Our Management's Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by their very
nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; our
ability to successfully make and integrate acquisitions; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other risks that might be
detailed from time to time in our filings with the Securities and Exchange
Commission (the "SEC").
Although the forward-looking statements in this Quarterly Report reflect the
good faith judgment of our management, such statements can only be based on
facts and factors currently known by them. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties,
the actual results and outcomes may differ materially from the results and
outcomes discussed in the forward-looking statements. You are urged to carefully
review and consider the various disclosures made by us in this report and in our
other reports as we attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, and results of
operations and prospects.
You should read the following discussion and analysis of our financial condition
and plan of operations together with and our consolidated financial statements
and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
In addition to historical information, this discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those discussed below. Factors
that could cause or contribute to such differences include, but are not limited
to, those identified below, those discussed in the section titled "Risk Factors"
included elsewhere in this Quarterly Report on Form 10-Q and the risks described
in Part I. Item 1A. Risk Factors," in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2021. All amounts in this report are in U.S.
dollars, unless otherwise noted.
Summary Overview
We are engaged in the development and sale of alcohol and non-alcohol brands
that are "better-for-you" ("BFY") and "better-for-the-planet". TopPop, our
wholly owned subsidiary, produces low calorie, "ready to go" products,
ready-to-freeze ("RTF") products and ready-to-drink ("RTD") products in
sustainable, flexible and stand-up pouch packaging. TopPop also produces
"cocktails-to-go" pouches and alcohol ice-pops. Our brands include "Bellissima"
by Christie Brinkley, a premium BFY collection of Prosecco, Sparkling Wines, and
Still Wines, all certified vegan and made with organic grapes. Bellissima is
strategically positioned with its Zero Sugar Wines. We operate in multiple
states, sell and distribute across the globe and have Fortune 500 customers that
include some of the world's largest alcohol beverage companies and brands.
United is our 100% owned subsidiary that sells our Bellissima, Bella, Sonja
Sangria and other alcohol beverages to state distributors. United holds all
applicable state and federal licenses in order to sell these products to state
distributors in accordance with the United States three tier distribution
platform.
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We have expertise in developing, from product inception to wholesale
distribution or direct to consumer through the QVC distribution channel, and in
branding alcohol beverages for our company and for third parties. We market and
place products into national distribution through long-standing industry
relationships approximately 45 national or regional alcoholic beverage
distributors. We currently market and sell the following product lines:
· Bellissima Prosecco - these products comprise a line of all-natural and
vegan Prosecco and Sparkling Wines made with organic grapes, including a
Zero Sugar, Zero Carb option, a DOC Brut and a Sparkling Rose. The
Bellissima line of Prosecco and Sparkling Wines includes two new flavor
profiles, a Zero Sugar/Zero Carb Sparkling Rose and a Rose Prosecco;
· Bellissima Zero Sugar Still Wines - this line of five still wines was
launched in March 2022 and are certified vegan and are made with organic
grapes.
· Bella Sprizz Aperitifs - these products comprise a line of aperitifs
consisting of three different expressions, a classic Italian aperitif, an
all-natural elderflower aperitif and a classic Italian bitter;
Sonja Sangria - a celebrity Sangria that we have sold since the second
· quarter of 2021. This product is actively being marketed but does not
represent a significant part of our sales;
· Ready-to-Freeze and Ready-to-Drink Alcoholic Products - these products are
currently produced under contract for third-party national and regional
brands and for our Boozy Pops® product line; and
· BiVi Vodka - a celebrity-branded vodka that we have sold since 2018 under
the brand "BiVi 100 percent Sicilian Vodka" and which currently does not
represent a material portion of our sales.
In addition, we develop and market private label spirits for established
domestic and international chains.
As a result of our July 2021 acquisition of 100% of the equity of TopPop, we are
now a vertically integrated company that develops, produces and distributes
alcoholic brands. TopPop is a premier product development, contract
manufacturing and packaging company that specializes in flexible packaging
applications in the food, beverage and health categories. It has the federal and
state licenses necessary to manufacture and blend malt, wine and spirits-based
products. In June 2020, TopPop opened a 27,000-square-foot FDA-approved
manufacturing facility in Marlton, New Jersey with a Safe Quality Food
certification. In September 2021, TopPop leased an additional 65,000 square feet
facility for manufacturing in Pennsauken, New Jersey. Construction is now
complete, and the facility reached full-scale production capability at the end
of March 2022. The facility includes approximately $4 million of high-speed
packaging equipment and is expected to triple our production capacity.
