ICONIC BRANDS, INC. 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
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 Annual Report on Form 10-K. 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, and those discussed in the section titled "Risk
Factors" included elsewhere in this Annual Report on Form 10-
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
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 May 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 own 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
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
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
Recent Developments
To date, TopPop's two largest customers from 2021 and 2022 have not placed any
purchase orders for 2023. As a result, we anticipate a significant reduction in
our sales in 2023. The loss of these customers is also expected to have a
negative impact on the value of TopPop's intangible assets, which were recorded
on our balance sheet following the acquisition of TopPop in
We remain focused on providing excellent service to our existing customers and are exploring opportunities to expand our product offerings to meet their needs. We believe that in the long-run, these efforts will help us to offset the impact of losing our two largest customers and will position TopPop for long-term success.
On
Results of Operations for the Years Ended
Introduction
We had sales of
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Revenues and Net Operating Loss
Our revenues, operating expenses, and net operating loss for the years ended
Year Ended Year Ended
December 31, December 31, Increase /
2022 2021 (Decrease)
Sales $ 14,745,261 $ 4,960,016 $ 9,785,245
Cost of Sales 11,213,269 4,628,734 6,584,535
Gross Profit 3,531,992 331,282 3,200,710
Operating expenses:
Officers' compensation 924,057 627,000 297,057
Professional and consulting fees 2,062,847 2,874,968 (812,121 )
Royalties 210,784 160,119 50,665
Fulfillment costs 783,843 580,027 203,816
Travel and entertainment 397,083 194,785 202,298
Amortization expense 3,186,401 1,327,614 1,858,787
Payroll expenses 4,478,604 2,196,169 2,282,435
Rent and facilities expenses 2,486,847 715,350 1,771,497
Other operating expenses 4,881,862 1,828,137 3,053,725
Total general and administrative 19,412,328 10,504,169 8,908,160
Gain from the cancellation of accrued
royalties - (577,590 ) 577,590
Selling and marketing 1,036,620 666,288 370,332
Total operating expenses 20,448,948 10,592,867 9,856,081
Net operating loss from continuing
operations (16,916,956 ) (10,261,585 ) (6,655,371 )
Change in fair value of contingent
consideration 20,204,505 - 20,204,505
Loss on impairment of goodwill (15,976,877 ) - (15,976,877 )
Loss on impairment of intangible
assets (17,337,933 ) - (17,337,933 )
Gain on forgiveness of PPP loan - 28,458 (28,458 )
Interest expense (792,833 ) (271,749 ) (521,084 )
Other income (expense) 13,647 - 13,647
Net loss (30,806,447 ) (10,504,876 ) (20,301,571 )
Net loss attributable to
noncontrolling interests in
subsidiaries and variable interest
entity (35,385 ) (40,882 ) 5,497
Net Loss attributable to
Sales
In 2022 and 2021, our company's sales comprised of BiVi Sicilian Vodka,
Bellissima Prosecco and Sparkling Wine, Hooters brand products, and RTF TopPop
products. The sales for these products were
Cost of Sales
For the years ended
In 2022, the cost of sales for our alcohol sales was approximately 43% of those sales, which was similar to the prior year. The costs associated with TopPop acquisition were approximately 86% of TopPop sales, down from 151% in 2021. In 2021, we experienced excessive costs of sales from TopPop due to several factors, including significant labor and scrap costs from a large rework of a customer order caused by an error in blending of batched raw materials and lot coding by a TopPop vendor. We also incurred costs from the write-down of perishable inventory as the summer production season wound down, and a customer who ended production early and would not reimburse TopPop for unused raw materials.
The targeted cost of goods for TopPop products is approximately 51%, and we expect to achieve that margin in future years. To reduce labor costs, TopPop has purchased four semi-automated cartoning machines, which were installed during the end of 2022. We have also corrected the batching and coding errors made by the vendor, which have been approved by the customer.
