30, 2022 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2022 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |||||||||||
Equity-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Stock dividend issued on Series A-2 Preferred Stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||||||||
Conversion of Series A-2 Preferred Stock for Common Stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( |
| |||||||||
Balance, September 30, 2022 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
6 |
Table of Contents |
ICONIC BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| Nine Months Ended September 30 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| (Restated) |
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustment to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Amortization of operating lease right-of-use assets |
|
|
|
|
|
| ||
Amortization of debt discounts |
|
|
|
|
|
| ||
Gain on forgiveness of PPP loan |
|
|
|
|
| ( | ) | |
Change in allowance for doubtful accounts |
|
|
|
|
|
| ||
Provision for excess and obsolete inventory |
|
|
|
|
|
| ||
Amortization of intangibles |
|
|
|
|
|
| ||
Equity compensation |
|
|
|
|
|
| ||
Change in fair value of contingent consideration |
|
| ( | ) |
|
|
|
|
Loss on impairment of Goodwill |
|
|
|
|
|
|
| |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
|
| |
Inventory |
|
| ( | ) |
|
|
| |
Equipment deposit |
|
|
|
|
| ( | ) | |
Operating lease liabilities |
|
| ( | ) |
|
| ( | ) |
Accounts payable and accrued expenses |
|
|
|
|
| ( | ) | |
Prepaid expense and other current assets |
|
| ( | ) |
|
| ( | ) |
Loans payable to officer and affiliated entity-noninterest bearing and due on demand |
|
|
|
|
| ( | ) | |
Other assets |
|
| ( | ) |
|
| ( | ) |
Other current liabilities |
|
|
|
|
|
| ||
Deferred revenue |
|
|
|
|
| ( | ) | |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net cash paid from acquisition of TopPop |
|
|
|
|
| ( | ) | |
Cash paid for Acquisition of United Spirits |
|
|
|
|
| ( | ) | |
Fixed assets and leasehold improvements |
|
| ( | ) |
|
|
| |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Common Stock and Series A-2 Preferred Stock issued for Cash, net of fees |
|
|
|
|
|
| ||
Net proceeds from factoring arrangement |
|
|
|
|
|
| ||
Proceeds from note payable |
|
|
|
|
|
| ||
Repayment of note payable |
|
| ( | ) |
|
| ( | ) |
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
|
|
|
| ||
Cash and cash at beginning of year |
|
|
|
|
|
| ||
Cash and cash at end of year |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH AND NON-CASH TRANSACTIONS: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Common and preferred stock issued in exchange for old Series, E, F and G Preferred stock |
| $ |
|
| $ |
| ||
Purchase and retirement of treasury stock |
| $ |
|
| $ | ( | ) | |
Common Stock issued to settle notes payable |
| $ |
|
| $ |
| ||
Recognition of right of use asset - operating lease |
| $ |
|
| $ |
| ||
Purchase of equipment with promissory note |
| $ |
|
| $ |
| ||
Conversion of Series A-2 Preferred Stock for Common Stock |
| $ |
|
| $ |
|
See accompanying notes to Unaudited Condensed Consolidated Financial Statements.
7 |
Table of Contents |
Iconic Brands, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION AND NATURE OF BUSINESS
Iconic Brands, Inc. (“Iconic”), was incorporated in the State of Nevada on October 21, 2005. As of September 30, 2022, the subsidiaries of Iconic are wholly-owned TopPop LLC (“TopPop”) and United Spirits Inc., (“United”),
BiVi is the brand owner of “BiVi
On July 26, 2021, Iconic acquired
Empire was organized in the State of Nevada on February 4, 2022. During the three and nine months ended September 30, 2022, Empire had no business activity or operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The Company has continuing losses from operations, net cash used in operating activities, a working capital deficiency of $
The condensed unaudited consolidated interim financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the company be unable to continue as a going concern. The company’s inability to obtain required funding in the near future or its inability to obtain funding on favorable terms will have a material adverse effect on its operations and strategic development plan for future growth. If the Company cannot successfully raise additional capital and implement its strategic development plan, its liquidity, financial condition, and business prospects will be materially and adversely affected and the Company may have to cease operations.