For its first product line, TopPop identified the single serve, RTD and RTF as
an opportunity for product and packaging innovation. TopPop introduced an
alcohol-infused ice pop in June 2020 and began marketing the concept to major
alcohol companies. In addition, it developed its own product line trademarked
under the name BoozyPopz® which is expected to be sold through e-commerce
platforms and wholesaled directly to sports and entertainment venues. TopPop
manufactured approximately eight million ice pops from its launch in June 2020
through December 31, 2020 and manufactured approximately 42 million ice pops
during the year ended December 31, 2021. TopPop has also developed a pipeline
for the single serve, RTD alcohol cocktail market and anticipates launching a
line of products in this market in 2022. TopPop designs and markets flexible
packaging for its RTD and RTF products with formulations that are low calorie
and contain healthy and natural ingredients. With the opening of TopPop's new
facility at the end of the first quarter of 2022, we expect to have the capacity
to manufacture over 150 million units by the end of 2022.
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We believe TopPop brings to us additional synergies and opportunities for
cross-promoting new and existing products to a broader customer base and better
positions our company to establish and support our brands and to create
sustainable packaging solutions to the consumable goods market. We believe our
focus on lifestyle branding and the rising "Better-for-You,"
"Better-for-the-Planet" consumer categories has made us a leader in developing
celebrity brands worldwide, such as our Bellissima Prosecco by Christie
Brinkley. Our mission is to be an industry leader in the brand development,
marketing and sales of alcoholic beverages and related products by capitalizing
on our ability to procure products from around the world and to develop unique
and innovative packaging to create brand and product line extensions. We plan to
leverage our relationships to add value to our products and to create brand
awareness in unbranded niche categories.
Recent Developments
COVID-19
As a result of COVID-19, we have seen a shift away from the traditional
brick-and-mortar business to a direct-to-consumer business. Although we expect
brick-and-mortar to rebound, we also expect the director-to-consumer model to
stay post-COVID-19, as consumers embrace the convenience of having their
alcoholic beverages delivered to their doorstep. As we expand our relationship
with QVC and our own direct-to-consumer platform through our website, we believe
we are well positioned to execute on this opportunity.
TopPop Acquisition
On July 26, 2021, we completed the acquisition of TopPop. In connection with
such acquisition, the former TopPop members received, in the aggregate(a)
$3,694,273 in cash, net of cash acquired, by transfer of immediately available
funds, (b) 26,009,600 shares of our common stock, which shares were valued in
the aggregate at $10,143,744, or $0.39 per share, (c) $5,042,467 aggregate
principal amount of our promissory notes and (d) future additional payments as
earnout consideration valued at $20,204,505 to be paid in cash and stock. The
earn-out payments, if any, will be made (i) following the 12-month period
commencing on August 1, 2021, in an aggregate amount equal to the excess, if
any, of: (A) 1.96 times TopPop's EBITDA for the period over (B) the aggregate
amount of the closing promissory notes repaid in cash during period; provided,
however, no such amount shall be payable if (i)(A) does not exceed (i)(B); and
(ii) following the 12-month period commencing on August 1, 2022, in an aggregate
amount equal to the excess, if any, of: (A) 1.96 times TopPop's EBITDA for such
period over (B) the aggregate amount of the closing promissory notes repaid in
cash during the period; provided, however, no such amount shall be payable if
(ii)(A) does not exceed (ii)(B). The earn-out payments will be made, at the
election of each former TopPop member, in cash or in shares of our common stock
or a combination thereof, less any reserve for possible indemnification
payments, provided that not less than 45% of the value of each earn-out payment
shall be paid in common stock. If paid in shares of common stock, such shares
shall be valued at the then-prevailing market rate.
Series A-2 Convertible Preferred Stock Financing
On July 26, 2021, we entered into securities purchase agreements dated as of
July 26, 2021 with certain accredited investors for the sale of our
newly-created Series A-2 Preferred Stock, shares of common stock, and warrants
to purchase shares of common stock.
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Pursuant to the purchase agreements, the shares of Series A-2 Preferred Stock,
common stock and warrants were sold in two tranches, the first of which closed
on July 26, 2021 for gross proceeds of $18,372,354 for the sale of an aggregate
of 18,800 shares of Series A-2 Preferred Stock, an aggregate of 6,711,997 shares
of common stock, and warrants to purchase an aggregate of 73,338,203 shares of
common stock. Of the $18,372,354 gross proceeds we received upon the closing of
the first tranche, $15,603,385 was paid in cash net of fees of $2,808,320.