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Officers Compensation
Officers' compensation was
Payroll expenses
Payroll expenses were
Fulfillment Costs
Fulfillment costs were
Professional and Consulting Fees
Professional and consulting fees were
Royalties and Gain from Cancellation of Accrued Royalties
We accrued royalty expenses of
Selling and Marketing
Selling and Marketing expenses were
Travel and Entertainment
Travel and entertainment expenses were
Other Operating Expenses
Increase
2022 2021 (Decrease)
Late filing fee $ 1,057,283 $ - $ 1,057,283
Bad debt expense 718,041 121,013 597,028
Depreciation 804,697 162,856 641,841
Insurance 539,429 133,109 406,320Equity based compensation 1,055,558 890,901 164,657 Other expenses
706,854 520,258 186,596
Total other operating expenses
Other operating expenses were
Net Operating Loss
We had a loss from operations of
Other Income (Expense)
We had other nonoperating loss of
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Net (income) Loss attributable to Noncontrolling Interests in Subsidiaries
Net income attributable to noncontrolling interests in subsidiaries represented
49% of the net income of Bellissima and BiVi (of which we own 51%) and is
accounted for as a increase in the net loss attributable to us. Net loss
attributable to noncontrolling interests in subsidiaries for the year ended
Net Loss Attributable to
The net loss attributable to
Liquidity and Capital Resources
Introduction
During the year ended
Going Concern Our cash, current assets, total assets, current liabilities, and total liabilities as ofDecember 31, 2022 andDecember 31, 2021 , respectively, are as follows: December 31, December 31, 2022 2021 Change Cash$ 916,526 $ 2,190,814 $ (1,274,288 ) Total Current Assets 4,323,876 4,346,003 (22,127 ) Total Assets 18,358,748 50,706,656 (32,347,908 )
Total Current Liabilities 12,979,087 16,650,909 (3,671,822 ) Total Liabilities
17,998,506 31,593,601 (13,595,095 )
Our cash decreased
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, however, that we will be successful in these efforts. Please see the Risk Factors beginning on page 12 of this Annual Report Form 10-K.
Cash Requirements
Our cash on hand as of
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Sources and Uses of Cash
Operations
Our net cash used in operating activities for the years ended
Investing
For the year ended
Financing
Our net cash provided from financing activities for the year ended
Critical Accounting Policies and Estimates
Impairment of goodwill and intangibles
The impairment of goodwill and intangible assets is a significant accounting estimate that necessitates the exercise of considerable judgment and the application of certain assumptions and methodologies. Impairment charges are recorded when the carrying amount of a long-lived asset, such as goodwill or intangible assets, exceeds its estimated fair value. The estimation of fair value of these assets requires a degree of subjectivity and may entail the use of complex valuation techniques, such as discounted cash flow analysis or market-based approaches. Several factors, including market conditions, changes in technology, and changes in regulations or laws, can impact the fair value of these assets. Hence, the actual fair value of an asset may differ from the estimated fair value, which could result in significant changes to the impairment charge recorded in the financial statements. Our management's estimates and assumptions are regularly reviewed and may be modified based on new information or changes in circumstances.
Equity-Based Compensation
Equity-based compensation is accounted for at fair value in accordance with
Accounting Standards Codification ("ASC") Topic 718, "Compensation-Stock
Compensation". For the years ended
Revenue Recognition
It is the Company's policy that revenues from product sales are recognized in accordance with ASC 606 "Revenue Recognition." Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating 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) Recognizing 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 financial statements.
Our revenue (referred to in our financial statements as "sales") consists primarily of the sale of wine and spirits imported for cash or otherwise agreed-upon credit terms along with ready to freeze products manufactured by us. 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. For sales to QVC, product shipping is treated as fulfillment charges since products are being shipped by a third-party supplier. 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. Historically, the Company has not had significant amounts of damaged products to replace. 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.
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