The accompanying condensed unaudited consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
Restatement
While preparing its annual report for the year ended December 31, 2021, the Company identified an error in its accounting relating to the acquisition of the outstanding stock of one of the entities that are included in the consolidated financial statements. The Company erroneously recognized a $1,000,000 payment made to a shareholder and $428,465 balance in noncontrolling interest as components of general and administrative expenses. Since these are capital transactions, the amounts should have been recognized in additional paid in capital. The tables below summarize the impact on the restatements described above on the financial information previously reported on the Company's Form 10-Q for the nine months ended September 30, 2021. There was no impact to the cash used in operating expenses during the nine months ended September 30, 2021.
Three months ended September 30, 2021 | Nine months ended September 30, 2021 | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | As Reported | As Restated | As Reported | As Restated | ||||||||||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Basic and diluted loss per share | $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||||||||||||
Additional paid-in capital |
|
| |
|
|
| |
|
|
| |
|
|
| |
|
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
(b) Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(c) Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and notes payable, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.
8 |
Table of Contents |
Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:
Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Based on unobservable inputs that reflect the entity’s own assumptions about the assumptions that a market participant would use in pricing the asset or liability.
We did not have any transfers between levels during the periods presented.
The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy. The only financial instrument measured at fair value is the contingent consideration:
|
| As of September 30, 2022 |
| |||||||||
|
| Quoted Prices in active markets (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| |||
Contingent consideration |
| $ |
|
| $ |
|
| $ |
|
|
| December 31, 2021 |
| |||||||||
|
| Quoted Prices in active markets (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| |||
Contingent consideration |
| $ |
|
| $ |
|
| $ |
|
The fair value of the contingent consideration is based on the projected earnings of the Company’s business. The TopPop business is a seasonal business in nature and expects largest demand in the third quarter. During the quarter ended September 30, 2022, the Company did not achieve the revenues it expected. Due to the significance of the shortfall during this period, the Company concluded that a triggering event occurred and as such, the Company reassessed the underlying assumptions used in its projected earnings. As a result of that analysis, it was determined that the fair value of the contingent consideration was reduced to $7,219,844 as of September 30, 2022 resulting in a gain from the change in fair value of contingent consideration of $12,984,661 for the three and nine months ended September 30, 2022.
Additionally resulting from the above, the Company recognized a loss on impairment of its goodwill of $10,694,418 during the three and nine months ended September 30, 2022.
(d) Cash
The total amount of bank deposits (checking and savings accounts) that was not insured by the FDIC at September 30, 2022 was approximately $
(e) Accounts Receivable, Net of Allowance for Doubtful Accounts
The Company extends unsecured credit to customers in the ordinary course of business but mitigates risk by performing credit checks and by actively pursuing past due accounts. The allowance for doubtful accounts is based on customer historical experience and the aging of the related accounts receivable. At September 30, 2022 and December 31, 2021, the allowance for doubtful accounts was $
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market, with due consideration given to obsolescence and to slow moving items. Inventories at September 30, 2022 and December 31, 2021 consist of cases of BiVi Vodka and cases of Bellissima sparkling wines purchased from our Italian suppliers and cases of alcoholic beverages. TopPop inventory consists of raw materials, work in process and finished goods relating to the production cycle.
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(g) Revenue Recognition
It is the Company’s policy that revenues from product sales are recognized in accordance with Accounting Standards Codification (“ASC 606”) “Revenue Recognition.” Five basic steps must be followed to recognize revenue; (1) Identify contract(s) with a customer that creates enforceable rights and obligations; (2) Identify performance obligations in the contract, such as promises to transfer goods or services to a customer; (3) Determine the transaction price, (i.e. the amount of consideration in a contract to which an entity believes it is entitled in exchange for transferring promised goods or services to a customer); (4) Allocate the transaction price to the performance obligations in the contract, which requires the Company to allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognize revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation. Adoption of ASC 606 has not changed the timing and nature of the Company’s revenue recognition and there has been no material effect on the Company’s consolidated financial statements.