The second tranche closed on January 5, 2022 in which the Company issued
12,257.76 shares of Series A-2 Preferred Stock, 4,301,004 shares of common stock
and warrants to purchase 40,018,583 shares of common stock for gross proceeds of
approximately $12.2 million and net proceeds of approximately $11 million after
deducting placement agent commissions and expenses of the offering. Such net
proceeds are expected to be used by the Company for domestic and international
expansion of its Bellissima brand, the expansion of the production facilities of
TopPop, new product launches, marketing, and other general working capital
purposes.
The warrants are exercisable for a period of five years from the date of
issuance at an exercise price of $0.3125 per share. The Warrants may be
exercised on a cashless basis if the shares of common stock underlying the
warrants are not then registered for resale pursuant to an effective
registration statement under the Securities Act.
In connection with this offering, we entered into a Placement Agency Agreement
with Dawson James Securities, Inc. (the "Placement Agent"), pursuant to which at
the closing of the first tranche under the purchase agreements we paid to the
Placement Agent a cash fee in the amount of $2,050,000 and at the closing of the
second tranche under the purchase agreements we paid to the Placement Agent a
cash fee in the amount of $1,150,000. In addition, we agreed to pay to the
Placement Agent a fee in connection with any cash exercise of any of the
Warrants in an amount equal to 10% of the cash amount received by us upon any
such exercise. Pursuant to the Placement Agency Agreement, as additional
consideration for the services of the Placement Agent, we also issued to the
Placement Agent or its designees in connection with the closing of the first
tranche under the purchase agreements 2,194 shares of Series A-2 Preferred Stock
and an additional 1,096 shares of Series A-2 Preferred Stock in connection with
the closing of the second tranche under the purchase agreements. The fees paid
to the Placement Agent were accounted for as financing costs and reduces the
additional paid in capital from the financing.
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Amended and Restated LLC Agreements of Bellissima Spirits LLC and BiVi LLC
On July 26, 2021, we, and each other member identified therein, including Mr.
DeCicco and Rosanne Faltings, our vice president of sales and a member of the
Board, entered into an Amended and Restated Limited Liability Company Agreement
dated as of July 26, 2021 of Bellissima and BiVi. Such agreement provides that
the manager of Bellissima and BiVi, currently Mr. DeCicco, may cause Bellissima
and BiVi to make distributions of available cash flow to the members pro rata in
accordance with their cash flow ratios, of which we are entitled to 100% of any
such distribution of available cash flow. Such agreement also provides that the
manager shall cause Bellissima and BiVi to make distributions of net proceeds
attributable to certain capital events to members pro rata in accordance with
their membership interest percentage, of which we are entitled to 54% of any
such distribution of net proceeds and Mr. DeCicco and Ms. Faltings are entitled
to 15.34% and 15.33%, respectively. Transfers of membership interests in
Bellissima and BiVi are generally restricted and such agreement provides for
preemptive rights, rights of first refusal, and rights of co-sale, in each case,
in accordance with the terms and conditions set forth therein.
On April 22, 2022 we entered into a Second Amended and Restated Limited
Liability Company Agreement of Bellissima, which provides that upon (i) a sale
of all or substantially all of our assets, (ii) a change of control of us, (iii)
a sale of equity following which our shareholders immediately prior to such
transaction do not own, immediately following such transaction, a majority of
the voting and economic rights in us, or (iv) a merger, consolidation or similar
transaction involving us, each of Mr. DeCicco and Ms. Faltings will be entitled
to sell their interest in Bellissima to us in exchange for the value of their
equity interest in Bellissima that they would have received upon the sale of
their equity interest in Bellissima, upon the sale of Bellissima, which value
will be determined by an independent third-party appraiser.
Results of Operations for the Three Months Ended March 31, 2022 and 2021
Introduction
We had sales of $4,046,797 for the three months ended March 31, 2022, and
$634,533 for the three months ended March 31, 2021, an increase of $3,412,264.
Our operating expenses were $ 4,810,364 for the three months ended March 31,
2022, compared to $995,138 for the three months ended March 31, 2021, an
increase of $3,815,226 or approximately 383%. Our net operating loss was
$2,968,606 for the three months ended March 31, 2022, compared to $679,238 for
the three months ended March 31, 2021, an increase of $2,289,368 or
approximately 337%. A significant amount of these increases relate to the
inclusion of the results of TopPop for the three months ended March 31, 2022 and
are detailed below.