Our revenue (referred to in our consolidated financial statements as “sales”) consists primarily of the sale of wine and spirits imported for cash or otherwise agreed-upon credit terms. Our customers consist primarily of retailers. Our revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are shipped or delivered to the customer, depending upon the method of distribution, and shipping terms. We have elected to treat shipping as a fulfillment activity. Revenue is measured as the amount of consideration we expect to receive in exchange for the sale of our product. The Company has no obligation to accept the return of products sold other than for replacement of damaged products. Other than quantity price discounts negotiated with customers prior to billing and delivery (which are reflected as a reduction in sales), the Company does not offer any sales incentives or other rebate arrangements to customers. Revenue associated with manufacturing and packaging business is recognized at a point in time when obligations under the terms of a contact with a customer are satisfied.
(h) Shipping and Handling Costs
Shipping and handling costs to deliver product to customers are reported as operating expenses in the accompanying statements of operations. Shipping and handling costs to purchase inventory are capitalized and expensed to cost of sales when revenue is recognized on the sale of product to customers.
(i) Equity-Based Compensation
Equity-based compensation is accounted for at fair value in accordance with ASC Topic 718, “Compensation-Stock Compensation”. For the three and nine months ended September 30, 2022, equity-based compensation was $
(j) Income Taxes
Income taxes are accounted for under the assets and liability method. Current income taxes are provided in accordance with the laws of the respective taxing authorities. Deferred income taxes are provided for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.
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(k) Net Loss per Share
Basic net loss per share of Common Stock is computed on the basis of the weighted average number of shares of Common Stock outstanding during the period of the financial statements.
Diluted net loss per share of Common Stock is computed on the basis of the weighted average number of shares of Common Stock and dilutive securities (such as stock options, warrants, and convertible securities) outstanding. As of September 30, 2022 and 2021, the Company had
l) Recently Issued Accounting Pronouncements
Certain other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.
On August 5, 2020, the FASB issued ASU No. 2020-06 which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 simplifies the guidance in U.S. GAAP on the issuer’s accounting for convertible debt instruments. Such guidance includes multiple disparate sets of classification, measurement, and derecognition requirements whose interactions are complex. ASU 2020-06 is effective for annual periods beginning after December 15, 2021 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of this new guidance did not have a material impact on our financial statements.
(m) Business Acquisition Accounting
The Company applies the acquisition method of accounting for those that meet the criteria of a business combination. The Company allocates the purchase price of its business acquisition based on the fair value of identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the fair values of acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill. Transaction costs are expensed as incurred in general and administrative expenses.
(n) Leasehold improvements, furniture, and equipment, net
Leasehold improvements, furniture, and equipment are recorded at cost. Depreciation of furniture and fixtures is provided using the straight-line method, generally over the terms of the lease. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred. Depreciation of machinery and equipment is based on the estimated useful lives of the assets
3. ACQUISITION OF TOPPOP
On July 26, 2021, Iconic entered into an acquisition agreement (the “TopPop Acquisition Agreement”) with TopPop, and each of FrutaPop LLC (“Frutapop”), Innoaccel Investments LLC (“Innoaccel”) and Thomas Martin (“Martin” and, together with Frutapop and Innoaccel, the “TopPop Members”), pursuant to which the TopPop Members sold to Iconic and Iconic acquired, all of the issued and outstanding membership interests of TopPop.
TopPop is a brand owner and contract manufacturing and packaging company specializing in flexible packaging solutions in the food, beverage and health categories. Its first branded and contract products are alcohol-infused ice pops. Its manufacturing facility in Marlton, New Jersey is registered by the Federal Drug Administration and holds a Safe Quality Food certification.