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Revenues and Net Operating Loss
Our operations for the three months ended March 31, 2022, and 2021 were as
follows:
ICONIC BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
Three Months Ended March 31,
Increase /
2022 2021 Decrease
REVENUE
Sales $ 4,046,797 $ 634,533 $ 3,412,264
Cost of goods sold 2,205,039 318,633 1,886,406
Gross Profit 1,841,758 315,900 1,525,858
OPERATING EXPENSES
Officers' compensation 225,461 103,750 121,711
Professional and consulting fees 536,911 158,903 378,008
Royalties 33,231 99,128 (65,897 )
Fulfillment costs 122,820 140,000 (17,180 )
Travel and entertainment 87,755 12,843 74,912
Other operating expenses, including
occupancy 3,452,209 359,346 3,092,863
General and administrative expenses: 4,458,387 873,970 3,584,417
Selling and marketing 351,977 121,168 230,809
Total operating expenses 4,810,364 995,138 3,815,226
Loss from operations (2,968,606 ) (679,238 ) (2,289,368 )
Other income (expense):
Interest expense (183,134 ) - (183,134 )
Gain on forgiveness of PPP loan - 28,458 (28,458 )
Total other income (expense) (183,134 ) 28,458 (211,592 )
Net loss $ (3,151,740 ) $ (650,780 ) $ (2,500,960 )
Net (loss) income attributable to
noncontrolling interests in $
subsidiaries $ (93,819 ) $ 16,174 (109,993 )
Net (loss) attributable to Iconic $
Brands, Inc. $ (3,057,921 ) $ (666,954 ) (2,390,967 )
Sales
Our sales are comprised of sales of BiVi Sicilian Vodka, Bellissima Prosecco and
Sparkling Wine, the line of Hooters brand products and our ready to freeze
("RTF") TopPop products. Sales were $4,046,797 for the three months ended March
31, 2022, and $634,533 for the three months ended March 31, 2021, an increase of
$3,412,264 or 538%.
The increase is due primarily to a $3,513,702 in sales from our newly acquired
TopPop products.
Cost of Sales
Cost of sales was $2,205,039, or approximately 54% of sales, for the three
months ended March 31, 2022 and $318,633, or approximately 50% of sales, for the
three months ended March 31, 2021. Cost of sales includes the cost of the
products purchased from our suppliers, freight-in costs and import duties. The
significant increase in cost of goods as a percentage of sales, year over year,
is due to the change in product mix in 2021 as a result of our TopPop
acquisition. Cost of goods for the three months ended March 31, 2022 for our
alcohol sales remains at approximately 40%, which is similar to the prior year,
while the costs associated with our TopPop acquisition were approximately 51%
during the three months ended March 31, 2022.
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Officers' Compensation
Officers' compensation was $225,461 for the three months ended March 31, 2022
and $103,750 for the three months ended March 31, 2021. This increase of
$121,711 was due to the hiring of additional executives.
Professional and Consulting Fees
Professional and consulting fees were $536,911 for the three months ended March
31, 2022 and $158,903 for the three months ended March 31, 2021, an increase of
$378,008. Professional and consulting fees consist primarily of legal and,
accounting and auditing services. The increase was primarily related to costs in
2022 incurred by newly-acquired TopPop.
Royalties
We expensed royalties of $33,231 for the three months ended March 31, 2022
compared to $99,128 for the three months ended March 31, 2021, a decrease of
$65,897. Royalties decreased due primarily to lack of Hooters sales in 2022
compared to 2021.
Fulfillment costs
Fulfillment costs expenses were $122,820 for the three months ended March 31,
2022 and $140,000 for the three months ended March 31, 2021. The decrease was
related to lower QVC sales in 2022 compared to 2021.
Travel and Entertainment
Travel and entertainment expenses were $87,755 for the three months ended March
31, 2022 and $12,843 for the three months ended March 31, 2021, an increase of
$74,912. The increase was a result of limited travel during the three months
ended March 31, 2021 due to the COVID-19 environment. During the three months
ended March 31, 2022, our personnel attended numerous product development
events.
Other Operating Expenses
Other operating expenses were $3,452,209 for the three months ended March 31,
2022 and $359,346 for the three months ended March 31, 2021, an increase of
$3,092,863 or approximately 861%. The increase was primarily related to $796,600
of amortization of intangibles, and $280,798 of equity based compensation
expense and approximately $1.9 million of general and administrative expenses of
newly-acquired TopPop which consists of approximately $896,000 of payroll and
related expenses and approximately $400,000 of rent expense.
Selling and marketing
Marketing and advertising expenses were $351,977 for the three months ended
March 31, 2022, and $121,168 for the three months ended March 31, 2021, an
increase of $230,809. The increase resulted from spending to increase the
visibility of our products through website design and distributor promotions.