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Upon consummation of the acquisition contemplated by the TopPop Acquisition Agreement, the TopPop Members received, in the aggregate: (a) $
The Company originally calculated the First Year Earn-out Amount to be $
The Promissory Notes bear interest at the rate of
The Company accounted for the Acquisition of TopPop as a business combination using the purchase method of accounting as prescribed in Accounting Standards Codification 805, Business Combinations (“ASC 805”) and ASC 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, we used our best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed.
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Fair value of the acquisition
The following table summarizes the allocation of the purchase price as of the TopPop acquisition:
Purchase price: |
|
|
| |
Cash, net of cash acquired |
| $ |
| |
Fair value of Common Stock |
|
|
| |
Contingent consideration |
|
|
| |
Note payable |
|
|
| |
Total purchase price |
|
|
| |
|
|
|
|
|
Assets acquired: |
|
|
|
|
Accounts receivable |
|
|
| |
Furniture and equipment |
|
|
| |
Inventory |
|
|
| |
Equipment deposit |
|
|
| |
Security deposit |
|
|
| |
Tradename / Trademarks |
|
|
| |
IP/Technology |
|
|
| |
Non-compete agreement |
|
|
| |
Customer Base |
|
|
| |
Total assets acquired: |
|
|
| |
|
|
|
|
|
Liabilities assumed: |
|
|
|
|
Accounts payable |
|
| ( | ) |
Notes payable |
|
| ( | ) |
Deferred revenue |
|
| ( | ) |
Total Liabilities assumed |
|
| ( | ) |
Net assets acquired |
|
|
| |
Excess purchase price “Goodwill” |
| $ |
|
The excess purchase price has been recorded as “goodwill” included as part of “Intangible assets” in the amount of $
As a result of delays in the revenue targets, management conducted a reassessment during the quarter ended September 30, 2022 and identified indicators of impairment related to the acquisition of TopPop. Upon completion, management compared the carrying values to the non-discounted pre-tax cash flow value of the TopPop business unit and it was determined that the intangibles were not impaired, but upon review of discounted cash flow value of the TopPop business unit, the fair value did not exceed the carrying value indicating an impairment of goodwill. During the three and nine months ended September 30, 2022, the Company recorded an impairment charge of $
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Changes in the value of goodwill:
Balance of goodwill as of January 1, 2022 |
| $ |
| |
Impairment of goodwill |
|
| ( | ) |
Balance of goodwill as of September 30, 2022 |
| $ |
|
Intangible assets
Intangible assets consist of the following: |
|
|
|
|
|
| ||||
|
| Estimated Useful |
| September 30, |
|
| December 31, |
| ||
|
| Lives |
| 2022 |
|
| 2021 |
| ||
Tradename - Trademarks |
|
| $ |
|
| $ |
| |||
Intellectual Property |
|
|
|
|
|
|
| |||
Customer Base |
|
|
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| |||
Non-Competes |
|
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| |||
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Less: accumulated amortization |
|
|
|
|
|
|
|
| ||
|
|
|
| $ |
|
| $ |
|
Intangible assets are amortized on a straight-line basis over the useful lives of the assets. Amortization expense amounted to $
Future amortization of intangible assets for the remainder of the current fiscal year and the next five years and thereafter: |
| Amount |
| |
Remainder of the year ended December 31, 2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
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| |
2026 |
|
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2027 |
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Thereafter |
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Total |
| $ |
|
4. LEASEHOLD IMPROVEMENTS, FURNITURE, AND EQUIPMENT, NET
Leasehold improvements, furniture, and equipment, net consisted of the following: |
|
|
|
| ||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Machinery and equipment |
| $ |
|
| $ |
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Supplies |
|
|
|
|
|
| ||
Furniture and fixtures |
|
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|
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|
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| ||
Less accumulated depreciation |
|
| ( | ) |
|
| ( |