Net operating loss
We had a loss from operations of $2,968,606 for the three months ended March 31,
2022 and $679,238 for the three months ended March 31, 2021, an increase of
$2,289,368 or approximately 337%. In the categories above there were non-cash
expenses that totaled $1,403,999 and are included in the loss of from operations
of $2,968,606 as compared to a loss from operations in 2021 of $679,238, which
included non-cash items of $155,840.
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Other Income and Expense
We had interest expense of $183,134 for the three months ended March 31, 2022
and gain on forgiveness of PPP loan of $28,458 for the three months ended March
31, 2021.
Net (income) loss attributable to Noncontrolling Interests in Subsidiaries
Net income (loss) attributable to noncontrolling interests in subsidiaries
represented 49% of the net loss of Bellissima and BiVi (of which we own 51%) and
is accounted for as a reduction in the net loss attributable to our Company. Net
loss for the three months ended March 31, 2022 was $93,819 compared to a net
income of $16,174 for the three months ended March 31, 2021.
Net Loss Attributable to Iconic Brands, Inc.
The net loss attributable to Iconic was $3,057,921 for the three months ended
March 31, 2022 and $666,954 for the three months ended March 31, 2021, an
increase of $2,390,967 or approximately 358%. The net loss from Iconic increased
primarily as a result of the items described above.
Liquidity and Capital Resources
Introduction
During the three months ended March 31, 2022 and 2021, we had negative operating
cash flows. Our cash on hand as of March 31, 2022, was $7,589,114. We raised $11
million, net of fees, through the funding of the second tranche of the equity
financing on January 5, 2022. We have strong medium- to long-term cash needs. We
anticipate that these needs will be satisfied through our cash flows from
operations and additional financing activities, as necessary. Furthermore, of
the $4,458,387 of general and administrative expenses, $1,403,999 was non-cash
related and we expect to increase sales in future periods.
Our cash, current assets, total assets, current liabilities, and total
liabilities as of March 31, 2022 and December 31, 2021, respectively, were as
follows:
March 31, December 31,
2022 2021 Change
Cash $ 7,589,114 $ 2,190,814 $ 5,398,300
Total Current Assets 15,328,980 4,346,003 10,982,977
Total Assets 65,145,719 50,706,656 14,439,063
Total Current Liabilities 12,328,341 16,650,909 (4,322,568 )
Total Liabilities $ 37,905,530 $ 31,593,601 $ 6,311,929
Our cash increased $5,398,300 and total current assets increased $10,982,977.
Our total current liabilities decreased $4,322,568, which represents our
recognition of the contingent consideration from current to noncurrent liability
of approximately $8.2 million, partially offset by increase in accounts payable
and notes payable. Our total liabilities increased $6,311,929 as a result of an
increase in operating lease liability of $2.6 million from the new TopPop lease,
an increase of approximately $2 million in notes payable and an increase in
accounts payable and accrued expenses of approximately $1.8 million. Our
stockholders' equity increased from $19,113,055 to $27,240,189 due primarily to
recognition of certain intangible assets associated with the TopPop acquisition
(see full Balance Sheet for comparison).
In order to repay our obligations in full or in part when due, we may be
required to raise significant capital from other sources and to execute on our
business plans for TopPop. There is no assurance that we will be successful in
these efforts.
Cash Requirements
Our cash on hand as of June 30, 2022 was approximately $4,839,000. We anticipate
that the funding from financing activities and product sales will be enough to
sustain us for the next 12 months. In addition, holders approximately $3.55
million of the TopPop Notes have indicated that they will not seek cash
settlement prior to August 2023. The Company has not received any demand for
payment on any of the other notes.
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Sources and Uses of Cash
Operations
Our net cash used in operating activities for the three months ended March 31,
2022 and 2021 was $5,726,984 and $101,300, respectively, an increase of
$5,625,684. Changes to working capital included increases of $3,177,755 related
to accounts receivable and $1,953,368 for inventory, partially offset by a
decrease of $1,769,095 related to accounts payable and accrued expenses. The net
loss was further offset by non-cash transactions of $280,798 related to equity
compensation, $796,600 related to amortization of intangibles, $201,253 of
amortization of right of use assets and $78,348 of depreciation of fixed assets.
Investments
For the three months ended March 31, 2022 we used cash for investing activities
of $1,833,396 for the purchase of fixed assets and leasehold improvements.
There was no cash used during the three months ended March 31, 2021.
Financing
Our net cash provided from financing activities for the three months ended March
31, 2022 was $12,958,680 compared to cash used of $11,921 for the three months
ended March 31, 2021. The large inflow of cash in 2022 resulted from the
Financing Transaction (detailed herein under "Recent Developments") of the
second tranche on January 5, 2022.
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ICONIC BRANDS, INC. 
